New Stimuli for Old


DURING the three weeks from October 24 to November 13 the New York Stock Market crashed from great heights and took with it the speculative profits and a large slice of the capital of millions of men and women, including thousands of bankers and professional traders. In a space of twenty days the market values of listed securities dropped more than forty-five billions of dollars. Never before in such a short period of time had there been such a precipitous and calamitous depreciation in the assumed value of paper fortunes.

With the memory of those disastrous days still vivid, it is much easier to picture what might have been than to anticipate what will be. The past is clear enough; but the future is obscured by clouds of uncertainty. On the one hand, an atmosphere tinged with ‘blue’ makes enthusiasm impossible; and on the other, a deep faith in the resilience of America makes permanent pessimism unacceptable as a working philosophy. So clear are the factors of yesterday that should have been anticipated that it seems almost juvenile not to be able to discern what to-morrow has to offer — yet the most ardent wooing does not give any assurance that we have won the secrets of the future.

It is reasonably certain, however, that even without a serious stock market crash in November 1929 there would have been a substantial recession in the business of 1930. The feverish intensity of industrial and commercial activities during the first six or nine months of 1929 seemed out of line with the possibilities of a continuous economic programme. Whereas there are no theoretical limits to production and consumption, there are definite time limits to them, and demand, generally speaking, cannot be increased 20 or 30 per cent within a twelve months’ period without the probability of a maladjustment ensuing.

The automotive industry, the nation’s greatest enterprise, had reached a pitch of activity in the first part of 1929 that could have been followed only by a sluggish period. In the past the industry had produced at a speed which consumption did not justify, and as a whole it failed to adjust its programme to a proper interpretation of the absorption power of the world. Since, however, the necessity of a readjustment was apparent as far back as 1928, there must have been extenuating circumstances to justify the production schedules of 1929; and the probable reason for overproduction was the surprising recovery of Ford and the natural desire of other manufacturers to retain the sales volumes they had built up during his temporary withdrawal from the market. But even if the craft as a whole had recognized the impossibility of advancing production schedules from the four million, six hundred thousand figure of 1928 to the five million, six hundred thousand total of 1929, it is doubtful whether in a capitalistic and individualistic system like our own many manufacturers would have assumed the responsibility of eliminating the dangers of maladjustment by reducing schedules. Then, too, it is an unfortunate fact that, in spite of the progress made by American industry in the substitution of a merchandising philosophy for unregulated mass production, there is still much uncritical devotion to the latter, and expertness in anticipating probable public demand is largely lacking.

The radio industry also gave promise of a serious reaction for the year 1930. The number of competitors had grown tremendously during 1929, and the power and productive ability of many plants had been actively developed during the year. The plans for the fall season were based upon the hope of obtaining large increases over the corresponding period of the preceding year. Six weeks previous to the market debacle, the expectations of the industry were threatening to fall short of fulfillment. The popularity of the radio had suffered; there were no political campaigns to stimulate sales. No startlingly new mechanical improvements had developed, and the product had now to depend more upon replacement than the purchase of initial equipment for its distribution. Overproduction became an assured fact; and 1930 was likely to show, especially in the first months, a marked recession.

The building trade was likewise unpromising, although in this case the factors were not quite so clear as in the case of radio and automobiles. Scarcity of capital seemed to be an immediate cause of the very bad situation of the builders. Underlying that condition, however, was another that had exerted an adverse influence on the industry for months before the stringency of capital caused activities to drop precipitously. The post-war building programme had reached a point of relative stabilization, and the great change which had caused Americans to develop suburban rather than urban districts for dwelling purposes had likewise reached a point of reasonable stability.

Finally, the foreign trade of America had been tapering off for some time before November. The circumstances responsible for this phenomenon involve many of the most confusing and comprehensive elements of international economics. For the moment it may suffice to point out that there were three constituents chiefly responsible for the loss of a part of America’s export market. The inability of Europe to export its goods in sufficient quantities to America made the importation of American goods an unwise policy for Europeans. The recovery of Europe made importation less necessary; this was particularly evident in the importation of American foodstuffs during the fall of 1929, when high prices of American cereals, combined with bumper crops in Europe, reduced the exodus of wheat and other grains from American ports. And finally, the marked decrease in European financing which took place in 1929, particularly in the latter half of the year, removed European credit, the annual creation of which had been the basis of Europe’s ability to maintain large portions of its purchases of American goods for the past fifteen years. This situation was markedly aggravated by the export of European capital to the American money markets. With the rise in call rates and the absence of safe opportunities in Europe, free capital from the old continent came pell-mell into the call market or into the boiling security markets of the United States. The withdrawal of this capital from Europe weakened her ability to finance her own domestic projects and simultaneously reduced the wealth which she could use for the purchase of American goods. So real was the effect of the financial situation upon American exports that the second half of 1929 actually began to show marked decreases.

Even if the influence exerted by last November’s break in security prices could have been entirely eliminated, the export trade situation would have been likely to exercise an adverse influence on American business throughout at least the major portion of 1930.


Whereas, of course, automobiles, radios, building, and exports comprise by no means all of American business, they represent a substantial factor in the nation’s trade, and the securities of these industries were among the leaders in interest and activity upon the exchanges. With somewhat of a recession in business an assured fact, the stock market crash hurled itself upon an industrial structure whose supports were already weakened.

In this story there is a fundamental certainty. It is that in 1929 an era of American business came to a close, not merely as a result of an unheard-of cataclysm which might or might not have taken place, but as the natural consequence of an exhaustion of possibilities. It would seem that most of the signs pointed to a definite recession of business in 1930. In almost every one of the nation’s key activities, a point of stabilization had been reached. Almost every business discovered that its leap into apparently infinite sales possibilities was handicapped by a ball and chain of whose existence few people had been actively aware.

The old decade has closed. A new decade begins, and it is time to wonder whether the old channels of development still have vitality for new records of achievement such as the progressive needs of economic life demand from every epoch.

Economic stimuli of some kind are essential to advancing material welfare. At whatever expectation of a larger horizon for American trade we arrive, we must first have distinguished the basis for such an economic impetus and discerned the catalytic agents of tomorrow. Looking back to the relatively golden economic ten years just ended, it is not difficult to discover the elements that caused them to reach the high-water marks of industrial prosperity. From these perhaps it may be possible to glean some hints as to the forces that may stimulate the next decade to even greater activity and raise a stabilized industrial programme to a new and higher level.

Many factors contributed to the development of American prosperity in the decade just closed, and a full description of the rôle they played is neither advisable nor necessary. Those, however, which were new as well as potent and which truly altered the conditions of business activity — those, in brief, which were genuine stimuli for the American economic organism — may be reviewed with an eye to their potentiality for the future.

A first consideration in any story of the years 1920 to 1930 must be the war, for as a result of the war and the post-war deflation there was in the treasuries of the United States nearly one half of the gold supply of the world. It was this hoard of nearly five billions of dollars that constituted the foundation for the credit structure of industry and commerce.

Money by itself can, of course, supply no spontaneous impetus to business, but as a vehicle of trade development it is essential, and its lack is a serious handicap. With wealth and capital plentiful, American industry proceeded to develop a mechanism that produced unprecedented results.

Perhaps the most important complex of elements lay in a patently idyllic development that saw many thousands of Americans take to the outskirts of cities and establish their homes on lots where only several months before weeds and sprinklings of flowers had grown. During the decade an extraordinary revolution in the dwelling habits of the American people took place. To a substantial degree the people of the United States changed from urbanites to suburbanites. The environs of most of the cities of the nation changed from open country to realty developments, and building received an impetus that measured itself in billions and kept the suppliers and workers actively engaged in profitable endeavor.

It is not necessary to try to discover the psychological factors which stimulated this change in American habits. It is relatively simple, however, to see that three purely industrial elements contributed tremendously to the change. Realty organizations with their persistently aggressive and persuasive methods added not a little to the development; available capital and credit made the financing of new homes reasonably easy; finally, but most important, the expansion of the automotive trade, with the consequent reduction of prices on automobiles, made possible a convenient and rapid means of transportation to places of business or employment and to shopping centres. The automobile was an ideal means of eliminating physical isolation and establishing the necessary lines of communication for the gregarious group that wanted to get away from city atmosphere and at the same time have it near enough to enjoy at will.

The automobile, having contributed markedly to the development of the building trade, received in turn advantages from the changed habits of living upon which the construction boom was founded. The automobile changed from a luxury to a necessity, and the decade reflected the result in an increase in the rate of production from about two million to over four million cars annually. But even the suburb and the automobile were only links of a concatenation of forces that acted with incredible speed and impact upon America.

Style, technical improvements, and the deferred-payment plan were the major stimulants of economic growth. This was not the first time they had been introduced, but it was in 1920-1930 that the intensity of their development became of the utmost significance.

The emphasis on style that characterized American life made the owner of a car a prospective purchaser of a new model long before the usefulness of the old was at an end; and the possibility of buying cars on the installment plan made purchasers of many people who could not have bought out of capital but who were willing to buy out of income. But the development of style and installment buying embraced more than the automotive industry. The application of style to necessities as well as luxuries fitted in with the speed of living and the desire for change characteristic of the decade; and so the markets which would have been saturated in no great time, had utility been the sole foundation for sales, were rapidly re-created.

Consumer financing performed the miracle of advancing to each year a purchasing power that depended for its actual creation upon a subsequent year. During the past ten years installment selling was applied to an immense range of goods. Automobiles, houses, radios, refrigerators, furniture, even clothing, were sold upon the deferredpayment plan. From a figure of about one billion dollars of installment sales, the total mounted to over five billions; and the addition of these four billions to the purchasing power of the American people was obviously a tremendous stimulant to industry.

Nor were installment sales of goods limited to the domestic areas of the States. Even exports were financed on long-time credits. Capital was contributed to Europe with a lavish hand, and this, combined with aggressiveness on the part of American industry, established the past decade as a period of unprecedented export figures. By 1929 the total reached about five and one-quarter billions, representing a surplus over imports of nearly a billion.


Those were fantastic figures of trade, both domestic and international, that graced the income statement of American industry during its golden age of commercial activity. Prosperity was undoubtedly spotty, and the social progress that accompanied business activity may have been of doubtful quality; but the purely quantitative aspect of the country’s business formed unquestionably an astonishing record.

With increasing markets there went hand in hand relatively high wages and highly developed standards of living. By an annual advertising campaign whose budget was over one billion dollars, the American public was taught to desire. And, since wage levels remained reasonably high and continuity of employment was assured in many industries, a purchasing power that enabled the enlarging desires to be fulfilled was available in steadily increasing amounts.

Industry, precluded from lowering wages, sought to circumvent increasing production costs through intensification of the mechanization of the manufacturing process. Unit costs declined, the productivity of each worker was increased, the percentage of workers decreased, and the ranks of distribution were augmented from the ranks of production. The emphasis was shifting to distribution, and more and more people became engaged in selling what a steadily decreasing number of individuals were making. One of the results, indeed, was an increase in selling costs that discounted in part the economies of manufacturing; but at the same time there was no question that these expenses made possible the extraordinary schedules of mass production.

Students of science and the laboratory doffed their academic gowns, rolled up their sleeves, and became integral members of industry. New methods and new products were born of the formula and the test tube and were dangled before the eyes of a public avidly desirous of the latest thing in the latest field of consumption. Supplantive competition, as it has been aptly called, undoubtedly destroyed capital and created maladjustments within established industries, but it also brought new demands into being, built new plants and machinery, and in other ways as well stimulated industry during the entire decade. This was no period for jaded palates, closed ears, and indifferent eyes. Giants arose full-fledged and large of bulk, like so many infantile Gargantuas. A radio industry was born and grew to immense proportions within a few years. Electrical refrigeration made great strides, and in its progress pasted the label of obsolescence upon the time-honored ice wagon. Labor-saving devices within the home made women’s occupations easier and business better. In retrospect, the decade of 1920 to 1929 was startlingly dynamic, even to the point of being fantastic. If ever there was justification for Henry Adams’s theory of the acceleration of historical tendencies, it was now. History seemed to be following the course of an object falling in space; its speed grew steadily greater.


What the next ten years hold for us is a natural question. Will the present situation represent only an unpleasant gap between a past and future of feverish industrial development and activity? Or will the years just closed remain for a long time a beautiful dream of what used to be? It would be easy, and perhaps correct, to rely upon the ingenuity and progressiveness of American industry for a future that will hold only greater accomplishments and more complete prosperity than ever. But unfortunately, if this becomes a blind faith, there is a grave possibility of its leading us to overlook many pitfalls that can delay and may even divert our proper destiny.

Recovery to the previous levels of activity is to be expected. But industry requires for its stability new and expanding markets; and if men and nations are to progress, past records are not sufficient. It is here that the problem of the future lies, for in the specific elements that were so vital to the prosperity of the past decade it is not possible to discern many trustworthy signs of substantial additional development.

To anticipate a stabilized schedule of about four million cars is a matter of reasonable expectancy. Cars are mortal. Seven years represents the full period of economic usefulness for a modern automobile. With nearly twenty-three million pleasure cars registered in the country, the annual replacement market alone should approach within a few years over three millions, and beyond this figure some demand within the nation should come from increased population and new users.

The probability, however, of an addition of three million units to the annual production of automobiles — as occurred in the past ten years — seems anything but likely for the next decade. Increasing population can bring only a slow accretion to the annual sales volume of the automotive trade, and the number of new users offers no dramatic possibilities because of the large percentage of the population which already possesses automobiles. In theory, every one of the thirty million families of the nation can own an automobile, and it is not altogether impossible that eventually they will. But before this comes about, tremendous changes and developments in the economic system will have taken place. To expect any huge increase in the number of new automobile owners is, therefore, to hope for too much. Even now many owners have stretched their resources to purchase an automobile; and, with all the desire in the world to retain what is already in their possession, some of them will probably have to surrender their cars.

The building trade, too, offers prospects of only limited recovery. The increasing needs of the people and of industry are sound bases upon which to build the expectation of a continuous construction programme in America, but there would be no justification in anticipating a recurrence of the feverish activity of the major portion of the past decade. No war gap, as in 1920, remains to be filled, and the tremendous social revolution which took people out of the city has reached a point of relative stability. Undoubtedly there will be a continuation of suburban growth, but in the form of normal evolution rather than such a dramatic and intensive development as that just past.

Nor do those new industries that have shone sufficiently in the light of industrial experience to cast a shadow of their possibilities into the future seem to be as rich in potentiality as they were. Radio is still in its infancy and will experience great development; but the industry has already gone far enough to indicate that its future, too, will be one of more orthodox development than has hitherto been the case. Television alone offers tremendous possibilities of revolutionary expansion within the radio industry, but television will probably not be an active commercial influence for another five years.

Even less can be said with certainty about the other development that began to draw to itself a flock of industrial and speculative neophytes. Toward the close of the last decade aviation appeared upon the industrial horizon as one of the great economic stimuli of the future, and in a country made air-conscious by the dramatic exploits of pioneers the future was discounted with astounding suddenness. There is, of course, no reason to doubt the prospects of the aviation industry, but there is every reason for believing that its real development is still some years removed. It is certain that the opportunities of the next five years will be limited by the experimental problems inherent in the youthful and revolutionary character of the industry.

Style will undoubtedly continue to play an essential part in the activities of business, but style too has covered such a wide range already that its intensification does not offer the same possibilities of sales stimulus that it did. Exploitation of style there will be, but it will represent intensification rather than the tremendous revolution in selling methods that marked the past.

And as for the use of the deferredpayment plan, while it is certain that it will continue on its road of development, it gives no evidence of growing as rapidly in the next ten years as it did in the past decade. So many industries for which it has proved valuable have taken full advantage of its possibilities that the field has passed the point of extensive cultivation and has entered the stage of intensification, with the inevitable consequence of diminishing return. Capital essential for the plan will probably be adequate, but there is very little likelihood of such a plethora of funds as in the past ten years.


All told, then, even if there is no justification for the assumption of constantly diminishing consumption in the home market, it is possible to see that from most of the stimuli of the past decade comparatively moderate progress and rehabilitation alone can be expected. Little assurance of a period of prosperity that can equal or overshadow that of 1920-1930 is to be found in the characteristic incentives of the past.

But new stimuli may take the place of the old, and behind the industrial future of America stretches the sociological background of a people with inexhaustible needs and desires. They represent unlimited markets, and offer the basis for active sales cultivation as rapidly as purchasing power can be created and distributed. The American public is st ill on this side of the horizon of its probable demands; and actually its purchasing power is still the greatest in the world.

Some new possibilities fortunately give significant promise of realization within the coming decade. Railroad electrification offers an economic stimulus to trade of no small proportions. The probable extension of electrification to half of the nation’s communities and homes now without electric service will involve billions of dollars and should serve as a vehicle of prosperity for the power companies and the suppliers of electrical appliances. But even these possibilities in their totals, staggering as they can become, are hardly likely to bulk sufficiently large in the practically unmeasurable needs of the American nation to ensure the continuance of the past rate of development.

Additional stimuli must be found to swell the ranks and add their impetus to the vehicle of American business and material welfare. Of other new industries, little can be said. Like everything that is beyond, they have their lure, and speculation on their possibilities may be indulged in freely. Everything, of course, is possible in the great unknown, but in the immediate time to come there must be something tangible upon which to base expectations, and of this there is as yet little sign.

Other fields and vistas, nevertheless, are not entirely out of the question, and very real possibilities exist in the farming and the export activities of America. The farm problem of the United States has been acute for some years, although it may very well be that in essence it is not as serious as the agricultural interests would paint it. On the other hand, the economics of the farm situation are so obviously unfavorable that the problem cannot be as easily dismissed as it is by industrial and banking interests of the East. There is in a country like the United States a serious maladjustment between the benefits of protection for its industry and the burden of free trade for its agriculture; and the problem is not yet solved. If, however, a solution should come, it ought undoubtedly to reflect itself not only in the improved conditions of the farmers but also in a greater home market and a more prosperous nation in general.

But even the promise of an adjustment in this complicated and politically harassed situation pales before the spectacle that unrolls itself as America looks abroad and sees market after market lying peacefully before it, like some bounteous South Sea island awaiting the coming of the man who will pluck its fruits. More important than all other promises of the next era of America’s enterprise, more capable of wise direction, more easily withered at the root if left to haphazard or opportunistic or traditional methods, is the export trade. It was noted that during the past decade the exports of American industry were among the important reasons for its prosperous condition. And it is no other than this development of American world trade that presents one of the greatest instruments for future progress; although it contains also one of the greatest problems any nation can face in the protection of the past records of industrial activity.

The world is now only at the threshold of industrial and commercial expansion. The industrial revolution that started some hundred and fifty years ago is but moments old in the history of mankind. Only a small portion of the earth’s circumference has felt the effect of modernization, and human beings have on the whole advanced but little beyond the satisfaction of the bare necessities of life. The possibilities of new markets, new industries, new needs and desires, become overwhelming if even the slightest increase in the demands of all men and women can be effected. America is almost a solitary oasis in a desert of life lived largely on a primitive plane of consumption. The standards of material wellbeing of America are unequaled, and for the most part unemulated. The consumer markets of only Western Europe as yet have shown appreciable areas of cultivation, and even here there has been much barren land. But as history marches on, the hinterland of consumption must be gradually thrown back and new territory opened up for civilized wants. History has exhibited this tendency for many centuries, and history moving on the wheels of modern transportation facilities and on the wires and waves of new means of communication has been speeding up perceptibly.

New districts will be laid open; old districts will be modernized; economic missionaries will be untiring and efficient in their efforts. The volume of world trade, fifty years from now, can make insignificant the figures of to-day that seem so Gargantuan. A treasuretrove of unheard-of proportions lies in the far-flung areas to the north and south, to the east and west. Asia, Africa, South America, arc only at their dawning in industrial and commercial possibilities.

To Europe and America belongs the trade development of the world. For these two continents is the opportunity available; within them are the experience, the knowledge, and the instruments of proper exploitation. During ten years America has stood preeminent. In some ways America is the better equipped for the future. In others, unless she adopts a realistic attitude toward her international financial relation and her trade policies, like the tariff, she is likely to find herself at a tremendous disadvantage.

The American advantages are real. Success in the past ten years, the competitive advantage which comes from a marvelously perfected industrial mechanism, plentiful capital for the creation of credits and loans, present an apparently impregnable base for the future development of w orld trade.

The European disadvantages are equally real. A lack of capital, a war hiatus during which the foreign markets were lost, industrial methods still unequal to those of America, and internal disturbances have combined to impose serious handicaps on Europe in her bid for foreign trade.

Nevertheless, the future gives no assurance that the positions of the two rivals may not be altered or even reversed. American credit will be available, but as American gold is likely to show no great increase, the credit instrument that existed in the past is not likely to be stronger in the future; and as vigor comes back to the tired and wasted body of Europe, American financial superiority is bound to surrender its disproportionate strength. Eventually, too, gold must lose its present importance as the basis of currency and credit. The supply will be inadequate for the growing demands of trade and barter, and the mechanism of banking and credit, with all its progressiveness, docs not promise increased flexibility and speed sufficient to multiply the effectiveness of gold for trade requirements. Some day a new device will appear; although until then the huge reserves of gold possessed by the United States will afford a potential advantage of real value to America. Gold by itself, however, is only an instrument, and its ownership can be advantageous only if its use is effective. The position of the United States in world trade is dependent upon many factors besides gold, and can easily benefit or suffer from them.

Since it is true that international trade is of such importance, it is essential for Americans to understand clearly the factors that underlie it, and to formulate a foreign economic policy accordingly. Chance alone offers no safe plan of procedure. It is obvious also that the figment of American isolation must be destroyed and that knowledge and common sense must replace opportunism and political logrolling. For although in world trade lies America’s strongest foundation for future prosperity, only complete understanding and intelligent direction of international economic relationships will assure to America continued industrial success.