Is American Business Deluding Itself?


I PROPOSE to present a cold-blooded analysis of the facts bearing upon the American business outlook.

Whatever merit can be ascribed to the New Deal in the way of social reform, it must be said that as an economic policy it has failed in its primary purpose of increasing production and employment. I am not going to touch on the very interesting problem of why it failed. It is enough to point out that unemployment at the outbreak of the war still remained at a level of 10 to 12 million people.

Rearmament accomplished what the New Deal had failed to do: that is, to put the whole tremendous American productive capacity to full employment. American rearmament, which started in the spring of 1940 and was given full speed ahead after Pearl Harbor, lifted American economy out of stagnation. Unemployment, since the latter half of 1942, has been reduced to a minimum and then converted into a genuine shortage of labor in many industries. The number of young men inducted into the Army has risen to almost 11 million; yet, in spite of this, the increase of manpower actually employed in production is about 7 million workers. Work hours have increased from an average of 38 to an average of 45 hours a week.

Within the war industries, 20 billion dollars has been invested in new factories. The general size of this investment becomes clear when we remember that the total book value of industrial plants and equipment before the war amounted to only 26 billion dollars. (Granted that this was the writtendown value.) The annual gross national product (the total amount of goods and services produced), which as late as 1940 amounted to less than 100 billion dollars, was just under 200 billion by the spring of 1944. Even after all reasonable reductions on account of price increase and similar factors have been made, this means a real increase of at least 50 per cent in the volume of production from before the war.

The economic uncertainty in America centers in what. is going to happen to this business boom when (1) the Federal demand for war materials diminishes and gradually disappears, and (2) the central control is replaced by free enterprise.

Except for Nazi Germany and Communist Russia, — that is, for centrally directed economies, — we have no historical precedent for the stabilization of a boom. In an unregulated capitalistic society it appears that a boom must always have an end and lapse into crisis and depression. We must remember that America failed at the much easier task of ending a depression, and that we, in our well-organized, easily managed little kingdom of Sweden, did not succeed too well either. To stabilize prosperity in a free economy is a different story. And this time the American boom is much greater than any that has gone before. How can chaos be avoided once the enormous inflationary pressure and the balancing controls are simultaneously removed?

A merican Optimism

Two or three years ago the opinion held by experts and the American people generally was that after the war a severe depression with widespread unemployment threatened. But throughout America today, one is surprised to find a much greater optimism. Americans generally believe that they will manage to carry over the war prosperity into the years of peace, and they believe that this is going to happen somehow through the free interplay of economic factors. I have tried to analyze this optimism and this is my conclusion: that it is a questionable deduction based on the success of the war production.

This success is remarkable, and it shows what American business can do in technique, organization, and ability to expand when unlimited purchasing power is put behind an insatiable demand. Such, however, will not be the case in the post-war years, especially in view of the pressure for orthodox financing. The expansion had its technical and economic difficulties to overcome, but economically it is much easier to achieve expansion than to maintain the level after the supporting purchasing power has been removed.

Behind the optimism there is also the American tendency to be overconfident as long as things are going well. One who was in America at the end of the twenties recognizes much the same mood today. Then it was the general opinion of business people — and, alas, of economists — that there would never bo another depression. Doubtless optimism among business people in itself acts as a business stabilizer, since it leads to a willingness to take risks and to continue investments. But the lesson of 1929 shows that when the entire economy is out of balance, no amount of optimism will prevent a crisis.

A natural endeavor to keep up war morale is also part of the explanation. In a country at war it is not patriotic to see the future otherwise than optimistically. Nobody wants to be a defeatist, and that fact induces a mass suggestion which influences even expert judgment.

Behind it all there can also undoubtedly be found conscious or unconscious interests of a political nature. In a situation where the people demand full employment, the simplest way, of course, of preventing the spread of radical ideas is to promise that free enterprise will take care of that. But this promise may be a dangerous political gamble. If private enterprise should prove incapable of maintaining full employment, then popular dissatisfaction might result in a really dangerous radicalism. Rightly or not, American business is determined to have a minimum of government interference after the war — and the simplest way to support this opinion is to state that it is not needed. And to do that, optimism is required.

Can This Optimism Last?

American economists largely share the optimism of the business world. But I myself am troubled by this attitude toward post-war problems in America. I want to review the general reasons for my pessimism.

Let me first give the broad outline of reconversion as I see it, approaching the problem first from the point of view of employment.

The armed forces have to be demobilized. At their greatest strength they will have absorbed 11½ million men, and the War Department has so far in its estimates counted on a peace strength of 1½ million men. But the foreign political situation is getting darker. Let us, therefore, assume that national security after the war will require 2½ million men instead of I½ million. That means that some 9 million veterans will have to be placed in peacetime production.

Furthermore, war production will have to be cut down. The production of planes will conceivably be reduced to only 5 per cent of its present level; the shipbuilding industry will probably shrink to from 7 per cent to 10 per cent of its present production. The manufacture of machine tools during the last three years has been ten times as great as in any year of peace. The synthetic-rubber factories are expected to reach yearly production in 1944 of 800,000 tons, which exceeds by more than one third America’s total peacetime consumption of rubber. The steel industry now has a yearly capacity of 90 million tons — 10 million tons more than before the war. The output of aluminum has multiplied ten times since 1938. Magnesium production has risen from a meager 2410 tons to 300,000 tons.

Let us assume that the reduction in employment in the war industries will amount to about 5 million workers, — perhaps more, — of whom at least 80 per cent will have been employees of the four large groups of airplane, shipbuilding, steel, and machinetool industries. But the demand for labor within certain other industries which have been kept back during the war — for example the paper, textile, leather, glass, and furniture industries — will presumably rise by at least a million. Consequently industry as a whole will release about 4 million workers. We should then have a total employment in industry of 14 millions, compared with 18 millions at present, and 10 millions before the war. Out of transportation, perhaps half a million employees will be released. The war agencies and the enormously increased Federal administration will probably release more than a million persons.

If we sum up these figures, — 9 millions from the armed forces, 4 millions from industry, ½ million from the transport system, and 1 million from public administration, — we reach a total number of released persons amounting to 14½ millions. It must be pointed out that this estimate of necessary changes within the production system is not only a minimum figure, since the calculations concerned are on the basis of the supposed maintenance of full employment, but also a net figure covering the transfers between the larger sections of industry. Even with the most favorable assumptions, the shifts during the conversion period will involve almost half the American working population.

Absorption of Workers

To what peace industries are the people in search of jobs to be transferred? Suppose 3 to 4 million women, young people, and people over retiring age voluntarily withdraw from industry: even then, some 11 million job-seekers will remain. Perhaps a million will return to agriculture — though this figure is probably too high. In the event of full employment, trade may provide work for 2 to 3 million more than during the time when the pressure of war caused a labor shortage. Various service industries (including employment as domestic help) will, under favorable conditions, absorb a further 3 millions. But 4 to 5 millions remain.

If we further assume that from 1 to 2 million workers, even under the most favorable peacetime conditions, are always temporarily unemployed in the process of moving from one job to another, then jobs must be provided for between 2 and 3 millions in the building trades. At the bottom level in the war this industry employed only half a million. After the war, employment ought to be increased to around 3 millions. This would presuppose a building program amounting to about 15 billion dollars a year.

Thus the magic circle is completed. We have arrived at the peacetime balance in the national economy. Such calculations are frequently made in America. I have been following those put forward in various publications by Professor Alvin H. Hansen of Harvard University.1 Variations of the figures do not affect the general result of the calculations, which are intended to give a simple picture of what conversion to peace really means. But as a justification for optimism concerning peacetime business, these calculations are worthless. The analysis as a whole is altogether static. It is not at all concerned with how the whole procedure is to be brought about — by developments over a period of time. As a method of creating belief in good postwar conditions, the analysis is merely begging the question: it presupposes full employment and then studies the direction of demand for manpower required for realizing this presupposition. If we assume that there will not be full employment, then the release of manpower in industry will be greater in all industries and the possibility of providing the unemployed with new jobs will be less everywhere.

What Full Production Means

When I approach these basic questions from the standpoint of production of goods and income, I am no less troubled by the economic outlook. Here I follow the brilliant study prepared in the Bureau of Foreign and Domestic Commerce by S. Morris Livingston, entitled Markets After the War, which has become the Bible of optimistic post-war planning in America.

Livingston’s study is a projection into the peacetime future of the term “full employment.” His calculations refer to 1946, but could have been made for any other year. He analyzes the meaning of full employment in 1946 as follows: —

Between 1940 and 1946 civilian manpower will rise by 2½ million persons because of the increase of population. After making due allowances for the post-war needs of the armed forces and the withdrawal of women, the overaged, and the young people who are now gainfully employed in war work, and for inevitable temporary unemployment, full employment in 1946 will call for around 56 million jobs, or 10 million more than the United States managed to provide in 1940.

The productivity of labor per working hour is assumed to rise by around 2½ per cent a year. The work-week is expected to go back to 38 hours, which was the average in 1940. From these assumptions Livingston concludes that the gross national Income, in 1940 prices, will then reach 142 billion dollars compared with 97 billion in 1940. In terms of 1942 prices, it will amount to 165 billion. In the event of stable full employment the national income would rise by 3 per cent a year, which would mean that the calculated gross national product for 1948 would amount to 175 billion dollars if reckoned in terms of the money values of 1942.

Livingston carefully points out that he does not claim to make predictions about the future. The calculations merely show what full employment would mean with respect to production of various kinds of goods. Conversely, he points out that if the real volume of production in 1946 merely equals that of 1940, which was not a bad year in comparison with the thirties, then the number of unemployed would considerably exceed 13 millions, even if the working week in industry should amount to only 33 hours instead of the present. 45 hours.

Livingston’s exceedingly interesting study poses two important questions relating to economic prospects. First, numerous industrial companies and branches of industry have made extensive calculations on the basis of Livingston’s inquiries into total production and national income, concerning their own production and their own investments. I asked to what extent the results of their calculations, if put together afterwards, would correspond to Livingston’s total figures. The reply was that they would run at a considerably lower level. This means that the respective enterprisers merely believe in full employment in general. Actually everybody wants to pursue for himself plans which will not require of him full employment and production. A downward movement would thus take place, with the consequence that the plans of production would be still further reduced, and so on.

Lower Wages and Larger Sales

The second question is concerned with the starting point in Livingston’s analysis: that full employment after the war would require an immediate 50 per cent` increase of total production and national income compared with the pre-war situation. From what source will the purchasing power and demand come when the government no longer requires almost half of the national income and production for purposes of warfare? This question applies, of course, in the first place to wages.

Are the American enterprisers likely to stand up before the country and declare that the critical economic situation compels them to suggest a huge rise in wages in order to create a sufficient basis of purchasing power for production at a level of full employment? Such things do not happen in real life and hardly ever even in the world of fiction.

We must understand the position of the enterprisers as individual employers. They are now actually suggesting a reduction of wages if, as they say, it is a fact that sales prices subject to price control and competition have risen less than wages. That the total net profits of industry, in spite of tenfold taxes, have been doubled is due, they contend, merely to the circumstance that the greatly increased volume of output, because of the improved utilization of production capacity, has resulted in a wider distribution of overhead costs; per unit of production, the net profit of industry has decreased by about 10 per cent.

Since the employers in their wage policy dare not rely on continuing full employment and hold the view that, in any event, it can be maintained only by reduced costs of production, it does not matter how much they believe in the stabilization of full employment and boom conditions in general. By not raising wages, and even more by reducing them, employers withdraw the foundation of purchasing power for full employment, and the curve begins to move downwards toward depression.

Wages are not the only factor in the complicated problem of the foundation of purchasing power for a continuing post-war boom. Let us assume that individual enterprisers will refrain from striving for a reduction of wages and will even admit an increase of wages; furthermore that the government, by means of continued deficit budgeting, will fill out those gaps in income which may be needed for keeping up boom conditions. Even on the basis of this consciously unreal hypothesis, it appears incredible that consumers would show enough confidence in the future and have enough intelligence, imagination, and culture to increase their standard of living to such a degree and as rapidly as would be required for the maintenance of full employment.

This particular difficulty, which springs from an unsatisfactory basis of income and rigid habits of consumption, is extraordinarily great in America because of the stagnation that lasted an entire decade. Though the increase of productivity continued during the thirties in America, it did not result in a corresponding increase of the standard of living as was the case in Sweden. Thus, in America, the need is not merely to make good what has been lacking during the war, but to achieve the rise in the standard of living indicated by improvements in technology over a period of fifteen years. Since the basic situation is a boom, the increase of the standard of living must be rapid and cannot, as during a recovery, proceed gradually.

Up to this point, I have been concerned chiefly with reasoning from a static conception of the question. I wish now to discuss the problem briefly from the dynamic point of view — that is, to analyze critically the special factors in the conversion from war to peace. For convenience I will differentiate between those factors which appear favorable and those which appear unfavorable for the maintenance of boom conditions.

Favo ruble Factors

There are several circumstances which immediately after the war ought to contribute to keeping up demand during the transition period. The need of restoring exhausted stocks to normal volume may perhaps, over a few years, create a demand amounting to 10 billion dollars. In addition, there are the extraordinary need for American products from various countries and the demand emanating from the activities of the United Nations Relief and Rehabilitation Administration. These wartime exports amounted to almost 13 billion dollars in 1943. But it appears unlikely that American post-war exports will maintain the wartime volume, which is abnormal and chiefly financed by the United States government through Lend-Lease.

The greatest hopes, however, are tied up with the extensive deferred demand — the demand for all kinds of durable goods which have not been produeed during the war. This supposed demand includes numerous industrial products from kitchen utensils to motorcars. In 1941 there were, for example, 27 million private motorcars in use. The need for motorcars varies, of course, with business conditions. If Livingston’s ideal picture is attained, a total of 32 million motorcars will be required to accord with demand.

Corresponding to these deferred needs there are immense savings in cash or in liquid form. It is doubtful to what extent they will actually emerge as purchasing power on the market. My personal view is that there will not be any sudden outburst of purchasing power, but that the major part of the savings will rather be retained as capital. Yet, by furnishing a higher degree of security, they may encourage people, more than would otherwise be the case, to use up their income without fear for the future — which is important in long-range development. In the short run there will certainly be sufficient means of payment to meet the great deferred needs rapidly.

Yet we ought to be careful not to exaggerate the importance of this factor. The industries concerned belong to the typical war industries. It is for this very reason that the production of durable goods has been reduced so greatly. If the production of motorcars should be expanded to 8 million a year, compared with 6 million at the pre-war peak in 1937, the motorcar industry would still be forced to dismiss several hundred thousand men. This fact is frequently overlooked in popular discussion.

Among the most important of the favorable factors is the expectation that there will be lively building and construction activity. The economic stagnation of the thirties and the limitation of production during the war, which have greatly restricted housing construction, have created conditions favorable for a building boom immediately after the war.

From a quantitative point of view, dwellinghousing production, under the most favorable conditions and with the support of a governmental program, is susceptible of increase to a maximum of 5 billion dollars a year. Such an investment volume would mean that there must be an annual increase of l¼ million family dwelling units — a very high figure. In view of the large investments that have been made in war plants during the last three years, private building activity in fields other than dwelling houses, including construction for the conversion of industries, cannot be expected to amount to more than 2 or 3 billion dollars.

Thus public works — Federal, state, and local — entailing an expenditure of from 7 to 8 billion dollars would be required in order to keep up building activity at a level of 15 billion, which in the long run would be the proper share of the building trades in total production in a regime of full employment. The political prerequisites for the realization of such a program hardly exist in America.

It is generally accepted that the unemployed this time will receive ample unemployment relief. After this war there will be 15 million veterans from two world wars. Together with their relatives they will dominate politics. In many respects they will probably turn out to be reactionary; but with respect to the amount of relief, they will favor a generous policy. The effect of this policy will, of course, be an increase of purchasing power.

High Government Expenditures

In America it is generally assumed that the war in the Pacific will continue for at least one year and possibly two years after the close of the war in Europe. Remarkably enough, this is mentioned among the favorable factors with respect to business prospects. There are two reasons. First, price and production controls will be maintained. Second, war expenditure, financed through deficit balancing and credit, expansion, will not be canceled suddenly but will decline from a level of 100 billion dollars to about 60 billion.

It is amusing to listen to such arguments in conversation with persons who are at the same time prominently backing the triumphant propaganda for the quickest, possible abolition of regulations and the adoption of sound finance as a necessary prerequisite in order that the forces of free enterprise may become effective.

Equally ironic is reference to the great Federal expenditure after the restoration of peace. There is a general opinion among reasonable people that the requirements of the nation, which now run at a level of more than 100 billion dollars, and until the end of the Japanese war will be more than 60 billion, can after the war be cut to not less than 30 billion — 20 billions Federal and 10 billions state and local.

The interest payments on the Federal debt alone, after the war, will require an expenditure amounting to around 5 billion dollars. Defense expenditure can hardly be cut down to less than 6 billion. Pensions and other payments to war veterans will require at least 3 billion. The development of social insurance as planned and as supported by public opinion will require a further 3 to 4 billion. These expenditures alone total 16 to 17 billion dollars. In addition, there are the expenditures of somewhat the same quantitative order for relief, educational and health services, housing, and similar purposes.

We must recall that the Federal budget during the thirties, in spite of the fact that the New Deal furthered a conscious policy of deficit financing designed to create purchasing power and to stimulate production, amounted to a scanty 8 to 9 billion dollars; that is, to less than a third of the amount estimated as necessary to run the nation in peacetime.

As I have said, it is a little strange to hear from the friends of sound finance about the advantages of high Federal expenditure for saving the post-war economy. Obviously the idea is, though it is not clearly enunciated, that government expenditure is not to be covered by revenue — at least not until economic well-being and full employment are completely attained. Claims for a balanced budget have received relatively minor attention, and their formulation is rather abstract. Instead, everyone is outbidding the others in urging reduction of taxes for the purpose of promoting investment and production. I dare to predict that, whatever party may be in control of the Congress, there will not for a long time to come —not during this decade anyhowbe a balanced budget in America.

Unfavorable Factors

Now for the unfavorable factors. It is characteristic of the optimistic attitude in America that such factors occupy a much less important place in general discussion. Thus it is very seldom realized that the post-war period is to be characterized at the start by a steep decline of effective purchasing power. Very great conversion unemployment is to be expected, regardless of the possibility of later achieving an economy of full employment. It is true that the soldiers will receive their discharge bonuses, and unemployment relief will certainly be generous, but this conversion period will inevitably involve losses of income at least for a while.

Furthermore, it is to be recalled that wages in the war industries have been especially high. The decline of these industries will for this very reason result in a considerable tendency towards a reduction of the average level of wages.

The return to normal working time will entail another heavy reduction of income, since overtime has been paid at 50 to 100 per cent higher rates.

Unfortunately, even among professional economists, economic discussion is often chiefly concerned with the overall situation. It is usually not realized that America after this war will face a situation comparable with that of England’s depressed areas after the last war, but on an increased scale.

Since 1940, thirty so-called war centers have increased their population, through internal migrations, by 10 to 60 per cent. When aircraft production and shipbuilding are reduced to a small part of their present volume, certain districts in the states on the West Coast, such as California, Oregon, and Washington, will suffer severely. It is by no means unlikely that almost half the workers in an entire state, such as California, will become unemployed. But the Pacific coast will have the advantage of delay if the war against Japan continues for some time, because continuance of that war proportionally magnifies the importance of the Western states.

On the other hand, the Southern states will immediately suffer from unemployment. Many munitions factories and other similar plants have been located there for which it will be difficult to find any use in peacetime. Along the Gulf coast, moreover, there are great shipyards. Overpopulation and poverty in the surrounding agricultural districts will make things even worse. And industrial districts everywhere — in New England, in the Middle West — will suffer greatly from the cessation of war product ion.

America will be confronted with the huge economic and social problem of how to transfer labor, as between industries and as between geographical regions, into a new equilibrium. In the old — I was going to say the good old — times, when American industry was advancing rapidly, the mobility of labor was particularly great in the United States. In conversation and in public discussions it has become evident that many Americans confidently expect the continuance of this tradition after the war. Yet much has happened in America since the time of expansive free enterprise and mass immigration, not least with respect to the labor market.

Even if the United States should attain good business conditions after the war, it will be very difficult to persuade labor to move away from the unemployment areas. Many people who have moved to the agreeable West Coast will certainly plan to stay there, even if employment is going down; they will continue to hope that conditions will change or that they themselves in the long run will not be the ones caught by unemployment. When hard times come and there is general unemployment, labor, as we know from the hard experience of the thirties, remains immobile even in America.

The conflict over wages has an even more serious significance. Most employers intend to reduce wages. In support of this action they point out that the level of the prices of their products has not risen at all comparably to the level of wages, and that the vast profits are, as already mentioned, the result primarily of the complete utilization of production capacity. On the other hand the workers, who — with the outstanding exception of the coal miners and the several small and short conflicts in various industries — have loyally kept their promises not to strike during the war and in the main have stood by the wage-freezing policy, are generally of the opinion that they are entitled to compensation after the war.

Already the leaders of the trade unions have to make great efforts in order to keep their adherents calm. The fact that, after the full employment of the war economy, workers generally have some money saved will hardly make them less eager for battle. If, then, we take into account the vast unrest accompanying the conversion procedure, mass unemployment in the war-industry areas, and the probably very confused internal political situation, the result may be a radicalization of labor opinion and actual conflicts on the labor front. Unfortunately, we must even contemplate that the race question may emerge in its most terrifying form. An epidemic of violence, expressed in bloody fights on the part of labor, will, without regard to the more direct consequences, have a depressing influence on the development of the business cycle.

Surpluses and Contracts

There are a number of other post-war difficulties which are being discussed more soberly, and for meeting which there have been prepared comprehensive practical plans. One question is that of the wartime surpluses. At the end of the war with Japan these stocks will amount, it is estimated, to some 60 billion dollars in money value, or about a third of the value of the annual total production of the country. The problem is obviously how to get rid of these stocks in such order of time, to such buyers, and at such prices as not to destroy the market for the current production. In my opinion America will succeed in handling the liquidation of the stocks, even though a certain amount of depressing influence on business activity can hardly be avoided.

A more complicated liquidation problem arises from such contracts for deliveries of war materials as will st ill be in force after the war. They will have to be canceled and individual damages will have to be fixed. It is expected that at the end of the war with Japan there will be unfulfilled contracts to a value of 75 billion dollars. This figure is ten times as great as the corresponding figure at the end of the First World War. These contracts are estimated to include about 100,000 principal concerns, but there are in turn more than ten times as many subcontractors, who will be equally dependent on a satisfactory settlement. Consequently the greater part of American industry will be involved in this enormous settlement between the government and private enterprisers.

In addition to the intricate question of how to compensate the contractors, there is an even more difficult problem: the order of cancellation of contracts between the various firms. The company which is first released from its contract will have a better start in the struggle for the post-war market. The companies having the highest costs of production will in many cases be the first to have their contracts canceled, because the Treasury saves money by that procedure. The application of this principle of cancellation will mean that the less effective enterprises will be given the extra advantage of the first change-over to peace production.

The most difficult problem of all will be the disposal of government-owned plants. These undertakings are operated through private companies. In order to get a quick and effective start on war production, the government generally paid whole investment costs of both plants and machinery, and in return retained title to the property. Here enormous sums are involved. Of the factories built during the war, the value of which is put at 20 billion dollars, the government owns three fourths — amounting to 15 billion dollars.

Government-owned plants often predominate in particular fields. The government controls 100 per cent of America’s total production of synthetic rubber and high-octane gasoline for aircraft; 92 per cent of the production of magnesium; 90 per cent of the airplane factories; 50 per cent of the production of machine tools; and 10 per cent, of even the steel industry. These factories are not of hasty emergency construction but are solidly built and ultra-modernly equipped. About a fourth of them cannot be counted as of any use after the war: they represent a reserve for future wars. But the remainder, by means of certain alterations, can be changed over to peacetime production.

What is America now going to do with this socialized section of its industry? The natural expectancy for America is that private industry will take over the plants. But here the question of the purchase price arises. If the government should sell the plants cheaply, the whole agricultural world would revolt, and most likely the small industries also. These people will recall the great corruption and scandals of several generations ago when large areas were given away to the railway companies. On the other hand, if the representatives of the government hold out for high prices, the plants will not be sold.

In view of this inevitable dilemma, many people have proposed that, in order to prevent the discontinuance of production, the factories should be leased to the private companies. This is, of course, no satisfactory solution. There would merely be left a highly explosive source of political trouble beneath the most delicate and fundamental pillar of the institutional structure of capitalistic industry: the ownership of the means of production.

The situation is further complicated by the seldom mentioned circumstance that the government is to negotiate only with very large companies. There will generally be no competition for the negotiators for the government to rely upon. The factories in question are of enormous size. Of governmentfinanced investments of over 15 billion dollars, 12.5 per cent is in plants each having a value of 100 million dollars or more; 30 per cent (in which the 12.5 per cent is included) is in plants of 50 million dollars or more per unit. Only 4 per cent of the total capital is invested in relatively small industries, with a value less than a million dollars each. The often repeated statement that small enterprises should be favored in the disposition of the stateowned investments is based on pure illusion. No small enterprises will be able to take over or to run these enormous industrial plants.

These matters lead me to a consideration of the relations between large and small enterprises, which are another important post-war problem. The war has still further emphasized the tendency towards predominance of the large enterprises over the smaller ones. During the six months after t he downfall of France the 100 leading American companies received 86 per cent of the money value of the government orders. Even as late as the summer of 1943, the figure was 70 per cent. The small industries were the chief sufferers from the diminishing civilian production which took place in 1941 and 1942.

During the latter part of 1942 and in 1943, small industry received a new chance when the big companies were forced to look for subcontractors. Consequently small industry, in so far as it has survived, has become very dependent on the great companies.

At the same time that the large enterprises were expanding, monopolization made progress in America, as in other countries. The reason is that it has been necessary to regulate economic life with the old instrumentalities of the cartels: production and price control. A hard struggle with many complications is to be expected on the monopoly front.

Other conflicts of interest grow out of differences between regions and differences between industry and agriculture. It is a most alarming circumstance that not only the solution of all those problems, — surplus stocks, war contracts, and governmentowned factories, — but the whole economic post-war planning, must be accomplished in about a year’s time, in the period after the fall elections — about which prediction can already be made that they probably will result in a negativistic Congress.


I have now reached the point where I must put forward the final conclusions of my analysis of economic prospects. These conclusions are as follows : —

It is to be expected that America after the end of the war in Europe will experience a high degree of economic unrest. There will be shortages in certain fields and overproduction in others. Price development will be uncertain and the price structure will be badly shattered. There will certainly be mass unemployment in large areas. Great difficulties are likely to arise on the labor market. Yet it is possible that a “sellers’ market ” will be established so generally as to avoid an immediate post-war slump. But, probably within the period of, let us say, from half a year to three years, this development will change over into a slump. This slump may turn out to be a culmination of the deflationary crisis of the early twenties and the gigantic crisis between 1929 and 1932.

In the field of agriculture a continued shortage of production and very high prices are to be expected for a few years after the end of the European war. But thereafter an overproduction crisis must be expected. This crisis may be severe and can have an unfavorable influence on industrial activity if the latter at the same time shows a tendency to pass into a state of decline and depression.

I am, of course, well aware of t he uncertainty of all economic prognoses. History is never determined until it has been lived through, and much can happen which may alter the course of developments.

I want to add that I do not deny the theoretical possibility of establishing an economic plan capable of fulfilling the optimistic hopes about stabilized full employment, but for reasons which would take us too long to discuss here, political development in America is likely to be away from planning, rather than toward it.

  1. See “We Can Pay the War Bill” (October Atlantic, 1942) and “Wanted: Ten Million Jobs” (September Atlantic. 1943), by Alvin H. Hansen. — THE EDITOR