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From The Militant, Vol. 12 No. 9, 1 March 1948, p. 4.
Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).
Feb. 24 – Since the commodity price break, two new developments have taken place in the country’s economy. They can prove decisive in determining what lies immediately ahead. On the one hand, we have the first significant signs of dislocation in the home market; and, on the other, there is the action of the Steel Trust boosting sharply prices of semifinished steel.
These two trends run counter to one another and in the process of their unfolding are bound to lead to highly antagonistic consequences, thus adding still another contradiction to an already explosive economic situation.
The first week of the commodity price, break gave no definite signs of disturbance in the domestic market as reflected in the highly sensitive field of department store sales. For the week ending Feb. 7 the Federal Reserve Board weekly reports showed signs of “softness” appearing here and there.
But on a national scale, department store sales continued to record the same gains in dollar volume as in the last several months. In the Feb 7 week, there was a 9% increase as against last year’s sales. But the reports for the following week (ending Feb. 14). show a decrease of 3% as against last year. This drop is quite small.
Nevertheless, it represents a marked shift, which if it persists, will reverse the trend of the entire previous period. Up to now the stores have been taking in an average of 10% more in dollars than they did last year. A shift from 10% ever last year’s sales to 3% under last year”s figures therefore represents a loss in sales of hundreds of millions of dollars a month.
Furthermore, the most ominous feature of this initial decline is its widespread character. The only district reporting any gain was the New York area with its 1% larger sales. The rest of the country showed losses ranging from 9% in the Boston reserve district (covering New England) to 2% decline in the San Francisco district (covering the West Coast).
In the second place, this relatively sharp drop comes at the beginning of the Easter sale season which as a rule steps up retail trade. It is, of course, too early to say whether or not the long-indicated breaking point in retail trade is already here. A single week is not enough to establish a trend. But the next period up to Easter week itself (ending March 27) is indeed highly symptomatic and may very well tell the full story.
In any case, in our opinion, one controversial aspect of the current situation is already quite clear. The commodity price break has such power behind it that under the existing conditions it is extremely difficult, if not impossible, to confine its repercussions to agricultural products alone. It does, as we have maintained, tend to communicate itself to other markets.
The scope and sharpness of the initial decline in department store sales within two weeks’ time is proof of how rapidly and profoundly it is already affecting the vulnerable sector of retail trade.
A continuation of this trend (only potential as yet) would mean a collision between industry and its record volume of output, on the one side, and the limits set by the shrinking domestic market itself, on the other. This has long been a potential danger. In the next stage it is bound to become the reality. Such a head-on collision can prove catastrophic for economy as a whole.
It can be averted and even postponed primarily on one condition – provided the dollar volume of retail sales can either be maintained at former levels or raised above them.
The decline in physical volume of retail sales which set in during the middle of last year did not prove decisive at the time because the economy was jet-propelled to new price levels by the inflationary splurge. It was the Steel Trust at that time that fixed the economic pattern of the second half of 1947 by hiking iron and steel prices on top of a thumping increase in coal prices.
As we pointed out at the time, this measure could not fail to produce a general price increase, since the price of these basic commodities – iron and coal – determines the price structure as a whole. The speculative orgy to which this led in all fields (with the exception of the Stock Exchange) is now history. Thereby the collision between industry and the domestic market has been averted for some seven months.
The current price hike in steel is intended to serve the same purpose. It is not a minor measure of inflation, even though it appears to be thus far, restricted to only a single sector of steel products, the semifinished branch, which roughly accounts for one-fourth of the total steel output. The actual boostamounts to more than $7 a ton as against the reported figure of $4 to $5. It directly affects other steel products.
For example, Allegheny Ludlum has added $10 a ton on cold-rolled carbon strip while jacking up the price of silicon sheets by $15 to $25 per ton.
By the time such whopping increases reach the consumer they snowball to roughly 20% and more on the price of durable goods from autos and refrigerators to pets and pans. This is, therefore, a major inflationary measure. It is similar, if not identical, to what was done last July. It is intended to produce the same results.
The prospect of still higher prices makes it profitable to maintain and even add to existing inventories, no matter how large. The fuel that this adds to speculation – buying and hoarding in expectation of still higher prices – hardly requires comment in the light of the still fresh experience.
The whole question therefore is: Will this fanning of inflationary fires prove successful the second time as it did the first? A partial success is by no means excluded. But this in turn depends on several factors, of which the most important is once again the existing, condition of the domestic market, Can the latter today absorb a. general price rise as was the case in the second part of last year? Or has the inflationary orgy already sapped beyond repair the domestic market?
The final outcome of this desperate inflationary measure will be only to render more explosive and devastating the effects of the oncoming depression. But the immediate outcome – whether or not it will provide a. temporary respite in the current situation – still remains in doubt.
Here again, the answer will in large part depend on what happens in the sphere of retail trade, especially during the current Easter season.
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