Controlling Depressions
by
[Norton, $3.00]
THIS book is the work of one of our most respected and capable economists, famed alike for his activity in research and for his keenness in analysis. The first thesis he develops is that depressions consist of initiating causes of greater or less significance in themselves, and of cumulative causes which magnify an initial regression of business into an epochal calamity. To illustrate the distinction between initial and cumulative causes, lie likens the first to the pistol shot fired in Sarajevo, and the second to the general political and historical background which permitted that pistol shot to plunge the whole world into war.
After examining a number of initiating causes, the author concludes that the effective ones were (1) the failure of industry to reduce prices commensurately with reduction in costs in the period culminating in 1929, and (2) a corresponding failure to increase wages, salaries, and farm incomes commensurately with the increased output of mass-production industries. These two factors, of course, add up to the same thing— a maldistribution of purchasing power which directed excessive profits into the too great expansion of productive facilities, while at the same time withholding from the mass of consumers sufficient funds to purchase this increased volume of goods produced.
Casually, in discussing the initiating causes, and more specifically in considering the cumulative causes, Dr. Douglas refers to the unwise speculation which resulted in the piling up of capital goods and a capital structure upon which returns could never have been earned. To the reviewer, this reference scons to be much too casual The cumulative causes were being built into the situation day by day, week by week, month by month, before the assumedly independent generating cause tired the pistol shot. We have all of us been too much concerned with what takes place after a collapse, and with what can be done about it then, when it is too late. We have neglected the more important task of controlling the steps which make calamity inevitable.
Furthermore, the cumulating cause of speculative inflation was probably the largest single constituent of the accumulated profits which found unwise and unneeded investment at the peak of the boom. It is far from clear that the profits from business properly so called (that is, the production and distribution of goods and services) have ever been too great to finance a desirably rising standard of living. The evidence is that it has taken the additional ‘profits’ of speculative inflation to introduce a destructive element.
To conclude the critical section of this review, it would seem that the craziness of the credit structure is both initiating and cumulative, and that the real problem is to prevent its erection.
Very properly Dr. Douglas devotes the major space in Ins book to the search for constructive policies, whether of cure, of amelioration, or of preventive hygiene. In this section the reader will find much to stimulate him, much to agree with, some things to doubt.
Perhaps the most stimulating chapters are those dealing with ‘National Currency,’‘A Managed Banking System,’ and ‘ Monetary Purchasing Power.’ A careful reading leads one by contrast to wonder at the comparatively low level of the discussion in Washington for and against the Administration’s banking bill. Neither its sponsors nor t lie bankers appear to have envisioned the whole problem of the control of our national money system, nine tenths of which is credit money based on bank borrowing. For the most part., the discussion has centred around the safety or danger of specific practices with little consideration of the process as a whole and its effect on business progress and national prosperity.
That party to the dispute which first advances a thoroughgoing concept of a national monetary policy will have a great advantage over the other. No better preparation could be found for the construction ot such a concept than a study of these chapters of Dr. Douglas’s book.
RALPH E. FLANDERS