Is the American depression over? No proof that government spending can give a shot in the arm

CLIMBING production, a reduction -in unemployment of one million, higher investment, a Wall Street boom— these are the apparent signs that the American depression is ending. Some are already predicting wonders ‘The sharpest, but also the shortest, depression since the war;’ defenders of American capitalism are saying with relief. To account for its short duration, they point to the inherent health of the system, the. confidence of business, ‘built-in stabilizers’ and the increase in Federal spending.

The depression showed itself most emphatically in reduced industrial investment, idle plant and unemployment. Corporation profits fell by.over one quarter from their boom level.

In the sphere of consumption the depression was less marked. Total consumption was almost maintained, although consumption per head fell; so did new instalment business.

The increase in Federal spending channelled into the economy through dole, aid to home building programmes, bigger arms orders and other payments obviously played an important part here.

But consumption, of itself, cannot ensure a continuous up- . ward movement. This must take its departure-from the side of investment. There are three possibilities:

(1) A RENEWED, CLASSICAL CAPITALIST PROSPERITY.

For this a new, heavy burst of investment is required, stimulating steel, machinery and heavy industry generally, This would help to counteract deepening depression in other parts of the capitalist world by increasing U.S. demand carrying the whole economy upwards into a new boom. for imports, but it would raise the bogy of inflation and might be nipped in the bud if interest rates were raised to counteract that.

Such a boom depends on finding big new investment opportunities; and in the course of time the downward phase of the cycle would reappear. And the next depression might be more -serious.

(2) A TEMPORARY RESPITE BEFORE A FURTHER DECLINE.

Partial recovery, accompanied by a stock market boom, preceding a further slump, has been seen before.

Now it has been prompted by the need to replenish stocks, which imparts a stimulus to investment, revives business confidence and feeds speculation.

However, if optimistic expectations do not justify them

selves, or if the Wall Street boom collapses, the process could run in reverse.

The petering out of the effects of increased Federal spending and home building, or the raising of interest rates, might contribute to this effect.

(3) A PROLONGED RELATIVE STAGNATION.

If new investmest projects are not enough to produce ‘a strong boom, the economy might tick over at an in-between level.

Unemployment, instead of falling back to its pre-depression level, would remain at 3 to 4 million. Excess Capacity and lack of new markets would hold back investment in a vicious circle.

_Lack of confidence could deter consumers from taking on bigger hire-purchase agreements, thus hitting. manufacturers of consumer durables and cars.

Although government spending can stave off acute crisis, at least under certain conditions, there is no proof that it can give an ailing system that shot in the arm which will enable it to reproduce the vigorous activity of the 1950s, On the other hand, it would be unwise to assume, as. some Marxists did in the thirties, that a renewed expansion is ruled out altogether. It is difficult, however, to see where such aa impulse can come from; and it is doubtful whether it can come at all from the capitalist mechanism itself, For the immediate future swings and uncertainty, possibly

‘stagnation’, seem the most likely prospects.

IN PRETORIA TREASON TRIAL