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T.N. Vance

Notes of the Month

Fear of Depression in the U.S.

(December 1953)

From The New International, Vol. XIX No. 6, November–December 1953, pp. 303–312.
Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

“DEPRESSION IS A REAL FEAR for many of us. It has already touched the farmers. It may touch others in the months ahead.” Thus spoke Adlai E. Stevenson, leader of the “loyal opposition,” in his Philadelphia speech of December 12th. The atmosphere of anxiety appears to reach far beyond the farmers, extending from Main Street to Wall Street. Most people, including those in government, are worried about the economic outlook.

That there is some basis for these fears can be seen in the most recent report of the President’s Council of Economic Advisers. The report for December receives the headline in the New York Times of December 15th, November Business Activity Shows First Dip From 1952. Factory output and earnings were off. The average work-week dipped below forty hours, with the 39.9-hour average being the lowest for any November in the last four years. While there were some favorable factors, unemployment increased by 266,000.

If one examines the basic national income data, as published by the Department of Commerce in the November issue of the Survey of Current Business, it becomes apparent that a mild recession started in the third quarter of 1953. Gross national product declined from a seasonally adjusted annual rate of $372.4 billion in the second quarter of 1953 to $369 billion in the third quarter. Since personal consumption expenditures and government purchases of goods and services increased, although almost imperceptibly, gross private domestic investment accounts for the decline. For all practical purposes, the entire story is told by the reduction in the change in business inventories from an annual rate of $8.8 billion in the second quarter to one of $4.5 billion in the third quarter.

In some quarters, it is fashionable to attribute the present recession to a mere “inventory adjustment” – presumably of no consequence. The November 1953 Survey of Current Business has this to say about the subject:

“The bulk of the advance in inventories since the strike-affected third quarter of last year has been in durable goods. Additions to durable goods inventories have reflected substantial replenishments that followed the widespread imbalances caused by the steel shortages as well as the subsequent buildup in many hard good lines, such as automobiles, which were carrying unusually low inventories in the earlier period of production controls. More recently, some backing up of stocks because of lower than expected sales also have been a contributing factor, affecting particularly third, quarter inventories in retail trade.” (Italics mine – T.N.V.)

This is a most curious attempt to evade facing reality – and in a publication that is hardly read by the general public. The statement regarding inventories of automobiles is sheer fiction, as retail sales of automobiles have been declining. It has been obvious for several months that production of automobiles has been exceeding sales. The increase in inventories has nothing to do with production restrictions that existed last year or the year before. Not only have retail sales in general been lower than expected, but they are currently running five to ten per cent under last year.

The decline in retail sales naturally begins to have an impact at the factory level. Factory sales of all motor vehicles, for example, reached a 1953 peak of 723,532 in April. After declines of eighty and sixty thousand vehicles in May and June, factory sales of motor vehicles still totalled 705,132 in July. In August, the figure was down to 615,382 and in September to 573,688. It is estimated that production of motor vehicles for 1953 may exceed retail sales by several hundred thousand units.

New orders are, of course, one of the most sensitive barometers of business conditions. In view of the softening throughout the economy, it is not surprising that net orders declined from a peak of $25.7 billion in April 1953 to $22.4 billion in September, the latest month available. This is a decline of twelve per cent, and must be regarded as significant in any appraisal of the economy.

Ninety per cent of the decline in recent months in new orders is to be found in the durable goods industries – total net new orders for all durable goods industries declining from $12.6 billion in April 1953 to $9.6 billion in September. Since the bulk of this decline occurs in transportation equipment, including motor vehicles and parts, the crisis in consumer durables, centering in the automobile industry, is evident.

At the same time, there has been some increase in the number of industrial and commercial failures, although not as yet of an alarming nature. More significant has been a pronounced decline in the number of new business incorporations. From a 1953 peak of 9,659 in March, the number of new incorporations throughout the country declined to 7,433 in September – a drop of almost 25 per cent. As the hucksters on Madison Avenue put it, “The economy has become more competitive.”

AN INTERESTING APPRAISAL of the economic outlook is contained in the New York Times of December 20th, in the column, The Merchant’s Point of View, by William M. Freeman:

The population is just over 160,000,000 and is continuing to go up. While the baby crop is dropping, there are more toddlers and more elderly persons, which means a heavier load on the more or less static middle group. The number of marriages is decreasing. Demand for new homes is easing, a dip that is accentuated by higher prices. Materials prices also are weaker, so that prices of homes and major appliances should turn downward in due course.

Sales of furniture, major appliances and a host of other items are closely linked to the housing trend. The television receiver, which increases living room usage, traffic, wear, destruction and replacement, is helping a bit in furniture volume, as is the continuing trend to outdoor living, sparked by the flight from the cities to a semi-suburban way of life.

Employment is dipping steadily, with business activity showing its first minus signs for the year in November. Some 1,428,000 persons were jobless in November, 2.3 per cent of the labor force; this was the sharpest rise recorded in the year.

All of these factors add up to a downward readjustment, now accelerating. with industrial production off 6 per cent from the peak in March. The Federal Reserve Board’s index stood at the close of November at 228, based on the 1935–39 average taken as 100, against the March figure of 243.

Inventories are heavy in most lines. Retail sales are trailing 1952 volume, but the year as a whole, with attractive prices on desired items rather than on ‘lemons,’ aided by special promotions backed by heavy advertising, should finish between 1 and 2 per cent ahead of last year ...

In a word, there is a marked softening evident throughout most of the economy. In almost every market, supply now exceeds demand. The term, “buyers’ market,” is used more and more frequently, and is an apt description of the situation in the economy as a whole. While there is reason to fear depression, there is no reason for panic to prevail. Many new products, and improvements in old products, are being put on the market. Business volume is still at a very high level. Freeman concludes his column, quoted above, as follows:

It is factors such as this, the product of the engineer, the artist, the production man and the planner, that distort computations. There is no question of a readjustment coming up, aside from anything we scare ourselves into, as a result of the rapid post-Korea expansion and the existence of surpluses in many lines that must be worked off before production rates can be resumed.

The outlook, therefore, is for sharply intensified competition, with a marked increase in competitive selling in every aspect of the economy. But, and here’s something that’s been ignored: The slide-off, in the works since mid-year, is from record levels. It seems very likely, therefore, that the year ahead will come close to the 1952 figure, which was very near the record. And the country’s inventive genius can effect this outlook only one way – upward.

Ignoring the propaganda content in the phrase, “inventive genius,” there has been as we pointed out in The Permanent War Economy Under Eisenhower (cf. March–April 1953 issue of The New International, p. 97) an enormous amount of capital accumulation since the end of World War II. Productive capacity, therefore, is still increasing at a goodly rate and there is, as yet, no sign of any significant downturn in the accumulation of capital, as can be seen from the following tabulation covering the last seven quarters.

(Billions of Dollars, Seasonally Adjusted at Annual Rates)

Year and




1952, I Quarter




1952, II Quarter




1952, III Quarter




1952, IV Quarter




1953, I Quarter




1953, II Quarter




1953, III Quarter




Source: Survey of Current Business, November 1953.

It is true that the second quarter of 1953 represents the peak in capital accumulation, both gross and net. It is much too early, however, to draw conclusions as to whether the downturn in the third quarter will turn out to be mainly an inventory adjustment, or whether it presages a characteristic decline in the traditional cycle of capital accumulation. At the moment, of course, the figures for gross private investment in producers’ durable equipment (new plant and equipment) do not show any recession characteristics. At seasonally adjusted annual rates, the estimates for producers’ durable equipment for the last seven quarters are:

Year and



1952, I Quarter


1952, II Quarter


1952, III Quarter


1952, IV Quarter


1953, I Quarter


1953, II Quarter


1953, III Quarter


Obviously, a sizable portion of the gross investment in plant and equipment represents a net increase in productive capacity. Contained in these figures are the seeds of a typical capitalist crisis of overproduction. But the seeds have not yet germinated. For the time being, the accumulation of real capital keeps pace with the increase in total output. Any drastic curtailment in capital formation would herald the approach of deep-seated capitalist crisis. Under the Permanent War Economy, however, such a development is virtually excluded.

And yet, the signs of atrophy, alluded to in The Permanent War Economy Under Eisenhower, multiply. The investment figures cited above are not without interest. They show that capital is apparently being consumed at a faster rate than gross investment increases. Consequently, the increase in net investment is not keeping pace with the increase in gross investment. What seems to be happening is that the increasingly high organic composition of capital results in a larger proportion of output going toward the replacement of constant capital. As we pointed out in the original series of articles, such a trend must necessarily have an adverse impact on the rate of surplus value, and therefore ultimately on the rate of profit. All the evidence points to a reduced rate of profit in 1954. From this, it does not follow, however, that a capitalist crisis is at hand.

Parenthetically, it should be observed that as the figures for capital consumption allowances rise, the use of gross national product data is fraught with increasing danger and a larger margin of error. Increasing rates of depreciation and obsolescence may well be symptomatic of rising rates of productivity. They can also give rise to new types of capitalist contradictions and new problems which capitalist state intervention, far from solving, actually accentuates. When estimates of capital consumption reach eight per cent of gross output, as they currently do, it is no longer a problem solely for accountants. Such figures have an economic and political impact. Once five-year amortization of “defense” plants and the excess profits tax are eliminated, it remains to be seen whether “normal” capitalist incentives will be sufficient to maintain the required high rate of investment that a high level equilibrium in the economy apparently requires.

Again, it is too early to tell, but the fact remains that between the second and third quarter of 1953 personal savings, as estimated by the Department of Commerce, increased from an annual rate of $17.2 billion to an annual rate of $18.8 billion. An increase of nine per cent in the amount of personal savings would appear to be a very sizable figure, but in view of the dubious residual method by which Commerce derives these estimates too much importance should not be attached to this change. Much larger quarterly changes have been recorded in the recent past, without any undue economic significance. But it is possible that the apparent increase in the amount of personal savings could reflect growing caution on the part of the average consumer as the fear of depression grows.

The major factor in tempering any unduly pessimistic forecast of the economic outlook necessarily remains the size, composition and trend of war outlays. In analyzing these data, it will be helpful to have the quarterly figures as presented in the following tabulation.

WAR OUTLAYS, 1952–1953, by Quarters

(Dollar Figures in Billions, Seasonally Adjusted at Annual Rates)

Year and




Col. (4)
as % of
Col. (1)




1952, I Quarter






1952, II Quarter






1952, III Quarter






1952, IV Quarter






1953, I Quarter






1953, II Quarter






1953, III Quarter






The net national product figures are derived from Commerce estimates of gross national product and national income. The concepts of war outlays, direct and indirect, remain as heretofore, with the derivation of the figures following the explanation on pages 94–95 of the March–April 1953 issue of The New International. The margin of error in these quarterly estimates cannot be significantly greater than in the annual figures presented in prior articles.

The ratio of war outlays to total output, the prime mover in this period of capitalism, has reached a fairly even plateau. During the entire period under review, the extreme variation is to be found between the 16,7 per cent of the first quarter of 1952 and the 17.8 per cent of the second quarter of the same year. This represents a variation of but six per cent at the peak, which is well within the margin of error in the underlying data. A war outlays ratio of 17 per cent is significant, but as it continues at the same level over a period of months, and then of years, it begins to lose some of its impact. The same ratio can no longer sustain the same high level of employment, production and profits.

Of course, changes of one-half of one per cent in the ratio, in either direction, may well have a noticeable impact on the equilibrium level, but in their totality such changes are more than offset by the atrophy that begins to set in. The weakening of the impact of war outlays tends to create all sorts of illusions. At one extreme is the notion that war outlays never had anything to do with the high level of activity; hence, it makes little difference if they do decline in the future, as there will be many offsets and “prosperity” will continue. At the other extreme is the fear that the bottom will drop out of the economy, as if Washington had a completely free hand in determining the level and ratio of war outlays; this point of view, of course, fails to realize that American imperialism had and still has valid political, as well as economic, motives for the adoption of the Permanent War Economy.

What has happened, of course, aside from the stretch-out in the “Defense” program begun under Truman, and the truce in the Korean war, is that direct war outlays have kept pace with, and been responsible in large measure for, the rise in total output. Indirect war outlays, however, have leveled off and now tend to decline. The reduction in foreign economic aid, a notable difference in Republican policy as contrasted with that of the Democrats, is chiefly responsible for the falling off in indirect war outlays. If, on top of this, direct war outlays are reduced by $5 billion, as the Republicans now threaten, the consequences could be serious. How much the Eisenhower Administration will reduce direct war outlays, remains to be seen.

They may find that it is easier to eliminate agricultural price supports and such “un-American” controls than to reduce the manpower of the armed forces and to convince the American bourgeoisie as a whole that military reliance can be placed on atomic weapons to achieve the necessary degree of safety, as well as to provide the necessary implementation for foreign policy. To be sure, if the plan is to abandon Western Europe to Stalinism, then temporarily a sharp reduction in direct military outlays may be achieved. Granted that the bulk of isolationist tendencies are concentrated within Republican ranks, it is still inconceivable that the Eisenhower Administration is planning to abandon Europe to the tender mercies of Stalinist imperialism. Without such a major change in policy, or the working out of a basic agreement with Stalinist imperialism, the political basis for any sharp reduction in war outlays remains absent. And as long as war outlays remain at 17 per cent of total output, there cannot be a serious depression.

ONE OF THE OUTSTANDING EXPONENTS of the view that war outlays have had nothing to do with sustaining a high level of economic activity is W. Woytinsky. Writing in the New Leader of December 7, 1953, Woytinsky states:

“My forecast here is based on the belief that the prosperity enjoyed by this country in recent years has not been a Korean War prosperity. It has been rather a period of healthy growth of a vigorous and dynamic economic system, with the benefits of growth widely though unevenly distributed among broad groups of the population.”

To label the post-World War II expansion of American capitalism “a period of healthy growth” betrays a singularly acute lack of understanding of the world in which we live.

The main prop in Woytinsky’s unique approach to the economic outlook is contained in a paragraph from his prognosis of a year ago (cf. the New Leader, December 8, 1952):

“The liquidation of the defense program would mean reorientation of economic activities and a brief spell of hesitation, but by no means a contraction in the total volume of employment and production. The problem will be of the same nature as the demobilization after World War II, but on a much smaller scale. The last demobilization – in the sense of complete reorientation of our economy and readjustment of men released from the armed forces – took two years, and at no time did unemployment rise to 3 million in the period of readjustment.

The liquidation of the present defense and rearmament program would take much less time and cause much less frictional unemployment.” (Italics mine – T.N.V.)

Of course, there will be no liquidation of the defense program, although some slight reduction in the magnitude of war outlays is not excluded. The adjustment problem, however, in the event of a reduction in war outlays is not only not the same. It is entirely different. At the end of World War II, the ratio of war outlays to total output exceeded 40 per cent. A swift decline took place to the ten per cent level, but the reduction in the production of means of production and consumption during the war meant that there was room for increase in these traditional goals of economic output once the sharp decline began in the production of means of destruction. Hence, there could be no serious depression immediately following the end of World War II. It is obvious that the present situation differs markedly from that which prevailed eight years ago. The current increase (from 1950–1953) in the output of means of destruction has not only riot been accompanied by a decrease in the output of means of production and means of consumption, but has actually witnessed an increase in the production of both capital and consumers’ goods.

Woytinsky possesses a remarkably simplistic and mechanical view of the economy, where a drop in one sector must be offset by increases in other sectors. In his 1952 article, quoted above, he asserts:

“Whatever goes to the military sector is taken from civilian consumption and capital formation. Whatever is released from the military sector returns to the civilian.”

Here we have a modern version of Adam Smith’s “unseen hand” that automatically takes care of the economy and all supporters of capitalism, but somehow fails to eliminate the “unemployment” sector.

An effective reply to Woytinsky was given by Seymour E. Harris in the New Leader of December 22, 1952, when he wrote:

“I find serious gaps in Dr. Woytinsky’s crystal-gazing. He says not a word about the tremendous investment since 1945. Our capital plant has expanded by 50–60 per cent (in real terms) since 1945. These gains are far beyond what prevailed in the inflationary Twenties. Yet Dr. Woytinsky writes as though, when the Government cuts its spending on armament by 20 billion dollars or so, part of the slack will be taken up by business. A more realistic view would be that the decline of Government spending would aggravate a decline in investment.”

Harris has put his finger on one of the central problems when he focuses on investment. He would also appear to be more realistic than Woytinsky in appraising the possibilities of government investments as offsets to declining war outlays. He states:

“It is this failure to suggest the alternatives that leaves me cool to Dr. Woytinsky’s astrology. His assumption of gains in investment seems unrealistic. His suggestion that Government will substitute investments of various kinds for military outlays also is unsupportable. A Democratic regime, supported by an ideology favorable to deficit financing, was not prepared after twenty years of rule to present a catalogue of investment adequate to do this job; and even if it had, it was confronted with strong opposition. Does Dr. Woytinsky mean to imply that the Republican Administration will be more disposed to plan for Government intervention when military expenditures fall and thus to fill the gap? It is possible, but certainly not likely.”

After pointing out that tax reduction is the more likely response to a cut in military outlays, and that tax reduction can have only a limited stimulus on demand. Harris concludes his refutation of Woytinsky:

“In summary, the signs point to a business recession in 1953 or 1954 – unless the war is extended. Dr. Woytinsky does not seem concerned over the possibility of adequate demand even if the whole military program is scrapped. He seems to believe that tax reduction and pent-up demand (compared by Dr. Woytinsky with the 1946 situation, and wrongly so) will solve our problem.”

Woytinsky returns to the economic hustings in his Economic Forecast for 1954, the title of his current article, quoted above, with a modification of his “changing sector” theory of the previous year. This might be called the “excess fat” theory, for he states:

“Our economy has accumulated such an amount of fat and muscle that it is hard to visualize its temporary contraction to a level that would spell out a ‘mild recession’ such as contemplated a year ago. This is said even while giving full weight to at least four problems which have often been mentioned as presaging a downturn. These are the position of the farmer, possible cuts in defense expenditures, a new economic philosophy in Washington, and possible reorientation of foreign-trade policy.”

Apparently, Woytinsky is not up on the latest dietary theories, for the “excess fat” represents as much of a danger as it does a cushion. Moreover, the extra weight would seem to consist mainly of “fat” rather than of “muscle.” Unemployment caused by declines in production from peak levels is just as real to those who are placed in the category of surplus labor as unemployment that develops from a lower production base. An increase of unemployment from one million to five million may not be as catastrophic in its impact as an increase from five million to nine million, but it is still serious and would certainly constitute at least a “mild” recession.

“The cut in defense expenditures as a source of contraction of purchasing power is, to a large extent,” according to Woytinsky, “a bogey man in the modern folklore of business forecasting. The cut of $5 billion in the requested appropriation does not imply that Government purchases in 1954 will be substantially reduced in comparison with 1953. The real volume of purchases will depend partly on changes in prices, partly on political developments which may call for new appropriations. As things look now, total Government expenditures may decline by $2 billion or $3 billion or increase by a similar or larger amount.”

In other words, Woytinsky is not especially concerned with a projected cut in war outlays – not because “prosperity is independent of the level of war outlays” as was his position a year ago, but because there won’t be a real cut in 1954. Besides, if there is a real cut, there is plenty of fat, so it won’t be serious. And, if the “excess fat” theory doesn’t work, then there may be “political developments which may call for new appropriations.” If war expenditures are not present in sufficient volume to prevent a recession, then there will be other types of government expenditures. Woytinsky is convinced that the economy will continue to expand in 1954, and he will find a theory to support that point of view, even if he has to alter or repudiate his earlier theories.

MEANWHILE, THE EISENHOWER ADMINISTRATION is displaying signs of worry about the economic outlook. Some months ago, apparently fearful that official indexes would be too slow in heralding a downswing, it was announced that economic “watchdogs” were being appointed in various areas. Apparently, certain officials in large corporations, and perhaps even in trade unions, were to be deputized with titles which gave them the responsibility of notifying Washington immediately upon learning that a factory planned to curtail or cease production, or that overtime was being reduced. What, if anything, has been done to implement this rather novel idea is not known to us, but the new line of the Administration is presumably authoritatively revealed in a front-page article in the New York Times of December 21, 1953. Under the headline, U.S. Acting to Meet Any Slide in Business, Washington reporter Joseph A. Loftus writes:

The Administration is facing up to the possibility of a 1954 slide in business and employment. At the same time, Administration sources express confidence that the outlook now is good.

A realistic view of economic conditions, and some of the available remedies, if any are needed, will be discussed in the annual report of the Council of Economic Advisers and in the President’s Economic Message to Congress next month.

While these reports are expected to deal candidly with the situation, they are not expected to blueprint anti-recession plans. The reason no firm, plans can be laid, according to informed official opinion, is that nobody can say in advance what the economic ailment, if any, will be, and therefore none of the economic doctors can prescribe a specific medicine. [Sic!]

Rather, a line of thinking will be offered, and the standbys that are available, or should be made available, to counter a recession will be discussed.

Stimulation of private capital will be accented, it is understood. One form of business encouragement would be the enactment of lease-purchase legislation under which local money would be used to build needed Federal buildings throughout the country. The Federal Government would pay for the buildings in rent over fifteen to twenty-five year periods and become the eventual owner.

A $15,000,000,000 Federal public works list, some of it blueprinted, also is available as a business stimulant, if necessary.

Another great source of potential economic activity is state and local works programs. Many state and local projects have been long deferred, although this type of construction has shown a substantial rise lately.

Consideration of anti-recession plans is dictated by prudence and a recognition that some business men, although perhaps a minority, and some of our Allies, are a bit jittery about business prospects.

Officials say there is evidence that the country is gong through an economic adjustment, possibly because of a reduction being made in business inventories, as in 1949.

None of the economic indicators shows a severe readjustment now, or foreshadows one in the coming year, except as psychological behavior might make it so, it is held. The factors militating against a serious slide in business are said to include these: Government spending will continue high ... spending for new plant and equipment in the first quarter of 1954 reveals a total almost as high as in the current quarter ... Employment and personal income are extraordinarily high; so are personal savings ...

Dr. Arthur F. Burns, chairman of the President’s Council of Economic Advisers, told the American Conference on Economic Security, Nov. 7, that the council already had gone ‘some distance’ in preparing recommendations to cushion an economic decline.

He said that the standbys under study included measures to ease home building and repairs, further changes in the tax program, revisions in the unemployment insurance system and, if necessary, large scale public works. (Italics mine – T.N.V.)

There then follows a list of construction projects that could be taken off the shelf. It is impossible, however, to escape the conclusion that the mountain has labored and brought forth a mouse. The “anti-recession” plans of the Eisenhower Administration are reminiscent of those of the Hoover Administration. They consist chiefly of issuing optimistic statements, reinforced by those of their big business partners, that everything is fine and will so remain in this best of all possible worlds.

As Stevenson put it in his December 12th speech:

“... I don’t know for certain whether we can talk our way into a business recession. But I do know that talk alone won’t prevent a depression or cure it either. The Republicans cleared up that question for us some twenty years ago.”

THE FEAR OF DEPRESSION IS REAL and tangible. It is not borne solely out of long memories or out of political malice. It has its roots in the softening that is clearly taking place throughout the major sectors of the economy. Expectations, especially those of business men, are grounded in such material things as current and future prospects for sales and profits. Psychological behavior cannot create a depression, although if it becomes evident that Washington is not prepared to do more than talk about “anti-recession plans,” existing deflationary forces will undoubtedly be strengthened.

The rather disconcerting economic outlook is producing a sharp conflict within Republican ranks. The business men seem to be primarily concerned with looting the public treasury and presumably are not averse to a mild recession and a few millions of unemployment. The politicians, on other hand, have to worry about getting re-elected and maintaining their rather tenuous hold on Congress. The latter group must press for increasing state intervention, even if that runs counter to announced Republican policy.

Just as Republican policy toward the farmers had to be radically reversed, with all major campaign pledges to eliminate price supports, etc., repudiated, we may well find that the politicians will prevail and the state will do its best to prevent unemployment from developing on the eve of an election. Eisenhower’s balanced budget could well go the way of its eminent predecessor, the Roosevelt balanced budget. Under such conditions, and with a major assist from the new rulers of the Kremlin, the basic economic and political motivations for the existence of the Permanent War Economy continue to operate. So long as the fear of Stalinism and war continue to dominate the political scene, the fear of depression cannot dominate the economic outlook, although it is a factor that politicians will ignore at their peril.

December 1953

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