Has America Touched Bottom ?
(The writer of this article is an economist who has just returned from the United States.]
r1.1HE impression created upon an English visitor to New York to-day is very striking. Fresh from the difficulties and perplexities of the British situation, he is startled by the acuteness of the crisis in America. It is not that the visible aspect of New York has changed to any great degree. It is, of course, an essentially different city from the amazing dynamo that it was in the days of the boom ; but, so far as traffic, the aspect of the people in the streets, the number of beggars, apple-sellers, and other visible signs go, New York did not seem to me so very different from what it was two years ago, just after the first great break. But as soon as one comes into contact with American business men and business women, or begins to study any business and economic statistics, one is immensely struck by how vastly the crisis has deepened in recent months.
It is not that there are signs of social unrest ; the workers seem more passive and less militant than at the beginning of the slump. It is that the business men, the leaders and the "non-commissioned officers" of the American economic system, seem to have lost faith in themselves. Everywhere one meets men and women who are utterly at a loss. The recent declines in Stock Market prices have been so outrageous, so utterly beyond anything which the Americans deemed possible, that explanation and consolation are hardly attempted any longer. When the United States Steel Common Stock went under 100 it seemed that the end of the world had come. All the superlatives were used up. What, therefore, remains to be said now that has gone under 50? It is not exactly that the American middle-class has lost its courage. On the whole, the enormous losses that almost everybody has suffered, the complete transformation in economic status which so many have experienced, are being borne with real fortitude, courage and cheerfulness. But it is a passive kind of cheerfulness. No one seems to have any idea of what ought to be done. The old-fashioned economist, who does not believe that the American boom ushered in any new epoch or rendered obsolete any economic law, would say that what was preventing a revival in American industry was, in principle, one thing. It is the fact that American costs—costs of all sorts, cost of production, costs of distribution, and, above all, in New York, at any rate, costs of living, are all still, by ordinary standards, out- rageously high. Is it not possible that American revival is postponed, that the slump continues and deepens just because America has not yet seriously attempted to apply the unpleasant, drastic, and old-fashioned remedy of cutting costs ? At the bottom of costs lie wages. All sorts of other items—above all, exorbitant rents in cities like New York—play a large part in American costs ; even in the case of rents, however, who can doubt that, when all allowance has been made for the undoubted monopoly values of Manhattan real estate, the enormous height of American building-trade wages is a factor preventing the reduction of rents ? But it is, of course, in the field of production itself that American high wages are principally keeping up costs. "But," say the " high- wage-theory " apologists, though with diminished voice, "arc not these high wages providing the only possible market for America's mass-produced commodities ? "
Unfortunately, they forget that at least half of that market (to say nothing of the ten per cent. of American production which is exported) consists of the American farmer who is paid no wages at all. And is it not possible that the fact that the price of industrial products has continued relatively high when compared with the catastrophically low price of agricultural products, is at the root of the • great depression ? IS it WS great "disproportion," as the economists call it—this tremen- dous gap between the price of what the farmer has to sell and what the farmer has to buy that is throwing the whole of American economy out of gear ?
How can this be remedied ? Not, say the old- fashioned economists, by any artificial attempt to bolster up the farmer's position, to prop and peg agricultural prices by Farm Board relief, debenture plans, or any of the other schemes dear to the heart of Western senators.
The only correct way to close the gap is to bring down industrial prices thirty or forty per cent. so that they get into true relation with agricultural prices again.
But this can only be done by a drastic " slashing " of American wage rates ; by admitting once and for all that the "high wage theory" is bankrupt. For two years America has been unwilling to face this conclusion, and has sat watching the depression grow worse and worse with every month that has passed. It is not that American capitalists would find it impossible to reduce wages. Organized labour in the United States is notoriously weak. But they have been instinctively unwilling to shatter the theory which they have instilled into the whole American people—the theory that a new standard of life had been established.
This autumn, however, a change has taken place. Many of the greatest corporations in America are faced with the glaring fact that they arc losing money almost as fast as they were making it in the boom. Dividend payments are simply disappearing. Faced with grins necessity, American business is turning at last towards wage reductions. The steel industry started off in September with a reduction of ten per cent. The rail- roads are now fighting for a similar cut. Many of the small, less organized firms in the lighter industries have already cut wages by a somewhat higher amount. I was informed, however, that the statisticians calculate that, even now, American wage rates have not come down on the average by more than five per cent. If this is indeed the case, the economist would say that it is a mere toying with the problem. A cut of thirty or forty per cent. at least is needed. It seems probable, however, that before this winter is out such a cut will be enforced over great ranges of American industry ; and there is little doubt that labour will find no effective means of resisting it. What effect, however, this policy will have upon the psychology of the American worker is an interesting question. Following the imposition of such cuts, a general readjustment in every part of American costs of production and distribution will be necessary so that prices may really fall.
In the meanwhile, however, two years have gone by and this great readjustment, without which, in the opinion of most economists, no revival is possible, has_ hardly been attempted. And, until it has been achieved, it seems possible that the depression will not only continue, but will intensify. Incredible as it seems to those who still think in terms of 1929 stock values, even the present level of stock prices is not necessarily the lowest that will be reached. When, in the New Year, it becomes clear that no dividend is to be paid on many of the leading stocks in the country, prices may crumble to still lower levels. After all, they are only now passing well below the pre-boom line. Hence, critical as the present situation is, it seems quite possible that America has not yet touched bottom. Perhaps she will not do so until she has achieved a general overhaul of her whole
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