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THE OUTLOOK FOR 1921 X-3Q11
By J*. C. Mi l le r .
(Art ic le contr ibuted,
to the New
York Eve ning P o s t , December
31» 1920)
The yea r 1 2 0 i s l i k e l y to take i t s p l a c e i n t h e economic history
of the
count ry
a s
marking
t h e
f i r s t
and the
most acute stage
of the
t r an s i t i on f rom wart ime t o peace t ime co nd it io ns . Looked a t from t h i s
po i n t of view, t h e yea r i s a s r i c h i n achievement a s t h e ye a r 1919 was
ba rr en . Event s move
s o
rapidly nowadays,
an d th e
scene changes
s o
s w i f t l y , t h a t t h e ye a r 1919 al re ad y seems remo te. Lest we f o r g e t , i n o u r
absorption with things immediately around u s , i t i s w e l l t o r e c a l l t ha t
t h e
yea r
1919 was
c h a r a c t e r i s e d
by an
unprecedented orgy
of
extravagance ,
a mania of s p e c u l a t i o n , a n ove rex tens ion of bus iness i n n e a r l y a l l l ines
an d in every par t o f t h e count ry , and a de mor a l i z a t i on of labor, which
were taking
u s
rapidly a long
a
road
a t t h e en d o f
which
l a y
d i s a s t e r .
Wartime controls h ad b ee n l i f t e d , a n d t h e processes of cont ro l usua l t o
peace time were
n o t y e t
fun c t i on i ng norma l ly .
F o r t u n a t e l y , t h e business community i n t h e s p r i ng of 1920 began t o
awaken
t o a
r e a l i z a t i o n
of the
dangers
o f t h e
economic
an d
f i n a n c i a l
s i tua t ion which was deve loping , an d showed, moreover, a n i n c r e a s i n g d i s -
p o s i t i o n
t o
accept ene rge t i c cont ro l
o f t h e
s i t u a t i o n
a s a
necessa ry fea ture
of a p o l i c y of r e s t o r a t i o n t o a h e a l t h f u l s t a t e of b u s i n e s s , a n d , even more
impor tant ,
i n
recent months
h a s
shown,
i n
many leading industr ies , much
c a pa c i t y t o take t h e f i r s t s t e ps t ow ar d c on t r o l a n d read jus tment on i t s own
i n i t i a t i v e , a n d thus h a s done much t o a n t i c i p a t e , h a s t e n a n d shor ten th e
presen t pe r iod of t r a n s i t i o n and r e a d j us t me n t , a n d t o minimize i t s cos ts
and
l o s s e s .
I t i s
this which makes
t h e
yea r
1 9 2 0 , t o
r e pe a t
i t , a
ye a r
of
dis t inc t ach ievement : t h e c l o s e o f t h e yea r i s s i g n a l i z e d b y t h e recovery
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- 2 - X-3011
of a degree of h e a l t h a n d equipoise i n t h e economic, business, a n d credit
1
'
o r ga n i z a t i on
of the
country tha t augurs wel l
f o r t h e
near future*
This does n o t mean that t h e nea r fu t ure wi l l see a comple te r e s tora t ion
of
normal condit ions.
I t
means only that
t h e
f i r s t s t a g e
i n t h e
process
i s
near ing comple t ion.
I t
wi l l doubt le s s
be a
good many years, perhaps
n o t le s s than t e n years , before t h e economic derangement, t h e i n d u s t r i a l
d i s l o c a t i o n , t h e commerc ia l disorganiza t ion a n d f i n a n c i a l i n f l a t i o n p r o -
duced b y th e Great War wi l l have been cor rec ted s uf f i c i en t l y t o j u s t i f y
c h a r a c t e r i z i n g t h e r e s u l t i n g s i t u a t i o n a s normal i n t h e sense i n which that
term
w as
used before
th e w ar . The
complete return
t o
normal, moreover,
w i l l r u n through a s e r i e s of s tages , o r cyc le s , a s they a r e sometimes called.
The downward descent of p r i c e s w i l l t he r e f o r e , i n a sense , be gradual or by
s t a g e s .
B u t i t
w i l l
n o t b e
continuo us* There wi ll
b e an
i n t e r v a l
i n
each stage when t h e process wi l l b e t e mpor a r i l y a r r e s t e d an d prices move
on a
f a i r l y s t eady leve l* Af te r
a
space,
t h e
downward movement w i l l
again resume, an d th e process jus t descr ibed wi l l b e repea ted un t i l t rue
normal i s f i na l l y r e a che d . A f t e r such i n f l a t i o ns of the p r i c e an d bus iness
s t r u c t u r e
a s t h e
world
h a s
exper ienced
i n t h e
pa s t
fe w
yea r s ,
a
r e t u r n
t o
normal, i f t o o p r e c i p i t a t e an d violent, would b e f a t a l .
Th e phase o f t h e post -war read jus tme nt pro ces s through whicn t h e
United Sta tes
i s now
pa s s i ng
i s t h e en d of t h e
f i r s t s t a go .
Outwardly,
t h e
most conspicuous feature
o f t h e
r e a d j us t me n t
i n
process
dur ing ly20
h a s
been
t h e
heavy
a n d
p r e c i p i t a t e f a l l
of
p r i c e s , p r i c e s
a t
wholesale having fallen some 2 5 p e r cent from t h e h i gh l e ve l s of l a s t
s p r i ng . We must go back t o t h e year fol lowing t h e c lose of the C i v i l War
(when p ri c e s fe l l from
2 5 to }0 p e r
cent wi t hin
s i x
months)
t o
f i nd
any
p a r a l l e l
t o o u r
rec en t pr ic e movement. Such pr ic e re vu ls io ns
a s w e
have
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3
x 3011
recently been experiencing seem
t o be an
unavoidable a f te rmath
of a l l
great wars.
No
p a r t s
of t he
world today,
n o t
even those which were
n o t
di rec t ly involved i n t h e Great War, have escaped t h e seve re pr ice r e -
duc t ions s e t i n motion by t h e w ar . I n many, price declines have
been more severe
a n d
abrupt than those
we
have been experiencing
i n t h e
United States, a n d i n some countries have produced conditions of c r i s i s ,
a n d i n
sever a l , co ndi t io ns verging
on
c r i s i s . Indeed ,
i t i s n o t
unl ike ly tha t
t h e
United States would
n o t
have been able
t o g e t
through
t h e
f i r s t
a n d
most searching stage
of
pos t-war readjus tment wi thout
a
genera l
and
calamitous commercial
an d
f i na nc i a l r e vu l s i on t h i s l a s t
yea r, which would have des tro yed va lu es
and
c a r r i e d p r i c e s
t o
very
much lower levels than those
a t
presen t ex i s t ing ,
a n d
have damaged
t h e
s p i r i t
of
bus i ne s s e n t e r p r i s e
and
seriously delayed economic recovery
from
t h e
d i s i n t e g r a t i n g
and
d i s o r ga n i z i ng e f f e c t s
of t h e w ar , had i t
n o t
been
f o r t h e
s teadying
an d
modera t ing inf luence
a n d t h e
reassur ing
presence
of the
Federal Reserve System.
As
things s tand,
t h e
process
of
pos t-war readjus tment
i s
near ing
t h e
completion
o f i t s
f i r s t s t a ge
i n
many
of t he
c ount ry ' s bas ic Indu s t r i e
I n
many lines
of
manufac ture ,
i n
wholesale markets ,
a n d ,
sporad ica l ly ,
i n t h e
f i e l d
of
labor,-where wage reductions
a r e
be ing acce pted
o r
i nc r e a s e d , e f f i c i e nc y
i n
work
i s
being shown.
Readjustment i n t h e r e t a i l t ra d e h a s n o t y e t taken pla ce on any
l a r ge s c a l e ,
b u t i t i s
beginning.
The
opening months
o f t h e
year
i g 2 1
seem, however, fair ly certain
t o s e e
such extens ive pr ice readjus tments
i n r e t a i l ma r ke t s a s wi l l br ing these int o l i ne wi th t h e t r e nd of p r i c e s
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X-3011
i n t h e le ad in g primary mark ets. Were i t n o t f o r t h e d e s i r e of r e t a i l -
e r s t o take advantage o f th e Christmas holiday trade t o reduce losses
inc iden t
t o
l i q u i d a t i o n ,
i t i s
highly probable that business
a n d
price
readjustment
i n
the-retai l t rade would have been farther advanced
b y th e
close
o f th e
year ,
a n d
thus
t h e
f i r s t s t a g e
o f th e
p rocess
of
post-war
readjustment a n d transi t ion have been fairly completed a n d t h e worst
of the
immediate si t u a t i o n have been over wit h
t h e
advent
of the new
year.
As th ihgs a r e , t w o o r three months of the new year wi l l be
necessary t o complete t h e readjustment now in pr oce ss . That pro ces s
completed, markets a n d prices wil l have regained a measure of s t a b i l i t y
which, taken i n c onjun ction with other favo rin g circumst ances, wi l l
make
f o r a
bus iness rev iva l
i n t h e
sp r ing
of the new
year .
The
revival does
n o t
promise
t o b e
sharp
o r
sudden,
nor o f
l a rg e p ro p o r -
t i o n s . I t i s , however, l ikely to b e f a i r l y g e n e ra l and to make f o r
a cond i t ion of f a i r a c t i v i t y a n d p ro s p e r i t y f o r bus iness , i ndus t r y , and
employment. A s t o t h e price out look, t h e r e v i v a l i s more l ikely t o
mani fes t i t se l f i n a reappearance of buying on a more normal scale than
h a s been true i n recent months, a n d , i n consequence, i n a n i n t e r ru p t i o n
o f th e
price recession movement
of
recent months, with here
an d
there
some tendency of commodity p r i c e s t o r i s e , b u t n o t a n y such tendency
on a wide o r marked scale. The s i t u a t i o n t h a t may be expected t o develop
wi th t h e approach of sp r ing c a n bes t b e suggested o r descr ibed by the wo
s t ab i l iz ed . Temporar ily a t l e as t , (perhaps f o r t h e space of a year) ,
markets
a n d
p r i ce s wi l l show f a i r s t ab i l i t y
a n d a s
such
b e
favorab le
t o
£
moderate forwstrd inovsrrBrvt
of
indus t ry
£H d
busiri8ss»
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5
X 30H
As to the
labor out look:
t h e
closing months
of a
p e r i o d
of
down-
ward swing
i n
business , par t icular ly when such extens ive readjus tment
i s
involved
a s i n t h e
present ins tance ,
a r e
usual ly those which present
t h e
most acute unemployment situation.
I t
seems
n o t
unl ike ly , ther efor e , tha t
t h e current winter wi l l se e some very hard times f o r labor, possibly some
ser ious labor dis turbances . We a r e n o t , however, going i n t o a pe r i od of
in du st r i al dep ress ion with prolonged unemployment. I t i s a n o l d economic
dictum tha t s t r i ke s a n d lockouts i n pr imary indus t r i es a r e f r e q u e n t l y a
prelude t o ind us t r i a l r ecovery , involv ing , a s they us ua ll y have, needed
readjus tment of wages o r other condi t ions of employment. I n t h e present
case i n o u r country, there is so much evidence, both i n t h e ranks of labor
and of many employers a nd other bus iness men, of appr ec i a t i on o f t h e u n -
precedented abnormal character
of the
exis t ing economic s i tuat ion
and of
t h e
urgent need
o f
cooperat ive act ion
i n
order
t o g e t
things back
to a
more normal
a n d
s t ab l e bas i s ,
i n t h e
i n t e r e s t
of
labor
a s
wel l
as of
cap i t a l , t ha t there i s reason f o r bel i e ving tha t t h e readjustment phase
now nea r i ng i t s e n d m ay r u n i t s course i n t h e nex t fe w months without the
i nd us t r i a l r uc t i ons , s t r ugg l es , a nd warfare which have t o o f r e q u e n t l y d i s -
f i gu r ed and embi t t e r ed i ndus t r i a l r e l a t i ons i n t h e pas t .
I n other words, mental readjustment — a n unders tanding of the charac ter
and
i nev i t ab l enes s
of the
changes
now
going
on as an
i n c i d e n t
to the
t r a n s i -
t ion process — i s making t h e p ro c e ss , p a r t i c u l a r l y i n i t s larger soc ia l
aspects , less compl icated, less s t renuous , a nd f a r les s d i s rupt ive than
might easily have been t h e ca se. fQiat th er e wi ll b e outbreaks o f radical ism
her e
a n d
there
i n t h e
r e l a t i o n s
of
l abor
and
c a p i t a l
i n
i n d u s t r y
i s no t to be
doubted;
b u t
t ha t they wi l l
be o f
such dimensions
o r
gain such momentum
a s
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0 J _
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X-3011
t o
de lay se r ious ly
t h e
economic recovery
of
i n d u s t ry
i n 1 9 2 1
does
n o t
seem
l i ke ly . Such re v i s ion
i n t he
r e l a t i o n s h i p
of
employer
and
employed
i n
American industry a s i s necessary i n view of t he experience of recent
years wi l l b e worked out , we may wel l be l i eve , i n an atmosphere of give
and
take
and
wi th
a
greater degree
of
common understanding
o n
bo th s ides
than ever before , a n d wi thout involv ing t h e coun t ry i n widespread in du st r i a l
d i s o rd e r .
The course of ou r trade with Europe will be an impor t an t fac to r i n
o u r economic s i tua t ion i n 1921 , a s i t ha s been i n 192 0 . The i n d u s t r i a l
recupera t ion of western Europe i s s t ea di ly going forw ard . There h a s also
bee n more pr og re ss toward economic reco ve ry i n central Europe than i s f r e -
quen t ly be l i eved .
The
p rocess
of
complete res tora t ion
t o a
normal
i n -
du st r ia l s i tu a t io n wi l l take many years more,
and t he
p rocess
of
f i n a n c i a l
r e s t o r a t i o n w i l l t ak e s t i l l l o ng e r ,
b u t
promising beginnings have been made
an d will soon show themselves cumulative i n t h e i r e f f e c t s . The year 1921
i s l i k e l y t o bear some evidence of t he cumula t ive e f fec t s of th e work of
p re p a ra t i o n and repair accomplished i n 192 0 . The r a p i d i t y of Europe ' s
recovery i s , of cou rse , la rg el y condit ioned upon t h e a s s i s t a n c e sh e gets
from coun t r ie s over seas , and most important among these, from t h e United
S t a t e s .
We
s h a l l undou bted ly devi se some ways
and
means,
n o
l e s s
i n ou r
own
i n t e r e s t th a n
i n
E u ro p e ' s ,
t o
ex tend c red i t s
t o t h e
European manufac-
t u r e r ,
f o r t h e
purchase
of our
important export products
and raw
m a t e r i a l s .
No one can at t h i s time pr ed ic t t h e ex ten t of t he c r e d i t s t h a t w i l l b e
opened here t o Europe, n o r t h e pr ec is e methods which w i l l b e .employed
i n a r rang ing these t ransac t ions .
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X-3011
The
s t r i k i n g f a c t , s in c e
t h e
Armist ice ,
i s
that Europe
h a s
obtained,
c r e d i t s
i n t h e
United States
t o
purchase
4
b i l l i o n s
o r
more
of
goods with-
ou t any preconceived plan f o r handling such a n unprecedented volume of
business having been worked ou t and approved i n ad va nc e. What h a s been
t ru e i n o u r recent past i s l i k e l y t o b e t rue i n t h e nea r f u t u r e . Trade of
t h e Uni ted S ta tes wi th cou nt r ies of Europe i s made up of a vast mul t i tude
of separa t e t ransac t ions en te red in to b y ind iv idua l s wi th o ne ano the r —
one fo l lowing one p l a n , t h e ot he r some ot he r and so on . Some of t he more
ambit ious plans
now
under considera t ion
f o r t h e
o rg a n i z a t i o n
of
g rea t
export financing companies may prove of v ery g re a t v a l u e , p a r t i c u l a r l y i n
promoting
t h e
expor t
of
s t a p l e s
of
those sect ions
of t he
country that
normal ly f ind
a n
o u t l e t
f o r a
cons ide rab le pa r t
of
th e i r p roduc t s
i n
Europe.
I t i s
poss ib l e tha t
t h e
r e v i v a l
of the War
Finance Corp orat io n
may
a l s o
b e
of considerable importance.
The
importance
of
these larger organisa t ions wi l l , however ,
b e
found
no t so much i n t h e volume of exp ort s they themselves he lp t o f i n a n c e as i n
th e
inf luence they
a r e
able
t o
e x e r t ,
i f
wise ly d i r ec t ed ,
i n
s t imula t ing
and organiz ing t h e thought and endeavor of t he coun t ry i n o u r fore ign t rade
problems. I t must n o t b e l o s t s i g h t of t h a t t h e United St at es , l i ke other
c o u n t r i e s
i n t h e
p resen t j unc tu re ,
i s
s u f f e r i n g f rom
a
shortage
of
c a p i t a l
—
t o
f i n a n c e
a l l o f ou r ow n
domestic re quire ments
a s
w e l l
a s o u r
export t rade
t o Europe. These expor t f i nanc i ng in s t i t u t io ns , t he re fo re , n o l e s s t h e
War Finance Corpor at ion than ot he rs , bri ng no new ca p i t a l re sources in to
being with which
t o
ope ra te. They
t a p t h e
e x i s t i n g fu n d
o r
f low
of
c a p i t a l ;
t h e o n e , i n l a s t a n a ly s i s , by way of the pub l i c Treasu ry , t h e o t h e r b y
appeal ing t o t h e inv est men t mar ket . What i s taken ou t o f t he investment
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x-3011
' m a r k e t d i r e c t l y , o r i n d i r e c t l y by way of the Treasury , f o r f i n a n c in g our
expor t t r ade
t o
Europe,
i n t h e
u l t ima te ana lys i s d imin ishes
t h e
suppl ies
of
c a p i t a l a v a i l a b l e
f o r
purely domestic
u s e . I t i s
on ly , the re fore ,
a s
f r e s h c a p i t a l
i s
accumulated
t o t h e
re qu is i t e degree , th a t la rge exp or t s
t o Europe on c r e d i t c a n b e f inanced wi thou t in v i t i ng con t inu a t i on of the .
most se ri ou s ev i l from which we have su ff er ed ever s ince t h e Armistice;
t o - w i t , i n f l a t i o n of c r e d i t .
I t i s
p re ci se ly t hi s c ircumstance which makes
i t
e x tr em e ly d i f f i c u l t
t o forecas t what t h e major banking movements will b e dur ing t h e coming
yea r , a n d t h e p o s i t i o n o f th e Federal Reserve System i n i t s r e l a t i o n t o
t h e marke ts . I t s f u n c t i o n i s t o r e g u l a t e t h e f l o w an d volume of c red i t
i n accordance with t h e changing condi t ions a n d requirements of indus t ry
and t ra de , De f la t ion o r c o n t r a c t i o n a s such on th e one hand, expansio n
o r
i n f l a t i o n
on the
other hand, properly form
no
p a r t
o f i t s
purposes .
I t does i t s work b e s t when i t dea ls with condi t ions a s they a r e a n d with
f a c t s
a s
they
may
deve lop, ra t her than with the or ies
of
what ought
to b e
o r with expec ta t ions of vtiiat will b e . Tn is much, howev er, may s a f e l y b e
sa id ; tha t t h e p o s i t i o n o f th e Federal Reserve System i n t h e coming year
w i l l
b e
in f luenced
b y
c o n d i t i o n s
f a r
more than con di ti on s w il l
b e
in f luenced
by i t .