ECONOMIC data make dull evening reading. But they nevertheless record the acts of a drama, a motion picture, a mystery plot, with full sound and color.

Thus it is an exciting fact that industrial production in the United States rose 48 percent from March 1933 to May 1934, but lost half this gain during the next two months. During the same sixteen months' period, production in France fell 9 percent; wholesale prices in the United Kingdom advanced 11 percent but in Italy declined 4 percent; the number of unemployed decreased 29 percent in Canada but increased 5 percent in Poland. Wheat recently was $0.50 per bushel in Sydney, Australia, and $2.00 in Milan. The interest rate on commercial paper is 0.72 percent in Amsterdam and 4.38 in Tokyo. The police are closing retail meat markets in Germany, where prices have advanced contrary to government regulations, while the Winnipeg Grain Exchange has fixed minimum prices for wheat.

Such is the bewildering stuff of which present world economic history is being made. Many pieces of the puzzle are missing, and even could we fit together those which we have, much of the real picture would still be left to the imagination.

The platitudinous say that we are in a new and rapidly changing world, full of economic experimentation. But "experiment" is not quite the right word, for to the scientist that term has definite implications of controlled conditions and detailed observation. One sad aspect of the present era is that, partly because of carelessness and partly because of the complexity of the situation, the so-called experiments will create more controversies as to their real effects than they will contribute in demonstrable principle.

Perhaps most specific social experiments are equally difficult to evaluate. However, in this particular instance all the usual troubles of inadequate data and shortsightedness as to perspective are intensely aggravated. Those determining policy have not consented to follow the gentle and simple methods of science, where changes are restricted to single variables, but have persisted in operating in a wholesale way on many factors in each situation. American farm prices have advanced, but this welcome phenomenon may be due to the mingled and unequal effects of acreage restriction, drought, increased purchasing power on the part of industrial centers, advancing export trade (itself a possible result of monetary policy), easy credit conditions, diversion of speculative interest from securities, repeal of prohibition, and any of a dozen other contributing causes. Furthermore, one can easily demonstrate that advancing farm prices are not solely dependent variables, or the others independent. It is no simple case of cause and effect, or even of action and re-action, for the re-action itself causes a re-re-action and thus ad infinitum. And the factors so easily escape from the curriculum-created boundaries of economics into the political field, and into that mystical area known as public opinion and "confidence." However, despite all these difficulties facing the economic surveyor, no legislative curb has been placed on speculation concerning the present trends in the world, and prophets are still permitted.

When we study past records of world business conditions we can see a decided tendency for movements to be similar in various countries. We can readily discern what might be described as a world pattern of prosperity and depression, with peaks in 1890, 1900, 1907, 1913, 1920 and 1929. To be sure, individual countries have frequently diverged from the pattern, and the timing of the aberrations has been by no means uniform. They have sometimes imposed additional years of crisis of their own upon the world pattern. They have suffered from the depressions in differing degrees and taken their prosperity in different strengths. Nevertheless an underlying similarity of economic experience has clearly existed.

Detailed examination of the record indicates that the greatest similarity in the state of business health of the various countries appears at the point of recession. Periods of world prosperity seem to end with much more sharpness and uniformity than periods of depression. Revivals are much less clear-cut. Thus the recovery from the troubles of the early 'nineties began in Germany in the autumn of 1894, in Sweden at the beginning of 1895, in England and France in the middle of 1895, in the Netherlands and Italy in 1896, and was delayed in the United States by the 1896 set-back until the middle of 1897. Similarly, the severe postwar depression of 1921 did not yield to revival uniformly in the various countries, but was spread over at least three years; and one can even question whether some countries recovered at all. As to the recession of 1929, there can be no doubt that definite evidence of recovery began to appear in many countries in the last half of 1932. Although in many instances there was backsliding in the early months of 1933, the upward trend was again clearly in evidence by summer. Like all revivals, it has not been uniform; it has been extremely ragged.


Perhaps the best single set of indexes of economic activity now available are those relating to the volume of industrial production. Such records exist only for a limited number of countries, and in each case they are subject to serious technical criticism. Nevertheless, the measures of changes in industrial output provide some real evidence of the degree of world recovery. In the following table the eleven countries for which data are available are arranged in order of the degree of advance from the low point. The average for the year 1928 is used as a base in order to eliminate the influence of the varying behaviors in 1929, when some countries had already begun to slump while others were climbing to the highest diving platform.


  Lowest Three Months Since Latest Percent of Recovery
  January 1932 Three Since Low Point
  Date   Months   Decline
  of Central Month Index Index Advance Regained
Canada Feb. '33 53 82 57 63
Germany Aug. '32 60 88 48 71
Sweden July '32 75 106 41 125
Japan May '32 102a 144 40 b
Czechoslovakia Mar. '33 54 72 33 39
United States July '32 53 69 30 36
United Kingdom Aug. '32 82 105 28 128
Poland Feb. '33 48 62 27 26
Austria Jan. '33 60 70 17 25
France July '32 73 77 6 16
Belgium May '32c 65 69 6 12
a Figures in this and following tables are based on the League of Nations Monthly Bulletin of Statistics.
b Because of rapidly rising trend, depression years have been above 1928 level.
c Disregarding July and August 1932, low because of labor troubles.


The direction is clearly upwards. But there appears to be little uniformity among the various countries, either in terms of the degree of the decline or of the extent of the recovery. This may be due in part to the character of the indexes, but it is caused in greater degree by the different characteristics of the countries concerned and the divergence of their economic policies. While Japan at no time after 1932 fell below her 1928 level, at least four countries approximated a cut to one-half the 1928 rate of production. The United States is squarely in the middle of the picture as far as the degree of recovery is concerned. However, inasmuch as its decline was so great it is among those furthest from the 1928 level at the present time. The record would have been much more cheerful if it had been taken in the spring of 1934, for several of the countries have slumped badly since then. The United States index fell 17 percent in two months. During the same period, production in the Netherlands declined 15 percent, and in France has dropped 14 percent since the peak in July 1933.


Of particular importance from the social point of view is the record of unemployment. In this field statistics are in general more reliable, for many countries obtain some form of fairly exact data either through unemployment insurance statistics or trade union records. It should be understood, however, that the different methods used in making the figures are not strictly comparable. Because of the seasonal variation, which is extremely wide in some countries, comparison has been made in the following table between August 1932 and the same month in 1934.


  Nature of Statistics Percent Change
Germany Employment Exchange Register --54
Australiaa Trade Union Returns --39
Swedenb Trade Union Returns --31
United Kingdom Compulsory Unemployment Ins. Statistics --25
Japanc Official Estimate --21
Canada Trade Union Returns --16
United States Trade Union Returns --12
Italy Ministry of Corporations --8
Belgium Voluntary Unemployment Ins. Statistics --7
Netherlands Employment Exchange Statistics --6
Switzerlandd Compulsory or Optional Insurance Statistics --3
Austria Employment Exchange Statistics --2
France Employment Exchange Statistics +20
Czechoslovakia Employment Exchange Statistics +24
Poland Employment Exchange Statistics +35
a End of June 1932 to end of May 1934.
b End of July 1932 to end of July 1934.
c End of April 1932 to beginning of May 1934.
d End of January 1932 to end of January 1934.


Germany and Poland appear to have been far out of line. In both cases the percentages are explained primarily by the special situation existing in those countries in 1932. In Germany, about one-third of all workers were unemployed at that time; thus, despite the outstanding percentage improvement, the number of unemployed is still high. Poland, on the other hand, had a relatively small volume of unemployment in 1932, the year taken as a base.

The three centers of most severe unemployment during the depression have been the United States, Germany and the United Kingdom. In the spring of 1933 these three countries alone had a total of about 20.5 million unemployed. By August 1934, this was reduced to approximately 15.0 millions. These figures do not make allowance for those given employment in German labor camps, nor for those in the United States assigned to Conservation Corps Camps or engaged on Federal Employment Relief projects. All available evidence reveals persistently high records of unemployment in nearly every country. While there has been a very real gain during the last year, the gradual exhaustion of individual resources has greatly aggravated the problem of relief.


Another set of figures usually regarded as indicating improvement or the reverse is that registering the behavior of wholesale prices. Prices presumably move upwards as business conditions improve. In the past, there has been a decided tendency for price levels to record fairly parallel movements in the various countries. But in recent years, with varying currency-credit policies, and with national barriers so high and foreign trade so low that domestic markets have become increasingly isolated, there have been wide divergences. In connection with the following table showing the percentage change in wholesale prices from 1932 to the latest available month, the statistician must give his usual caution that price indexes are not equally comprehensive or technically competent.


Advances Decreases
United States 20 Netherlands 3
Japan 10 Austria 4
Canada 8 Switzerland 6
Australia 5 Italy 11
Sweden 5 Belgium 12
United Kingdom 5 France 14
Germany 4 Poland 15
Czechoslovakia 1    


For all the countries in the first column except Japan, where the rise in prices occurred chiefly in 1932, prices reached the end of a long period of decline in the spring of 1933; then advanced; and held fairly steady until the summer of 1934, when the advance was again resumed under impetus of the short agricultural yields in prospect. Prices in the countries still on gold have continued their steady downward march.


One further evidence of the extent of the world recovery can be found in changes in the value of foreign trade. The countries in the following table are arranged according to the degree to which their total trade has recovered during the last two years.


  Index Numbers, 1933 Percent Change 3rd Quarter 1934
  (1929=100) Over 3rd Quarter 1932
  Exports Imports Exports Imports
Japan 86.9 86.7 +51 +122
United States 31.9 32.9 +51 + 45
Sweden 59.6 61.1 +54 + 19
Canada 44.4 30.6 +36 + 19
United Kingdom 50.8 55.9 +18 + 4
Australia 112.5 36.4 -- 8 + 30
Austria 35.2 35.3 +21 -- 19
Czechoslovakia 28.5 29.1 +8 -- 9
Switzerland 40.6 57.3 +12 --14
Poland 34.2 26.6 -- 5 -- 1
Belgium 44.3 41.6 -- 5 -- 9
Netherlands 36.1 44.1 -- 5 -- 11
Germany 38.5 31.2 --24 -- 0
Italy 39.0 34.1 -21 -- 11
France 36.8 48.8 -- 8 -- 26


There has been no general recovery in foreign trade. In fact, the estimates for total world trade prepared by the League of Nations reach a new low in the third quarter of 1934, when measured in gold prices. However, since the middle of 1932 gold prices have fallen, so the physical volume of trade has advanced slightly. While this is true in world terms, gains or losses by individual countries are clearly in evidence. Thus Japan, the United States, Sweden and Canada all show marked advances. These same four countries reported the greatest price increases.

One feature in this table is worthy of mention in passing, namely the number of instances where changes in imports and exports have roughly paralleled each other. In some cases this is the result of conscious national policies adopted to improve the balance of trade, usually to be accomplished by the restriction of imports; but several of the countries which have introduced the most severe quantitative restriction of imports have suffered a parallel decline in their export trade. Here is one of those strange interlocking chains of cause and effect where the decline in exports led to import restrictions, which in turn caused a further decline in exports, and so on and so on.


It would be absurd to lean very heavily upon such sketchy evidence as is given in these four tables. But, for what it and other available data are worth, the conclusion may be drawn that Canada, Japan and Sweden have shown the greatest degree of recovery. Germany shows up well in domestic improvement, but is far down the list in foreign trade. The United States, Great Britain and Australia complete the list of leaders according to all four measures. At the other end of the list, giving the least evidence of improvement, are the countries of the so-called gold bloc, Belgium, France, Italy, Netherlands and Switzerland. They are lagging, not merely in price behavior and foreign trade, but also in domestic activity.

One must be reasonably cautious about drawing any final conclusions from the short-run record. Many present-day policies are themselves short-run, intended to start enterprise going, to change the downward spiral into an upward one. It is, of course, too early to record their effectiveness in generating a persistent upward movement, and the only test is the pragmatic one. The wisdom of such policies should be questioned only in terms of alternatives. The situation certainly demanded vigorous and bold action to check the cumulative depressing elements of the downward movement.

Even though recent history may be difficult to judge in quantitative terms, certain qualitative changes are clear. The single outstanding feature of this period is that for the first time in history conscious effort has been made on virtually a world scale to introduce social controls into the process of bringing a depression to an end. In the past, governments have stood aside and waited for "natural forces" to produce revival. But on this occasion the governments of the world, with a steadily shortening list of exceptions, have undertaken positive and extensive action to initiate and support an upward movement.

The degree to which different governments have actually entered the economic domain has, of course, varied. In Germany, for example, the government has undertaken an extremely wide program of "recovery and reform," with extensive public works, subsidized housing renovation, reorganization of farming in smaller units, reduction of the rate of mortgage interest, subsidy of exports, abolition of trade unions and collective bargaining, government intervention in price policies, and many other extensions of the sphere of government. Great Britain, on the other hand, has been much more conservative; but one cannot disregard her monetary policy, her public works and housing projects, her marketing schemes in the field of agriculture, and her abandonment of free trade.

More and more countries are adopting elaborate recovery programs. For example, in June 1934, Canada, despite her record of improvement to date, entered on a Canadian version of the "New Deal." The Belgian Cabinet, given virtually dictatorial powers in July 1934, began developing a program of public works, wage protection, industrial coöperation and curbing of unfair competition, credit expansion, and foreign trade control. Italy not only has established a 40-hour week, but is extending her control even further by creating 22 corporations to dominate all production.

The world-wide abandonment of trust in "natural forces" is not merely the attempt of political parties to assure their constituents that they are duly concerned over their economic plight. There is widespread distrust of the effectiveness of natural forces to correct such extreme disequilibria as have existed in recent years. Furthermore, the length of the depression and the severity of the decline transformed many of the factors which in the past aided in promoting recovery into further depressing influences. Thus, sharp declines in raw material prices usually create a favorable condition, permitting manufacturers to produce at lower prices and encouraging their activity. But under the prolonged depression from which agriculture and mining have suffered, this influence has been more than offset by the diminished purchasing power of the farmers and miners themselves. During a short depression period, their savings, plus the assistance which they receive from various sources of credit, make it possible for them to continue their purchases; but the length and depth of this depression have practically exhausted these resources.

Similarly, in depressions the banks ordinarily find themselves with excess reserves and become increasingly eager to discover ways and means of moving their idle funds. In the present case, the unusual and prolonged decline in the price level so undermined bank assets that the credit structure became progressively weakened as the depression continued. Continuing bank failures formed in themselves a deflating influence, undoubtedly further weakening the level of prices and discouraging the extension of credit by private agencies. There were additional factors of weakness on this occasion which did not appear in 1907 or 1921. For example, there was a collapse of municipal and state credit and a rapid development of a "sweat shop" labor market. All these elements weakened faith in the process of recovery through "natural forces."

Even prior to the depression, the governments of some countries adopted the policy of assuming responsibility for the functioning of the economic system. This was the case notably in Italy and Russia. The war had necessitated governmental interference on a scale never realized before. And even though in many countries there was an apparent return to the former private-public boundary line, government intervention in what had previously been regarded as the private sphere increased steadily. In many instances, the depression process of widening the field of governmental responsibility represents either the extension of activities undertaken previously on a small scale and to a slight degree, or the substitution of public activity where private activity had failed. One almost universal development is the acceptance of government responsibility for relief of the unemployed. Unemployment insurance (presumably entirely or in large part self-supporting) or private or local charity had been the traditional and accepted means of meeting this problem. But such methods were not adequate to carry the extraordinary burdens placed upon them by the depression. Without government intervention, the "natural forces" which would have come into play would have been starvation or revolution, one or the other.

Likewise well-nigh universal in its acceptance is the use of public works programs as a positive force for improvement. With private enterprise stagnant, particularly in the durable goods industries, and with large sums of credit available in the banks, most governments have embarked upon large-scale public undertakings. Similarly, extensive aid has been given to the work of improving housing conditions, often in coöperation with private funds. Had private agencies borrowed these funds to increase productive capacity, even though the capacity were not actually required, there would have been little criticism even from the most conservative of observers. But the entrance of public enterprise, even though the money be spent for socially desirable projects, causes much head-shaking. Such projects have been adopted for the double purpose of providing relief to the unemployed and again starting enterprise by putting funds into circulation. Even the gold bloc countries, where deflation is the logical keynote, have adopted public works programs. France voted 10 billion francs for the purpose last July, while Italy embarked on public works activities early in the depression.

There has been much variation in different countries in the character of the aid given to the several branches of industry in order to speed recovery. But in all there seems to be agreement in stressing the problems of agriculture. In part this may be due to evaporation of the idea that industrialists are possessed of some magic to solve all economic problems; but to a much greater degree it rests on the farmer's return to political significance. Whatever the reason, policies intended to increase agricultural prosperity—the imposition of tariffs, quotas, subsidies, bounties, processing taxes and the like—have been adopted very generally.

The point at which differences in policy among the nations have been most strikingly displayed is in connection with monetary matters. While most of the world has abandoned the gold standard, at least for the time being, a small group of countries has continued to employ gold as a currency base. The significance of this particular fact has been greatly overemphasized. Indeed, a case could be made out for the thesis that Great Britain and the United States are more nearly on the gold standard than France or Italy, using the term "gold standard" as signifying primarily the normal and regular functioning of foreign transactions without limitation or restriction. Both the United States and Great Britain apply no restrictions to their exports, have no limitation on trade in foreign exchange, and do not interfere, except indirectly and inexactly through customs duties, with the movement of goods by any such method as quantitative limitation. These elements of freedom are more important to the functioning of international economic relations than the formal use of gold as a currency base in the midst of rigid trade and exchange controls.

The real significance of the departure from gold lies in the larger policy of which it is a part. A considerable part of the world is at present committed to the attempt to encourage industry by liberal credit, to "prime the pump" with expenditures for public enterprise, and to relieve the debt burden and stimulate activity by raising prices. To that end, banking systems have been supported, credit has been made plentiful and interest rates have been kept low, gold has been abandoned as a currency base, and governments have introduced currency into circulation by various spending programs. Certain countries have not accepted this program, but have preferred to follow the paths of deflation. The failure of those countries to participate strongly in the revival is some indication of the immediate effectiveness of the expansionist policies.

One dark side of the world picture is that the preoccupation of most countries with their internal difficulties has led to chaos in the international field. Upon the difficulties caused by fluctuations in foreign exchange have been piled higher and more sophisticated forms of trade barriers. Bilateral trade agreements have pierced the walls at some particular points, but frequently have accomplished nothing except to shift trade to less economic channels. There can be little doubt that the spreading use of quota limitations is a most effective way of destroying trade. In this particular sphere of economic activity there is little encouragement to be found in the policies of most countries. And the possibility of any international agreement for freeing trade channels is made well nigh impossible at the present time by the differing currency and credit policies.

In the light of what is going on elsewhere in the world, American developments of the last eighteen months do not appear quite so extraordinary as when we contrast them with the ideological system which was usually supposed to function normally in the United States, namely laissez-faire. Nor from the historical point of view is it so extraordinary. The economic system of free competition, wherein price, supply and demand maintained a neat series of balances, where rewards were graded in accordance with productivity, and where the search for profits led to the highest social welfare, has been steadily disappearing for the last fifty years, if it ever existed at all. The assumed checks and balances have become less and less effective. Some industries, such as banking, coal, petroleum and agriculture, are now seen to be hopelessly unfit to function healthily without outside interference. The development of giant corporations has introduced a new and disturbing factor into nicely arranged economic concepts.

The economic problem which faces the world today is not merely the short-run one of how to induce recovery, but the long-range one of how to maintain stability and provide some degree of security after recovery has come. This does not necessarily mean to suppress "natural forces;" but it does mean to harness and direct them to more clearly social ends. Some countries are experimenting with modifications of the old system, others are experimenting with quite new types of economic controls. In every case, the situation is complicated by political considerations and by the character of the national culture involved. In all countries there is recognition of the necessity of undertaking the difficult task of consciously planning the controls which are to be employed. They may be private, they may be public. They may require merely the sharpening of old tools, or they may entail the invention of new and ingenious devices. But the concept that the government should leave economic matters strictly alone is gone forever. If a competitive system of the sort outlined by the classical economists is indeed the most promising, then the government must find and apply the widespread controls necessary to create the conditions postulated in such a system.

"Stability" and "security," using the terms in any final sense, are the stuff that dreams are made of. We cannot hope to achieve them within the present generation. We cannot expect to discover a perfect pattern. Stability must be a moving equilibrium. Security is relative. Any program must be subject to constant shifts and adjustments, major operations here, patches there. And we will continually bewail our lack of understanding of our problems and of our instruments for dealing with them. But the difficulties cannot hide the fact that the attempt to set up social controls must continuously be pressed forward.

Conscious social control has little meaning to those theorists who see in human nature elements which will inevitably determine the character of our economic system, or those who see in human institutions certain assured sequences of Marxian "casting off of chains" or Spenglerian blossoming and decay. But whether the theorists approve or not, the fact remains that the steps taken in an endeavor to end the present world depression have involved most nations in positive action in the economic sphere. This has been often justified as an emergency measure. But the real emergency will continue until economic systems provide more stability and greater security.

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  • WILLARD L. THORP, Chairman, Advisory Council, National Recovery Administration; Professor of Economics at Amherst College
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