Joseph S. Davis

American Agriculture: Schultz' Analysis and Policy Proposals

rT W. SCHULTZ and his circle have been making penetrating analysis of agricultural conditions, problems, and policies, showing unusual awareness of the whole national economy, of evolving knowledge over a wide range, and of advances in general economic thought. Their works, properly referred to frequently in Schultz meaty one here reviewed, deserve the respectful attention of economists, whether specialists in agriculture or not. The present stimulating contribution, evolved from a mimeographed draft that was widely circulated for comments, especially challenges discriminating examination by serious students. To a degree that I cannot adequately indicate in detail, much of its content strikes me as excellent. Many positions are well taken on broad and specific issues on which much divergence of opinion exists. Some new ground is broken, e.g., on income-elasticity of demand. Yet the book is not thorough, well matured, and authoritative. It is marred by defects of organization, excessive repetition, and various omissions and obscurities. I find puzzling the authors peculiar or inconsistent usage of terms, such as durable goods, returns, political economy, economic progress, and even agriculture. There are many slips, and numerous statements to which exception should be taken. On a few important matters, moreover, Schultz seems to me either wrong or on insecure ground. To argue all these points fully is out of the question, but it seems appropriate to present a liberal sample, of course without claiming that my own position is invariably right. Agriculture in an Unstable Economy is one of the research studies sponsored by the Committee for Economic Development, in a group dealing with long-term fundamental problems. The title fails to suggest that the book deals almost solely with the American economy, with only incidental references to others. In referring to the economy as unstable, 2 Schultz means merely dynamic, expanding and fluctuating. He evidently expects both expansion and sizable business fluctuations to continue: maintenance of high-level employment is a very worthy goal but one uncertain if not unlikely to be achieved (pp. 2 I9-20). In his Foreword, T. 0. Yntema calls the book an analysis of the essential conditions for a healthy, prosperous agriculture. Schultz says in his own Preface: Its main purpose is to lay the foundations for a [revised? ] national policy with regard to agriculture. 3 In my view, the book falls short of achieving these highly ambitious aims. When he comes to Part IV, Schultz overmodestly describes his constructive chapters as essentially a series of notes on problems in policy (p. I86). He deliberately gives only incidental attention to problems within agriculture in order to devote primary attention to between problems, to the functions of agriculture in the political [!] economy

Economic and Financial Progress in Europe

IN many respects I922 was a most disappointing year for Europe. The numerous international conferences were conspicuous failures and their failure prevented the taking of other important steps in advance. The Genoa conference, of which high hopes had been entertained, proved a fiasco. The Hague conference over Russian affairs came to naught. The Paris conference of international bankers in June reported that under existing conditions an international loan to Germany was impossible. The foreign experts called to Berlin in October to advise concerning the stabilization of the German mark, disagreed upon essential points, and the German government, ignoring the majority report, submitted an unacceptable proposal. Repeated conferences over reparations merely postponed a real decision, until early in January I923 a final disagreement led directly to the forcible occupation of the Ruhr. Although war in the Near East was checked before it became a conflagration, the Lausanne negotiations with the Turks were indecisive and the Angora government has since refused to sanction the treaty which their representative had been unwilling to sign. The partition of Upper Silesia was peaceably effected in accordance with the League of Nations decision, and Luxemburg became incorporated into economic union with Belgium; but there has been friction in central Europe over Vilna and Memel, and there are occasional signs of trouble in the Balkans. The noteworthy exceptions to the disappointment are the agreement to support the League of Nations in a vigorous effort for the rehabilitation of Austria, and the arrangement of terms for funding the British debt to the American government, which was accomplished early in I923. The important cabinet changes of the year, on the whole in the direction of greater conservatism, were of mixed character. The Poincare ministry in France is far stronger and better supported than its predecessors, but whether for good or for ill it is perhaps too soon to decide. In Great B,ritain the fall of Lloyd George led to the substitution of a conservative ministry for a coalition cabinet, with a leader of a very different type, but the new cabinet is not strong and its policies are mainly negative. Changes in the Wirth cabinet and the succession of Cuno have added little, if at all, to the strength or prestige of the German government. Only in Italy, where a bloodless revolution brought the Fascisti into power, does the change seem clearlyfor the better, for a strong government has succeeded the series of weak and unstable governments of recent years. Notwithstanding the lack of progress, and indeed some retrogression in these respects, the oft-prophesied collapse of Europe, or even of Germany, has not come; and the statistical evidence reflects unmistakably that I922, while a year of painful depression in several leading countries, was a year of substantial recovery and readjustment. Fiscally, the year was generally unsatisfactory but, with few exceptions, better rather than worse than I920 or I92I. Financially, with certain important exceptions, advances have been registered: on the whole, prices and exchange rates have been less unstable, securityprices higher, moneyrates easier; and business failures, though extremely high, have been declining and the liquidation process is more nearly completed. In respect to production, trade, and capital replacement and extension, the progress was well-nigh universal. The process of readjustment is not complete. Conditions are generally still inferior to those of pre-war days. Few countries in Europe have recovered as far from the depression as the United States. Yet the improvement of I922 was general and fairly continuous; in most of the war-torn countries of the continent productivity was higher and trade more nearly normal than in any year since the war, and the improvement is reflected in all sorts of financial and economic statistics. The outstanding exception to these broad statements is the fiscal and financial degeneration in Germany, which has many serious consequences even though it has not prevented an increase in German output. This article attempts a review and interpretation of the relevant economic and financial statistics. The material falls into two main groups: the financial relating to money rates, security prices, currency and credit, commodity prices, c79:

World Currency and Banking: The First Brussels Financial Conference

IN the field of currency and banking the past six months have been a period of standing fast. Policies previously adopted have been on the whole maintained. Money rates have been firm on a high level in most countries, moderate or low in a few others. Recently a few increases have occurred. In central and eastern Europe inflation has continued rampant. In Belgium, Italy, and Spain there has been further currency expansion. Generally elsewhere, expansion has either slowed down, or contraction has begun to appear where, as in Japan and America, the business reaction has gone farthest. Restrictions on gold movements have not been modified, except to tighten them where, as in Spain and Argentina, the exchanges have moved strongly against a country and threatened to cause gold export. Gold movements have been of slight significance for currency purposes, chiefly swelling the reserves of the United States, Japan, and Argentina, which were already abundantly supplied. No obvious progress has been made toward solving the currency problems left by the war inconvertible paper, fluctuating price levels, dislocated exchanges. The critical related problems of increased production and normalized trade are equally unsolved. The turn of the year in most countries is a season of marked financial strain. This year it is complicated by the reaction in business which has now been in progress for several months almost throughout the world. Cuba and South American countries have experienced financial panics, such as Japan suffered last spring. Elsewhere the liquidation has been more orderly, though painful enough. Meanwhile, the serious damage to the worlds economic machinery has not been made good: some parts have been replaced; Belgium has made good strides toward resuming normal activities; and France has accomplished some reconstruction; but in several lands the whole mechanism is rusting out or deteriorating further for lack of proper repairs and use. There have been good harvests; much quiet constructive work has been taking place; but, taking the world as a whole, it may be doubted whether the aggregate productive forces are more effective than they were a year ago. A turning point in a world cycle of prosperity and depression may have been reached last spring; a more fundamental turning point, from declining to increasing productivity, seems to lie ahead. Before I92I is far advanced new developments must be expected. World conditions are still fundamentally so abnormal that pre-war experience affords only moderate aid in forecasting these developments. Far more than before the war, they depend upon government policies, national and international action, and the judgment of men of finance upon measures which will best facilitate the essential readjustments. It is therefore pertinent to review an outstanding event of the autumn -the International Financial Conference which sat at Brussels from September 24 to October 8.1 Proposed last January in memorials submitted simultaneously to leading governments; approved by those governments with varying degrees of caution or enthusiasm; called by the Council of the League of Nations; successively postponed from May to July, and from July to September the Conference finally assembled, grappled seriously with the worlds financial problems, and reached certain unanimous conclusions. Eighty-six delegates were present, representing 39 nations containing three-fourths of the worlds population and including practically all the important countries except Russia, Turkey, Mexico, and Chile.2 The representatives were in the main leading bankers and treasury officials, who attended as experts and not as spokesmen of [existing] official policy. Invaluable preliminary spade work had been done by the Secretariat of the League of Nations, assisted by eminent economists, in providing statistical and other evidence, and economic analyses, bearing upon conditions and prospects. It was therefore a workable body, representative, able, informed. Despite considerable advance skepticism as to its potentialities, and a deal of sneering while it was in session, the Conference seems fully to have justified its existence, and to have made a genuine and considerable contribution toward solving theworlds economic riddle.

Wheat, Wheat Policies, and the Depression

ECONOMIC crises and depressions are primarily social products. In the complex process by which they are brought about, Nature often plays a significant part. The major responsibility, however, rests on men, through multifarious private actions and numerous public policies. Of course, no individual, group, or government strives to bring on a crisis or depression. Rather with motives of private gain and public good appraisals, forecasts, and commitments are made, and actions taken, which give rise to a condition of more or less serious disequilibrium. Major crises and severe depressions commonly result from the unfortunate conjuncture of a considerable number of disproportionately developed or internally weak situations, often not previously recognized as such. The severity of the crisis, and the depth and duration of the depression, largely depend upon the number of parts of the economic structure in which serious weakness exists, and the difficulty with which such weaknesses can be corrected and adjustments made to the whole. Among the distinguishable parts of the economic machine in which fallacious ideas, erroneous appraisals, mistaken forecasts, and ill-judged actions may create an unbalanced condition, the positions of great staples of production, trade, and consumption are important. The intricate task of analyzing the factors responsible for the occurrence and intensity of crisis, recession, and depression, and the factors that hamper or promote recovery, requires the services of students of commodity economies. Such services in particular cases are needed in the formulation of adequate general theories of economic conjuncture.1 With this objective I present here, with interpretations, some salient facts regarding one great staple, with special reference to the crisis and depression of I929-34.2 Wheat is a basic food product, the preferred if not invariably the principal cereal in the diet of most of the population of what may be called the commercial world. It is grown by millions of farmers, over a large part of the agricultural world. It is a major source of income for large agricultural groups. Its price has a powerful influence on prices of other grains and of farm land, thereby affecting much larger agricultural groups. The income of these groups is a dominant factor in the volume of business and income of various non-farming groups. In volume and in value, wheat is one of the most important commodities entering into domestic and international trade. Its movement therefore vitally affects commercial transportation interests, and its price is of vital concern to speculative and financial interests. It is, moreover, prominent among the commodities with which national policies have dealt. In this latest major recession and depression, which has been notably severe in agriculture,3

Recent Developments in World Finance

FINANCIAL statistics, while generally more accessible, reliable, and up-to-date than other classes of economic statistics, present only part of the picture of the economic situation. They cannot be safely interpreted without a knowledge of other economic events and conditions. The attempt to interpret them by themselves is peculiarly dangerous when currency expansion and contraction, changes in commodity prices, and movements of foreign exchange are as violent as they have been in most countries since the close of the Great War. The present writer therefore vigorously dissents from the so-called dictum of finance that the position of a central bank of issue accurately reflects the economic condition of a country, barring mismanagement of the banks business; I from the view that the depreciation of the exchanges of the various European countries roughly reflects the economic deterioration of each; 2 and from the conclusion that recent financial facts evidence a European decadence which threatens civilization. I On the contrary, one who studies the whole evidence from Europe since the armistice can hardly escape the conclusion that fundamental and important economic progress may take place in the face of objectionable policies of government finance, rising public debts, the severe depreciation of a currency, and a falling rate of exchange; and that central bank showings may improve and exchange rates may rise without necessarily signifying or even forecasting fundamental economic improvement. The present article, like the writers previous general surveys in this REVIEW, deals primarily with certain financial aspects of the worlds economic developments. It is written, however, in the light of considerable evidence upon the fundamentals of agriculture, transportation, industry, and trade which cannot here be set forth in detail. Unfortunately it is difficult for any one person to gather and assimilate adequate evidence of this kind from the diverse sections of our still disorganized economic world; and too often one must present a judgment based upon partial evidence rather than a conclusion from a convincing array of facts. Suffice it to say that the writer has attempted to obtain a fair perspective, and that readers must supplement and check that perspective by their own.4

World Currency Expansion During the War and in 1919

A MONG the evil legacies of the war is a serious derangement of the worlds currency and banking. There has been general inflation of credit and currency. The worlds banking reserves have been redistributed. In most countries bank loans, deposits, and circulation have increased out of proportion to gold and silver reserves, or in the face of declining reserves, and reserve ratios have accordingly fallen heavily. Several important countries have effectually departed from the gold standard and are experiencing the characteristic effects of an inconvertible currency regime. In no small measure as a result of these currency and banking influences, world prices have risen astonishingly; relations between price levels of different countries have been disrupted and continue unstable; and international exchange is utterly deranged and subject to extreme fluctuations. In turn, international trade and finance have become highly uncertain and speculative. During the war economic and financial policies were determined by military considerations and the probable effects were not always frankly faced. Now hostilities have ceased. It is pertinent to inquire not merely where we stand but whither we are going. How far did these war-time tendencies progress ? Are they continuing ? If not, have they been merely checked, or is good progress being made in regaining a normal status ? In what respect is the post-war normal to differ from the pre-war position ? These questions press for answer, the more because, through exchange rates and price changes, the currency and banking situation is intimately linked with all the problems of labor unrest, international trade, the financing of reconstruction, and the enforcement of the terms of peace. Statistics of central banks and of new government issues here afford valuable evidence. Hence in recent SUPPLEMENTS we have reviewed selected statistics of the Bank of France, the Bank of England, British currency notes, and the federal reserve banks. Here, more briefly, similar data are considered for other leading countries of the world, and tendencies during the war and since Armistice Day I9I8 are summarized. For such a survey recent issues of the Federal Reserve Bulletin contribute illuminating material, and the weekly summaries of central bank statements published in the London Economist are invaluable. A preliminary word is needed, however, on the precise significance, in this connection, of these statistics of central banks.