Download pdf - frsbog_mim_v14_0086.pdf

7/17/2019 frsbog_mim_v14_0086.pdf

http://slidepdf.com/reader/full/frsbogmimv140086pdf 1/8

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

7/17/2019 frsbog_mim_v14_0086.pdf


- 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

7/17/2019 frsbog_mim_v14_0086.pdf


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

7/17/2019 frsbog_mim_v14_0086.pdf


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»

7/17/2019 frsbog_mim_v14_0086.pdf


90

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

7/17/2019 frsbog_mim_v14_0086.pdf


0 J _

- b -

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 .

7/17/2019 frsbog_mim_v14_0086.pdf


- 7 -

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

7/17/2019 frsbog_mim_v14_0086.pdf


- g -

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 .