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E. Varga

Economics

Survey of the World Economic Situation
in the 1st quarter of 1923 [1]

(May 1923)

From International Press Correspondence, Vol. 3 No. 35 [17], 3 May 1923, pp. 309–313.
Transcribed & marked up by Einde O’Callaghan for the Marxists’ Internet Archive.

I. General Section

General situation of world economics

The World economic situation in the 1st quarter of 1923 presents s picture of even greater confusion than the year 1922. while a highly favorable state of the market has developed in the United States, the Ruhr occupation has formed a fresh centre o! disturbance in western Europe; the production of Germany and of France has suffered severely. The surrounding countries – England, Czecho-Slovakia – on the other hand, have derived advantages from the reduced production of coal and iron in the Ruhr area and in France. The crisis which had lasted so long in Czechoslovakian heavy industry has been improved by orders from France and Germany, while the gradual improvement already observed in English heavy industry has developed into an actual revival; the English collieries benefited enormously by the forced purchases on the part of France and Germany; but the general state of the market has by no means improved to the extent hoped for at the beginning of the year. The advantages gained on the one side are outweighed by the apparent worsening of economic conditions in those European countries in which heavy industry plays an insignificant role – Italy, Poland. Hungary, the Balkans. In order to characterize the general economic situation, we shall first give some tables:

While in England the number of unemployed is decreasing slowly but steadily, in Germany their number is rapidly increasing. and had already, before the Ruhr occupation, reached a level corresponding to that of years of severest crisis. (The latest figures were still lacking at the conclusion of this report.) In judging of these figures, it must be taken into consideration that in most countries building and agricultural activity comes almost to a standstill in January and February.

In forming a judgment on the state of the market, the development of prices is important. This development of prices is naturally greatly influenced by the fluctuations in the rate of exchange. and can be taken as a sign of the stale of the market ill countries with a fairly stable currency only.

The development of wholesale trade figures for the last half year was as follows:

The rising price levels in England and the United States are signs of a real improvement in the economic conditions, but in France and Germany the rising prices mirror the progressive depreciation of the currency; the stabilization of the mark in Germany tends to lower prices.

The course taken by the rate of exchange, best characterizes the economic situation. As the value of the English pound has scarcely altered during the last quarter, we shall here give the rates of exchange of European currencies in pounds sterling only:

These figures do not give a fair picture; during the period in question, the German mark sank to 240,000 per £, the French franc to 80 per £. And the curve displays a general tendency to drop further; with the exception of the Czech crown, almost all continental currencies are lower in value, as compared with the pound sterling, than they were three months ago. The rapid depreciation of Hungarian, Roumanian, and Polish currencies is especially characteristic.

To sum up, we may say: A world market of uniform tendency has not yet evolved. The following question seems to us to be of decisive importance for the development of the world's economies in the next 2 to 5 years:

Will the present economic boom in the United States bring general prosperity, will the sound portion of the capitalist world place the weak portion on its feet again, or will the reverse be the case: Will America’s prosperity remain an isolated phenomenon, after the expiration of which the permanent crisis of world economics will again pass into an acute phase? It is obvious that this point is also of decisive importance for the development of the labor movement in the next few years.

There are certain purely external indications which lead us to believe that the latter issue is the more probable one. The first signs of a business revival already appeared in the middle of 1921. The improvement proceeded rapidly in 1922, but the long miners' and railwaymen’s strike retarded it greatly. But since the strike was merely an external factor, we may already count the year 1922 to the present period of prosperity. Hence, we may assume that the highest point of this economic prosperity will have been readied by the middle of the present year. At the present time the industrial production of one of the best years in America’s economic history (1917) must already have been exceeded, for the collective index of industrial production published by the Federal Reserve Bulletin for October 1922 is only 6% behind 1917. Whether the present boom will extend into 1924 is a question, and is above all dependent on the success of this year’s crops. But to judge by the analogy offered by all prosperity cycles in the past, we may assume with certainty that America’s present prosperity will come to an end in the year 1924. Should our assumption prove correct, then there is no likelihood of a general economic prosperity extending to all capitalist countries. ,For even if the Ruhr occupation is speedily settled, and the reparations question finally regulated – of which there is not the slightest possibility – certainly there can be no thought of a wave of economic prosperity in Europe this year. And should such a period set in in Europe in 1924, it is likely to coincide with the crisis in the United States, and thus come to an untimely end.
 

The American Boom

In my report on the second quarter of 1922 I wrote as follows:

“The essential question for American political economy is: is it possible for a period of economic prosperity in America to last long, if, the economic conditions of Europe remain in their present chaotic state?"

Today, nine months later, we must reply to this question in the affirmative, if we are not to deny plain facts. Even the year 1922, despite the mining and railway strikes, showed a great advance in production as compared with pre-war years.

How favorable the markets were in 1922 is shown by the tremendous accumulation. According to Professor Friday, the national income of the United States amounted in 1922, to over

60 milliard dollars.

More than 10 milliards of which have been accumulated.

The sum accumulated is approximately half the amount of the whole national income of Germany or England. Of these freshly accumulated 10 milliards, one half consists of houses and factory buildings, railway buildings, etc., built in the course of the year; the other half of motor-cars, machinery, furniture, etc. The total amount of dividends and interest exceeds that of the year 1917 by more than a milliard dollars ...

What are the roots of this new American economic prosperity?

This question is difficult to answer. But out thing is certain: the roots lie entirely in America itself; the foreign markets have contributed nothing to the flourishing conditions. This may be gathered with certainty from the figures of the foreign trade statistics. These are as follows, in millions of dollars:

We must further observe that the exports from the United States do not amount to more than 10% of the total production.

We thus see that most of the goods placed on the American market are absorbed by home consumption. But how comes it that the American market is in a position to absorb such increased quantities of goods, and how long will it be able to do so?

A few facts may be adduced in explanation. After the end of the war, the favorable economic conditions in America were also in part the result of speculation: The increase of production did not keep pace with the rise in prices. The gaps which had come about in the equipment of the railroads, in the building of dwelling houses, etc., were not filled up during the short period of prosperity following the war. The crisis broke in from the agricultural side: the purchasing power of the farmers for industrial products shrank to a minimum, for industry, almost completely monopolized, made the foolish attempt to maintain the high price level of industrial products by artificial means, while the prices for agricultural products sank rapidly. This disproportions! price development between agricultural and industrial pro ducts was one of the causes of the great crisis in American economic life. (The March report of the “National City Bank” in New York points out that in pre-war times there was a similar disproportion in prices, but in favor of the farmers. While the collective index referring to the period 1890–1899, had risen from 100 to 134, the price level of farm products was 177.)

But when this disproportion had been almost equalized by rises in price of agricultural products and drops in price of industrial products, when the better prices attained by agricultural products enabled the farmers to purchase industrial products – then it was possible for a fresh period of economic prosperity to begin, independent of events in Europe. This period displays a great investment activity. (Building, locomotives, cars, etc.) The gaps caused by the war are being filled up. The farmers are again buying motor-cars, etc. The number ot unemployed is going back to “normal”, that is 1 to 1.5 millions.

But how long can such economic prosperity last, when thus confined solely to America? What will the future development of economics in the United States be?

In our answer to this question we must not forget that the economics of the United States – as of every capitalist country – show a tendency to pass from the export of foodstuffs and raw materials to the export of industrial articles, to capital export, – and to the import of foodstuffs and raw materials. This process of transformation is going on at full speed in the United States: the percentage of wheat and cotton exported decreases continually. Farseeing people like Prof. Tuliakov and comrade Krassin, have pointed out in the Izvestia that before long, the United States will be dependent on the import of Russian grain, for in America, where land is now so dear, corn so cheap, and cultivation so extensive, it is much less profitable to carry on agriculture than to produce industrial articles.

We dealt with these questions in our earlier reports: with the relatively unfavorable position of the farmers in our last report, with the question of providing the world with food – in the report before the last. We showed, basing our statements on American data, that the absence of Russian grain from the world market had been fully compensated by the extension of production in Canada, Argentina, India, and the United States; that the production of these countries could be greatly increased – were Europe in a position to purchase these foodstuffs at a profitable price. It is not the productive capacity of the producing areas that limits production, but the paying capacity of the consuming areas ...

But the development of the United States to an exporter of industrial products and an importer of foodstuffs, is hampered by a great obstacle:
 

The leveling tendency in world economics

If we examine the economic development of the last decade, we observe a tendency to do away with the division of work hitherto prevailing in world economics; the traditional division: Western Europe as the “industrial workshop of the world”, supplying the whole world with industrial products, and obtaining food and raw materials from everywhere, seems to be superceded by a more equal distribution of industrial production. Besides the United States, the new industrial world power, the industry of Eastern Europe is developing – protected by high duties – : Japan, China, India, South Africa. Neither the statistical data available nor the space at our disposal enables us to survey this development in figures. [7] We can only point out some of the most important symptoms:

1. The world's trade diminishes, shrinks. This is proved, not only by the statistics of foreign trade, which are not very reliable, but by the fact that despite America’s economic prosperity there is less freight space used at present for carrying goods m international trade than before the war.

According to Lloyds statements, the total tonnage at the present day is 14 million tons more than in 1914, but from this must be subtracted:

This the actual tonnage is not greater than before the war. The tonnage laid up – and a great part of the useless tonnage is probably included in this – is still over 9 million tons, despite improved economic conditions. However, an official American statement declares the conditions in sea transport to have improved, for the unused tonnage has been reduced oby 2 millions in the course of the year. The ships laid up are to be classified (in 1,000 tons) as follows:

It must also be taken into consideration that many ships, though not actually laid up, wait for weeks in foreign ports for cargo, or sail with half a cargo or even with ballast; and it must tie remembered that were international trade developing normally, it would require a considerably greater tonnage at its disposal than at present.

2. England is emphatically the country of industrial export. Now for over 2 years England has had a drag put upon her by a population of about 2 million unemployed and paupers. There is an ever increasing cry for emigration to the colonies, or for “back to the land". England has more or less abandoned the hope of finding places for all her unemployed m industrial undertakings, and of supporting her population by means of the sale of industrial products on the world market. Malthusianism is once more flourishing in England; even Keynes, the lauded hero of the pacifist wing of the bourgcoisie, knows no other means of escape. [8]

3. England is merely the most striking example of the universal tendency to reduce the division of labor hitherto practised, a tendency attendant on the present period of decay of capitalism, and becoming apparent in every economic sphere: the farmers are beginning to supply their own needs, the poorer classes of the city population cultivate their little plots in their spare time, etc. [9]

All this shows that the assumption that the United States could neglect its agriculture, and develop into an industrial export country on the model of England, has no basis in reality. The decaying economics of Europe do not offer a good soil for such a development. It is only if American economics take precisely the opposite road; if agriculture is more intensely developed, so that it can absorb the products of industry and at the same time supply the cities with food and the industrial undertakings with raw materials, that the capitalist economics of America can continue to hold their own for some time yet, against the collapse of European economics and the general decay of world economics. Every future period of economic prosperity in America, like the present one, will have to be based, above all, on agriculture.
 

American capital export

The supremacy of American economics in the world market will be felt less in the export of industrial articles in return for food and raw materials than in the export of capital. While the transformation of the United States into an industrial export country after the pattern of England is hindered by the general counter-tendency of levelling, the inclination towards the export of capital falls into line with this tendency, since all freshly industrialized countries are dependent on capital import. In this direction the United States has greatly outstripped England since the war.

The Guaranty Trust Company, in its monthly report for February, publishes the following interesting comparisons on the capital (in million dollars) exported since 1911, from London and from New York.

Here it must be observed that England is doing everything to regain her lead as supplier of capital to the world, and that she is greatly assisted in this by its internationally arranged banking organization, which is much superior to the American. It is a fact that during the last few months American securities have again been bought on a large scale in England. During the past quarter, shares issued by an American firm have again been – for the first time since the war – put on tor subscription in London as well as in New York. Despite the organizatory superiority of the English capital market, we are none the less of the opinion that England will be obliged to let America take precedence m this direction, for England cannot keep pace with the United States in accumulation. The capital export of the United States is still (relatively) fairly small, if the above mentioned estimate made by Friday – 10 milliards of freshly accumulated capital in the year 1922 – is correct!
 

America and Europe

No change has taken place in the relations between the United States and Europe during the 1st quarter of 1923. The anti-European and the pro-European currents just balance each other, and everything goes on as before. The anti-European tendency has been encouraged by the realization that it is possible tor America to develop a state of economic prosperity in spite of the chaos in Europe. Moreover, the effect of the new high protective tariff, has by no means been so disadvantageous to foreign trade as was predicted by American and European critics.

Foreign trade data since the introduction of the new protective tariff are as follows, compared with those of last year

It seems that American foreign trade has not suffered by the new tariff. To be sure the tariff has been in force too short a time to allow of a final judgment. This is especially the case in the matter of imports. The high figures of Sept.–Nov. are probably to be ascribed to endeavors on the part of trades-people to import the largest possible quantities of goods before the new tariff came into force. The tariff bill being passed with unexpected promptness, these cargoes were unloaded under the new tariff. Besides, the valuation of imports has been subject to great fluctuations; the data have been frequently changed. But the fact remains that despite the tariff the import tends to increase. (Data for the present year are not yet published, but the large customs revenues show the further favorable course of imports; the customs revenue for the fiscal year July 1922–1923 are estimated at 480 million dollars.)

As to exports, two facts may be observed:

1. Rapid diminution of the export surplus; that of 1922 was lower than that of 1913.

2. Relative increase of Europe’s participation in foreign trade. The distribution of exports among the different continents was as follows (in million dollars):

It is not possible to ascertain at the present juncture! whether the increased participation of Europe in American foreign trade is a passing phenomenon or not. Before the war (1910 to 1913) Europe absorbed 62.5% of American exports, with a decided tendency to diminish. The same tendency continued after the war, until 1922, while during the war Europe’s participation in the export had risen to 71.2% (in 1915). It is therefore an open question whether the increase of exports to Europe is a temporary or a permanent phenomenon. We believe it to be temporary.

As to imports, the post-war tendency is definitely towards a rise:

To what extent the United States seeks connections with freshly developing states may be seen from the statistics of capital export (our authority is again the Guaranty Trust):

“The distribution of American capital export over the various» parts of the world, and the manner in which the loans raised in New York are applied, may be gathered from a survey of the past year (in millions dollars):

Europe, with its 500 million inhabitants, received less from the United States than Canada and South America with 100 million inhabitants.

The favorable state of the market, the absence of any detrimental effects of the new tariff, the growing exports and increasing capital export, the successful consolidation of the English war debt and the commencement of payment by England – all this weakens the pro-European tendencies of American political economy. And although American financiers expressed their readiness, at the international congress of Chambers of Commerce, to finance a reparation loan to Germany on certain, conditions – to this we shall refer later on –, we are none the less of the opinion that an intervention on the part of America, for the purpose of placing European economics on a sounder basis, is still a possibility of the distant future only, and one which would only come to pass under very hard conditions – the colonization of Germany, as pointed out in our last report.
 

The United States and England

Among the innumerable politico-economic antagonisms which divide the great imperial powers from one another, one at least has been successfully smoothed out during the period of thia report: we mean the funding of the English debt in the United States.

The facts themselves are probably known to the reader. Before the London conference held on August 1, 1922, Balfour, at that time minister for foreign affairs in England, addressed his famous note to the allies, which announced that: England was only willing to cancel her demands on the allies to the amount which she would have to pay the United States; thus it depended on the United States as to how much the allies would have to pay to England. This policy, supported by that mighty organization of English industry, the Federation of British Industry, and combatted by the liberal circles of high finances contributed much to the failure of the London conference, and was one of the causes that led to the increased severity of France’s reparation policy, culminating in the Ruhr occupation. For there were wide circles of French taxpayers who said to themselves: If we have to pay our debts to England and America, we must insist on full payment from Germany.

The Balfour note evoked a storm of protest in the United States, for it made the impression that England sought to throw doubt on the “moral" basis of America’s claims by maintaining that these sums had been expended for the allies. However, this misunderstanding was smoothed out with great speed. At the beginning of this year the minister of finance, Baldwin, went to America. President Harding instructed the negotiation commission not to be bound by the decision of the Senate, according to which the war debts were not to be consolidated under 4½%. After brief and unusually friendly negotiations, an exceedingly advantageous agreement for England was arrived at: England pays 3% interest for 10 years, after that 3½%, and amortizes the whole debt in 62 years with an annual amortization rate of ½%. The reduction of the rate of interest from 5 to 3% was accepted by the American Senate without any notable resistance. The whole transaction was carried amid related protestations of amity.

Although the Anglo-American friendship has thus made great progress of late, it would be foolish to assume that the economic antagonisms are settled by the arrangement of the debt question. Indeed, the greatest bone of contention, the petroleum question, has lately led to fairly acute antagonism tween the two Anglo-Saxon powers. After England had rejected the protest made by the United States on account of the exclusion of Americans from the Mossul petroleum area, by referring to “acquired rights”, America passed a federal law according to which the subjects of countries whose governments do not grant to Americans the same rights and privileges in oil concessions and property as their own subjects enjoy, cannot acquire any new American oil concessions, and cannot obtain any ascendancy in such concessions or properties. By force of this law the American ministry for home affairs had excluded, by the middle of March, the so-called Roxana Petroleum corporation, the English and Dutch Shell Company, the Asiatic Petroleum Company, and other oil companies m the United States controlled by foreigners, from all further participation in American oil properties.

England attempted to settle the difference on friendly terms, but without success. Before going into recess, Congress appointed a governmental commission – The Federal Trade Commission – to examine into the question.

The report of the commission was not published until Congress had gone into recess. The report states:

that not only the English, but the Dutch, French, and Roumanians, had placed the Americans at a great disadvantage in their oil undertakings, or had excluded them altogether. The report goes on to say that petroleum springs and other oil sources in America have been bought up by Englishmen and Dutchmen, so that the Anglo-Dutch Shell Corporation possesses no less than 240,950 acres of oil land in the United Slates, and thus controls 30% of the total output. “American oil interests” the report proceeds, “are badly treated in Australia, in the whole of the East Indies and all the Indian colonies of Holland and France, in British Guiana. British Honduras and Trinidad, and in all French colonies, including Morocco”. In order that this report may not fail in effect, the American secretary of state Hughes has had copies sent to the governments of England, France, and Holland.

If we take into consideration the great rivalry for the the Russian petroleum – Baku, where an American company has begun work; Sakhalin, where the English possess concessions obtained under Tsarism, – and the struggle for the South American and East Asiatic markets, etc., it seems absolutely illusory to hope for a final understanding. The rivalry of France, her tremendous armaments on land, water, and in the air, compel England at the present time to look for support to her racial brothers across the ocean. But there is still much to be arranged before the Anglo-American Entente can be regarded as an accomplished fact. Between the writing and printing of these lines the antagonisms between the United States, England and France have become more acute. The Turkish national assembly has officially confirmed the Chester concession, which placed in the hands of the United States the construction of railways in Asia Miner as far as Mossul, with the right to exploit all natural treasures within a radius of 10 miles on either side of the line. The French government has officially protested, in Constantinople through General Pelle, against the granting of the concession, because it is in contradiction to the concession granted to France in the spring of 1914. England is also disagreeably surprised at this advance of American capitalism in the near East, although tlse above named, reasons have prevented her from taking any official steps up to the present. If American capitalism really starts seriously on exploiting this concession, then the harmony between the two Anglo-Saxon world powers is likely to be considerably disturbed.

*

Footnotes

1. Beginning with this number we shall print, in sections the quarterly economic report of comrade Varga.

2. Non-official estimate of the Economist.

3. Unemployed receiving benefit.

4. On March 15th.

5. drop due to miners’ strike. [No anchor for this note]

6. Provisional figures. [No anchor for this note]

7. We select one exceedingly characteristic example: According to the report issued by the Bureau of Foreign and Domestic Commerce, Asia purchased from the United States machinery to the value of 179 million dollars in the course of the last 3 years.

8. See M. Guard, Reconstruction, No. 12.

9. “... In these times of political, economic, and financial uncertainty, the different states have been forced to take recourse to self-help, for covering their requirements, to an extent which we should have deemed impossible at one time. Consumption has been greatly diminished, and with it the demand, but in most countries there is a parallel tendency towards the reduction of every description of import, in order that the foreign trade balance may be more favorable.” (From the report of the Controller of Currency, Crissinger, for 1922.)

 
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