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New International, July 1948


Gertrude Blackwell

Boom Days


From The New International, Vol. XIV No. 5, July 1948, p. 159.
Transcribed & marked up by Einde O’Callaghan for ETOL.


Prosperity Decade: From War to Depression 1917–1929
by George Soule
Rinehart, 1947, $5.50.

The period covered by this book is important to contemporary understanding; even in the 1920s the long-term forces of permanent crisis were already piercing sectors of the American, economy. Soule’s book is valuable insofar as it presents the essential facts with clarity and scholarship. It makes no attempt at a basic analysis, limiting its conclusions to an eclectic interpretation of different phases of the period.

The ’20s constituted the last great period of the classical form of capitalist prosperity. Industry, particularly in its highly monopolized sections, enjoyed large profits and expansion of output. Since manufacturing output grew 30 per cent merely keeping pace with productivity, the industrial labor force remained stationary and after 1927 began to decline. In Britain and Germany there were permanent armies of unemployed. Two important tendencies were evidenced in the industrial picture of this period. The first was the saturation in the growth of particular industries. Resident construction began to drop in 1926 and kept declining thereafter. The auto industry grew phenomenally in the early part of the decade. By 1927, however, replacements had become 50 per cent of sales. This development meant a contraction in profitable areas of investment in a period when such opportunities were already too narrow. The second tendency was the decline of those productive sectors where heavy competition prevailed. Outstanding among these was agriculture. Although the situation was somewhat alleviated during the latter part of the decade, agriculture never fully recovered from the recession of 1921. Thousands of farmers lost their land during the period and millions of acres went back to wasteland. The decline in agriculture was based on the long-term decline in American farm exports, reflecting the expansion of farming areas outside the United States, and gradually rising costs in this country.

It was increasingly apparent during the period of the ’20s that there was a contraction in opportunities for profitable investment in domestic industry. New industries were becoming saturated and monopoly dominated the areas of high profits. The excess of capital coming from high profits went either abroad or into the stock market. Many large companies used part of their profits to expand their own operations abroad. Investment companies competed for foreign loans which were issued at exceptionally high rates of interest. Since they were not used primarily for productive purposes, they were obviously not going to be repaid; by 1928 foreign countries began to default.

The most important feature about the stock-market boom was the disparity between conditions in the stock market and conditions in industry. Industrial profits were high but nowhere approached the profits made in speculation. Industrial prices were practically stable while security prices were inflated enormously. Since stock-market profits ultimately reflect industrial profits, a crash was imminent.

The inflation of stock prices was due to the plethora of capital and the lack of profitable investment opportunity in American industry. Capital competed for stocks and bonds and sent security prices zooming far out of proportion to the industrial profits which supported them. The constant rise in security prices caused a greater demand and the practice of buying on credit developed. The only people who lost money in this period of constantly rising security prices were those who based their speculation on a dip in the market. The surplus of capital was further aggravated in 1927, when American capital withdrew from precarious foreign loans and sought high profits on the American stock exchange.

By 1928 we see the following economic situation: a decline in capital formation, private investment and the number of employed, a saturation in the development of auto and residential construction, a world-wide agricultural depression and a breakdown in American support for foreign economies. The rise of investment in 1929 was based on an anticipated increase in sales which never matured.

The Marxian analysis of crises states that the declining use of labor per unit of production due to the development of technology causes a declining rate of profit (or profit per unit of output). This occurs because it is only from the application of labor that surplus value can be extracted. When less labor is used absolutely the mass of profits decline. The world-wide crisis of 1929 occurred when the labor force was declining in the major countries of the world. Monopoly was able to keep commodity prices and profits on a high level, utilizing standard monopolistic practices. It invested its profits abroad or in the stock market. When the international structure began to totter, capital (both foreign and American) came into the United States and was invested on the stock market.

Stock-market profits were, however, unrealizable since they were far out of proportion to industrial profits. Industrial profits in themselves were based on the artificial methods of monopoly in keeping prices high. It is interesting that right up to the crash the rate of industrial profit kept increasing. The collapse of 1929 was the reversion of prices back to real values and below them. Since the world industrial machine was already geared to a smaller labor force a chronic decline in the mass of profits was in the,] offing. This was the beginning of chronic depression – a depression from which the capitalist world could extract itself temporarily only by means of a war economy.

The author attempts no systematic interpretation of the facts, meaty as they are. He discusses patchy solutions briefly, without mentioning the alternative of social revolution. The only economic theory discussed is underconsumptiononism. But the important facts are given in a well-integrated fashion.

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