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Fourth International, January-February 1948


World in Review

The Commodity Price Break
and the Oncoming Depression


From Fourth International, Vol.9 No.1, January-February 1948, pp.8-9.
Transcription & mark-up: Einde O’Callaghan for ETOL.


Wheat Pit Sets a Record

Amid mounting suspense, millions all over the world turned their eyes early in February to the sudden developments in the Chicago Wheat Pit and other commodity markets in the United States. The violence of the price plunge was one of its outstanding features. Market quotations of grain and corn skidded downward faster than ever before in the entire existence of the Chicago Board of Trade.

The violence of the downward plunge was matched by the rapidity with which it spread. The instability of one commodity tended to spread like a chain reaction to all the others. Not even the holy of holies of capitalist enterprises – the Wall Street stockmarket – remained unaffected. It did not break as violently as did the commodity markets, but it, too, suffered, during the initial period, the largest wave of liquidation in recent months.

This is quite abnormal. As the chief “regulator” of capitalist ecdnomy, and as its most reliable barometer, the stock market is supposed to indicate in advance the general trend of the economy as a whole, including such important sectors as the commodity markets. Normally the latter take what happens in Wall Street as their guide. This time it was the Stock Exchange that found itself watching and waiting anxiously for quotations from Chicago and even reacting “sympathetically” to them.

This condition of obvious instability in the central powerhouse of the world capitalist system made itself felt almost immediately throughout the world. There were declines in the stock markets in Belgium, as well as in distant Singapore, Sydney and Melbourne. Without any fear of exaggeration it can be said that millions everywhere are now awaiting a definitive answer to the question: Has the best publicized depression in history finally started in the United States? Or is this only one more warning of an impending catastrophe?

While issuing for the public the most optimistic statements, the opinion of government officials and capitalist experts is sharply divided on this critical point. And it is, in fact, still premature to say whether or not the first stage of the depression has already set in for the economy as a whole.

The Pattern of Boom-Bust

The boom cycle has followed in the past the following classic pattern: First come convulsions in the financial sphere, with an abrupt restriction of credit and sharp rises in interest rates; next come violent breaks in both commodity and raw material markets; then there is a falling off in retail trade; and finally, there are cuts in industrial production.

Of these conditions, only the second has as yet manifested itself, with the price break involving almost exclusively agricultural raw materials, while other basic industrial raw materials (metals) still remain unaffected. There has been a tightening of credit, which is bound to become more and more stringent, but the interest rates have risen relatively little. The retail trade, while beginning to show signs of spottiness, at the same time continues to show signs of strength, as does industry itself.

So long as economic convulsions are limited to one sector or another of the price structure, the capitalist class disposes of powerful levers for intervening. The most effective of these is the intervention of its government machine. State power is an important economic factor. By bringing it vigorously into play, the capitalists can modify the immediate course of developments in economy, while remaining powerless to reverse the fundamental trends.

It goes without saying that Washington will intervene openly in the commodity markets, just as it has been doing all the while behind-the-scenes. We have not long to wait before the most rabid opponents of government intervention and of controls over “Free Enterprise,” will start shouting the loudest for “strong action” by the government.

This role of the subjective factor is what renders unpredictable the day-to-day and week-to-week occurrences in economic life. What happens in the next period still depends in large measure on what the capitalists and their government decide to do. And as often as not, they themselves either can’t make up their own minds or don’t know just what step to take next. Instead of ameliorating a given situation, they may just as readily aggravate it through indecision or through wrong decisions.

The Problem in Agriculture

The problem that today confronts the masters of this country’s fate in Wall Street and Washington is by no means a minor one. From all indications, they are confronted with the incipient crisis of American agriculture. The agricultural boom since 1939 has led to an expansion of agricultural production to one and a half times its prewar levels. And now agriculture with its annual billion bushel crops of wheat and three billion bushel crops of corn is heading toward its first collision with the limits set by an impoverished world market, while at the same time, facing a situation at home where food consumption has already been restricted by sky-high prices.

Disposal of agricultural surpluses presented no problem so long as the crops remained geared to a war economy. It was then a question of scarcities in every sphere and not of superabundance. The problem of peacetime reconversion did not seem to confront American agriculture at all. During the first postwar year this illusion was fostered by the fearful devastation throughout the world and last year by the failure of European and Australian grain crops. Prospects for 1948 seemed almost as dismal only a few months ago. But all this changed when an unexpected improvement occurred both in Europe, where good early crops are expected and in Australia and Argentina where bumper crops have already been harvested. At the same time, there is a record carryover of 800 million bushels of wheat at home. How much food is hoarded by speculators here and abroad no one knows.

By the second half of this year, barring poor crops, there will be much more food in the grain exporting countries than the world markets can absorb. This trend can be reversed only by a succession of natural calamities.

This prospect of “glut” amidst universal undernourishment and starvation is, of course, not a real superfluity at all. But it does constitute, nonetheless, one of the terrible realities under capitalism.

Grain is the mainstay of world food exports. Here is how the situation shapes up for wheat exports.

At the height of the 1929 prosperity there were four major wheat exporting countries (excluding Russia) namely:


– Average annual export

200 million bushels


– Average annual export

150 million bushels


– Average annual export

100 million bushels

United States

– Average annual export

75-90 million bushels

This world interrelationship has for decades determined wheat prices. In the early months of the year it is Argentinian and Australian yields that send prices up or down. In the second half of the year it is the crops in Europe, Canada and the United States that fix the price pattern.

Scarcity Turns Into Glut

With good crops everywhere, the American farmers are faced with the prospect of being left in the fall with a surplus of half a billion bushels of wheat, or an amount that used to cover almost all world export needs in the days of relative prosperity. The Chicago traders, whose business it is to speculate in “futures,” are now heavily discounting this imbalance between available supplies and existing outlets. They do this at the very first prospect of limited markets.

The crucial question, therefore, is what will happen to the agricultural price structure when it actually does collide head on against the limits of the world market, as will happen by the time the new crops come in?

The future trend here is clear enough: American agricultural prices will tend as in the past to sink to the price levels that are determined on the world market and not in Chicago or Washington.

Need lower farm prices necessarily mean declines on other markets? Couldn’t industry continue booming amid an unfolding crisis of American agriculture, even should the latter deepen in the next period?

Theoretically this is by no means excluded. Precisely this condition provided the basis for the fabulous boom of the Twenties. Farm prices remained low, agriculture was in the throes of a chronic crisis, yet the other markets were not affected, and industry vigorously expanded.

It must be remembered, however, that the balance between agriculture and industry in the Twenties came as the product of many years of previous development. It was not established easily or overnight, nor without wild convulsions (the crisis of 1920-21).

How the Economy is Balanced

The existing balance between agriculture and industry, worked out during the war and postwar years, can prove decisive here. There is an appreciable difference between the present and former interrelationship between agriculture and industry. Whereas in 1929, farmers received one dollar out of every 16 of the annual national income, the postwar proportion has sharply risen to one dollar out of every ten.

This means that sudden and sizable cuts in farm income will tend to make themselves felt more rapidly in other sectors of the economy than would have been the case if their share of the national income was smaller to begin with. For example, the farmers’ gross income last year is estimated at 30 billion dollars. A decline of one-third or more would be equivalent to this country’s entire foreign trade last year.

Highly symptomatic of what will happen as farm income declines, is the effect of price cuts already suffered by the farmers upon the most sensitive and vulnerable sector of the economy at this juncture, namely: the retail trade.

The capitalist world is now anxiously awaiting this major test – the results of the Easter sale season which falls early this year.

This will mark the first direct collision of an industry that continues to operate at highly inflated prices against the limits of a domestic market with a declining farm income. The outcome may prove decisive.

If no definitive decline in the dollar volume of sales is recorded on retail cash registers, the capitalists will draw a sigh of relief. And such a development may, actually, provide them with more time in which to try to cushion the subsequent shocks to the country’s economy. But if the contrary is true and a definitive decline in retail trade does set in, then the capitalists will be confronted with grave convulsions in a sphere over which they have far less control than they have over commodity or stock markets.

A Workers’ and Farmers’ Government would have no trouble at all in dealing with a home market that shows signs of inability to absorb the output of industry. It would simply raise the living standards of both the workers and the farmers. But the case is entirely different with a capitalist government.

A Vulnerable Sector

For more than a year Washington has been aware that the physical volume of retail trade has been dropping off while the dollar volume of sales has gone on recording increases. This condition is considered “healthy.” Why? Because there are bigger profits in selling goods for more money than there are in selling more goods at lower prices. Anxiety over the country’s well-being arises in the capitalist mind, only when his own pocketbook becomes directly threatened.

In any case, a decline in dollar volumes of retail trade coming on top of the already existing decline in the physical volume of sales, may well herald the first stage of the oncoming depression. The next few months will tell the story.

In the meantime, the most outstanding feature of the current developments is the complete bankruptcy of the official union leadership. In the face of a situation which may gravely threaten the workers, they have taken no steps whatsoever to safeguard the workers’ interests, especially against eventual layoffs and unemployment. For example, the old slogan of “The 30-Hour Week, for 40-Hours Pay,” with which they supposedly agree, has been permitted to lie on the shelves and has not even been mentioned in current wage negotiations. When will they be ready to take this or another elementary protective step? After the layoffs begin?

Most pernicious of all, the official union leaders continue to keep the labor movement disarmed politically. The workers are left without a program to cope with any of the burning problems that the oncoming depression will pose pointblank. They are left without an independent labor party that could really represent them and defend their interests.

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