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John G. Wright

Will the Economic Boom Last?

(12 January 1948)

From The Militant, Vol. XII No. 2, 12 January 1948, p. 2.
Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

Optimism is running quite high in business circles these days – at least so far as the first six months of 1948 are concerned. Industrial analysts, government experts and economic staffs of all leading Wall Street periodicals agreed that the inflationary boom will continue in the period immediately ahead and even spurt to new heights.

They confidently predict new productive peaks, with retail trade expanding beyond the huge dollar volumes recorded in 1947. Employment is expected to continue at current levels, with slight boosts in wages and still steeper hikes in prices. What will happen after mid-year [word missing], these authorities refuse to say.

Typical of the current outlook is the analysis given by the weekly [word missing] United States News, Jan. 2, which lists the following factors as operating strongly to sustain the boom:

A third round of wage increases: “a general boost in factory earnings of 10 to 15 cents an hour is probable.”
These presumptive higher wages together with increasing “personal income payments” (profits) are expected to keep the domestic market at approximately the 1947 levels.
Since the retail trade did not [word missing] in dollar volume last year, continues U.S. News, it therefore follows that the consumer demand, propped up by higher wages, should continue – for six more months, in in this case. But this does not follow at all. The inflationary splurge of 1947 has drastically affected the domestic market, and may have well undermined it beyond repair. Physical volume of retail trade has definitely dropped below 1946. At all [word missing], it still remains to be seen if the domestic market will be able to absorb the same share of the total national output as it did in 1947.

No Guarantee

The boom must continue because food prices and agricultural prices in general will remain high, a lot higher. It goes without saying that a collapse of the commodities market would drag down the whole economy with it. And in and of itself, the maintenance of the agricultural price structure is no guarantee of capitalist prosperity. Industrial production has broken down in periods of high as well as low food prices.
The final major sustaining factor according to U.S. News, is the expectation that the construction industry will continue at current levels. The admitted lag in industrial building, it is expected, will be taken up by residential building and federal and state public construction.

Purely Inflationary

It will be observed that all of these boom-sustaining factors are purely inflationary in character. Gone beyond recall from these capitalist prognostications are such basic factors as the pent-up consumer demand for durable and non-durable goods resulting from war-created scarcities, the huge backlog of savings, the need for new capital investments, and so on. This only underscores the fact that the current boom is fed primarily by speculation, and constantly rising prices and profits. At best, this is only a short-term perspective.

After citing the above-listed “points of support” the U.S. News gingerly takes up the “weaknesses” in the capitalist structure.

First and foremost there is the critical condition of the capitalist world market. “Exports are not likely to be any larger in 1948 than in 1947, if as large.” It was the unprecedented foreign trade that temporarily relieved the strain on the sagging domestic market m the second quarter of last year. But this outlet has now admittedly been saturated, The plan is to sustain it artificially by pumping billions of dollars into bankrupt European capitalism under the Marshall Plan. Under the most favorable conditions, this, too, is a temporary expedient capable of siphoning off only a small fraction of the vast national output.

The second and no less ominous development is the huge accumulation of inventories, now pressing the 42 billion dollar mark. “Supply pipe lines” of manufacturers, wholesalers and retailers “generally are filled,” admits the U.S. News. Yet inventory accumulation has been continuing at a rate of close to a billion dollars a month. With higher production, this rate must be stepped up. So long as prices shoot up, these huge inventories remain “profitable.” But with any serious break in the price structure, they threaten to back up on production.

Thirdly, the capital goods sector – “business investment in plant and equipment” – has also been saturated. If instead of a “levelling off” process a sharp decline is registered in this field, then a depression cannot be averted.

Among the shakiest segments of capitalist economy is its credit structure. Commercial and agricultural loans are more than double pre-war levels, pressing the 15 billion dollar mark. This figure does not include real estate loans and consumer credit. In effect the boom has been kept going by the manipulation of the credit system whereby private debt, has been increased by almost 40 billion dollars since 1941. A sudden clamping down of credit would topple both the inventory accumulation and the price structure. Continued credit expansion, on the other hand, is the primary condition for sustaining the inflationary boom, but it only postpones the day of settlement, and nothing more.

In the estimation of capitalist experts the above listed “weaknesses” are fully offset by the “sustaining” factors. Their guess is – and it is only a guess – that nothing will happen to upset the economic apple-cart for another six months.

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