economic cycles before 1940

8/4/2019 Economic cycles before 1940

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BUSINESS BOOMS

and DEPRESSIONS

since 1775AN ACCURATE CHARTING

OF THE PAST AND PRESENT TREND

OF PRICE INFLATION, FEDERAL DEBT,BUSINESS, NATIONAL INCOME,

STOCKS AND BOND YIELDS

A S P E C I A L S T U D Y

o f P O S T W A R P E R I O D S

TENSIONENVELOPE CORE



BUSINESS BOOMS & DEPRESSIONS^ ^ — ^ — ^ — • - ^ — — S I N C E 1 7 7 5 — — — ^ • — — ^ — i — • •

POSTWAR PERIODSA study of he reaction of business activity immediately following previous wars can, in a

measure, act as a partial guide to the future—at least avoid a hasty step into the unknown. Thegeneral pattern o thes e reactions is utlined in this chart by the Red and Greensquares which block out and high light the trends that have followed our previous major wars.

These diagrams indicate a more or less definite pattern o reaction that points up as follows:first, a brief period o uncertainty; then a ear or move o business recovery followed by a shortperiod o depression; then a period o prosperity extending over several years.

Summing up a omparison o these postwa r years we find that they cover a pace o from eightto ten years each, showing less than three yea rs o business recessions and an average o sevenyears o pros perity.

By taking these reactions as outlined in this chart we may sketch a picture o the probables tructure of he postwar economy. We may apply these findings to industry as a whole or toindividual concerns and we will experience the following stages:

Firs t, the s witch-back period— (Period of Uncertain ty) . This will involve s ome turmoil andconfusion caused by reconversion and demobilization; stopping production for war and preparingto produce and sell for peace.

The second phase, or go-ahead period—(Postwar Recovery). Here we begin to produce forpeace-time—producing perhaps a 1942 model or a stop-gap product; building up the new selling

and distributing organizations; preparing, producing, and introducing new products; meeting theurgent postwar demands. '

Third , the perioc o relaps e— (Primary Pos twar Depres s ion) . The immediate pos twar buyingslackens. A slight period o unem ployment and depression may follow (a s in 1921). This willbe emphasized if speculative and inflationary forces lead to business excesses (as in 1919-20).

Fourth , the covales cent per iod— (Pros perity) . Smooth s ailing and s trong bus ines s activ ityperiod. This period begins when a majority o businesses have completed reconversion and areheaded for their typical peace-ti me activities. The possibiliti es o this period, its duration andquality will be determined by business management policies, labor management policies, and thewisdom o Government actio n in the preceding periods.

Whether history will again repeat itself at the end o this war and throughout the ensuing yearsremains to be seen Many factors involved in the presen t situation did not exist at the end oformer wars. This var is conducted on a much broader scale with more intense and concentratedutilizatio n o econonric resources. The cost involved is much greater.

General fear o an immediate postw ar depression has no sound basis. The principal thing tofear as the possible) cause o such a depression is that fear i e This war has shown men howto accomplish the impossible, by the release o pow erful new reserves in the human spirit andimagination, and i pro perly directed and intelli gently applied, could lead this nation on to greaterheights o progress and accomplishment than ever achieved before, placing American productsand standards o living on a world-wide basis.S ou r c e : E xc e r p t s f r om " B u sin e ss Plan n in g Now f or V Day" b y T h e C ommit t e e f or E c on omic De ve lop me n t ,

W ash in gt on , D. C.

NATIONAL INCOMEWe can, in a measure, visualize the magnitu de o this war by comparing our National Income

during World War I in the years o '17, '18 and '19 with that o our 1942 income and our anticipatedincome for 1943 (See Green line on the chart ).

In 1919 our National Income totaled 70 billion dollars. In 1942, it was approximately 120 billiondollars, and the estimated income for 1943 is 146 billion dollars.

The impact o the se vast amounts o money staggers the imagination. Our National Income rosefrom 77 billion in 1940 to 120 billion in 1942, an increase o 43 billion. The 1943 estimate o 146billion will show an increase o 69 billion dollars over 1940.

Of the 120 billion National Income for 1942, the total compensation or share to employees repre-sented 83 billion dollars. Of this sum 13 billion dollars was paid in salaries and wages to Governmentagencies, which included our Armed Forces.

The 1942 income was derived from the following t principle sources and in the order named:Manufacturing, Trade, Government, and Agriculture.

The spectacular rise in individual savings in 1942 is in keeping with our National Income. Theyrose from 13.7 billion dollars in 1941 to 35.2 billion dollars in the fourth quarter o 1942.

S ou r S u v y o Cu n B u n

PRICE INFLATIONThe buying power o the cost-of-living dollar has been brought up

to June 30, 1943 (See the White pillars in the green shaded Com-modity Price area bounded by the dashed line from 1939-1943).

The past year has seen the buying power o the dollar shrink from85c to 73c as compared to the 100-cent dollar of 1939. The slowsteady rise in living costs will continue to clip its value. The rise infood prices is especially sharp. The ever-growing scope of scarcity,rationing, and black markets are manifestations o the widening riftbetween diminishing supplies and growing demand.

The demand for food has been increased by several factors: 1—Peak

production work requires more food energy; 2—The needs of ourArmed Force s have increased from 4 % in 1941 to over 25% in 1943;3—A surplus o money to spend for food.

One o the weakes t links in our s tabilization program is that o pr icecontrol and its principal problems are: First, to keep prices down inthe face o supply and dema nd which would ordinarily result in sharpincreases without control. Second, to distribute scarce food equallythrough rationing. Third, to keep prices at levels sufficient to maintain

or increase production. The conflict between the first and third problemshas thus far constituted one of he toughest, knottiest tasks of hewhole price control program. I

The cost o food is the biggest item in the w orking man's budget.When prices rise he notices it at once and it hurts. This follows withdemands for higher wages which in turn automatically increase thebasic cost o food. These incre ased costs spur the farmer to ask stillhigher prices and another full, upward turn takes place in the infla-tionary spiral. ;

This problem is aggravated by the greatest accumulation o excessbuying power in history (a surplus o money to spend) estimate d atbetween 40 and 50 billion dollars. The situation as a whole is one odeep concern and must be held in check if we are to prevent a un-away inflation after this war and a subsequent deflation or sudden dropin prices and the long years o deflated prices tha t follow (See Com-modity Price peak, 1920).

The most encouraging report thus far in the price inflation fight isthat o the Bureau of Labor Statis tics ndicating the cos t o liv ingfor city workers has dropped 0.8% on a nation-wide average betweenmid-June and mid-July. This is the first substantial decline in the past2 /2 ears.S ou r c e of Dat a: S e e ab ove c h ar t — B u r e au of L ab or S t at ist ic s— U. S . De p t . L ab or .

FEDERAL DEBTThe Federal Debt (s ee red line on the chart ) is now around the

150 billion dollar mark and will continue to increase each day, with a possibleprospect o i ts reaching 300 billion dollars when the war is over. Congress hasso far appropriated 338 billion dollars for war purposes.

The all-time record in the increase of he Federal Debt occurred when tjumped from 50 bill ion dollars in 1941 to 150 billion in 1943. Such fabulousamounts in dollars have in a measure become meaningless. We can best realizehow vast these amounts o money are by the following comparison:

The total assessed value o a ll the property in this country, all the homes,factories, farms, lands, and personal belongings against which taxes are levied,amount to approxim ately 150 billion dollars. This sum is equal to our presentdebt, or in other words, the debt has reached, and in some areas passed, thefirst mortgage value o the property o the nation. If he debt reaches the 300billion figure it is twice the assessed value o our nation's property.

The neces s ary cos t o th is war i not important. Victory is worth the pr ice.Whatever the cost to the future citizens is, they will get their money's worthin benefits derived. This does not and cannot mean, however, that the peace andthe future be jeopardized by excessive costs and unnecessary spending now.S ou r c e of Dat a: U. S . T r e asu r y Re p or t s. E st imat e s Nat ion al Pr op e r t y Valu e s b y Re p r e se n t at ive

Alb e r t J. E n ge l of Mic h igan .

BUSINESS ACTIVITYIndustrial Production continues at near capacity with increases in war

production that of et declin ing civilian manufacture. This h igh rate sbeing accomplished in the face o the accumulated s train o three yearso intensive effort. Airplane and ship construction continue to expand.Steel production has been temporarily hampered by coal strikes. Electricoutput continues to increase.

Vast consumer buying and higher prices hold the dollar volume o r etailsales at a high level.

The business volume scale still points up. When this peak will bereached, will be determined by the over-all fu ture developments o the war.

Stocks : Stock market prices reached their best levels since 1940. Futurewar news and the inflation outlook will have an important bearing on thes tock market. (See CHAIN L I N E I - I - I - ) .

Bonds : Low interest rates continue to prevail. Average corporate bondyields at 3.2%, Municipals 2.2% and Governments around 2%. WarBonds dominate the cons umer s aving market. (See DOTTED LINE

).



T H E C E N T U R y P R E S S

W E S T T O L E D O S T A T I O N , B O X 6 • • • T O L E D O , O H I O '

economic cycles before 1940

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