Can Societies Avert a Depression?

Thursday, 02 Apr 2009 06:26 AM

By Lev Navrozov

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Between 1807 and 1941 there were five economic depression periods in the United States: 1807-1814, 1837-1844, 1873-1879, 1893-1898, and 1929-1941

When the fifth depression (1929-1941) began, President Hoover and his Secretary of the Treasury Andrew Mellon announced that the end of the depression was “just round the corner” (just as cocksure as was George Bush and now Obama).

Actually, the fifth depression lasted 12 years, and possibly it was World War II and not fighting it for 12 years, that stopped it.

Whenever an economic depression in the United States occurred, that was the best proof for the communists all over the world (Marx was 26 years old in 1844) that capitalism was impossible without crises, while they exclaimed, Look at Soviet Russia (Marx was no more in 1918!) or at “Soviet China,” as Mao called it!

I pulled up “economic depressions in U.S.” in Yahoo!. The first six hits were old stuff. But the seventh answer, “The Current Economic Depression,” was “current”!

It was authored by the “Commonwealth Movement” and had 17 pages, of which I will quote the first two sentences: “Out-of-control predatory capitalists have perpetrated a worldwide economic depression. Capitalism’s degenerate character is now extraordinarily visible during this time of multiple crises.”

On each side of the page there was a picture of a miserable emaciated proletarian who carried on his back a huge pack of money, with a bourgeois seated atop of the pack and smoking a cigar.

The 17-page manifesto seems to have been written either by Marx or Lenin or some of their disciples.

Well, they are right in the sense that a necessary condition for a crisis, depression, or even recession is freedom, namely economic freedom. But if the “director of a Soviet state enterprise” is told “from above” how much he should produce this year, how many employees he should employ, and how much they should be paid, certainly there can be no crisis.

If they produce more than they were told to, let them produce as much less in the next year. If they produce less, what product may be needed now and not the next year? A certain drug? Let’s have extra stocks of it in a special drugstore, to which a customer will be dispatched with his prescription. If that drugstore cannot fill his prescription either, and the customer starts making a fuss beyond asking for the “Book of Complaints,” call the police.

After all, Mao and Stalin shot or tortured to death 80 million human beings. What is the death or a concentration camp for one drugstore customer?

Now, free enterprise means freedom of when to produce what, how much, by how many employees, and at what price to sell. Yet, this set of variables is economically interconnected with other sets of variables, which should vary accordingly.

Imagine millions of such sets of variables. When discrepancies between them are too many or too large to adjust locally, an economic depression sets in.

An economically free society must have a mathematical model of its economy to accomplish three objectives: (1) ascertain whether a depression is expected; (2) plan on how to prevent it, and (3) stop it if it has not been prevented.

When we came to New York in 1972, a philanthropic organization presented me with the 23-volume Encyclopaedia Britannica of 1970. But it did not address any of the three questions I have mentioned above.

This is what it said (volume 22, Page 673) about the Depression that started in 1929: “The wonderfully [!] prosperous world of the 1920s [the economically developed countries of free enterprise] came to an abrupt [!] end in September 1929.”

The Britannica did not mention a single person or institution that predicted this calamity, however vaguely. As I have said, President Hoover and his Secretary of the Treasury Andrew W. Mellon assumed at the beginning of the depression that the end of it was “just round the corner.” Of course!

They had tackled the depression so bravely! As did George W. Bush and then Barack Obama.

Indeed, President Obama initially tried this method of depression-fighting: he gave, well, about three-quarters of $1 trillion to bail out bankrupt banks so that they could pay their customers and resume their banking activity.

The presidential news conference was held on March 24; that is, more than two months after the beginning of Obama’s presidency, but neither the questions Obama was asked, nor his answers threw any light on his bailout of bankrupt banks.

It had been said publicly earlier that the banks were insured by AIG (American International Group) and the money had been given by the Congress to AIG, which found no better way of spending it than to distribute the money among its top officials, whom AIG believed to be so valuable that no money was excessive to keep them at their posts.

Ironically, many of them left the AIG after they had received the “bonuses.” That was the money that President Obama had initially announced to be intended for bailing out bankrupt banks.

Yes, in the fifth depression, Hoover and Mellon said that prosperity was “just round the corner.” But eight years after 1929, “between August 1937 and May 1938, the index of production fell from 117 to 76 and unemployment increased by 4,000,000” (according to my Britannica).

Hoover lost and Roosevelt won the presidential election in 1932 (Roosevelt received more than 22 million popular votes to fewer than Hoover’s 16 million). Roosevelt died in 1945.

His struggle against the depression was part of his New Deal, and a European was reading about it with a pleasant surprise. Outside the United States, politicians were either left-wing, that is, defended the poor against the rich, or right-wing, that is, defended the rich against the poor.

A class war! Roosevelt was neither left- nor right-wing or he was both. His method was the establishment of independent organizations that helped the poor and the rich to help themselves. No class war, please!

By 1939, the menace of World War II began to overshadow and oust the New Deal. Well, owing to President Roosevelt, the United States was the first country to develop the atom bomb, that is, to win World War II in the modern sense of the word.

Between 1814 and today no adequate study has been made of the “economic depression.” Let us hope that such a study will be made early in the 21st century, and perhaps a method will be found to prevent it once and for all. Impossible? Well, once a clock seemed impossible or even conceptually absurd. How can one measure and count time?

My assistant, Alan Freed, a Lutheran theologian, paid special attention to the above article, since he valued it highly. You can e-mail me at navlev@cloud9.net

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