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John G. Wright

Economic Balance Sheet of 1948

Some New Trends Behind the Record-Breaking Figures
Problems That Loom Ahead

(January 1949)

From Fourth International, Vol.10 No.1, January 1949, pp.3-6.
Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

While the official figures for 1948 will not be available for several months, the general outlines of last year’s economic developments are quite clear. We propose to sketch them roughly.

On the whole the official summary, when it is released, will show column after column bristling with record-breaking figures, surpassing the levels of the previous two years, 1946 and 1947, in one field after another.

To illustrate, the 1948 gross annual product passed beyond the quarter of a trillion dollar mark. This is an increase over 1946 of approximately one-fifth. Income for “personal expenditures” shows a similar increase. It has been running at an annual increase of $46 billion over the 1946 rate. National income figures are even more glowing, with a hike of more than one-quarter above 1946. And as every housewife knows, prices and living costs have risen just as steeply. But steepest of all has been the rise of profits which have rocketed to $20 billion, or an increase of 75 percent since two years ago.

What all these and other astronomical figures will not show is that physical production and employment have not, on the whole, risen last year, to any appreciable extent over the previous two years. For individual industries like steel and auto, 1948 has indeed been a year of record “peacetime” production. But these increases were nullified by sagging output in other lines (textiles, household appliances, coal, leather and others). In plain language this means that 1948 was the third and peak year of the postwar speculative boom. We do not at all mean to say that because of this speculative nature, the boom did not signify conditions of prosperity.

On the contrary, for the capitalists it was the lushest year in their entire history. It was very real indeed, especially in terms of profits. In this sense, the last eight years of the war and postwar prosperity are comparable only with the era of the fabulous peacetime prosperity experienced in the Twenties. The world had never seen a capitalist economy operate on a scale that US economy did, on a peacetime basis, from 1921 to 1929. Nor did the world ever see before any other economy pass through a war and postwar boom comparable with the one in this country from 1941 to 1948.

Yes, the current speculative boom was quite real in 1948 and it remains no less imposing as it heads into its fourth postwar year. But if we look a little more closely at what happened in 1948, we shall see that a number of important changes took place on the economic scene. These changes are also real; they, too, have an important bearing on the future course of developments. They must be taken into account, otherwise the 1948 balance sheet would be far too one-sided.

Some Important Changes

To begin with, an important change has occurred in the field of foreign trade. In 1947, US exports amounted to 15.3 billion dollars. The 1948 export figures did not come anywhere near these levels, despite the multi billion ECA program. This is a new downward trend.

Both 1946 and 1947 found the commodity markets very strong. Here, too, there was a change in 1948, which experienced early in the year a sharp break in the commodity markets. Only government subsidies in the shape of Federal price supports for the various crops kept agriculture from collapsing. This trend in agriculture—which is a downward trend — is likewise something new.

1948 also marked the beginning of a sharp reversal of former trends so far as the internal market is concerned. For example, the formation of new enterprises has leveled off. This has been a very important field of the home market. In the last three years the number of new businesses has run into millions, providing a very substantial outlet for industry and for capital investments at home.

The second part of 1948 saw the beginnings of a reverse process. Not only has the rate of new business formation slackened, but there has also been a speeding up of the rate at which established enterprises have been liquidated.

According to the authoritative Dun’s Review December 1948,

“Business failures increased more than seasonally to 461 in October. This was slightly below the March and June totals, but it was above that of any other October in the past six years; it was considerably less than the 1,111 failures in October 1940.”

The comparison with prewar levels is quite favorable, but there is one feature which is rather unfavorable.

“The liabilities involved in October failures,” points out Dun’s Review, “rose considerably to $101,060,000, the highest volume on record except that of April 1932. One failure involving liabilities of $75,000,000 accounted principally for the rise. Excluding this failure, however, liabilities were larger than in any October since 1935. Failures with liabilities of $100,000 or more rose sharply to 42, the same number as a year ago. Increases above a month and a year ago occurred in all other size groups; the sharpest rise was among small failures involving liabilities under $5,000.”

To be sure, this represents only a cloud on the economic horizon. But there were no such clouds up till now and the recent rise in failures places a big question mark over what will happen in the days ahead to other enterprises, especially the dwarf-sued ones.

The third quarter of 1948 witnessed still another development in the internal market, a sharp six-week drop in retail sales during the Christmas season. A six-week decline does not constitute a definitive trend. Nevertheless, this drop was sharp enough to transform the Christmas sales season into a flop. The retailers and all the business circles are now looking hard at the figures of the last two months and trying to determine just what they mean. Nobody knows. That the domestic market has been impaired is shown by the facts already at hand, but what still remains in doubt is the depth and scope of this impairment.

A key sector of the internal market still shows considerable strength in two closely interrelated lines: metals and automobiles. The metal market is strongly propped up by both the arms program and the booming automotive industry, the largest single consumer of steel. The acid test for retail trade lies still ahead. It will come in the first quarter of 1949. But the fact remains, that no such major problems loomed either in 1946 or in 1947.

Overshadowing all the other developments in 1948 was the massive “peacetime” intervention by the state into the country’s economic life. ECA billions, we repeat, bolstered up foreign trade; other billions placed a floor under agriculture. But all this by no means exhausts the current role of the state. By the third quarter of 1948 the Federal government was purchasing “goods and services” at an annual rate of $38 billion, an increase of 21 percent over 1946. The bulk of these billions have gone into arms production, and such expenditures are unquestionably on the increase.

The various economic measures employed by Washington, especially its role as by far the biggest single outlet for both industry and agriculture, have fed the postwar boom, and by the same token, the inflation.

The spectacular results thus far achieved have led some capitalist experts and many individuals in the labor movement, especially among the top union officialdom, to talk of a “regulated capitalist economy.” Very well. Here is a partial list of what the Federal government must undertake to “regulate” in 1949.

A Few 1949 Problems

The 1948 decline in foreign trade, first and foremost in exports, will be carried over into the current year. To maintain exports at previous levels, not less but more ECA billions will be needed than was the case last year. Why? Because the world “dollar shortage” remains as acute as it ever was, despite the fact that the sums originally allotted for the ECA by Congress for a period of 15 months have been expended, by Truman’s Executive Order, in less than eight months. To continue maintaining a floor under sagging exports will not prove so easy in 1949 as it was before. It may, in fact, prove too expensive even for the American colossus.

The downward trend in the commodity markets will likewise be carried over into 1949. Barring natural catastrophes, the food and industrial crops produced by agriculture will continue at record levels. If in 1948 a worldwide glut in the commodity markets was only a prospect, then in 1949 it bids well to become the reality. Government warehouses are already bulging wih unsold bales of cotton, tons of corn, wheat, fats, butter, eggs and so on down the line. We do not mean to say by this, that a collapse of these markets cannot be averted by vigorous state intervention. What we do insist upon is that no amount of government intervention can reverse the downward trend. It can be modified, but at a far greater expense than ever before. Given a sharp improvement in world agriculture as a whole, it is by no means excluded that farm subsidies may also prove too expensive on an all-out scale for even the American colossus.

In addition to these and other major economic problems which have already been subjected to “regulation” by the state, there have appeared on the horizon a whole series of new problems. We shall enumerate some of them at random, without attempting do so in the order of their relative importance.

Barring a sudden shift to full-scale war production, which would eliminate all the “normal” problems only in order to replace them with others of a different order, the Truman administration is running smack into the question of inventories. Up to now these have been an asset in the operation of the boom. Inventories have grown spectacularly, providing one of the major outlets for industry and for capital investments. In the last three years one-third and more of all new investments have been going into inventory accumulation. A quarter of a trillion dollar boom comes roaring into the new year with $55 billion of goods, more than half of them in the hands of manufacturers, the rest held by wholesalers and retailers.

One of the reasons why the results of the Christmas sales have thus far proved inconclusive has been the absence of any overall liquidation of accumulated inventories. There has been only scattered liquidation in several lines of consumer goods. There have been some distress sales, many lines have been really hurt for the first lime in eight years, but not on a scale that threatens to swamp the market immediately. Here, too, the acid test is still to come.

But if nothing else were to result except a drastic reduction of inventory speculation, it would by itself pose such grave problems as the following: How to prop up the 1949 outlets for new capital investments, which may be faced with a decline up to one-third of former levels? What measures will be effective in preventing any general distress liquidation of inventories, and in maintaining them at least at 1948 levels? Large-scale government credits to business are already being talked about. Such and other measures are by no means excluded. But the problem of placing a “floor” under inventories or under declining capital investments is not at all identical with such problems as propping up exports or farm crops. The scope and the cost in this field is of an entirely different order from anything that has yet been faced by the masterminds in Washington.

More Taxation

Again, the ever-present problem of taxes arises in a new form. During the last three years, the Federal budget permitted of sizable expansions with slight dangers of deficit government spending. There was not only talk of reducing taxes, but also a whopping slash last year. To be sure, it profited exclusively the rich; but it was a slash nonetheless in the face of expanding government expenditures. This was another shot in the arm to the boom. It is a foregone conclusion that 1949 will see bigger taxes, whose brunt will fall on the mass of the people. This automatically poses the question: How much can the taxes be raised and the Federal budget expanded without incurring the risk of deficit government spending?

In a full-scale war economy, deficit spending is the norm. In an economy that operates within the range of current Federal budgets and on an overall civilian basis, deficit government spending is highly inflationary and therefore dangerous.

Among other things, it places the country’s fiscal system under severe strains. Here we come to still another new problem that must be “regulated” in 1949 on a scale hitherto undreamed of. How much additional load can the credit system carry without producing severe convulsions? Nobody knows any more than anybody can tell in advance how many new cars, produced next year, may suffice to glut the auto market.

In brief, over these and a number of other interrelated problems — the actual condition of the domestic market, the solvency of many weakened lines (especially among the little businessmen), the extent of unemployment in the next period, the scope of rearmament, etc.—there now hangs, a question mark. In many instances, a big question mark.

From all indications, the intervention of the state in economic life will be far more massive in 1949 than it was last year. As a matter of fact, the number of champions of “free enterprise” who are already clamoring for more and bigger intervention by the state and pinning all hopes on it, has been recently increasing at a geometric rate. All these gentlemen are due for many rude surprises. Should unfavorable trends, which have not yet set in, actually materialize within the next six months, then no amount of “regulation’ by the stale will achieve more than a temporary respite. What is more, a definitive reversal of all the existing trends and those in the making, can be achieved in one way and one way only: through a rapid shiftover to a full-scale war economy.

The Need to Prepare

There are no sufficient grounds at this writing for a flat statement that a depression has already set in, or will shortly set in. But there are even less grounds for the confident statement emanating from Washington to the effect that there is nothing seriously wrong with the country’s economy. These optimists are merely whistling in the dark. We continue as pessimistic as last year about the future prospects of American capitalism. Least of all, have the workers any grounds for an outlook different from ours.

Regardless of which variant the economic process takes, all the 1949 “solutions” and adjustments will be worked out by Washington in favor of the capitalists and at the expense of the mass of the people.

The most ironical feature of the situation is that the official labor leaders, with the Social Democrats in the van, are the biggest optimists of all. For every bull in Wall Street and Washington, there are a dozen super-optimists among this crew. If they mention the danger of depression at all, it is to speak of it as the remotest of remote eventualities. They talk of “seeds” of a future depression, and nothing more, while in Wall Street, for example, moods of anxiety are reflected in the extremely sober condition of the stock market.

But these super-optimists do much more than exude unbounded confidence in “free enterprise”; they are working check by jowl with the Truman Democrats to promote the interests of the capitalists. They have done yeoman labor in every sphere but one—safeguarding the workers from being caught by surprise by a sudden outbreak of either war or depression.

So far as the eventuality of war is concerned, they are among its prime boosters. They have promoted the war plans of the American monopolists by their all-out support of the Marshall Plan and the 1948 “preparedness” program. They are pledged to continue this support in 1949 as well. By this they have, moreover, helped clear the ground for a shiftover to a war economy, if and when the ruling class decides upon this desperate course.

As for preparing the workers for struggle under depression conditions, they have done exactly nothing. They refuse even to seriously consider the proposal of the Socialist Workers Party that the national labor movement launch immediately a “militant, united, nationwide campaign for the 30-hour week, 6-hour day with no reduction in take-home pay.” (The Militant, December 20, 1948.)

A step like this along with similar actions would not at all be premature. One must prepare for any serious eventuality well in advance; otherwise it is possible to be caught by surprise and find oneself in a position where adequate preparations are either impossible or must be made on an emergency basis.

Anyone who deliberately counsels the workers to follow a different course, to bide their time, to first “wait and see” and the like, is offering not the advice of a friend but that of a gullible dupe or a disguised enemy.

Last updated: 29.12.2005