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John G. Wright

Factors That Undermine Boom in U.S.

(19 January 1948)

From The Militant, Vol. XII No. 3, 19 January 1948, p. 2.
Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

In November, production set a new peacetime record. But it was not reported at the time that the bulk, if not all, or this increased output went into the warehouses of wholesalers, manufacturers and retailers. Figures just released by the Department or Commerce disclose this beyond the shadow of a doubt. Overall inventories have soared to the astronomical sum of more than 42 billion dollars, with over a billion being added in November, the largest monthly increase in history,

At the end of last July at the bottom of the 1947 production downswing, total inventories stood at 38½ billion. In the next four months production was pulled back in large part through the expedient of pumping 3½ billion dollars worth of goods into warehouses.

Here we have one of the secrets of the continuing boom. Production has been kept going not merely to satisfy the demand of the domestic and foreign markets but because of a frenzied gamble that prices will continue to rise. Industry is thus inextricably attached to a price balloon, whose inflation has thus far kept the economy from going into a tailspin.

The dilemma confronting the American capitalists is: Either the prices must be kept shooting up. or production must be cut back in one field after another. When confronted with this dilemma last July, the decisive section of the capitalists, with the steel and coal magnates in the van, chose inflation as the way out. They temporarily averted production cutbacks and the resulting depression by resorting to a general price rise and the ensuing orgy of speculation.

Now they have to decide again whether or not to impart more impetus to the inflationary spiral. They can do so by still another price hike in steel and by still further expanding credit in order to carry even bigger inventories.

They did this last July and they can do it again. But the conditions for this operation are not as favorable as they were six months ago. For one thing, the credit situation is much tighter because the banks and the insurance companies have already extended unprecedented loans.

Becoming Alarmed

Not that additional funds are unavailable. On the contrary, the banks still dispose of scores of billions of credit. But an important section of the bankers is becoming alarmed by the speculative orgy, and the ultimate consequences not so much to the economy as a whole – as to themselves. The more the banks finance bigger inventories, all the greater is their loss risk.

For instance, a general price slash of 10% – advocated not so long ago by Truman himself – would today mean an immediate loss of not less than 4.2 billion dollars on current inventories alone. Unless the bankers watch their step they may be holding the bag.

Moreover, tighter credit, with higher interest rates, means greater profits to the financiers. But they are hesitant to move drastically, because they are already quite heavily committed. Only formal steps have thus far been taken to clamp down on credit. Meanwhile the debate over this issue mounts, and the shadow of a credit squeeze is superimposing itself on the threat already represented by the imbalance in inventories.

Even more serious are the unchecked downward trends in the foreign and domestic markets. In November foreign trade resumed its downslide, skidding 8% from October. This coupled with other whopping export slashes since May make very slim the prospect of retaining in 1948 the export levels of 1947, even with the most effective operation of the Marshall Plan.

Less for More

At home, the retailers are still by and large recording on their cash registers higher sales, while disposing of fewer items. But selling less for more money has always been good business from the capitalist standpoint.

The picture of the titles of manufacturers and wholesalers is not quite so bright. Their combined sales in November took a tumble to the tune of almost 3 billion dollars, with the manufacturers’ sales sliding off 1.3 billion and the wholesalers skidding even more from the October totals.

This drop has been dismissed by government experts as harmless on the grounds that there were “fewer working days” in November than in October. But this can explain only a part of the thumping drop. There is a much more direct connection between production and the number of working days in a month than there is between the latter and sales. Yet production did not drop off like sales in November. On the contrary it rose.

Growing Abyss

The November sales drop therefore reflects at least in part the growing abyss between the volume of production and the absorbing capacity of the domestic market. The pinch is being felt by such giants as General Electric with its annual sales volume of one. billion. GE’s latest sales report records a substantial drop. This has much more to do with the minor price reduction recently announced than the ballyhoo about “fighting inflation.”

At all events, the entire capitalist world, the bankers and credit men in particular, are now keeping their eyes glued to the retail sales reports. So far as they are concerned, these sales now spell everything. Up to now retail sales have kept hovering slightly above 1947 levels. If they stay there, a breathing spell, they believe, is assured for at least six months. Should they slide off, then the depression they have postponed but not averted will make its appearance.

What is even more decisive today are the sales of manufacturers and wholesalers, who hold the overwhelming bulk of the swollen inventories and who have increased them proportionately much more than the retailers. Should these sales continue to dip, then the “10% gains” recorded by the retailers will prove to be so much chaff in the wind.

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