Editorial: Planless Booms and Runaway Slumps

Although the periodical crises under post-war Labour Government rather took the shine off the idea of planning there is still a lot of belief in it. A hundred years ago those who believed that Capitalism is the best of all possible systems had a different idea. They thought that if each individual went about the business of making money or getting a job on his own the medley of efforts and strivings would, like a mosiac, combine together to make harmony for the nation as a whole. It did not work like that and 19th century Capitalism was rent by class struggle and rocked from time to time in the cycle of boom—crisis—slump.

So the theory grew up, not only in Labour Party circles, that the remedy must lie in the direction of planning. The same idea caught on in other parts of the world and many people believe that governments, alone or in international organisations, can and do plan and control the course of economic events. That is why the “inflation” crisis of the past 12 months and the dark forebodings of another slump inspire such bewildered comments from the “experts” and the newspapers. For if everything is planned and under control then the crisis and possible slump must have been planned—which is absurd—or must be due to pure ignorance and incompetence by the Government and its advisers—which is now meat for the Opposition but poison for the Tories. Certainly the Government’s defenders have much to explain away. To start with, the theory that everything is planned to run smoothly according to design, requires, not only that there shall be no crisis and no slump to come after it, but also that there shall be no bursting boom to come before it. So the boom itself proved the failure of planning, though only last year the Government spokesmen were claiming it as their own work and soliciting votes on the strength of it.

The next thing is the “inflation” from which they say we are all in dire peril. They are all now agreed. Government and Opposition alike, that “inflation” is the enemy. A year ago, in February, 1955, the Government raised the bank-rate from 3½ per cent. to 4½ per cent. This was the first step to halt that enemy, and it was followed in July by the instruction to the banks to restrict loans. These measures were supposed to be the cure. They failed, and in October came the emergency budget with more measures. Why then the need for more and still more remedies to curb demand and capital investment? The answer is in the admission in a Daily Mail editorial of 17 February, 1956, that “inflation . . . gains momentum every day,” and in the declaration of Sir Eric Gore-Brown, chairman of Alexanders Discount Company, (a declaration endorsed by the financial editor of the Manchester Guardian 17/2/56) that “in his view monetary restraints, for example the use of the bank-rate and a credit squeeze, could not either alone or in combination, stop the spiral of wages and prices.”

The leader-writer of the Daily Mail (17/2/56) seeks to condone the failure of the Government to control this crisis with the plea that “in some ways the looming crisis is one we have not encountered before.”

This crisis, according to him, is different because unlike earlier ones, it

“could be called a crisis of prosperity, for it is caused by the weight of earned money making undue demands on out resources.”

Far from being novel this has always been a mark of booms and crises. Every boom has the superficial appearance of “too much money chasing too few goods” as every depression has the superficial appearance of “ too many goods chased by too little money.”

But booms and slumps are not caused by monetary factors but by conditions in the field of production and marketing, basically by the class ownership of the means of production and of production for sale and profit.

When the Capitalists are convinced that they can look forward to a period of expanding sales and rising profits they rush in to enlarge their factories, buy more machinery and raw materials, and bid for more workers. They all use what money they have and try to borrow more. In these conditions prices and wages rise and the competition for loans sends up interest rates. The raising of the bank-rate a year ago only put the seal on a rise of interest rates that was already happening.

Anyone who thinks this has not happened before need only look at the situation in 1920. There was then a seemingly unlimited demand for goods and for workers. The trade unions (mainly of skilled workers) that kept an unemployment register showed unemployment of about 1 per cent., as it is now. The cost of living was rising, it jumped by 23 per cent, in the year ended November, 1920. Bankers and others were complaining of “inflation ” and the Cunliffe Committee had reported at the end of 1919 on measures to combat it.

And the bank rate was in the news as it is today. In February, 1956, it was raised from 4½ per cent, to 5½ per cent In November, 1919, it was raised from 5 per cent, to 6 per cent., and in April, 1920, to 7 per cent. Then, as now, one of its declared aims was to discourage lending by the banks. Mr. A. W. Kirkcaldy in his British Finance (1921, p. 55) says of the first of those two rises:—“in the main it was designed to check the speculative movement that became pronounced during the closing months of 1919, and to administer an effective check to the demand for further expansion of bank credit, if not to commence a gradual process of deflation.”

Inflation the Friend—or the Enemy?
In 1920 and 1956 inflation is, by common consent, the enemy. It now has not a friend in the world, or at least not one who will disclose his friendship openly. It was not ever thus. In 1932 Lord Beaverbrook’s newspapers were running a great campaign for inflation! The Sunday Express (15/5/1932) had this:—

“The movement is growing and spreading. Most public men are now in favour of inflation. Practically every Member of Parliament speaking in the debates is an inflationist. Some of them are no longer even shy of the word. The movement is extended to many of the newspapers. It is even being adopted by the Times.”

Prominent members of the Labour Party were rushing in to support the great new cause of inflation.

Now they have got what they asked for and they like it hardly more than they did the slump situation of 1932 from which inflation was to save them.

Many of them are fearful that this “inflation” crisis may be followed by a slump. (The 7 per cent. bank rate of 1920 preceded the over 2,000,000 unemployed of 1921).

So indeed it may. There are certainly in evidence some of the chaotic features that precede slumps and that in any event provide proof of how planless Capitalism always is and must be.

The American and other governments are embarrassed by the enormous stocks of unsaleable wheat and butter they hold. Was this planned? And the motor manufacturers here and in the U.S.A. are cutting back production “temporarily” because of stocks of unsold cars. But simultaneously all the big motor companies are going ahead with plans to expand their manufacturing capacity, amounting in the aggregate to many tens of millions of pounds. This is not planning but gambling. They all hope that demand will increase again and absorb their still further expanded production. They all fear that there is a possibility that demand may collapse instead of increasing, but they can’t be sure, and at the moment no big company dare drop out of the race to design and produce new and better cars and more of them. The company that ceases to compete fades out. And as if the car manufacturers of the Western Powers had not enough to worry about Russia too is now an exporter.

But who knows how Capitalism will run in the next five years or even one year? It may happen soon that the world’s markets will collapse as in 1921 and 1930— or it may not; or it may happen that particular countries, among them Britain, and particular industries may be hard hit while the rest may be little affected. Such things have happened before and could happen again. The evidence does not by any means all point to a serious depression. A large and rapidly growing place in production is being taken by the new atomic and electronic industries. For production and for military purposes enormous new investments are going on. and will go on even if depression does hit some established industries. A case in point is the raising of £24 million new capital by Associated Electrical Industries Ltd., only one of the many firms interested in this new and rapidly expanding field. It will, of course, seem to the men inside each of firms such as A.E.I., as to the men inside the motor firms, that they are carefully planning every move they make and with every possible effort to foresee the conditions in which their products will be coming on to the market one year or many years ahead. But this is all beside the point as far as world demand and world supply are concerned. While every British firm is planning to sell its products in the world market, so are similar firms and governments in every other country. They do not know very much about the eventual size of the potential world demand for all their products, and they know less still about the total supply there will be to satisfy the demand when all these unrelated plans for expanded production are completed and the bigger flow of products pours out. They all hope to get a large enough share of the market and all hope that the price they get will be a profitable one. They all hope, but they cannot know. They all gamble on the future. And every now and then the gamble produces chaotic conditions of such extent as to disorganise all markets and slow down all production. Capitalism is that sort of system and there is no cure except Socialism.

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