Causes of the Depression
SPECULATING upon the economic confusion and turmoil of recent years one has the choice between two main types of explanation. On the one hand there was the War and its aftermath of public debts, reparation claims, currency mal- adjustments and the like. No period since the War has been exempt from difficulties arising out of these, and the chain of consequent disturbances extends to the present day. On the other hand there are good reasons for doubt whether the War, together with the post-War settlements, was primarily responsible for our more recent troubles.
Between this and then there has intervened a considerable period in which the real wealth of the world increased at an unprecedented rate. The mere increment in production over that of the pre-War level probably far exceeded the whole destruction during the War. It might be expected that this great rising tide of riches would ease off the difficulties bequeathed by it. That is not all. The recent course of events bears a striking family resemblance to the phenomena of the trade cycles, which occurred for many decades before the War ; but the features have become more strongly marked. If it is true that the cycle is closely connected with the growth of income and the development of high capitalism in the nineteenth century, then it is not unreasonable to connect an intensifica- tion of the cycle with the further growth and development that have since occurred. This view is reinforced by con- sideration of the peculiar position of the United States. For there we find the phenomena of this depression present in their most aggravated and characteristic form ; we cannot suppose that the U.S. is afflicted in a heightened degree by difficulties arising out of the War, but it is clearly the region in which the growth of wealth and capital has reached its highest point. Those interested in the trade cycle problem have also pointed out the possibility of a more far-reaching trouble. Based as it is on the right and approbation of private saving, our system was admirably fitted to satisfy the needs of an age in which population was rapidly expanding and the characteristic inventions of the time, connected especially with the heavy industries, required the building up of a great capital equipment. If the cyclical depressions of the past constituted periodic recurrences of a lack of vent for saving, we may now be faced with a chronic trouble connected with the permanent deficiency of such vent. This, then, is the kind of diagnosis of present difficulties which may be contrasted with the " War " diagnosis.
Mr. Paul Einzig may be broadly classed as an exponent of the "War" view. He lays stress on the piling up of great public debts (" fictitious wealth "), on the failure by some countries to secure a new equilibrium through their insistence on returning to pre-War parities for their currencies, on the excessive inflation of others, on their failure to find suitable rates of exchange at the time of stabilization, on reparations and on the narrow mentality of the so-called " orthodox " financiers. His book makes interesting reading ; he tells his story well ; one mistake led on to another ; the exciting sequence of events is clearly traced from 1914 to the present day. Many of his comments are just and true ; and it would be foolish to underestimate the importance of the kind of maladjustments which he traces through. There is only this danger, that the narrative might leave the reader with the impression that if we could finally get together and liquidate our post-War burdens in a reasonable spirit, arranging suitable rates of exchange, scaling down indebtedness, &c., the worst of our troubles would be over. He would do well to bear in mind that there is another view.
This other view does indeed make occasional and fleeting appearances on Mr. Einzig's pages. He throws out some cryptic and mysterious hints. These hints are invariably accompanied by the use of that facile and dangerous expression, " economic planning." There is one pregnant section in his conclusion in which, having properly condemned deflation, he says " in the absence of economic planning, not only inflation but also prolonged stability is likely to lead to a speculative boom " (p. 315). It is impossible to criticize a project for " economic planning " unless that expression is given some content, and unless the diagnosis, on which the plan is based, is carefully expounded. But Mr. Einzig has no diagnosis of economic disorders (apart from those due to the special causes already mentioned), while the content of the desired " planning " can only be found in a few lines on p. 158, where he refers to the establishment of an investment board and the fixing of a maximum limit to dividends. This is all too cursory.
In the field of monetary policy, Mr. Einzig's general point of view is sound. He eschews inflation and deflation. He makes many lively sallies against orthodox financiers, whom he believes to be hopelessly addicted to deflation. He appears to regard orthodox "economists" as of much the same kidney as the orthodox financiers. This is unjust. The most authoritative economic writers have, like Mr. Einzig, favoured the middle path between inflation and deflation.
Mr. Einzig's history is bold and impressionistic. He does not hesitate to attribute a motive or allege a cause, in order to round off his story. There are passages enough to warn the reader not to expect meticulous caution in his judgements. At times he is wildly slapdash.
Mr. Einzig is writing in the flurry of a changing world, anxious to pick up the hints that are afforded by honest observation, unable to wait for the confirmation and verifica- tion that may only come in the slow process of time, if then, disinclined to embark upon elaborate economic analysis, content, probably, if a fair proportion of his shots hit the mark. Who will blame him ? R. F. HARROD.
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