current problems
S. MENSHIKOV
__TITLE__ The Economic Cycle:Progress Publishers Moscow
Translated from the Russian by Leo Lempert
Contents
C. MEHLfflHKOB
8KOHOMH1ECKHK UHKJI.
HOBblE HBJIEHHH
B aKOHOMMECKOM PA3BHTHH
KAHHTAJIH3MA
Ha
First printing 1975
Page
Chapter 1. THE BACKGROUND OF THE SUBJECT ...
7
1.1. The Theory of the Cycle and Crises in Marxist Political Economy......................
7
1.2. A Keen Polemical Problem..............
20
1.3. The Contemporary Cycle and the Future of the Capitalist System.......................
26
Chapter 2. POSTWAR CYCLES .............
33
2.1. United States ...................
37
2.2. Western Europe ..................
44
2.3. Japan.......................
55
Conclusions.......................
59
Chapter 3. STORMS OF THE WORLD MARKET ....
63
3.1. Has the World Cycle Vanished? ..........
65
3.2. Money Crises....................
77
3.3. Unevenness and Asynchronism............
95
3.4. The Place of Developing Countries in the World Cycle
109
Chapter 4. CORPORATION, THE STATE, REGULATION
114
4.1. Corporations, Competition, Cycle...........
115
4.1.a. Overproduction of Commodity Capital........
117
4.1.b. Overproduction of Productive Capital.......
122
4.I.e. Overproduction of Money Capital..........
131
4.2. The Activity of the State: the Role of Militarisation and Non-Military Activity ...............
137
4.3. [The Role of State Regulation and Its Limits .....
151
4.3.a. Automatic Regulators...............
151
4.3.b. Countercyclical Regulation.............
158
4.3.c. State Planning, Capitalist Style ..........
179
Chapter 5. TECHNOLOGICAL SHIFTS AND SHIFTS IN
REPRODUCTION...................
184
5.1. Old and New Sectors................
189
«IIporpecc», 1975
Translation into English. Progress Publishers 1975
Printed in the Union of Soviet Socialist Republics
10703---974 M 014(01)---75~^^79^^~^^75^^
CONTENTS
5.2. The Investment Process and the Duration of Cycles .
196
5.3. Technological Progress and Private Consumption ....
209
Chapter 6. INCOMES, PRICES, INFLATION......
219
6.1. The Class Struggle and Reproduction^^1^^.........
220
6.2. Causes of Present-Day Inflation............
231
6.3. How the State Promotes the Rise of Crises.......
265
Chapter 7. ECONOMETRIC MODELS OF ECONOMIC
CYCLES.......................
270
7.1. Theoretical Models of the Cycle...........
272
7.1.a. The Single-Product Model...............
272
7.1.b. The Dynamic Properties of the Single-Product Model
282
7.I.e. Internal Fluctuations of the Cycle Model......
293
7.1.d. The Correlation of Internal Fluctuations and External
Conditions. The Determinate and Stochastic Parts of the
Cycle Mechanism..................
302
7.I.e. Comments on, Other Authors' Models........
313
7.1.L The Behaviour of Cycle Models with the Example of the
USA .......................
317
7.1.g. Two-Sector and Multi-Branch Models........
327
7.2. The Effect of the State Market............
333
7.3. The Influence of Foreign Trade...........
350
7.4. Price-Formation Models ..............
361
7.5. The Effect of Scientific and Technological Progress and Structural Changes.................
370
Conclusion .......................
388
CHAPTER 1
THE BACKGROUND OF THE SUBJECT
1.1. THE THEORY OF THE CYCLE AND CRISES IN MARXIST POLITICAL ECONOMY
The subject of the present monograph is cyclical reproduction under the conditions of the contemporary capitalist economy. Regardless of the modification of the cyclical movement in recent decades, the capitalist economy is still developing in bursts and regularly passes through periods of advance and decline in rates of growth and of drops in the volume of production.
The purpose of the theory of the economic cycle is to explain the mechanism of the regular, periodic crises of general overproduction which occur only in conditions of a developed capitalist economy. The possibility and inevitability of crises under capitalism is the initial postulate in the Marxist theory of the cycle and crises.
Marx perceived the general, abstract possibility of crises of overproduction in the system of the simple private commodity economy. In such an economy every producer works separately from the others but intends his output for sale on the market. By selling the commodities he created, the producer buys other commodities he requires for productive and personal consumption. The purchase-sale act includes two phases: C-M* (sale) and M-C (purchase), which Marx regards as the consecutive metamorphoses of the commodity. In contrast to the direct exchange of products which took place in the traditional, subsistence economy, market
* C denotes commodity and M denotes money.
S. MENSHIKOV
THE BACKGROUND OP THE SUBJECT
exchange is not a single act, and it is capable of stopping the entire process.
The first phase of G-M for one commodity is the second phase in the metamorphosis of another producer's commodity. Similarly, the second phase of M-C is the first phase in the metamorphosis of the other commodity. Consequently, the C-M act can take place only if it coincides with the M-C act of another commodity, in other words, if there is a demand for it. Otherwise, the metamorphosis C-M of the first commodity does not take place and, consequently, the entire subsequent process is halted. Without selling his commodity the producer is unable to buy other commodities. The halt of the transformation of the first commodity stops the metamorphoses of other commodities which appear on the market independently, but are internally interconnected owing to their joint dependence on the market.
``To say that these two independent and antithetical acts have an intrinsic unity, are essentially one," Marx writes, "is the same as to say that this intrinsic oneness expresses itself in an external antithesis. If the interval in time between the two complementary phases of the complete metamorphosis of a commodity become too great, if the split between the sale and the purchase become too pronounced, the intimate connexion between them, their oneness, asserts itself by producing---a crisis.... These modes [of commodity exchange.---S.M-] therefore imply the possibility, and no more than the possibility, of crises. The conversion of this mere possibility into a reality is the result of a long series of relations, that, from our present standpoint of simple circulation, have as yet no existence.''^^1^^
Thus, the abstract possibility of a crisis of overproduction, according to Marx, appears only when developed market relations arise. Necessary requisites are the production of commodities for sale on the market and the external separation of commodity producers. These components, which are already present in the simple commodity economy based on the private property of the commodity producers, are preserved and further developed under capitalism.
Marx strongly criticised the vulgar economists of his time (for example, J.B. Say) who claimed that commodity circulation necessarily creates an equilibrium between purchases and sales because every sale is at the same time a purchase, and vice versa. The illusion of the obligatory nature of such equality stems from the static approach to the problem, an approach inherent in the works of vulgar economists both in those days and later. In contrast, Marx introduced a dynamic approach into the analysis of market relations, demonstrating that stopping the metamorphosis of one commodity at moment t leads not only to an analogous delay for some other commodity at moment t, but alsp (for other commodities) at moments t + 1, t + 2, and so on. It goes without saying that even in this case at every given moment as many commodities will be sold as are bought. However, such an obvious identity represents, according to Marx, a meaningless tautology which is used as a basis for attempts to prove that the seller always finds his buyer on the market. However, it is just as obvious that, at every given moment, as many goods are not sold as are not bought.
Market relations under simple commodity production are partly raised from their low stage as credit develops. A commodity producer, not finding at a given moment a buyer with cash on hand, defers payment, and sells his commodity on credit. He, in turn, buys the goods he needs also on deferred payment terms and thus gains the possibility to continue his production. Consequently, the existence of credit relations promotes market exchange, as it were, lubricates the mechanism of commodity circulation.
At the same time, credit relations lead to a further development of the possibility of a general overproduction crisis. The described mechanism operates smoothly only as long as credit obligations are met, i.e., money payments are made on debts which cannot be reciprocally redeemed. However, as soon as this mechanism is interrupted, there arises the danger of a chain reaction which upsets the functioning of the credit and, consequently, also of the market mechanism as a whole. When the date of payment arrives, the commodity producer is ready to sell his output for the sole purpose of receiving the cash he needs for redeeming his debt. His need may not coincide with the period when his
~^^1^^ K. Marx, Capital, Vol. I, Moscow, 1972, p. 115.
10S. MENSHIKOV
THE BACKGROUND OF THE SUBJECT
11buyers accumulate cash. Non-payment by one commodity producer entails non-payment by his creditors to their own creditors. Thus, the credit mechanism, expressing and intensifying the internal social connection between the externally independent producers, increases and extends the possibility of a crisis of overproduction. Moreover, a production and commercial crisis is supplemented by a money crisis. "Such a crisis," Marx wrote, "occurs only where the ever-- lengthening chain of payments, and an artificial system of settling them, has been fully developed.''^^1^^
The conversion of the possibility of general crises of overproduction into a reality is linked, according to Marx, with the development of capitalism. The inevitability of crises under capitalism stems from the basic contradiction of this socio-economic system---the contradiction between the social nature of production and the private capitalist form of appropriation of the results of production. Understanding of this contradiction is exceptionally important for grasping the Marxist theory of the economic cycle.
In contrast to earlier socio-economic systems, which rested on traditional, slowly changing methods of production, capitalism accelerates the development of the productive forces and raises the rates of scientific and technological progress. It is under capitalism that large-scale machinebased production appears for the first time, and the social division of labour rises to a higher level.
The earlier modes of production were based primarily on the individual labour of isolated producers or groups of producers. The application of large masses of labour in one place and for one purpose was more the exception than the rule. The capitalist manufacture and then the factory put an end to the isolation of the individual producers, gathered "under one roof" large masses of people, participants in one production collective. The production process in capitalist enterprises becomes social, above all in the sense of the division and co-operation of labour within enterprises.
Simultaneously, the social division of labour progresses. The former division of the economy into crop growing, animal husbandry and the crafts gives way to an ever more
intricate sectoral structure. As the productive forces progress, new sectors are ever branching out from the existing ones. Sectors and enterprises become increasingly specialised. As these processes develop the general connection and interdependence of various sectors and lines of production is intensified.
Small commodity producers worked primarily for local markets which were only weakly interconnected. Large, specialised capitalist enterprises began to work for a wide national market, breaking up local economic isolation, also making their way increasingly into foreign markets and turning them into genuine world markets. Increasingly larger numbers of people, formerly engaged in their personal husbandry, are drawn into large-scale capitalist production. The mobility of the population increases greatly and national and world labour markets are developed.
All this, in the understanding of Marx and Lenin, constitutes different aspects of the progressing capitalist socialisation of production. Every sector, every enterprise becomes, not formally, but in essence, a part of the one, wider process of social production.
Yet the basis of the capitalist economy, private ownership of the means of production, is fully preserved. By the nature of their production activity, enterprises become social, but they remain privately owned. Every one of them, particularly during the period of pre-monopoly capitalism, operates at its own risk. The internal connection of enterprises increased but their external isolation is preserved and even extended by competition.
Because of the isolation of producers, the process of commodity circulation and, consequently, of commodity production is inevitably upset and interrupted from time to time. If the dependence of the commodity producers on each other is small and the local markets are isolated, these disturbances cannot develop into general economic crises. General overproduction crises become inevitable only after a specific, sufficiently high level of production socialisation has been reached.
``When, during the regime of small, isolated enterprises," Lenin wrote, "work came to a standstill in any one of them, this affected only a few members of society, it did not cause
~^^1^^ K. Marx, Capital, Vol. I, p. 137.
12S. MENSHIKOV
THE BACKGROUND OP THE SUBJECT
13any general confusion.... But when work comes to a standstill in a large enterprise, one engaged in a highly specialised branch of industry and therefore working almost for the whole of society and, in its turn, dependent on the whole of society (for the sake of simplicity I take a case where socialisation has reached the culminating point), work is bound to come to a standstill in all the other enterprises of society.''^^1^^
The mechanism of the basic contradiction of capitalism as applied to the cycle is revealed clearly by comparing the Marxist theory of the realisation of the social product and the section of Capital dealing with the mechanism of the formation of average profit. The Marxist theory of realisation reveals the internal mechanism of reproduction in conditions of proportionality inherent in an economy at a high stage of production socialisation. The full realisation of the total social product is possible only if definite intersectoral and national economic proportions are observed. Examining the circulation of capital, Marx divides social production into two departments. He, for the first time, revealed the necessary and sufficient conditions for the full realisation of 'the product in both departments, specifically through mutual exchange. Chapter 7 of this book shows that these conditions, formulated by Marx and later developed by Lenin, with respect to extended reproduction in conditions of technological progress and changing organic composition of capital, also hold true for more intricate schemata (models) of social production which envisage division into a large number of different sectors and take into account the entire complex of their interconnections.
Thus, the proposition concerning the social nature of production becomes, in the given case, a general condition, according to which the production of any enterprise or sector, in every given period of time, can be completely realised only as a result of observing inter-sectoral and national economic proportions of social reproduction taken as a whole.^^2^^
With the full realisation of the social product, the economy is in a state of equilibrium. However, the model of Marx
~^^1^^ V. I. Lenin, Collected Works, Vol. 1, Moscow, 1972, pp. 176-77.
~^^2^^ The balances of inter-sectoral and inter-regional flows ( inputoutput tables), widely used by present-day economists, clearly show the Marxist schema of social reproduction to be correct.
and Lenin is dynamic. The ultimate point of realisation in every given period of time is the creation of the material conditions and funds for resuming and extending production in subsequent periods. If the creation of accumulation funds in every department and every sector of social production were to proceed in accordance with a single, centralised plan, providing for the strict observance of future national economic and inter-sectoral proportions, it would be possible to maintain a dynamic equilibrium. However, under capitalism, decisions^on the allocation of accumulation funds are made in a non-centralised way by every enterprise^ or^ group of enterprises independently of each other. Moreover, the accumulation process is subordinate to the laws for forming the general, average rate of profit.
Investment funds, all other conditions being equal, are channelled first of all into sectors and enterprises where the rate of profit is higher than average. The evening out of the rate of profit takes place gradually, through the inter-- sectoral flow of capital. Moreover, sooner or later correlations inevitably arise between the output of individual enterprises and sectors, which rule out the possibility of the complete realisation of the social product.
Consequently, the very mechanism of the inter-sectoral flow of capital, which reflects the private capitalist nature of the economy's organisation, upsets its proportionality and its equilibrium. "The existing proportion," Marx wrote, "must always be upset through the creation of surplus values
and the growth of the productive forces__Emergence of one
(sector of production) beyond the bounds of the given proportionality ejects from the bounds of this proportionality all sectors, and in unequal proportions.''^^1^^
The difference between the Marxist explanation and the position of authors who attribute to crises the upsetting of proportionality should be emphasised. According to Marx and Lenin, indications of disproportionality are insufficient. It is necessary to demonstrate the causes for the constant upsetting of proportionality under capitalism, to reveal the contradiction inherent in this system between the
~^^1^^ K. Marx, Grundrisse der Kritik der politischen Okonomie, Moscow, 1939, S. 317.
S. MENSHIKOV
•THE BACKGROUND OF THE SUBJECT
internal requirement of proportionality and external disturbances of it. This contradiction is regarded, dialectically, as the basis of the cyclical movement of the capitalist economy. This contradiction, which inevitably grows sharper, is periodically resolved in the form of a crisis of overproduction.
The contradiction between planned balanced organisation of production in individual enterprises and the anarchy of production on the scale of the economy as a whole is a derivative of this former contradiction. However, the capitalist economy is not absolutely chaotic. Within enterprises, work is organised according to a strict plan. This is an organic necessity for the production of surplus value and a requisite for its maximisation. The sharper the competition, the strpnger the desire of the capitalist to properly organise the production process within his enterprise, to extract the maximum from the advanced capital and labour.
The conditions for the production of surplus value in individual enterprises, however, do not coincide with the conditions for its realisation. The latter are determined by the proportions of social production which are imposed on an individual entrepreneur in the form of the laws of the market. Spontaneous market forces constantly compel entrepreneurs to adjust their initial plans. Even the development of the tendency towards capitalist planning and capitalist rationalisation in individual enterprises, in its turn, causes an inevitable increase in the anarchy of social production, if such a tendency runs counter to the concealed proportionality of social production.
With the transition to monopoly capitalism, planning extends to complexes of enterprises combined by monopolies. Attempts are made to plan and regulate capitalist production on a nationwide scale, with the help of the state. Modern forms of such regulation and its consequences are examined in greater detail in Chapter 4. Here we shall merely remark that they do not eliminate the contradictions of the capitalist economy.
One more derivative contradiction is that between labour and capital. The collective nature of labour leads to the formation of an organised working class, united by common interests. It is opposed by capital, as represented by indi-
vidual entrepreneurs, companies and the state. The main sphere of struggle between the working class and the capitalist class is the duration of the working day, working conditions, payment for labour, and so on. The results of this struggle directly affect such major economic indicators as the rate of surplus value, the correlation between the price and value of labour power and the share of the incomes of the working class in the national income.
The movement of these indicators exerts a decisive influence on the course of capitalist reproduction. In contrast to many economists of his time, who saw the cause of the poverty of the masses in "absolute overpopulation", Marx regarded the income of the working class as a function of the process of extended reproduction. "To put it mathematically: the rate of accumulation is the independent, not the dependent, variable; the rate of wages, the dependent, not the independent, variable," Marx wrote.^^1^^ If the volume of production is expanded at sufficient speed, the demand for labour rises and an increasingly large amount of living labour is drawn into production, the size of the relative surplus population is reduced and wages increase.
The price of labour continues to rise only so long as its growth does not hinder capital accumulation, i.e., as long as either the mass or the rate of surplus value grows. The limit for taking on additional labour for big enterprises sets in later than for small ones because the former, even at a lower rate of profit, are able to expand at faster rates.
If, however, the increase of wages begins to have a substantial effect on the amount and rate of profit received by the overwhelming majority of entrepreneurs, the growth rate of production decreases. "...On the other hand," Marx writes, "accumulation slackens in consequence of the rise in the price of labour, because the stimulus of gain is blunted. The rate of accumulation lessens; but with its lessening, the primary cause of that lessening vanishes, i.e., the disproportion between capital and exploitable labour-power. The mechanism of the process of capitalist production removes the very obstacles that it temporarily creates.''^^2^^
~^^1^^ K. Marx, Capital, Vol. I, p. 581.
~^^2^^ Ibid., pp. 580-81.
16S. MENSHIKOV
THE BACKGROUND OF THE SUBJECT
17Thus, the contradictory movement of wages and profit is a necessary element of capitalist reproduction. Capital strives to increase the rate of surplus value and to reduce the price of labour. At the same time, the size of wages depends directly on the speed of capital accumulation. A rise in wages expands the market for the output created by capitalist enterprises, eases the conditions for the realisation of surplus value. At the same time, wages grow at the expense of profit and, under specific conditions, this also leads to its decline and to a consequent deterioration of the conditions for capital accumulation. These contradictions are resolved in periodic ebbs and flows of capitalist production.
Examining this question, Marx draws the following conclusion: "The rise of wages, therefore, is confined within limits that not only leave intact the foundations of the capitalistic system, but also secure its reproduction on a progressive scale. The law of capitalistic accumulation, metamorphosed by economists into pretended law of Nature, in reality merely states that the very nature of accumulation excludes every diminution in the degree of exploitation of labour, and every rise in the price of labour, which could seriously imperil the continual reproduction, on an ever enlarging scale, of the capitalistic relation.''^^1^^
To counteract the declining rate of profit, capitalists turn to new, more efficient methods of production and economise on raw materials and wages. Capital also depreciates periodically, owing to obsolescence and the surplus of capital as compared with social needs. On the other hand, the wide distribution of new methods of production raises the organic composition of capital and reduces the rate of profit. Attempts to make up for the decline in the profit rate, by increasing the mass of profit, exacerbates commodity overproduction. Alongside factors which draw labour power into production in proportion to the speed of capital accumulation, forces operate which eject it from production and restrict its flow back and, consequently, create a large relative surplus population, in other words, unemployment.
``These different influences," Marx writes, "may at one time operate predominantly side by side in space^ and at another
succeed each other in time. From time to time the conflict of antagonistic agencies finds vent in crises. The crises are always but momentary and forcible solutions of the existing contradictions, they are violent^ eruptions which for a time restore the disturbed equilibrium.''^^1^^
Consequently, according to Marx, cycles and crises are forms of the movement of capitalist reproduction in which the limit to the A self-growth of the value of capital, the main aim of capitalist production, is periodically eliminated. The main contradiction of capitalism is displayed, in particular, in the conflict between the tendency of capital towards unrestricted expansion and the limited possibilities for the growth of consumption and the effective demand.
Explanation of crises in terms of under-consumption is wrong. The low standard of living and the insufficient consumption of the masses are inherent not only in capitalism, but even, to a greater extent, in the modes of production preceding it, in which, however, crises of general overproduction were impossible. Only under capitalism has systematic extended reproduction as the dominant mode become possible, while the prevalence of simple reproduction as opposed to the self-growth of capital becomes impossible. "Under all the old economic systems," Lenin wrote, " production was every time resumed in the same form and on the same scale as previously; under the capitalist system, however, this resumption in the same form becomes impossible, and unlimited expansion, perpetual progress, becomes the law of production.''^^2^^
The growth of personal consumption proceeds more or less uniformly at an average rate somewhat exceeding that of the population increase. In different countries and in different periods, the rate of this growth differs but the fluctuations themselves are relatively small. If capitalist production was to follow strictly the growth of the demand for consumer goods, its tendency towards unlimited expansion would be too tightly restricted. In reality, the expansion of social production may, within certain bounds, take place independently of the growth of personal consumption--- owing to the swifter and more dynamic increase in the output
x K. Marx, Capital, Vol. Ill, Moscow, 1971, p. 249.
~^^2^^ V. I, Lenin, Collected Works, Vol. 2, Moscow, 1963, p. 164.
2-0593
~^^1^^ K. Marx, Capital, Vol. I, p. 582.
g. MENSBiKOV
THE BACKGROUND OP THE SUBJECT
of means of production. Such relatively independent and swift growth is possible owing to the large-scale replacement of the old means of production by new, the building of new enterprises using the latest technology, the introduction of industrial methods into new spheres of social production.
The independence of the increase in the output of means of production is relative, because, ultimately, they are used for the manufacture of consumer goods. After the specific demand, connected with the periodic replacement of obsolete by new equipment, the building of new enterprises and the spread of industrial methods to new spheres is exhausted or its growth slackens, the output of means of production inevitably declines and returns to a level determined directly by the needs of the production of consumer goods.
The replacement of obsolete means of production by new and the building of new enterprises proceeds unevenly under capitalism. Every new crisis, by forcibly restoring the equilibrium upset previously, opens up possibilities for a new round of extensive capital investment. This occurs only when the rate of profit after the latest crisis returns to the level which makes extensive accumulation of capital possible. A resumption of capital accumulation at an accelerated pace, in its turn, becomes the material basis for the expansion of social production, first of all the output of the means of production and then of consumer goods, too.
In contrast to circulating capital, fixed capital carries over its value in parts throughout the entire period of its use. Consequently, when fixed capital after the most recent crisis is renovated in accordance with the social needs, the process of production, including extended production, may, for a certain time, continue even under a reduced demand for major producer goods. A decrease in investment is linked directly with the drop in the profit rate, with the revealed surplus of accumulated productive capital. A cut in investment sooner or later rebounds on production as a whole, slowing down the growth of demand and leading to another general crisis of overproduction.
During a crisis, fixed capital is under-employed. By the time the crisis is completed, the surplus capacity could be utilised for another growth of production. However, part of the main means of production previously installed has
been worn out and part has become obsolescent, owing to the development of new technology. The crisis intensifies the obsolescence of fixed capital owing to the general decline of commodity prices and dictates the large-scale transition to the use of new means of production.
Marx has discovered in the movement of fixed capital the material basis for the periodic nature of crises,^^1^^ which was formulated precisely in a corresponding law in the second volume of Capital. "As the magnitude of the value and the durability of applied fixed capital develop with the development of the capitalist mode of production," Marx wrote, "the lifetime of industry and of industrial capital lengthens in each particular field of investment to a period of many years, say, of ten years on an average. Whereas the development of fixed capital extends the length of this life on the one hand it is shortened on the other by the continuous revolution in the means of production, which likewise incessantly gains momentum with the development of the capitalist mode of production. This involves a change in the means of production and the necessity of their constant replacement, on account of moral depreciation, long before they expire physically. One may assume that in the essential branches of modern industry this life-cycle now averages ten years. However we are not concerned here with the exact figure. This much is evident: the cycle of interconnected turnovers embracing a number of years, in which capital is held fast by its fixed constituent part, furnishes a material basis for the periodic crises. During this cycle business undergoes successive periods of depression, medium activity, precipitancy, crisis. True, periods in which capital is invested differ greatly and far from coincide in time. But a crisis always forms the starting-point of large new investments. Therefore, from the point of view of society as a whole, more or less, a new material basis for the next turnover cycle,"2 according to Marx, thus arises.
~^^1^^ Clement Juglar, a contemporary of Marx, established statistically the fact that crises recur every eight to ten years, but was unable to give a clear-cut explanation of this and reduced its causes primarily to credit and money factors. G. Juglar, Des crises commerciales et de leur retour perlodique en France, Deuxieme edition, Paris, 1889.
~^^2^^ K. Marx, Capital, Vol. II, Moscow, 1967, pp. 188-89.
2*
s.
THE BACKGROUND OP THE SUBJECT
21The history of cycles and crises has provided admirable corroboration of Marx's hypothesis about the material basis of the cyclical movement.
Marx demonstrated that crises are a display of the overproduction of capital in general and not only of commodity capital, i.e., of commodities. Overproduction of capital is identical to its overaccumulation. Crises resolve the contradiction between the accumulated capital and the possibilities for its profitable application. This happens in the form of the direct depreciation of capital owing to a general drop of prices and also "through the withdrawal or even the destruction of more or less capital. This would extend partly to the material substance of capital, i.e., a part of the means of production, of fixed and circulating capital, would not operate, not act as capital; some operating establishments would then be Brought to a standstill.''^^1^^
This part of the Marxist theory of the cycle also proved to be prophetic, for, as we shall subsequently see, even a reduction in the size of commodity overproduction does not eliminate the more general attribute of crises---the overaccumulation of capital.
; This brief survey of the Marxist theory of crises and cycles does not claim to be a full exposition. Its purpose is to outline the major components of the cycle mechanism in the Marxist understanding. Different aspects of this theory will be specified and outlined in greater detail when examining the problems of the contemporary cycle.
reproduction began in the Soviet Union in the 1920s. These studies were associated, above all, with the activity of the Institute of the World Economy and World Politics, in particular with the name of Academician Y. S. Varga, who was the founder of the institute and headed it for many years. He published a quarterly analysis of the capitalist economy and made forecasts about the course of the cycle in the principal capitalist countries. These forecasts were of practical significance.
Varga took the works of the classics of Marxism as his foundation and creatively applied their theory. His forecasts of economic activity and the course of the cycle in the 1920s and the 1930s proved, as a rule, to be correct. From observations of the cycle, Varga and his colleagues in the institute made new theoretical generalisations; some of them have become an organic part of the Marxist theory of the cycle.^^1^^
Thus, the deepest and longest economic crisis in the history of capitalism (1929-1933) was predicted theoretically. A number of its specific features were revealed before the crisis became a reality. When the crisis began, Varga was able, on the whole, to predict correctly its course in the main capitalist countries and to show the connection between the crisis of overproduction and the general crisis of capitalism.
In 1932-1933 Varga was among the few who asserted that the crisis had passed its lowest point and a period of recovery had begun. He also predicted correctly the general course of the cycle in the United States up to the beginning of the next crisis in 1937, formulating the well-known theoretical proposition about depressions of a special kind. Varga's assumption that the depression would be drawn-out and the period of recovery short-lived and that the new crisis would not be preceded by the usual cyclical advance, was confirmed in the subsequent period.
In spite of the fact that not all the forecasts of Varga and his associates were correct, the works of the Institute of the
1.2. A KEEN POLEMICAL PROBLEM
;.i The classics of Marxism---Marx, Engels and Lenin---paid great attention to specific analyses of individual crises and cycles. Subsequently, y this facilitated considerably the further development of the scientific history of the cycle and crises by Marxist scientist?.
An extensive concrete application of the Marxist theory of the cycle to analysis of the current course of capitalist
K. Marx, Capital, Vol. Ill, pp. 253-54.
~^^1^^ See Y. S. Varga, Sovremenny kapitalizm i ekonomicheskiye krizlsy (Contemporary Capitalism and Economic Crises), Moscow, 1963,
22S. MENSHIKOV
THE BACKGROUND OF THE SUBJECT
23World Economy and World Politics merit a high evaluation. This offered one more confirmation of the accuracy and vitality of Marxist forecasts of economic activity, of their considerably higher level as compared with those of bourgeois economists. Bourgeois forecasting was unable to predict either the crisis of 1929-1933 or the specific character of the subsequent cycle. As for quantitative methods, which at that time began to be employed for the first time in the West in analysing the economic cycle, the results of their practical application were quite modest.
By generalising the experience of the 1920s and the 1930s, Marxists drew important theoretical conclusions about the specific features of cyclical movement in conditions of the first stage of capitalism's general crisis which set in after the Great Octobjer Revolution and the formation of the first socialist state in the world.
One of these conclusions was the proposition about a depression of a special kind. This proposition was put forward for the first time with respect to the crisis of 1929- 1933. A depression of a special kind denotes a new phase of the cycle, which follows an acute, destructive crisis, lasts for a long time and leads not to a new advance but, at best, to a brief recovery in economic activity.
The changeover from the classical four-phase to a new, three-phase cycle was named the deformation of the cycle. The main reason for this deformation was the appearance, in the first stage of the general crisis of capitalism, of a chronic surplus of fixed capital and constant under-employment of productive capacities. This surplus upset the classical movement of fixed capital and retarded the process of cyclical advance.
This gave rise to serious additional difficulties for capitalist reproduction and the scale and depth of economic crises increased significantly. Bourgeois governments began to look for a way out in measures of state regulation, in the arms race, militarisation of the economy and war preparations.
Not only the crisis of 1929-1933 but also those of 1920- 1921 and 1937-1938 were the gravest in the history of capitalism. Prior to the First World War, Britain had no crisis of overproduction which reduced annual output by more
than 10 per cent, while in the United States there were only two such cases. Yet, in 1920-1921 industrial production in the United States dropped (annually) by 24 per cent; in 1929-1933, by 46 per cent and in 1937-1938, by 21 per cent. In 1933, the United States had 12.8 million fully unemployed people (one-fourth of the total labour force), and in 1938 the share was one-fifth (10.4 million people).
It would be incorrect to transfer automatically the specific features of the cyclical movement in the 1920s and the 1930s to the period after the Second World War because, beginning with the second stage of capitalism's general crisis, ushered in by the Second World War, essential changes occurred in the cycle mechanism. Contrary to some forecasts and to the expectations of the ruling circles of capitalist countries themselves, crises of the same scale and depth as in the 1920s and the 1930s did not recur. The postwar restoration of the economy in the majority of developed capitalist countries took a comparatively short time. In the United States, alongside surplus productive capacities in the war industries, an acute shortage of fixed capital in the civilian sectors arose towards the end of the war. The slow renewal of the productive machinery after 1929 led to a substantial obsolescence of installed equipment. As a result of these and other factors, when in 1948-1949 the first postwar crisis began in the United States and then spread to some West European countries in 1951-1952, it was far less acute than in 1920-1921. After the crisis, a new industrial boom started.
This was the basis of the apologetic concept about the smoothing over of the contradictions of the capitalist economy and the possibility of eliminating the cyclical nature of its development which was expounded in the works of a number of Western authors. "The cycle has vanished", they affirmed.
In contrast to them, Marxists were not only able to prove why cyclical reproduction would be preserved, but also to explain the reasons for the changes in the cycle mechanism under the new conditions. They showed that the substantial increase in the role of the bourgeois state in the economy was an important new element. State-monopoly regulation was especially developed during the Second
24S. MENSHIKOV
THE BACKGROUND OF THE SUBJECT
25World War but, even after it ended, was preserved at a considerably higher level than before the war.
The Marxists also showed that after the Second World War, as a result of the creation of the world socialist system, the markets for the sale of goods and the spheres for capital investment began relatively to shrink for the principal capitalist countries. This, however, could not lead to an elimination of cyclical development or to a progressive' absolute decrease of production, to a "self-destruction of capitalism" owing to the shortage of markets. The facts have corroborated the accuracy of Lenin's thesis that, under conditions of monopoly capitalism, the economy, on the whole, grows faster than under pre-monopoly capitalism.
The Report of the Central Committee of the CPSU to the 20th Party Congress (1956) gave a realistic analysis of the development of the capitalist economy during the postwar period. It cited data on the increase of outputjin the principal capitalist countries and indicated some of the basic factors of this growth: the increase in military contracts, the massive renovation and expansion of fixed capital, external economic expansion of a number of countries and the capitalist rationalisation of production.
Problems of postwar capitalist reproduction began to be studied actively at the Institute of the World Economy and International Relations (USSR Academy of Sciences) in Moscow in 1956. Considerable attention was paid to the periodisation of the postwar cycles, and the division of crises into cyclical and intermediate. These studies showed the fallacy of the theory about the disappearance of regularity in the advent of crises propounded by some Western authors.
In contrast to most Western economists, Marxists examined the course of reproduction on the scale of the entire capitalist economy, not confining themselves to an isolated analysis of the cycle in separate countries. Such an analysis made it possible to prove theoretically the unity of the world cycle.
The position of Soviet specialists on the question of the periodicity of postwar cycles was expounded in particular in the collective work of the Institute of the World Economy and International Relations Contemporary Cycles and Crises,
published in 1967, and in a number of subsequent works.1 According to this position, the main landmarks in the development of the postwar cycles were: 1948-1949 in the United States and 1951-1952 in Western Europe and Japan; 1957- 1958 in the entire capitalist economy; 1966-1967 in Western Europe; 1967 and 1969-1971 in the United States.
In 1961, the editors of the World Marxist Review journal organised in Prague a discussion dealing with cycles and crises in the capitalist economy in which Marxist economists of socialist and capitalist countries took part. The results of this discussion were published in a number of articles in the World Marxist Review in 1961 and 1962 and then in a separate volume.^^2^^
*&,
During this discussion, an important thesis was put forward, namely, a modification in the mechanism of the contemporary cycle, caused by the sum total of changes in contemporary state-monopoly capitalism and the altered place of imperialism in the present-day world.
Among the main factors constantly affecting the change in the'cycle mechanism are the competition and struggle between capitalism and socialism, disintegration of imperialism's colonial system, growth of monopolisation, enhancement of the economic role of the state, the contemporary scientific and technical revolution and the intensification of the class struggle in developed capitalist countries.
The influence of most of these factors on the cycle is examined in detail in the subsequent chapters.
The new approach has yielded good practical results in forecasting the cycle. Thus, it served as the basis for forecasting the advent of a new phase of cyclical crises in developed capitalist' countries, which did happen in 1966-1967 and 1969-1971. Despite the opinion of some economists, who regarded an economic crisis in the Federal Republic of Germany as unlikely in 1966, the onset of such a crisis
~^^1^^ Sovremenniye tsikly I krizisy (Contemporary Cycles and Crises), edited by A. M. Rumyantsev, S. M. Menshikov and G. B. Ardayev, Moscow, 1967; "The Economy of the USA: An Appraisal of the Situation and the Prospects", Mirovaya 'ekonomika i mezhdunarodniye otnosheniya Nos. 9-10, 1970.
~^^2^^ See (Ed.) A. Rumyantsev, Crisis and Capitalist Cycle. A Symposium, People's Publishing House, New Delhi, 1963.
26S. MENSHIKOV
THE BACKGROUND OF THE SUBJECT
27before long was forecast. This forecast similarly came true. Other forecasts also proved correct, namely, about the uncompleted 1967 crisis in the United States, the slowing down of economic growth rates in the USA at the end of the 1960s and the probability of an early recurrence of a cyclical crisis of overproduction.
Of exceptional importance for analysis of the contemporary cycle is the proposition, put forward at the 24th CPSU Congress (1971), about the attempts of capitalism to adapt itself to the new world situation. In an effort to prevent the defeat of its social system, capitalism employs new methods, extends state regulation of the economy, tries to utilise in its own interests the achievements of the scientific and technological revolution and is compelled to agree to a number of reforms and to make concessions to the growing working-class and democratic movement in the capitalist countries.
A realistic analysis of changes in the mechanism of the contemporary cycle meets the practical needs of socialist planning, one of whose elements is a sober, all-round consideration of the development trends in the principal capitalist countries and accurate forecasting of their future development.
1.3. THE CONTEMPORARY CYCLE AND THE FUTURE OF THE CAPITALIST SYSTEM
Periodic crises of overproduction, according to the Marxist-Leninist theory, are a part of the broader question of the future of the capitalist system. The chief cause of such crises---the basic contradiction of capitalism---cannot be eliminated so long as private ownership of the means of production prevails in society. Crises are eliminated only when the social nature of contemporary production is supplemented by an adequate social form for the appropriation of the results of production.
In socialist society, based on the dominance of social ownership of the means of production, planned development, inherent in the very nature of social production, corresponds to the planned organisation of the production process both
in individual enterprises and production complexes and on the scale of the entire economy. Under socialism, the driving force of production is not the growth of capital, but the maximum satisfaction of the needs of society and its members, the all-round harmonious development of man. Centralised guidance of the economy rests on a big arsenal of instruments for planning and regulating social production. Optimal development of the economy has become possible for the first time in history.
The regular recurrence of crises of overproduction demonstrates the limited nature of the capitalist mode of production. Crises cause and further exacerbate the economic, social and political contradictions of capitalism. According to Lenin, cyclical development is a chronic, incurable di'sease of capitalism.
The attitude of the basic classes of capitalist society to crises and cycles is determined by their place in the system of social production and the influence crises exert on the position of these classes.
The attitude of the capitalist class to crises is contradictory. Crises provide a temporary resolving of the contradictions of reproduction and clear the way for further capital accumulation. Hence the attitude prevailed among the bourgeoisie for a long time that crises are not only an inevitable evil, but also useful ``blood-letting''. A crisis hits painfully individual groups of capitalist entrepreneurs and creates temporary difficulties for the capitalist class as a whole. At the same time, the strong monopolist groups, seeking to utilise crises to "keep the working class in check" and to weaken its organisation, hold that without the mass unemployment brought about by crises, the subsequent advance would often be impossible. For the monopolist top group of the bourgeoisie, crises are also a means for the subjugation or the accelerated ruin of the mass of small, non-monopolised enterprises which hinder monopoly domination of the markets.
Prior to the 1930s, the bourgeoisie as a whole did not consider economic crises a direct threat to the capitalist system. Only as a result of the 1929-1933 crisis did the bourgeoisie become aware that crises activate the revolutionary forces and endanger the very existence of capital-
28S. MENSHIKOV
BACKGROUND OF THE
ism as a social system. This awareness was a consequence not only of the particular depth, scale and duration of this crisis, but also of the fact that capitalism was no longer the absolutely dominant system in the world, as a result of the development of a socialist state. These circumstances altered sharply the attitude of the capitalist class to crises and the cycle and provided an impetus which led to subsequent attempts to apply countercrisis and countercyclical regulation.
The contradictory attitude of the bourgeoisie to crises, however, is also preserved under conditions of highly developed state-monopoly regulation. The capitalist class is not opposed to crises if they do not attain a scale directly menacing the private property system. The bourgeoisie understands instinctively that crises are, as it were, the price they have to pay periodically for preserving the "freedom of private enterprise", that the real antidote to crises can be only centralised planning and, consequently, the elimination of "private enterprise". If crises are reduced to a certain minimum, this, in principle, is sufficient for the capitalist class and its upper ranks. The contemporary capitalist state, far from being in a hurry to prevent crises, if it considers them relatively harmless, often even promotes the onset of crises itself when it assumes that they can help solve, in its favour, a number of pressing problems and conflicts.
Crises thus remain an organic part of the contemporary capitalist system. The question is whether crises that are less acute than in 1929-1933 can lead to a social explosion endangering the existence of the capitalist system. The growth of world socialism, advance of the anti-monopoly movement in capitalist countries, the combination of unemployment with inflation, relatively high economic activity with the advance of the working-class movement---all this demonstrates that changes in the mechanism of the cycle do not promote political stability in the principal capitalist countries. On the contrary, the present-day form of cyclical movement faces the capitalist class with increasingly more difficult problems. This is demonstrated specifically by the sharp aggravation of socio-economic and political contradictions in the capitalist world, caused by the further
sharpening of the economic and monetary crisis throughout 1969-1971 and 1973-75.
The attitude of the capitalist class to crises is directly displayed in the evolution of the views of bourgeois economists. In Marx's day some of them were compelled to make the painful transition from dogmatic notions about the impossibility of market inequality to actual recognition of crises and their periodic recurrence. In contrast to Marx, they offered explanations of cycles and crises that simply pointed out individual partial causes, and no bourgeois economist could rise to recognition of the point that it is capitalism as a socio-economic system that engenders periodic disturbances of reproduction.
The crisis of 1929-1933 coincided in time with a new turn in the bourgeois theory of the cycle. The clearest indication of this turn was the so-called Keynesian revolution. In contrast to his predecessors, who held that full employment of manpower and the means of production is a natural balanced state of the economic system of capitalism, John Maynard Keynes for the first time proclaimed the possibility of a general economic equilibrium under conditions of mass unemployment and under-employment of productive capacity. This was an indirect admission that capitalism is to blame for crises. This admission was not, however, complete. Keynes assumed that crises are engendered by certain specific features of the old, unregulated capitalism and proclaimed the possibility of eliminating them by state regulation, increase of government spending and inflational credit and monetary policy.
The extensive spread of Keynesian views in the period after the Second World War was combined with unusual growth of state-monopoly capitalism. Many bourgeois economists perceived in the change of the mechanism of the contemporary cycle a triumph of the ideas of Keynes. All kinds of concepts of a "welfare state" and "affluent society" were fabricated to picture the forced concessions to the working-class and democratic movement as concern for the harmony of interests of all classes in capitalist society, which is supposedly inherent in the bourgeois state.
Many works of bourgeois economists asserted the possibility of eliminating crises, and the cycle was declared
30S. MENSHIKOV
THE BACKGROUND OP THE SUBJECT
31a thing of the past. However, as one capitalist country after another was drawn into the vortex of periodic crises and the bourgeois state with its entire arsenal of countercyclical remedies proved powerless, bourgeois economists began to take a somewhat more sober view.
At a conference in London, held in 1967 and attended primarily by Western non-Marxist economists (from the United States, Japan and West European countries), it was recognised unanimously that the economic cycle in the capitalist countries, far from vanishing, had become, in many respects, more difficult to control than formerly. The conference participants noted the weakest aspects of countercyclical regulation: specifically in the spheres of credit, money and foreign exchange.^^1^^ It is indicative that this conference directly preceded the devaluation of the pound and the dollar crisis in 1967-1968, the steep rise of inflation in the United States, the two longest economic crises in the USA in postwar years and then also the world monetary crisis, which began in 1971 and continues to this day.
The attitude of the working class to crises has always been the same. The working masses have to bear the brunt of a crisis. It dooms them to mass unemployment and to a direct deterioration of their material conditions. Crises often coincide with massive lockouts, pressure by the bourgeoisie on working-class organisations, and at the present time also with deliberate organisation of mass unemployment by the capitalist state.
The most class-conscious workers understand that under the capitalist system it is impossible to eliminate crises and unemployment. However, so long as it exists, progressive organisations of the working people are taking measures to mitigate the most destructive effects of crises on the working class. In practice, this implies a hard daily struggle for the direct economic interests and rights of the working people, against any attempts to ``freeze'' wages under conditions of inflation, the expansion of social insur-
ance, for "genuine democratisation of state regulation, and so on.
The mitigation of crises as compared with the 1920s and the 1930s has not weakened this struggle of the working people. The present-day cycle is combined with inflation, and the latter engenders the tendency towards an absolute decline of the standard of living, even in periods of relatively high economic activity, if the pressure of the working class slackens. Consequently, a close study of the specific features of the contemporary cycle and changes of its mechanism teaches workers' organisations the need to constantly increase and extend the offensive on the positions of monopoly capital.
In present-day conditions, the principal capitalist countries have a developed machinery of state regulation and, in some of them, of drawing up state programmes for the economy. As long as the capitalist class is in power, this machinery can neither be sufficiently developed nor consistently utilised for mitigating crises. Moreover, in a number of cases it is utilised for directly opposite ends---to ``provoke'' crisis drops in production, to curtail ``excessive'' increases of personal consumption, and so on.
At the same time it is clear that the creation of this machinery reflects the objectively mature social need for centralised guidance of the economy, and its activity, according to Lenin, is the ``skeleton'', the prototype of socialist planning. This is just as true as the proposition that statemonopoly capitalism as a whole, to use Lenin's words, creates "the complete material preparation" and is the ``threshold'' of socialism.
Consequently, the point is not to destroy this machine, but to put forward a democratic and socialist alternative to the existing trends and methods of state regulation which serve the interests of the monopolies. An important element of the struggle for such an alternative is awareness of the fact that the abolition of the cycle and crises is technically possible, if the necessary social transformations are made. Contemporary economic science and the science of management are at a level when to ensure optimal economic growth is a real possibility (which can be realised, naturally, only under specific socio-economic conditions).
~^^1^^ See M. Bronfenbrenner, (Ed.), Is the Business Cycle Obsolete?, New York-London, 1970; S. Menshikov, "Has the Capitalist Cycle Become Obsolete?", Mirovaya ekonomika i mezhdunarodniye otnosheniya. No. 9, 1967.
S. MENSHlKOV
The world capitalist cycle exerts a considerable impact on the economy of developing countries, the majority of which have taken the path of independent development. Periodically recurring crises, engendered by the economy of the major capitalist states, are a constant reminder to the newly-free countries of the dangers of their economic ties with the developed part of the capitalist world. The means for warding off this threat are deep socio-economic and political reforms in these countries, an increase of state economic regulation and also their combined action in stabilising international commodity markets, in eliminating the most onerous, neocolonialist interrelations with imperialist states.
In concluding this chapter, let us note that the theory of the cycle helps elaborate a realistic view of the development trends of 7the capitalist economy, warning the scholar both against overestimation and underestimation of its capabilities in the economic competition between the two
systems.
Questions of the methodology of forecasting the capitalist economy are expounded in other works. Here, it is sufficient to stress that proper account of its cyclical movement demands attention not only to difficulties, contradictions and crises which develop in the capitalist economy but also to the cyclical upswings of production, the possibilities of bursts forward by some sectors or countries and to the use of reserve productive capacities.
CHAPTER 2
POSTWAR CYCLES
Let us begin this chapter by examining the course of reproduction in capitalist countries after the Second World War, to be more exact, in the period between 1945 and 1972 or a little more than a quarter of a century.
History shows that independent movement of the economic cycle is almost exclusively confined to countries with developed capitalist relations and a developed industry, including the industrial production of machinery and equipment.^^1^^ Therefore we shall start with a description of the contemporary cycle in several leading capitalist countries: the United States, Britain, the Federal Republic of Germany, France and Japan. These countries account for about 70 per cent of the industrial output of all capitalist states. In this chapter we shall examine the cycle in each of these countries separately, and in Chapter 3 we shall endeavour to combine these fragments into one picture.
One of the most complex and debatable problems in the theory of the cycle is the choice of quantitative .criteria enabling the researcher to single out separate phases of the economic cycle. The approach of the National Bureau of Economic Research (the United States) has gained wide
~^^1^^ In the 19th and early 20th centuries the economy of European countries and the United States became cyclical in the following sequence: first Britain, then Germany, the United States, France and, lastly, Russia and Japan. See L. A. Mendelson, Teoriya i istoriya tsiklov i krizisov (The Theory and History of Cycles and Crises), Vols. I-III, Moscow, 1959-1964.
3-0593
34S. MENSHIKOV
POSTWAR CYCLES
35currency in Western literature. This methodology of analysing the cycle, elaborated under the guidance of Wesley G. Mitchell, Arthur F. Burns and Geoffrey H. Moore^^1^^, is marked by distinctly pronounced pragmatism and empiricism. In fact, it examines only two phases of the economic cycle: "expansion and contraction". The methods for singling out these phases, elaborated by the Bureau ( definition of the so-called turning points of the cycle) and finding the points of the maximum intensity of each phase, respectively the ``peak'' and the ``trough'', are based on a joint examination of more than 100 different "cyclical indicators", that is, the study of a large number of statistical time series. However, the Bureau does not single out any one or several indicators as the most important determinants. As a result, the concept of the cycle, in spite of the many concrete examples examined by the Bureau, remains on the whole somewhat indefinite.
The Marxist theory of the economic cycle distinguishes four main phases of the cycle: crisis, depression, recovery and advance. As a rule, decisive quantitative criteria which make it possible to single out the special phases of the economic cycle employed by Marxist scientists are usually indicators of the volume of production, i.e., the physical volume of the net (or gross) national product and the physical volume of industrial output. These indicators make it possible to observe directly the changing movement of material production and also the more aggregate indicator of the " production of goods and services".^^2^^ The behaviour of the overwhelming majority of other cyclical indicators depends ultimately on the movement of the production of material goods (or goods and services). Moreover, the social product is best studied in the forms which lead us to maximum understanding of its dynamics. Therefore, we analyse the volume of the social product taken for the minimum possible unit of time, for example, the quarterly movement of the national product and the monthly movement of indus-
trial output (excluding the influence of seasonal fluctuations).
The phase of the crisis is usually defined as an absolute reduction of one or both main cyclical indicators---the social product and industrial production---which continues for not less than six months. The depression is the period of post-crisis stagnation, when production hovers between the lowest point of the crisis decline and approximately half the distance from this point to the maximum advance reached in the given pre-crisis period. During the phase of recovery, output rises to the maximal point of the preceding advance; in the phase of advance it rises, moreover, surpassing the previous maximum. In any phase, there may be brief halts of the movement prevailing in the given phase.
It is expedient to give these definitions in greater detail, taking into consideration the specific nature of contemporary cycles. In many cases, these cycles begin or end with a prolonged period of stagnation, during which there can be a brief decline in output. In the present work, we shall regard such periods as a crisis phase when: 1) the growth of production stops for more than six months; 2) and during this time there is a brief decline in output caused by reasons typical of a crisis; 3) other important symptoms of a crisis are in evidence, such as an increase in unemployment, decrease in capital investment and fall of profit.
The use of these quantitative criteria must always be preceded by a thorough qualitative analysis. At times, for example, it is difficult to separate the operation of factors of the economic cycle from accompanying external influences, e.g., military and political. But, wherever possible, it is expedient to make a special examination of cases when fluctuations in production are caused chiefly by the internal forces of the cyclical mechanism. A simple quantitative criterion consists in the following: the movement of production, characteristic of the given cyclical phase, should be determined by the corresponding movement of private demand, that is, of personal consumption, private investment and net exports, provided this movement is not predetermined by direct administrative measures of the government (for example, rationing of consumption, bans or restrictions on civilian production, and so on). Fluctua-
3*
~^^1^^ See, for example, Geoffrey H. Moore, Julius Shishkin, Indicators of Business Expansions and Contractions, New York, 1967.
~^^2^^ Here we shall refrain from discussing theoretically and methodologically the concepts of productive and non-productive labour, the productive and non-productive spheres as this would lead us far afield.
36S. MENSHIKOV 1 POSTWAR CYCLES
37tions of production, resulting exclusively or chiefly from changes in government demand or such direct administrative measures, should be examined only as factors which supplement the cyclical movement, but do not determine it.
In our subsequent exposition, we shall single out crises which were accompanied either by a considerable drop in the volume or by prolonged (for several years) halts of the increase of private investment in fixed capital. Since the movement of fixed capital forms the main material basis of the economic cycle, we shall call such crises cyclical, as distinct from other (intermediate) crises, during which there is a reduction of investment in commodity stocks, but the reduction of investment in fixed productive capital is not substantial and long-lasting or is completely absent.
The subsequent analysis of the economic cycle in a number of countries is partly based on results of cycle simulation, with the help of econometric models. A description of such models and some mathematical methods for analysing the cycle are given in Chapter 7. Here it is sufficient to note that econometric methods make it possible to analyse, in detail, changes of the social demand and its components, in each case quantitatively distributing these changes according to the factors which determine them. To the best of our knowledge, such a method of analysis has so far not been employed widely in analysing postwar economic cycles.
Our analysis is based on the official statistical publications of the respective countries, of the United Nations and certain other international organisations. These statistics have serious shortcomings. The main one (for studying the history of the cycle) is the subsequent systematic revision and ``renovation'' of previously published time series. Such adjustment almost always results in smoothing over the cyclical fluctuations and, at times, completely changes the picture of a certain cycle. The stable shift, resulting from such adjustments, does not require special explanation. Nevertheless, we consistently use official statistics, because this ensures definite advantages owing to both their accessibility and also the opportunity of checking the accuracy of all the calculations presented.
2.1. UNITED STATES
Regular publication of postwar quarterly statistics of the national product of the United States in constant prices (1958) starts with 1947. The earlier period (1945-1946) can be judged only on the basis of annual data of the national product and monthly figures of industrial output. Table 2-1 shows all the periods of the postwar economic development of the United States which come under our quantitative definition of a crisis.
Table 2-1
Economic Crises in the USA. 1945-1971l
National product^^2^^
Industrial production
Maximum
Minimum
Decrease per cent
Maximum
Minimum
Decrease per cent
4th quarter of 1948
4th quarter of 1949
5.2
July 1948
October 1949
10.0
2nd quarter of 1953
2nd quarter of 1954
4.1
July 1953
March 1954
10.2
1st quarter of 1957
1st quarter of 1958
4.7
February 1957
April 1958
14.5
2nd guarter of 1960
1st quarter of 1961
3.0
January 1960
January 1961
7.0
4th quarter of 1966
1st quarter of 1967
0.3
October 1966
May 1967
2.5
3rd quarter of 1969
4th quarter of 1970
3.0
August 1969
November 1970
7.5
1 Calculated according to National Income and Product Accounts of the United States. 1929-1965; Survey of Current Business, July 1970; Industrial Production. 1959. Revision, Washington, 1960.
~^^2^^ The net national product without indirect taxes or the national income according to US statistics deflated by the GNP price deflator.
The sharpest drop in output occurred immediately after the end of the Second World War. Some authors place this decrease among the usual economic crises. However, the causes and manifestations of the decline between 1944 and 1947 differed fundamentally from ordinary periodic crises.
38S. MENSHIKOY
POSTWAR CYCLES
The decline was caused chiefly by the precipitous drop in the scale of government military purchases from $ 87,400 million in 1944 to $ 9,100 million in 1947 or by 89.6 per cent.1 In 1943-1944 these purchases amounted to 41.6 per cent of the GNP and in 1946-1947 only to 5.4 per cent. During the Second World War US industry was regeared to war production, civilian output was restricted because of the absence of sufficient raw material and equipment, and there were also direct government restrictions on the production of many consumer goods and equipment for civilian industries. Moreover, the size of private investment was limited by the higher wartime profit taxes paid to the Federal Treasury. In 1945-1947 the economy was gradually released from the wartime restrictions and switched over mainly to the production of civilian goods.
This transition (reconversion) was not a painless process. As military contracts were cut, resources for civilian production were released, but the volume of military production dropped faster than civilian output rose. The massive demobilisation from the armed forces sent up the number of unemployed. However, the difficulties in the economy were not caused by the absence of a wide market. The demand for personal consumer goods and investment goods rose systematically, at a considerable rate. The economy did not manage to keep pace with this rising demand.
These considerations point to the unusual nature of the decrease in output in 1943-1947. It had no direct bearing on the development of the economic cycle in the United States. As for the movement of civilian production in 1946 and 1947, it can be characterised sooner as a period of recovery and advance.
All other postwar contractions of output in the United States^^1^^ were caused, to a greater or lesser degree, by the curtailment of the total demand for civilian goods. The average duration of these crises was about one year and except for the crisis of 1966-1967 (which should be specially examined) they differed little from each other by the scale of decline in production.
The 1948-1949 crisis was linked, in the first place, with a substantial decrease in private investment. Deducting depreciation, it dropped from the third quarter of 1948 to the fourth quarter of 1949 by $ 19,300 million or 46 per cent. Personal consumption continued to rise, although at a slower pace. On the whole, the factors which determined the drop in investment proved considerably stronger than the factors which made for the increase in personal consumption. The total shortage of demand in the private sector for maintaining production at the level reached in 1948 was 3.4 per cent of the national product in 1949, i.e., was only slightly smaller than in 1929. But in 1949, for the first time after the end of the Second World War, government purchases increased substantially, particularly for military purposes (2.6 per cent of the national income). This compensated for approximately three-quarters of the decrease in the social demand, owing to which, the 1948-1949 crisis was considerably weakened.^^1^^
The potential force of this crisis, thus, was considerably greater than some authors assumed. This shows that there were serious grounds for the forecasts, made at the end of the war, concerning a big postwar economic crisis threatening the United States.
The situation in 1953-1954 was entirely different. The Korean war ended in mid-1953. A partial regearing of the US economy was under way. Between the fourth quarter of 1953 and the second quarter of 1954 government purchases dropped by $ 10,800 million or 10 per cent. This aggravated the crisis. The decrease in production, however, began in the third quarter of 1953, i.e., before government purchases were cut, while private investment declined even earlier, from the first quarter of 1953. Net investment dropped from the fourth quarter of 1952 to the fourth quarter of 1953 by $ 12,100 million or 33 per cent. From the second quarter of 1953 and up to the first quarter of 1954 there was no increase in personal consumption but any decrease was insignificant.
~^^1^^ Calculations have been made with models of the economic cycle. For thej methodology of the calculations see sections 7.1.d and T.l.f.
~^^1^^ Economic Report of the President of the United States. 1972, Washington, 1972, p. 195.
40S. MENSHIKOV
POSTWAR CYCLES
41Thus, the 1953-1954 crisis was mainly caused by a decrease of government demand in the private sector. The total lag of demand was much smaller than in 1948-1949. However, even after the operation of internal factors was nearly exhausted, the crisis was prolonged and deepened by the drop in government demand.
The 1957-1958 crisis proceeded at an almost unchanged level of government purchases. Its features were thus determined almost exclusively by the development of cyclical tendencies in the private sector. Just as in the preceding crisis, it started with a fall in private investment. The precrisis maximum of net investment was already reached in the fourth quarter of 1955, and it continued to decline up to the second quarter of 1958, i.e., for two and a half years, amounting to $ 25,200 million or 59.2 per cent. The increase in personal consumption was halted for only half a year (from the third quarter of 1957 up to the second quarter of 1958) but the decrease in the sales of consumer durables had already begun in 1956.
The lag of total demand in 1958-1959 was noticeably bigger than in 1953-1954 but significantly smaller than in 1948-1949. Owing, however, to the comparative stability of government demand in this period, the actual 1958-1959 crisis was much stronger than in the two preceding ones.
The 1960-1961 crisis was shorter and less acute than the earlier ones. Net investment dropped from the first quarter of 1960 to the first quarter of 1961 by $ 17,200 million or 45,4 per cent. The increase in personal consumption was halted from the second quarter of 1960 up to the first quarter of 1961. The potential force of this crisis was only a little weaker than in the 1958-1959 crisis. However, its real force was dampened by the new wave of increased government (chiefly military) purchases. Their growth began in the third quarter of 1959 and by the first quarter of 1961 had reached $ 9,600 million.
Factors associated with the smaller demand for investment goods also formed the basis of the 1966-1967 crisis. Net investment reached its maximum in the fourth quarter of 1966 and in the second quarter of 1967 declined by $ 17,800 million or 34 per cent. However, the increase in personal consumption was halted only in the first quarter.
The overall shortage of demand in the private sector in 1967, as compared with 1966, amounted to 1.9 per cent of the national income. Were the effect of external factors to be neutral, the crisis could have been of the same force as in 1957-1958. However, it developed in a period of rapid escalation of military spending in view of US intervention in Vietnam. In 1966, government purchases rose by | 8,700 million and in 1967 by $ 13,400 million, respectively 1.7 and 2.5 per cent of the national income. The rise in government spending more than made up for the fall in private demand and the development of the crisis was halted very swiftly.
In contrast to this situation, the 1969-1971 crisis developed under a systematic reduction of government purchases (chiefly owing to a cut in military spending). In 1969, they were reduced by $ 2,100 million, in 1970 by $ 6,200 million and in 1971 by $ 100 million.^^1^^ Thus, the external] conditions promoted the crisis rather than retarded it.
The main driving force of the crisis was the drop in investment. Net capital investment decreased by $ 13,900 million or 27 per cent between the third quarter of 1969 and the fourth quarter of 1970. The increase in personal consumption slowed down but did not stop completely. As compared with the preceding crises, the relative reduction of demand in the private sector was small. The cut-back in investment was moderate and took place as the crisis developed, but did not precede it. So, the 1969-1971 crisis can be regarded, on the whole, as a peculiar intertwining of a more or less simultaneous decrease of private and government demand.
We thus see that, in spite of the similar mechanism of the development of the postwar crises in the United States, there were very many different features, linked in particular with external conditions.
Let us now examine these crises by various criteria to determine whether they were cyclical or intermediate. We single out private investment in productive fixed capital, including investment made from the depreciation fund. The
~^^1^^ Economic Report of the President of the United States, Washington, 1972, p. 197.
42S. MENSHIKOV
POSTWAR CYCLES
43movement of this indicator for industry, transport and trade shows that private investment in productive capital was cut during all the postwar crises. Nevertheless we can point to the following specific features of their movement:
a) the longest and deepest drop in investment was registered in the crises of 1948-1949 and 1957-1958;
b) after the 1957-1958 and 1966-1967 crises there were long periods (of several years) of stagnation in investment; moreover, in the latter case, the stagnation continued up to the 1969-1971 crisis;
c) the periods of evident investment booms were 1946- 1947, 1955-1956 and 1964-1966.
Consequently, the crises of 1948-1949, 1957-1958 and 1966-1967 may be regarded as turning points in the movement of investment in fixed productive capital, while the crises of 1953-1954, 1960-1961 and 1969-1971 maybe regarded as crises in which the change in the movement of fixed capital was less sharp. According to our criteria, we shall name the first group of crises cyclical and the second group intermediate.
This division is controversial to a certain extent, especially as regards the 1966-1967 and 1969-1971 crises. The first of these was followed by a long period of stagnation in investment but there was no sharp drop either in the former or in the latter. The prolonged stagnation of capital investment, apparently, performed a role similar to a sharp but briefer drop, inasmuch as in 1972 intensive growth of investment was resumed.
The correctness of such periodisation of the postwar cyclical crises in the United States is confirmed by the data in Table 2-2, which show that cyclical crises possess a strikingly pronounced regularity. They recurred in the last quarter of a century every 8-10 years, which conforms to the earlier periodicity.^^1^^
The regularity of the recurrence of the more frequent (intermediate) crises is not so distinctly pronounced and there are definite exceptions. The seeming periodicity of
~^^1^^ Nine years passed between the crises of 1920-1921 and 1929- 1933; eight years between the crises of 1929-1933 and 1937-1938 and eleven years between the 1937-1938 and 1948-1949 crises.
Table 2-2
Growth of Production in the USA during Periods between Crises
National product
Total
Average
Precrisis Maximum
Duration
Precrisis Maximum
growth, per
annual growth,
cent
per cent
3rd quarter 1947
1 . 5 years
4th quarter 1948
7.9
5.9
4th quarter 1948
4.5 yeers
2nd quarter 1953
21.8
4.5
2nd quarter 1953
3.75 years
1st quarter 1957
8.4
2.2
1st quarter 1957
3.25 years
2nd quarter 1960
7.0
2.1
2nd quarter 1960
6.5 years
4th quarter 1966
35.9
4.9
4th quarter 1966
2.75 years
3rd quarter 1969
9.9
3.8
4th quarter 1948
8.25 years
1st quarter 1957
32.1
3.5
1st quarter 1957
9.75 years
4th quarter 1966
45.5
3.9
three-four years is at times interrupted by longer intervals when there are no crises (for example, the six-year period between the 1960-1961 and the 1966-1967 crises). Such an irregularity has also occurred in earlier decades.^^1^^
From the viewpoint of a cyclical analysis of the period dividing the postwar crises, if we examine them together, we find that they differ qualitatively.~^^2^^
The increase of production in 1947-1948, 1953-1957 and 1960-1965 was based chiefly on the growth of investment in fixed capital. In contrast to this, the advances in 1950-1953, 1957-1960, 1965-1966 and 1966-1969 were largely of a military-inflationary character. Each of the advances of the first type was completed either by a sharp drop in capital investment or a long stagnation, or both. This offers additional arguments in favour of the periodisation of the cyclical crises in the United States in the postwar years offered in this book.
~^^1^^ Between the 1920-1921 and 1924 crises there were four years; between 1924 and 1927 three years; between 1927 and 1929-1933 two years but between 1929-1933 and 1937-1938 eight years.
2 See Table 2-3.
44S. MENSHIKOV
POSTWAR CYCLES
45Table 2-3
mum reached in May 1949 up to September 1950, i.e., for almost a year and a half. This prolonged stagnation, as it were, completed the first stage in the postwar economic restoration of Britain.
Increase of Production in the United
States Owing to the Growth of Government Purchases
and Investment
Increase, Ratio (to increase million dollars ot national product)
Period
1Govern-
Increase
Increase
National product
ment -6 purchases
investment
in government purchases
investment
3rd quarter 1947- 4th quarter 1948
20,800
10,000
11.2
0.48
0.54
4th quarter 1948- 2nd quarter 1953
62,500
49,200
-5.4
0.79
---0.09
2nd quarter 1953- 1st quarter 1957
29,400
-10,900
1.2
---0.37
0.04
1st quarter 1957- 4th quarter 1966
145,400
32,500
14.6
0.22
0.10
4th quarter 1966- 3rd quarter 1969
54,400
18,600
-0.6
0.34
---0.01
Table 2-4
Economic Crises in Britain from 1945 to 1971
National product
Industrial production
De-
De-
Maximum
Minimum
crease, per
Maximum
Minimum
crease, per
cent
cent
...
...
May 1949
August 1949
4.2
. . .
. . .
...
February
June 1952
9.0
19512 nd quarter
1 st quarter
5.2
November
May 1958
6.0
1957 1958 19552nd quarter
1 st quarter
0.2
July 1961
January
3.1
1961 1962 19623rd quarter
1 st quarter
0.9
September
January
5.1
1962 1963 1962 19633 rd quarter
1 st quarter
0.7
March 1966
November
3.5
1966 1967 19664th quarter
2nd quarter
1.7
March 1970
March 1971
3.5
1970 19712.2. WESTERN EUROPE
We intend to examine the postwar cycles in three West European countries: Britain, France and the Federal Republic of Germany. Notwithstanding their geographical proximity and close mutual economic ties, the development of the cycle in each country is marked by highly pronounced specific features.
In the last quarter of a century Britain underwent seven economic crises which did not differ noticeably from each other in acuteness, although they were of different duration.
The shortest of them was in mid-1949 and it was caused directly by the sharp deterioration in foreign trade. The decline of production in the country continued for not more than one quarter and we might not have mentioned it, were it not for the subsequent comparatively long depression. Industrial production remained below the pre-crisis maxi-
The 1951-1952 crisis also continued for almost a year and a half and was accompanied by the biggest drop in production in the entire postwar period. The major reasons for this crisis, just as for the preceding one, were the new export difficulties. However, in contrast to the former, it developed under the strong impact of the Korean war. Government purchases, chiefly military, rose from & 4,102 million (in constant prices of 1963) in 1950 to £ 4,860 million in 1952 or by 18 per cent in two years.^^1^^ The increase in government purchases created an additional market for British industry, but at the same time complicated its position in foreign markets, reducing the supplies of civilian goods for export.
~^^1^^ OECD. National Accounts Statistics. 1950-1969, Paris, 1970.
46S. MBNSHIKOV
POSTWAR CYCLES
47Ultimately, this exacerbated the crisis. The growth of investment in fixed capital came to a complete halt in 1951-1952--- for the first time after the Second World War. Personal consumption decreased in absolute terms---it declined 2 per cent from 1950 to 1952.^^1^^
The 1955-1958 crisis was of the longest duration (2.5 years). The decrease in production was not sharp, it unfolded slowly and the crisis, as a whole, resembled rather a prolonged stagnation as, by the way, did a number of other postwar crises in Britain. Investment in fixed capital did not decline, but in 1957-1958 its growth was again halted. The direct cause of the crisis was the serious balance-of-payment troubles. Notwithstanding all the credit and taxation measures, the Government did not succeed for a long time in equalising the balance of payments. This was the first time the ``stop-go'' policy was applied, to which the British Government frequently resorted in the subsequent period.
The decline in production in the second half of 1961 and early 1962 continued for about a half a year. The crisis was comparatively minor. After a brief recovery (eight months), industrial production again began to decline in the autumn of 1962 and reached its lowest point in January 1963. In both cases, the crisis was accompanied by a drop of investment in fixed capital---it declined respectively by 3.5 and 11.6 per cent. In view of the small interval between these recessions, they may be regarded as one crisis which proceeded in two rounds. This assertion is also supported by the fact that investment in fixed capital, after the 1961-1962 recession, did not return to the pre-crisis maximum and its drop in 1962-1963 began from a lower level. The total decrease from the third quarter of 1961 up to the first quarter of 1963 was 13 per cent, and the total duration of the `` combined'' crisis of 1961-1963 reached a year and a half.
The 1966-1967 crisis, which lasted for eight months, gave way to prolonged stagnation. This time, the chief direct reason was the new sharp flare-up of the balance-of-payment crisis and the resumption of the ``stop-go'' policy by the Government. These measures resulted first (in 1966) in
a reduction of personal consumption and in 1967 led to a decrease of capital investment and a general halt in the growth of the national product.
The 1966-1967 crisis was preceded by a small pause in the growth of investment in fixed capital: from the first to the third quarter of 1965 it declined 1.7 per cent. Then, however, the growth of investment was resumed, in spite of the drop in industrial production. This continued even after the new brief halt in 1967 (from the second to the fourth quarter of 1967 it decreased 2.8 per cent). The maximum level of capital investment was reached only at the end of 1968, i.e., after the decrease and stagnation of production had been already left behind. This was followed by a drop of investment in fixed capital by 9.5 per cent during 2.5 years--- from the fourth quarter of 1968 to the first quarter of 1971. The investment decline continued in spite of the resumed growth of production in 1968-1970.
Production reached the maximum in March 1970, after which another economic crisis began. The specific feature of the 1970-1971 crisis consisted particularly in that it set in after a prolonged drop in investment.
Now let us try to divide the postwar British crises into those caused chiefly by difficulties in foreign trade, the balance of payments and by governmental restrictions and into crises directly linked with the periodic halt of the renewal of fixed productive capital.
It is not easy to make such a differentiation because of the constant dependence of the British cycle on international trade conditions. Another difficulty is caused by the small (as compared with the United States) range of cyclical investment fluctuations.
Despite these limitations we can single out three periods when stagnation or a decrease of investment was prolonged: 1950-1952, 1961-1963 and 1968-1971. That is why the crises of 1951-1952, 1961-1963 and 1970-1972 may be regarded, from the point of view of the specific conditions of the British economy, as cyclical and the crises of 1949-1950, 1955- 1958 and 1966-1967 as intermediate, i.e., connected primarily with foreign trade and monetary difficulties. The halt of investment during these crises was in the nature of a brief pause. In Section 3.2 we shall show that this division plays
~^^1^^ National Accounts of OECD Countries. 1958-1960, OECD, Paris. 1962.
48S. MENSHIKOV
POSTWAR CYCLES
49
Table 2-5 shows that the average growth rate in each of the ten-year cycles was approximately the same, whereas the brief (four-year) inter-crisis intervals are marked by a successive alternation of a somewhat swifter development with a slower rate. Moreover, this succession is not caused by fluctuation in the rate of investment. Between 1951 and 1957 investment grew by 41 per cent (or 5.9 per cent annually on the average); in 1957-1961, by 30.6 per cent (6.9 per cent on the average); in 1961-1965, by 20.1 per cent (4.7 per cent) and in 1965-1968, by 19.7 per cent (6.2 per cent). Thus, the increase in capital investment is quite even, developing soon after the completion of the most recent cyclical crisis. After a certain time, the advance caused by the growth of investment runs up against foreign trade and monetary difficulties; the growth of investment then proceeds in conditions when government restrictions operate, slowing down the general growth of production. In the period of swifter advance, the balance-of-payment crisis is exacerbated and the consequent slowing down of production growth rates is resolved by a comparatively weak economic crisis, which more often resembles a period of stagnation.
In France six economic crises can be singled out in the postwar period.
Table 2-6
Economic Crises in France from 1945-19711
Industrial production
an essential part in analysis of the international economic
cycle.
In contrast to the United States, there was a definite regularity in the recurrence of economic crises, every 4-5 years, in postwar Britain. At the same time, there is also a distinctly displayed periodicity of the cycle of 9-10 years, linked above all with the movement of capital investment. A similar periodicity, as shown earlier in Section 2.1, is also observed in the United States.
Table 2-5
Growth of Production in Britain in Periods between Crises
National product
Industrial production
/
Av
Ave-
Maximum
Maximum
Total rowth, per cent
rage annual ;rowth, per cent
Maximum
Maximum
Total
TOWth,
per j cent
rage annual
TOWth,
per cent
February
November
20.0
11.2
1951 1955(4.5 years)
4th quar-
3rd quar-
13.9
2.0
November
July 1961
10.8
1.9
ter 1955 (6
ter 1962 75 years)
1955(5.5
years)
1st quarter 1962 (4
3rd quarter 1966 • 5 years)
17.0
3.6
July 1961 (4.5
March 1966 years)
17.5
3.7
3rd quarter 1966
(4
4th quarter 1970 .5
9.9
2.3
March 1966 (4 y
March 1970 ears)
11.4
2.7
years)
February
July 1961
32.9
2.7
* * •
1951(10.5 years)
1st quarter 1962
(
4th quarter 1970 8.5 years)
25.8
2.7
July 196 (93
. March 1970 fears)
32.3
3.2
Maximum
Minimum
Decrease, per cent
June 1949
February 1950
20.0
January 1952
August 1953
15.8
February 1958
February 1959
5.0
April 1964
January 1965
5.4
August 1966
July 1967
1.7
April 1970
June 1970
3.2
l In France official quarterly statistics of the national product are so far not published regularly. That is why our data are confined to industrial production.
4-0593
50S. MENSHIKOV
POSTWAR CYCLES
51The 1949-1950 crisis was brief (a little more than six months) but sufficiently acute. Although, by this time, France had already regained the absolute prewar level of production, the process of postwar recovery was painful. The most acute problem was that of inflation, particularly at the end of the 194Us. Periodically, this caused a sudden decrease of sales in the home and particularly foreign market, where the higher price of French goods dictated periodic devaluations of the franc. The 194y-1950 crisis reflected chiefly these difficulties because investment in fixed capital, dictated by the needs of uncompleted economic recovery, continued to grow.
The 1952-1953 crisis was of longer duration (1.5 years), though less deep. At that time, the process of postwar economic recovery was already completed. Investment in fixed capital declined in 1952 by '6.7 per cent as compared with the maximum in 1951; moreover, this maximum was exceeded only in 1954. The crisis covered the period of the Korean war, which only indirectly influenced the general economic situation, and the final period of the colonial war France was waging in Indochina. The drop in production was somewhat cushioned by the high level of military orders.
The 1958-1959 crisis lasted a little over a year. Its main direct causes were the exacerbation of the problem of sales in the home market and new foreign trade and balanceof-payment difficulties. On the home market, the main troubles were linked with the sale of consumer goods, on the foreign market with the relatively high cost of French goods, which compelled the government to resort to devaluation twice in 1958. The 1958-1959 crisis coincided with the ending of the colonial war in Algeria. The ending of the war led to a decrease in military spending. Total government purchases declined by a total of 4.4 per cent in 1958 and 1959 as compared with 1957. During this time the government took measures to restrict the growth of wages, and taxes were increased. All this promoted the development of the 1958-1959 crisis. ~
The 1964-1965 crisis was of shorter duration (about nine months) but the decline in production was no smaller than in the preceding crisis. This time, the direct cause was
government regulation, above all the adoption of the economic ``stabilisation'' programme. In conditions of a sudden intensification of inflation, the government, not wishing another currency crisis, took measures to restrict private capital investment and personal consumption (chiefly of durable goods). Total investment (including governmental) continued, however, to rise.
In subsequent years, the government resorted several times more to stabilisation measures. In 1966-1967 and 1970 there were briefM periods of decline in production or stagnation.
In analysing the postwar cycle in France, we can single out only one crisis (1952-1953) which is connected with a strikingly pronounced and sufficiently prolonged decrease of investment in fixed capital. The other crises were either caused by specific features of internal development (1949- 1950) or to a great extent were linked with the general deflationary measures of government regulation of the economy. Therefore, they can hardly be placed among phenomena engendered primarily by cyclical processes. They can rightly be called intermediate crises.
Several stages of economic growth and waves of increases of investment in fixed capital corresponding to them can be singled out in the postwar period. The first wave was closely linked with postwar restoration and was completed in the 1952-1953 cyclical crisis. The second wave, in 1954-1958, was engendered by the intensive efforts to reconstruct industry aimed at raising its competitiveness in foreign markets. This new advance in investment was facilitated first by a certain drop in military spending (connected with the end of the colonial war in Indochina). In 1955, government purchases were smaller than in 1953 by 9.3 per cent. In 1956-1957, however, the escalation of the war in Algeria (in 1957 government purchases rose by 19.5 per cent as compared with 1955) slowed down the investment growth.
The third upward wave of capital investment (1959-1963) was connected with the adaptation of French industry to the new conditions of foreign markets which arose as a result of implementing the provisions of the Common Market treaty. This process was, for a time, interrupted in 1963-11)64,
52S. MENSHIKOV
POSTWAR CYCLES
in view of the ``stabilisation'' programme, but was then resumed with fresh^force. The important^stimulus to the growth of investment in this period was the creation of a number of new and also the modernisation of some old industries with a definite export orientation. The growth of investment for this purpose also continued after the 1965, 1967 and 1970 crises. We should bear in mind the substantial share of the government in the total volume of investment in fixed capital. The comparatively even growth of government investment and its substantial share create a general picture of continuous rise in the total sum of capital investments after the 1952-1953 crisis.
These distinctions merely confirm the conclusion drawn earlier about the intermediate nature of the 1958-1959 and 1963-1964 crises. The time between the respective maximums reached in June 1949, January 1952, February 1958, April 1964, and August 1966 and April 1970 was respectively 2.5, 6, 6, 1.5 and 4 years. The growth rate of production in each of these periods was approximately the same.
\ln the Federal Republic of Germany there were six periods of crisis, stagnation and decline of production in postwar years. For the most part these economic crises, particularly up to the mid-1960s, resembled a period of stagnation. In conditions when production in the FRG as a whole rose notably faster than in Britain and the United States and, up to the 1950s, also than in France, the regular recurrence of periods of stagnation was tantamount to a periodic crisis decline in production in countries with a comparatively slower or average rates of growth.
The swift development of the economy of the FRG up to the mid-1960s is explained by a number of reasons. We shall mention only two of them, which are of the greatest importance for the question we examine.
1) Prior to the formation of the Federal Republic of Germany and the carrying out of a monetary reform in 1949, economic breakdown prevailed on its territory, which was under the administration of the occupation authorities of the United States, Britain and France. Production was a mere fraction of the prewar level, there was practically no export of manufactured goods, the credit-currency and financial
mechanism functioned intermittently. Normal cyclical development was resumed only in 1949-1950.
Table 2-7
Economic Crises in the FRG in 1945-1971
National product
Industrial production
Maximum
Minimum
Decrease, per cent
Maximum
Minimum
Decrease, per cent
2nd quarter 1951
4th quarter 1952
increase
April 1951
December 1952
0.0
2nd quarter 1957
2nd quarter 1958
increase
May 1957
May 1958
2.4
1st quarter 1961
3rd quarter 1961
1.3
March 1961
December 1961
1.9
4th quarter 1962
1st quarter 1963
0.6
September 1962
May 1963
2.6
2nd quarter 1966
1st quarter 1967J
2.7
June 1966
April 1967
7.3
May 1970
December 1971
8.5
2) Notwithstanding defeat in the war and the postwar breakdown, by 1949-1950 West German industry had a comparatively new productive apparatus. Its average age was not great, because most of it was installed either shortly before the war or in wartime. Neither Britain nor France, nor the majority of other West European countries had at that time such favourable conditions for economic growth. West German industry, not loaded up by military contracts, was in the best competitive position in Western Europe and could swiftly expand industrial output without significant hindrances. Notwithstanding these (and other) favourable conditions, periods of industrial stagnation in the FRG were-already sufficiently prolonged in the 1950s. The 1951- 1952*stagnation lasted for 15 months and in 1957-1958, for about a year. Actually, these stagnations were a combination of a decrease in production of some industries with
S. MENSHIKOV
POSTWAR CYCLES
55continued growth in others. While the 1951-1952 crisis was caused chiefly by difficulties on the foreign market, in 1957-1958 investment in heavy industry was cut substantially, above all in steel, coal and shipbuilding. The general rise of investment halted. In 1957 it increased only by 0.6 per cent as compared with 1956. The stagnations of 1961-1962 and 1962-1963 in the FRG coincide almost precisely with the crises in Britain.
The 1961-1962 stagnation continued for a little over a year and after an 8-month interval was repeated in a shorter version. The general stagnation of production reflected the periodic sharp drops of output in a number of industries. The total volume of capital investment continued, however, to rise. A general decline of production for a year and a quarter occurred in 1966-19J37, for the first time in the postwar period. This crisis encompassed most sectors of the economy, including those which weathered well the earlier recessions (for example, the automobile industry), and the drop in output was quite substantial. The crisis was caused chiefly by internal factors, above all by the big decline in capital investment. Gross investment in fixed capital in 1967 was 8.4 per cent lower than in 1966 and in 1968 remained below the maximum 1966 level. The decrease of investment in production buildings and installations reached 10.1 per cent and in equipment, 9 per cent.
The 1970-1971 crisis arose on the grounds of difficulties in marketing the output of a number of industries and was further complicated by the general unfavourable situation in foreign trade. The stagnation lasted for about two years; moreover, during this period there were brief but quite sharp declines in industrial production.
To sum up, the 1966-1967 and the 1957-1958 crises can be regarded as cyclical and the crises of 1951-1952, 1961-1963 and 1971-1972 can be classified as intermediate.
Consequently, in the FRG, we see most distinctly the average duration (8-8.5 years) of the periodicity of crises connected with a decrease in capital investment and the briefer (4.5-5.5 years) regularity of other economic crises and stagnations. In contrast to Britain, the comparatively regular onset of intermediate crises is not connected with balance-of-payment crises.
2.3. JAPAN
Immediately after the Second World War, Japan, just as West Germany, went through a period of serious derangement of the economic mechanism and of economic chaos. The end of this period dates only from 1950-1951, when comparatively normal conditions of reproduction were
restored.
In contrast to West Germany, Japan at that time had no new or more or less developed productive apparatus, because a considerable part of the productive capacities of its industry went out of commission.
^The first economic crisis of 1953-1954 lasted only about half a year, but was marked by a substantial contraction of both industrial production and the national product. In Japanese literature, this crisis is usually associated with the interruption of the particularly favourable economic situation which arose for Japan during the Korean war, when Japanese industry served the American armed forces which invaded Korea.
Table 2-8
Economic Crises'in Japan in 1945-1971
National product
Industrial production
^
2 c
Maximum
Minimum
So
S "
o---
Maximum
Minimum
S"
Sv
4th quarter 1953
2nd quarter 1954
8.0
March 1953
August 1953
6.2
3rd quarter 1957
1st quarter 1958
0.7
May 1957
June 1958
9.1
4th quarter 1961
4th quarter 1962
0.9
January 1962
January 1963
3.3
3rd quarter 1964
1st quarter 1965
1.9
September 1964
October 1965
2.5
3rd quarter 1970
4th quarter 1970
1.0
July 1970
May 1971
5.9
No less important, however, is the fact that during this period Japan had a sharp drop of investment in fixed capital. Net investment decreased from 2,200,000 million yen (in
S. MENSHIKOV
POSTWAR CYCLES
57constant 1965 prices) in the first quarter of 1954 to 900,000 million yen in the last quarter of the same year, in other words, a drop of 54.7 per cent. This was the biggest slump in private investment in Japan during the entire postwar period.
The 1957-1958 crisis was of longer duration (it continued for about a year). Industrial output decreased sharply, but the decrease of the national product was insignificant and the general movement of the gross social product sooner resembled stagnation. As in preceding crises, personal consumption continued to grow and the main trend was again felt in foreign trade and capital investment. The worsened situation in foreign trade preceded and promoted the crisis. External economic difficulties mounted particularly in the second quarter of 1957, i.e., prior to the absolute decrease in production. In the second quarter of 1957 net investment began to decline and dropped by 29.6 per cent in the first quarter of 1958.
An analysis of the situation in 1957-1958, with the help of a one-sector dynamic model of the Japanese economy, shows that, in 1958, in the internal private sector (except government purchases and the foreign market) there was a small decrease of demand (by 0.1 per cent of the national income), which was explained by factors determining the demand for investment (a deficit amounting to 1.7 per cent of the national income), not fully compensated by the continued rise of personal consumption. It would seem that under these conditions, there should have been a general decrease of the national product in 1958, but when the crisis had already begun, the foreign trade balance improved and government purchases started to rise. Instead of a general lag of demand behind supply, an opposite situation arose.
The 1962-1963 crisis continued for about a year, but the drop in industrial output was small. As for the rest, it hardly differed from the 1957-1958 crisis.^^1^^
Its depth, however, was smaller. There was no general lag of demand on the part of the private sector in 1962.
An analysis of the factors which determine the change of demand for investment shows that there was a halt of their growth rather than a significant reduction.
The 1964-1965 crisis, which continued for about a year, resembled a prolonged stagnation. This time, the foreign trade situation was favourable. The boom in this sphere helped to localise the 1964-1965 crisis: industries and factories working chiefly for the foreign market prospered, while sectors oriented mainly on the home market were in a state of crisis. The decrease of net investment continued from the first quarter of 1964 to the first quarter of 1965 and amounted to 14 per cent.
On the whole, the reduction'of demand for investment in 1965 was compensated for by a rise in the demand for consumer goods. This predetermined the stagnating state of the economy. Some growth of the national product in 1965, as compared with the preceding year, was fully explained by the swift expansion of exports.
The 1970-1971 crisis initially developed independently of a direct connection with external conditions, which up to mid-1971 remained favourable. The stagnation in industrial output during this period was a result of a decrease of investment in fixed capital. Since^August 1971, however, the decisive factor in the further development of the crisis was difficulties in Japan's trade with the United States. The new stagnation in the country's economic development (also called the "Nixon shock") continued up to the end of 1971.
Comparing the cyclical characteristics of the postwar crises in Japan, we find that all of them were connected to some degree with a decrease of net investment in fixed capital and that this drop became smaller from crisis to crisis (54.7 per cent in 1953-1954; 29.6 per cent in 1957- 1958; 26 per cent in 1962-1963 and 14 per cent in 1964-1965). The duration of the period between the start of the next drop in investment and the time their preceding maximum was reached displayed only a weak tendency to decline from crisis to crisis.
An essential difference is revealed only when we compare the duration and intensity of the periods of growth in capital investment---between the points when the preceding maximum was reached and the new maximum.
~^^1^^ The crisis was preceded by a certain deterioration in foreign trade. After the fourth quarter of 1961 an improvement in this sphere was registered. Net investment dropped by 26 per cent from the fourth quarter of 1961 to the fourth quarter of 1962.
58S. MENSHIKOV
POSTWAR CYCLES
59The comparatively prolonged and intensive booms in 1959- 1961 and 1966-1970 stand out along with the comparatively brief periods of slow growth of investment in 1956-1957
and 1962-1964.
On the whole, investment booms coincide with periods of accelerated increase of the national product and periods of investment sluggishness, with comparatively slower growth of the national product. Usually, little attention is paid to these mid-term fluctuations, because the general rate of growth of the national product is sufficiently high in comparison with other countries.
If we examine periods of investment sluggishness as a form, specific for Japan, of the gradual adaptation of the economy to the overaccumulation of fixed capital (which play a similar role as periods of prolonged stagnation of investment in countries with slower economic growth rates), we can classify the 1953-1954, 1962-1963 and 1970-1971 crises as cyclical and the 1957-1958 and 1964-1965 crises as intermediate. The regularity of short fluctuations in Japan is indefinite (from two to six years), while the periodicity of the cyclical crisis (9 years) meets approximately expectations based on the theoretical considerations outlined
previously.
Let us now examine the role of external conditions ( government purchases and net exports) in Japan's postwar cycle. A change in the total magnitude of this indicator systematically^^1^^ reveals a countercyclical trend. This means that, as a rule, external conditions helped to cushion the crises. The exception was the sudden deterioration of foreign trade conditions in 1971, resulting from the sharp exacerbation of the international monetary crisis.
Changes of government purchases and net exports (in their sum total) were as follows:
first quarter of 1954-fourth quarter of 1961---growth by 10.7 per cent;
fourth quarter of 1961-third quarter of 1970---growth by
118.3 per cent.
In the first cycle (1953-1961), external conditions^"did not play an important stimulating role in the advance of production, while in the second cycle (1962-1970) their significance (alongside the investment boom) was primary.
For all these distinctions, both cycles have similar characteristics: the growth of the national product by 88.5 and 94.3 per cent respectively; an increase of investment by 187.2 and 111.1 per cent and of personal consumption by 82.2 and 79.7 per cent. The relative growth of investment •was much smaller in the second cycle: the general basis for the advance in the second cycle was the immense foreign economic expansion, alongside the reconstruction of industry and the building of new sectors. In contrast to this, the" first cycle rested chiefly on the development of the home market, which, to a considerable degree, was connected with the completion of postwar restoration and reconstruction. The 1953-1961 cycle "thus prepared favourable conditions for the subsequent foreign trade expansion.
CONCLUSIONS
An analysis of postwar reproduction in five principal capitalist countries (the United States, Britain, France, the FRG and Japan) shows:
1. In all these countries, without exception, economic development shows a distinctly pronounced cyclical movement with a more or less regular succession of periods of growth in production with periods of decline and stagnation. *^2. In all countries, except France, there is a well-- established periodicity of the cyclical crises, linked chiefly with the movement of investment in fixed capital. In the United States the interval between cyclical crises was 8-9 years, in Britain 9-10 years, in the Federal Republic of Germany 9 years and in Japan 9 years. In France, the last distinctly pronounced cyclical crisis dates back to 1952-1953. The absence of crises and/or stagnation of investment in that country (except, naturally, for brief pauses) in the subsequent period is apparently explained by the high proportion of steadily increasing government capital investment, combined with a more rigid system of long-term state planning of the economy.
3. In all countries, without'exception, there^were^also shorter crisis phenomena, which we call intermediate crises.
60 Hfe^^1^^-.''
S. MBNSHIKOV
A precise regularity in the recurrence of such crises was noted, however, only in Britain (4-5 years) and the FRG (4.5-5 years). In the United States, France and Japan the intermediate crises, as a rule, were not of a regular nature. Their origin was linked either with foreign trade difficulties and a drop in government purchases, or was deliberately caused by measures of state regulation. In some cases, they were the consequence of brief hitches in marketing the produced outputs.
4. The duration of postwar economic crises fluctuates, as a rule, from half a year to a year and a half. If we also consider periods of crisis stagnation, in some cases their duration may exceed two years (Britain, 1955-1958; the United States, 1969-1971). The duration of postwar crises corresponds approximately to what had been observed in the history of capitalist cycles prior to the Second World War. In the past, however, there were longer crises, for example, in 1929-1932 when the drop in production lasted for about three years, and if we also consider the subsequent fluctuations around the low level of production, about four years.
5. In the postwar crises the maximum drop of the monthly index of industrial production did not exceed 20 per cent and, as a rule, was less than 5-10 per cent. The drop in production, generally speaking, was smaller than in, the crises of the 1920s and the 1930s and somewhat smaller than in the crises prior to the 1920s.
The possibilities of a direct comparison with the earlier economic crises, over a long period, are quite limited, because of the lack of monthly statistics of industrial production in the preceding period.
That is why annual data have to be used for'such comparisons.
Table 2-9 shows "that, after the Second World War, crises in the United States, as a rule, were somewhat stronger than in the last quarter of the 19th century. In Britain, after the Second World War, in contrast to the preceding period, crises most often caused a halt in the growth or a very small reduction in theTannual volume of industrial output. The crises in France,-the'FRG and]Japan,*as]a7rule, led only to a sharp slowing down of the growth of annual production
Table 2-9
Changes in Industrial Production during Postwar and Earlier Crises (per cent, annual data)^^1^^
USA
Britain
France
FRG
Japan
1825-26(---8.9)
1836---37(---4.9)
1845---47(---3.2)
1857---58(-6.6)
1866---67(---1.6)
1867---70(---5.9)
1872---75(---5.6)
1877---79(---9.6)
1872---74(---6.2)
1883---85(---3.2)
1883-86(-8.2)
1879-80{---4.2)
1892---94(---14.2)
1891---93(---6.8)
1891---92(---3.4)
1903---04(---1.6)
1899---1901(---2.7)
1900---01(---4.5)
1900---01 (+0.3)
1900---02(---7.8)
1906-08(---16.7)
1907---08(---5.2)
1907---08(0.0)
1906---08(---6.5)
1907---08(---7.0)
1913---14(---8.2)
1913---14(---6.5)
1913---14(---4.5)
1920---21(---22.7)
1920---21 (---47. 4)
1920---21(---11.3)
1919---21(---24.0)
1929---32(---46.2)
1929---32(---16.5)
1930---32(---31.6)
1929---32(---46.7)
1929---31 (---8.4)
1937---38(---21.6)
1937-38(-6.5)
1937---38(---7.3)
1937---38(+1.2)
1948-49(---7.0)
1949-50(+0.9)
1953---54(---7.0)
1951---52(---2.6)
1952---53(+ 1.0)
1951---52(+6.0)
1953---54(+8.0)
1957---58(---6.9)
1957---58(---1.2)
1958---59(+1.3)
1957-58(+2.8)
1957-58(0.0)
1960---61 (+0.9)
1960---61(0.0)
1964---65(+1.8)
1962---63(+3.1)
1961---62(+8.4)
1966---67(+1.2)
1966---67(0.0)
1966---67(+3.4)
1966---67(-1.7)
1964-65(+3.4)
1969---71 (---4.1)
1970---71(0.8)
1970---71 (+5. 3)
1970---71(+1.6)
1970---71(+4.9)
l Sources: L. A. Mendelson, op. cit., Vol. II, Statistical Appendix; Vol. Ill, Statistical TaWes; League of Nations. Monthly Bulletin of Statistics, Geneva, No, 1, 1939; UN. Monthly bulletin oj Statistics, New York, January 1956, 1960; OECD. Historical Statistics. 1959-1969, Paris, 1971; Economic Report of the President of the United States, Washington, 1973, p. 232; Ekonomicheshoye polozheniye kapitalisticheshikh i razvivayushchihhsya sir an (The Economic Situation of Capitalist and Developing Countries), Moscow, 1972.
62S. MENSIIIKOV
in the 1950s and the 1960s. In all cases the decrease in output in the postwar crises was much smaller than in^the 1920s and the 1930s.
Thus, the picture of the movement of the economic cycle in developed capitalist countries, examined separately, underwent noticeable changes in recent decades. Before turning to the causes of these changes it is expedient also to take into account international manifestations of cyclical phenomena.
CHAPTER 3
STORMS OF THE WORLD MARKET
The cyclical nature of the development of the capitalist economy is displayed not only in the wave-like movement of production in individual countries. Since approximately the mid-19th century, i.e., after the cyclical movement arose in the leading industrially developed capitalist countries, economic crises began to spread more or less simultaneously throughout the entire capitalist world. World cycles arose and world economic crises appeared.
The merger of economic cycles in individual countries into one world cycle is a result of the intertwining of their economies, their economic drawing together. The process of the economic drawing together of countries under capitalism takes a form which, at the root, is contradictory to the nature of the productive forces on an international scale. World economic crises are one of manifestations of these contradictions.
The oldest (and to this day the most important) channel for the mutual spread of the economic cycle is international trade. It is not by chance that Marx described the economic crises of his time as veritable storms of the world market. In our days, alongside trade storms, destructive monetary hurricanes also break out on the world market.
As the share of finished goods (in particular, equipment) increases in trade among developed capitalist countries and different methods are used in the marketing of these goods (as compared with raw materials and other commodities), not only the movement of world commodity markets is of paramount importance for the development of the world
64S. MENSHIKOV
STORMS OF THE WORLD MARKET
cycle, but also the movement of the flows of goods between these countries.
The export of^capital began to play a tremendous jrole^at the end of the 19th and early 20th centuries. Being, at first, primarily a movement from the principal capitalist^ countries to the colonies and semi-colonies, the export of capital later on, particularly beginning with the 1950s and the 1960s, took the form chiefly of the flow, intertwining and integration of the capital of industrially developed capitalist countries.
International monopolies, which control hundreds Aof enterprises in different capitalist countries, have become widespread. Making plans of production and sale for enterprises in country ``x'', the headquarters of an international concern located in country ``y'', takes into account the economic situation and prospects of change, not only in country ``x'' but also in other countries. Moreover, the financial situation of a subsidiary in country ``x'' may prove to be an essential factor influencing the operations of the concern in countries ``y'', ``z'', and so on. This channel of international communication, which has a direct bearing on the transmission of cyclical fluctuations from country to country, has developed only in recent decades and corresponds to capital exports known as "direct investments".^^1^^ Another form, "portfolio investments",^^2^^ long ago created a more flexible channel: the international shifting of long-term money capital through the stock exchange and the placing of securities by international bank consortiums. Such shifts linked together the movement of share prices on stock exchanges of individual countries, changes in the investment climate of some countries instantly affecting the climate in others.
Lastly, of considerable importance are the systematic migrations of short-term money capital. The stimuli for such migration, besides international-political reasons which we do not examine, can be: 1) the difference in the interest paid on deposits in banks and on short-term liquid securi-
ties in different countries; 2) speculative considerations linked with fluctuations of currency exchange rates, expectation of serious changes in monetary policy, movement of the price of gold, and so on.
The shifting of short-term money capital can reach a colossal scale. The movement of so-called hot money creates international monetary difficulties, encourages sharp flareups of balance-of-payment crises and, through them, influences the course of the economic cycle.
Other international contacts, too, are of definite significance in forming the world economic cycle, for example, the export and import of technology and migration of manpower.^^1^^
In the present chapter we shall consider the distinctive features of the postwar international cyclical movement. This analysis will be based mainly on the movement of the index of world industrial production, the volume of international trade, the physical volume of exports of individual countries and also a study of the comparative movement of share prices on stock exchanges. An attempt will be made to combine the cyclical movement in individual countries into a general picture of the world cycle. The interconnection of the cyclical movement with international monetary problems will be specially examined.
3.1. HAS THE WORLD CYCLE VANISHED?
There are several statistical indicators which characterise the movement of production in all capitalist countries. An indicator of total national product is available only in annual terms and cannot be fruitfully utilised for cyclical analysis. An index of industrial production of capitalist countries taken together and according to groups is available both on an annual and quarterly scale. As for monthly data, they have been calculated only for recent years. In the present work we utilise chiefly the quarterly indices of industrial production.
~^^1^^ See E. Pletnev, Mezhdunarodnaya migratslya rabochei sily v kapitalisticheskoi sisteme] mirovogo khozyaistva (International Migration of Manpower in the Capitalist World Economic System), Moscow 1962.
~^^1^^ Direct investments usually imply those which give the investor the right to control the respective enterprise.
~^^2^^ These usually are investments in foreign securities (shares and bonds), which do not give the owner the right of control.
S. MENSHIKOV
STORMS OF THE WORLD MARKET
B7
To trace the combined movement of the economy of the principal capitalist countries it is best to take the general index of industrial production in developed capitalist countries. Such an index has been published by the UN statistical service since 1962. For the preceding period, there is only a general index which includes both industrially
Table 3-1
Periods of Stagnation and Decline in Industrial
Production of Industrially Developed Capitalist Countries
(quarterly data)
cyclical movement in Britain, the Federal Republic of Germany, France and their neighbours.^^1^^
Assertions have been made in the literature that an analysis of Lhe movement of production as a whole can add little to an analysis of its components.^^2^^ It is difficult to agree with this statement. The movement of production in every country is graphically depicted by a curve, which shows fluctuations around some average annual trend. These fluctuations in different countries may, in some cases, coincide and in others diverge (in terms of the phase of the cycle). When the phases coincide, the general curve repeats fluctuations in individual countries but introduces changes in their amplitude; moreover, the magnitude of these changes depends on the respective weights in total production. With a divergence of the phases, the general curve may reveal entirely specific dynamics, again depending on the weights of its components.
It is clear that, in all cases, the general curve of production reflects cyclical fluctuations in a smoothed form (in other words, with a smaller amplitude) as compared with the national curve, which has the biggest amplitude of fluctuations. Let us turn, for example, to Table 3-1. The general movement of industrial production is mainly influenced by the cycle in the United States, especially in the period prior to the end of the 1950s (when their share in the total output of these countries reached 45-50 per cent). The drop in total production occurred even when in Western Europe as a whole (less than 30 per cent of the total output) growth was continuing. However, the relative reduction of output here was less than in the United States, because, in these countries, either growth continued or the decline was smaller. The less acute crisis of 1960-1961 in the
All industrially developed countries
Western Europe
Maximum
Minimum
Decline, per
cent
Maximum
Minimum
Decline, per
cent
3rd quarter of 1948
3rd quarter of 1949
2.5
Continuation of growth
1st quarter of 1951
2nd quarter of 1952
2.0
1st quarter of 1951
3rd quarter of 1951
1.1
2nd quarter of 1953
1st quarter of 1954
0.5
Continuation of growth
1st quarter of 1957
2nd quarter of 1958
3.9
1st quarter of 1957
3rd quarter of 1958
0.4
Sharp slowing down of growth
1st quarter ol 1966
4th quarter o! 1966
2.5
2nd quarter of 1970
1st quarter of 1971
1.3
Sharp slowii 1970
ig down of growth 1971 1
~^^1^^ Data on industrial production used subsequently are taken from the UN. Monthly Bulletin of Statistics, New York, July 1952-56; August 1958-66; November 1970. The indices have different bases: 1948,1953, 1958 and 1963. We have made the respective recalculations. The indices are not adjusted for seasonal fluctuations. In cases where doubts arose concerning the validity of the conclusions, we compared the semi-annual indices, which smooth over seasonal fluctuations, or used a moving average for four quarters.
~^^2^^ See 0. Morgenstern, International Financial Transactions and Business Cycles, Princeton, 1959, pp. 32-33.
5*
developed capitalist countries and developing countries. We also made use of the index of industrial production in Western Europe for a generalised characteristic of the
S. MENSHIKOV
STORMS OF THE WORLD MARKET
United States only slowed down the growth of total production.
A different situation arose when the source of the crisis originated in Western Europe. Thus, the 1962-1963 crisis scarcely influenced the movement of total production. The 1966-1967 crisis, which arose in Britain and the FRG, was sufficiently strong but it was not ``supported'' in some other countries of Western Europe, while in the United States, the crisis was interrupted by the escalation of military spending. The result was only a sharp deceleration of rates of growth, but not a halt in the general growth of production. Only in one case (1951-1952) did the all-European crisis bring about a reduction of the total industrial output of capitalist countries.
On the whole, the existence should be noted of fluctuation in the movement of total production of capitalist countries mainly caused by either crises in the United States (1948- 1949, 1953-1954) or in Western Europe (1951-1952, 1966- 1967) or in different regions of the capitalist world simultaneously (1957-1958, 1969-1971). Very roughly, we may consider the last two economic crises (1957-1958 and 1969- 1971) as world crises. We shall examine this question again later.
Now let us see how fluctuations of production have influenced the movement of international trade.
As was to be expected, the movement of international trade depends closely on changes in the volume of output. We can single out two periods of an absolute decrease in trade: 1951-1952 and 1957-1958 and three periods of stagnation: 1949, 1967 and 1970-1971. In contrast to the movement of total production, all cases of decrease or stagnation in international trade coincide with analogous phenomena in the overall foreign trade of West European countries. This is natural if we bear in mind that the share of these countries combined in international trade is more than twice as high as that of the USA.
The decrease of trade in 1957-1958 and 1970-1971 coincided with world economic crises (according to our preliminary classification). The decline of trade in 1950-1952 reflected both the economic crisis in Western Europe and also the prolonged crisis on the world raw-material market (which
Table 3-2
Periods of Stagnation and Decline in the Physical Volume of the International Trade of Capitalist Countries in 1947-19G7
All capitalist countries
Western Europe
Maximum
Minimum
Decline, per cent
Maximum
Minimum
Decline, per cent
1st quarter of 1949
3rd quarter of 1949
0.0
4th quarter of 1948
3rd quarter of 1949
0.0
1st quarter of 1951
4th quarter of 1952
3.0
4th quarter of 1950
4th quarter of 1952
3.6
1st quarter of 1957
3rd quarter of 1958
3.0
1st quarter of 1957
2nd quarter of 1958
2.6
1st quarter of 1967
3rd quarter of 1967
0.0
1st quarter of 1967
3rd quarter of 1967
0.0
continued for almost two years). At the beginning of the Korean war (1950-1951), the United States steeply increased imports of raw materials for replenishing its strategic stockpiles. In 1951, these purchases were suddenly stopped, which greatly upset the world market. Thus, the crisis of international trade in 1951-1952 was determined by both cyclical factors and instability engendered by the militarisation of the economy.
Economic crises in individual countries lead first of all to a decline of their imports because, with a decrease in production, all other conditions being equal, the demand for imported raw and other materials and equipment and to a certain extent for' consumer goods drops. "All other conditions being equal" in this case means an approximate equality of prices of imported and national goods of the same quality or substitute goods of comparable quality. If imported goods are relatively more expensive, the demand for them drops sharply, if they are relatively cheap, the demand for them decreases little or not at all. Moreover, in our days.
70S. MENSHIKOV
STORMS OF THE WORLD MARKET
71special protectionist measures against imports, especially in countries where imported goods are relatively cheap, have become the usual practice.
Let us examine the movement of the physical volume of imports of the principal capitalist countries,^^1^^ in the last quarter of the century, comparing it with the earlier data on the decline in production (see Chapter 2).
United States. In the 1948-1949 crisis the reduction of imports began in the second quarter of 1948 and continued up to the third quarter of 1949. In point of time the decrease of imports preceded the drop in production by one quarter. Thus, the imports already began to drop in the final stage of the advance (when production growth only slowed down sharply but had not yet stopped). Imports declined by 6.7 per cent, i.e., slightly more than the national product and a little less than industrial production.
The next curtailment of US imports occurred in the period between the first quarter of 1951 and the second quarter of 1952---a decline of 7.5 per cent. The reason for this contraction, as pointed out earlier, was the sudden stopping of the special purchases of strategic raw materials by the US Government. The decrease in imports was not connected with cyclical processes in the United States, because production continued to rise during this time.
When the 1953-1954 crisis began, American imports hardly exceeded the maximum reached in the first quarter of 1951. The new drop in imports (from the second quarter of 1953 to the fourth quarter of 1954) was more substantial than the preceding one---11.8 per cent. It was larger than the decline of industrial production (it should be noted that it began simultaneously with the internal economic crisis, but continued for a half a year longer). The highest precrisis point of imports was exceeded only in the fourth quarter of 1955---2.5 years after the crisis began.
Generally speaking, the entire period of 1951-1955 was marked by stagnation or decline of US imports. This created unfavourable conditions for the economic development of
countries whose production depended directly on exports to the United States.
In contrast to this situation, the comparatively stronger 1957-1958 crisis led only to a certain deceleration of the growth of imports. By that time, the West European industrial countries had already recovered from the consequences of the Second World War and consolidated their competitive positions in international trade. Some of them---- primarily the FRG---became active suppliers of finished goods to the United States. West European and, later on, Japanese industrial goods, which are relatively cheaper than American, were not greatly affected by the protectionist measures usually employed by the US Administration during crises. For this reason, the US 1957-1958 crisis did not exert a direct unfavourable impact on the economy of most West European countries. On the contrary, the growth of competitive imports of finished goods from Western Europe to the USA only intensified the American economic crisis during those years.
The 1960-1961 crisis again brought about a decline of imports, by 7.7 per cent from the second quarter of 1960 to the first quarter of 1961. The curtailment of imports was approximately of the same size as the drop in industrial production, but considerably exceeded the decrease of the national product. It would seem that the influence of foreign competition, displayed in the 1957-1958 crisis, had exhausted itself. However, that was merely a temporary return to the old mechanism of the dependence of imports on production. Subsequently, up to 1969, imports to the United States grew steadily, with the rate slowing down only slightly during the 1966-1967 crisis.
In the 1969-1971 crisis, the drop in imports was much smaller than in the'crisesof 1948-1949, 1953-1954 and 1960- 1961. Between the second quarter of 1969 and the third quarter of 1970, imports fell only 3.5 per cent. Subsequently, regardless of the depressed state of the economy, imports stopped declining and, moreover, even rose swiftly, exceeding (by 6.7 per cent) the precrisis maximum in the second and third quarters of 1971. Yet production in the United States at that time was still lower than before the crisis began. This compelled the US Government to resort, in the
~^^1^^ The sources for 1947-1959 data are: UN. Monthly Bulletin of Statistics, July 1949-1960; for 1959-1969, OECD. Main Economic Indicators. Historical Statistics. 1959-1969, Paris, 1970.
72S. MENSHIKOV
STORMS OF THE WORLD MARKET
73summer of 1971, to emergency measures of a protectionist nature (see Section 3.2).
The mechanism of the link between production and imports thus gradually changed in the United States. The general tendency consisted in lessening the impact of US crises on the economies of other industrially developed countries via foreign trade.
There is a strong desire of the US Administration, which acts in the interests of American business, to even out the competitive conditions facing its corporations. Such efforts, if they were successful, could ultimately restore the old mechanism of the influence of production on imports. It would hardly be realistic, however, to expect complete success for such attempts.
Britain. The first period of the postwar stagnation of imports dates back to the end of 1947-the beginning of 1949. Throughout 1948 imports were below those of the third quarter of 1947; the maximum 1947 level was topped only in the third quarter of 1949. This decline of imports was not directly connected with the movement of production in Britain: during this time output continued to rise. At the lowest point, the decline of imports amounted to 6.7 per cent. The shrinking of imports is apparently explained primarily by Britain's acute currency difficulties in that period, the abolition of the convertibility of the pound and government restrictions on imports.
The second contraction of imports followed closely on the first. Starting in the fourth quarter of 1949, it reached its lowest point in the fourth quarter of 1950. Again, the drop (5.9 per cent) was not directly caused by a decline in production, which had already ended in August 1949. A direct connection can be traced with the consequences of the devaluation of the pound in September 1949, which raised considerably the price of goods imported into Britain.
The third shrinkage in imports, in contrast to the preceding ones, came as a direct result of the economic crisis. Between the third quarter of 1951 and the third quarter of 1952, imports declined by 22.4 per cent. This was the biggest drop of British imports in postwar years. It exceeded considerably the decrease in production because, alongside the spontaneous forces of the crisis, special import restrictions
introduced by the Government were in operation. Stagnation of imports continued for a long time---up to the beginning of 1955.
The protracted 1955-1958 crisis caused a fourth reduction of imports, a little more than half a year after the preceding one was completed. The relative scale of the decrease corresponded to the drop in industrial production.
During the 1961-1962 economic crisis, the shrinkage oj imports was small (3 per cent)---from the first quarter of 1961 to the first quarter of 1963. The 1966-1967 crisis was preceded by stagnation of imports, which began in the second quarter of 1964 under the impact of government restrictions. In 1966, imports dropped by 4.3 per cent. The stagnation and decrease lasted for 2.5 years.
On the whole, in Britain we can trace an obvious and scarcely changing mechanism of the dependence of imports on production. Economic crises have invariably been accompanied by a curtailment of imports, followed by a prolonged period of stagnation. Alongside the directly cyclical forces, the decrease of imports was usually caused by special restrictive measures by the British Government. In the first postwar years, import crises, not being directly connected with internal economic crises, were mainly caused by flareups of monetary crises.
Federal Republic of Germany. The first decrease of imports here coincided with the economic crisis of 1951-1952. Imports declined by 7.1 per cent between the first and the fourth quarters of 1951. This drop was larger than the small decrease in production, but less prolonged. In 1952, the growth of imports was resumed, although stagnation in production continued.
The 1957-1958 crisis hardly affected imports which continued to rise quite swiftly. A similar situation also arose during the 1961-1963 crisis, when only a slowing down in the growth rate of imports was registered.
The second postwar decrease of imports occurred during the 1966-1967 crisis. The precrisis maximum was reached in the fourth quarter of 1965 and the lowest point in the first quarter of 1967. Up to the third quarter of the same year, however, imports were in a depressed state. They dropped by 7.7 per cent, i.e., to the same extent as indu-
74
S. MENSHIKOV
strial production, but the swift growth of imports was resumed almost immediately after the crisis ended and, just as during the 1951-1952 crisis, there was no prolonged stagnation.
On the whole, FRG imports were subjected to cyclical fluctuations to a lesser extent than, say, imports of the United States and especially Britain. This is partly explained by the absence of currency difficulties and governmental import restrictions. The comparative competitiveness of West German goods remained sufficiently high all this time, but the relative shortage of some goods on the home market up to the 1966-1967 crisis determined the continued growth of imports.
Japan. The first postwar reduction of imports was caused by the 1953-1954 crisis. The highest point was in the third quarter of 1953 and the lowest in the fourth quarter of 1954. Imports dropped by as much as 23.1 per cent, in other words, to a greater extent than production.
The second decline of imports coincided with the 1957- 1958 crisis. The precrisis maximum was registered in the second quarter of 1957 and the biggest drop was in the second quarter of 1958. Again the contraction was quite big, 30 per cent, exceeding three times the decrease in industrial output. The precrisis maximum was surpassed only in the third quarter of 1959, 2.5 years later.
The third decline in imports began in the third quarter of 1961 and continued up to the fourth quarter of 1962, in other words, mainly coincided with the 1961-1962 crisis. This time the drop in imports was more moderate, 9.9 per cent, which, however, was three times greater than the decline in industrial production.
The 1964-1965 crisis resulted only in stagnation of imports (a maximum decline of 1.8 per cent) which in duration (starting at the beginning of 1964 and up to the end of 1965) was longer than the crisis stagnation of production. In 1970- 1971, imports stagnated for more than a year and the decline reached 4.7 per cent.
On the whole, the mechanism of the dependence of Japanese imports on internal cyclical movements was strikingly pronounced, particularly up to the 1964-1965 crisis. Since that crisis, however, imports have fluctuated less.
Table 3-3
Decrease in Physical Volume of Exports in 1947-1971 (quarterly data)
USA
Britain
FRG
Japan
Maximum
Minimum
Decrease, per
cent
Maximum
Minimum
Decrease,1 per cent
Maximum
Minimum
Decrease, per cent
Maximum
Minimum
Decrease, per cent
2nd
3rd
27.8
quarter
quarter
of 1947
of 1948
2nd
3rd
22.3
1st
3rd
8.3
quarter
quarter
quarter
quarter
of 1949
of 1950
of 1949
of 1949
2nd
4th
9.7
2nd
1st
9.2
3rd
1st
5.3
1st
4th
9.0
quarter
quarter
quarter
quarter
quarter
quarter
quarter
quarter
of 1951
of 1952
of 1951
of 1953
of 1951
of 1952
of 1952
of 1952
3rd
3rd
14.5
quarter
quarter
of 1953
of 1954
4th
1st
24.2
4th
4th
2nd
1st
0.0
3rd
4th
8.5
quarter
quarter
quarter
quarter
quarter
quarter
quarter
quarter
ol 1956
of 1959
of 1956
of 1958
of 1957
of 1958
of 1957
of 1958
2nd
1st
2.9
1st
1st
3.2
quarter
quarter
quarter
quarter
of 1962
of 1963
of 1961
of 1962
3rd
3rd
1.9
1st
1st
0.0
quarter
quarter
quarter
quarter
of 1963
of 1964
of 1962
of 1963
4th
2nd
5.4
quarter
quarter
of 1965
of 1966
1st
4th
17.5
4th
4th
1.9
quarter
quarter
quarter
quarter
of 1967
of 1967
of 1966
of 1967
76S. MENSHIKOV
STORMS OF THE WORLD MARKET
77Thus, the biggest influence of the internal cycle through the ``production-import'' mechanism was observed in the United States (up to the mid-1950s) and in Britain ( throughout the postwar period). In Japan in the 1950s, in spite of the very powerful operation of this mechanism, the effect was comparatively weak owing to the small share of this country in international trade. In the FRG, the ``production-import'' mechanism was comparatively weak; nevertheless in 1951-1952 and in 1966-1967 it influenced international trade considerably.
Let us supplement our analysis by examining the cyclical tendencies in the exports of the principal capitalist countries (see Table 3-3).
Up to the beginning of the 1960s, every 2-3 years there was a sharp decline of exports in the United States, which, every time, had an unfavourable effect on American production. An exact coincidence of these crises with economic crises in the United States, was, however, more often the exception than the rule (1953-1954 and 1956-1959). The drop of exports in 1947-1948 preceded the 1948-1949 crisis and, possibly, facilitated its development.
The fall of US exports is connected with economic crises in other countries, although it is also possible to name some quite important exceptions. Thus, in 1947-1948, as the economy of West European and other countries was restored, there was a gradual decline in their need for emergency purchases of US raw materials and food, which had helped to send up American exports in 1945-1947 and had intensified the dollar shortage experienced by importers of US goods.
In 1956, exports of oil and coal from the USA grew unusually, owing to the fuel crisis in Western Europe as a result of the closing of the Suez Canal. In 1957-1959, as the consequences of the Anglo-Franco-Israeli intervention were eliminated, the need for US deliveries of fuel declined and exports returned to their usual level. This curtailment coincided with the 1957-1958 crisis. The lower imports in 1953-1954, also, were not caused by cyclical phenomena in other countries.
The closest connection with the cycle in Western Europe can be traced in 1951-1952 and 1962-1963. During these
years, however, the US economy was at the phase of advance or recovery and the declining exports did not exert an important influence.
In contrast to the United States, all periods of export decline in Britain, the FRG and Japan were during economic crises in the United States or Western Europe. FRG exports are sensitive to West European crises, and those of Japan and Britain, to crises in the United States or Western Europe. However, British exports react more sharply and frequently than the Japanese.
On the whole, if we examine only foreign trade, we arrive at the following conclusions about the distinctive features of the international ``transfer'' of economic cycles in the last quarter of a century:
1. The economic cycle in the United States, as a rule, depends least of all on cycles in other capitalist countries. The influence of the West European and Japanese cycles on the American was insignificant;^^1^^
2. Up to the beginning of the 1960s, cycles in the United States exerted a considerable influence on cycles in Western Europe and Japan;
3. Notwithstanding the definite influence of American cycles, local cyclical movement, as a rule, prevailed in Western Europe and Japan; the mutual influence of cycles of West European countries was, perhaps, more considerable than the impact of American cycles;
4. Britain was subjected to strong influence from both American cycles and cycles in other countries.
3.2. MONEY CRISES
On August 15, 1971, the President of the United States announced the complete discontinuation of the exchange of dollars for gold. In December 1971, the dollar was devalued in relation to other currencies by 12 per cent on the average. In February 1973, the dollar was again devalued by another 10 per cent. The big rise in the rates of the currencies of
~^^1^^ The relatively greater influence of production fluctuations in a large country is demonstrated in econometric models in Chapter 7.
r
Table 3-4
Stock-Exchange Crises in the Principal
Capitalist Countries in 1947-1971 '
FRG
Japan
drop in
drop in
drop in
share
share
share
min.
price index,
max.
min.
price index,
max.
min.
price index,
per
per
per
cent
cent
rent
May
194924.0
November
May
May
February
Novem-
195211.7
1952 195317.4
1953ber
195449.1
February
April
February
February
December
195614.3
1955 195748.2
1957 195719.0
July
195832.5
August
August
1960 196127.2
October
December
October
196111.2
1961 196241.7
June 1964
39.0
February 1962
March 1967
51.3
USA
Britain
Prance
max.
min.
drop In share price index, per cent
max.
min.
drop in share price index, per cent
max.
February 1947
February 1948
9.8
May 1947
February 1948
21.6
June 1948
June 1949
17.fi
January 1949
October 1949
19.0
October 1948
March 1953
September 1953
10.0
October 1951
June 1952
25.9
February 1952
August 1956
February 1957
8.8
June 1955
November 1956
26.2
April 1955
July 1957
January 1958
18.0
July 1957
February 1958
20.0
August 1957
December 1959
October 1960
10.3
December 1959
April 1960
7.4
December 1961
June 1962
23.3
April 1961
June 1962
24.7
April 1961
September 1964
July 1965
15.3
April 1962
80S. MENSHIKOV
STORMS OF THE WORLD MARKET
81Continuation
USA
Britain
France
max.
min.
drop in share price index, per cent
max.
min.
drop in share price index, per cent
max.
January 1966
October 1966
17.6
June 1966
December 1966
18.9
December 1964
December 1968
June 1970
29.5
June 1969
June 1970
32.5
December 1970
--------
FRG
Japan
---
drop in
drop in
drop in
share
share
share
mill.
price index
max.
min.
price index,
max.
min.
price index ,
per
per
per
cent
cent
cent
July
April
July
196726.1
1964 196634.2
June
November
December
April
December
197013.5
1969 197023.3
1970 197018.5
~^^1^^ All data come from UN. Monthly Bulletin of Statistics, New York, July
other countries occurred as a result of the pressing demand of the United States.
Let us recall that almost a quarter of a century earlier, in September 1949, the British Government devalued the pound by 30 per cent. This was followed by the devaluation of the currencies of most capitalist countries, including France and the Federal Republic of Germany. The pound and other currencies were also devalued under US: pressure.
August 1971 and September 1949 in a way symbolise the deep changes in the relationship of forces among the principal capitalist countries on the international monetary and' financial arena. These dates are also symbolic in one more respect. Both monetary crises relate to periods of big cyclical; upheavals. What is the link between monetary crises and: the economic cycle and economic crises?
The Marxist theory places monetary-financial crises in the category of money crises and differentiates between two types. One is caused directly by crises of overproduction, i.e., is a direct reflection of the economic crisis in the moneycredit sphere, represents one of its forms and at the same time is a component part of the development of the economic crisis. Crises of the other type arise independently.
1948-1960, 1970-197 1; OECV. Historical Statistics. 195S-19UU. Paris, 1971.
Not being directly connected with the cause of the economic cycle, such monetary crises are determined mainly by specific contradictions accumulated in the money-credi sphere.^^1^^
Money crises can develop in the form of stock-exchange, credit and monetary (currency) crises. In the course of cyclical economic crises, individual types of money crises are often combined.
Let us first examine the postwar stock-exchange crises. A general summary is given in Table 3-4 and Fig. 3-1. The table singles out only drops in share prices which lasted for more than 6 months.^^2^^
Stock-exchange crises usually precede a crisis decline of production or accompany its initial stage. On the basis of this premise, it is possible to single out the following stockexchange crises directly linked with postwar economic cri-
~^^1^^ Karl Marx, Capital, Vol. I, p. 137. The history of money crises is the subject of the following works: I. A. Trakhtenberg, Denezhniye krizisy (Monetary Crises), Moscow, 1963.
~^^2^^ The comparative depth and duration of these crises is examined in Section 4.1.
82
S. MENSHIKOV
ses: in the United States---1948-1949, 1953, 1957-1958, 1959- 1960, 1966 and 1968-1970; in firitein---1949, 1951-1952, 1955-1956, 1957-1958, 1961-1962, 1964-1965; in France- 1949, 1951-1952, 1957-1958, 1962-1964; in the FRG-~ 1952-1953, 1955-1957, 1961-1962, 1964-1966, 1969-1970; in Japan---1953-1954, 1957, 1962-1967, 1970. As we see, most of the postwar stock-exchange crises belong to this category.
Among the stock-exchange crises not directly connected with economic crises in the respective countries we can place the following: in the United States---1947-1948, 1956-1957, 1961-1962; in Britain---1947-1948, 1959-1960, 1966, 1969- 1970; in Frarcce-1955-1956, 1961, 1964-1967, 1970; in the FRG---1960-1961; in Japan there were no such crises. A study of these crises makes, it clear that some of them, not being directly a reflection of economic crises in their own countries, were closely linked with stock-exchange crises in other countries, i.e., could have been caused by the influence of crises in other countries. This applies to a large extent to Britain (1959-1960, 1966, 1969-1970), France (1961 and 1970), the FRG (1960-1961). The stock-exchange crisis in 1947-1948 in the United States and Britain was not connected with economic crises. The 1955-1956 and 1964-1967 crises in France and, to some degree, the prolonged stockexchange crises of 1964-1967 in the FRG and in 1962-1967 in Japan were caused not only by economic crises, but most probably reflected the fundamental change in the conditions of the long-term money markets in these countries, i.e., possessed many traits of a money crisis of the second type. In the United States, the 1961-1962 crisis was not directly linked with its ``own'' internal crisis. It coincided with an abrupt turn of events on the stock exchanges of other countries, but it is hardly probable that the external influence on Wall Street was decisive at that time. That is why we also place it among crises of the second type.
Fig. 3-1 clearly shows the international nature of postwar stock-exchange crises.^^1^^ The 1949, 1957-1958, 1962-1963 and
~^^1^^ The synchronism of stock-exchange fluctuations is examined in Section 3.3.
\ - Britain \
France.
1948 , 1950 , 1952 1954 1956 1958 1960 1962 , 1964 1966 1968 1970
1947 1949^ 1951 ' 1953 ' 1955 ' 1957 ' 1959 ' 1961 ' 1963 ' 1965 ' 1967
1969Fig. 3-1. Period of Rise and Decline in Share Prices on the Stock Exchanges of the Principal Capitalist Countries (1947-1971)
84S. MENSHIKOV
STORMS OF THE WORLD MARKET
1970-1971 crises were of a common nature in all the examined capitalist countries. The 1949 crisis encompassed all countries with an actively functioning capital market (i.e., except the FRG and Japan). In the 1957-1958 crisis, the FRG did not participate formally but the stock-exchange recession there occurred somewhat earlier. In the 1949 and 1970-1971 crises, the ``initiative'' obviously belonged to Wall Street, where the drop in share prices somewhat exceeded the stock-exchange storms in other countries. In 1962-1963, the crisis started in Britain and then spread to the United States, the FRG, France and Japan. In 1957-1958 share prices dropped almost simultaneously in four countries. International stock-exchange crises of a more limited character were linked with phenomena of two types:
1) the influence of so;ne American crises on the money markets of other countries (predominantly Britain, at times Japan and the FRG); these were the crises in 1947-1948, 1953-1954, 1960-1961 and 1966-1967;
2) simultaneous crises of West European stock exchanges which did not spread to the United States and Japan; these were the 1952-1953, 1955-1956 and 1965-1966 crises.
Let us now go over to a description of the monetary crises of the postwar period. Different meanings are invested in the term "monetary crisis". At times, a monetary crisis is understood as a) the general state of capitalist currencies after 1930-1931, associated with the full collapse of the gold standard; b) the state of the monetary system after the Second World War and up to the end of the 1950s, when currencies of most capitalist countries were not freely convertible; c) as applied to an individual country---a balanceof-payment deficit over many years, which causes a serious weakening of the international position of its currency. (At one historical stage or another this may apply to the American dollar, the British pound or the French franc.) Subsequently, we shall deal with all three meanings, but in this chapter, the term "monetary crisis" is used in a narrower sense.
We shall regard as a feature of a monetary crisis in the narrower sense, a sharp upset of the balance-of-payment equilibrium sufficient to cause a dangerous drop in the foreign exchange resources of a country and which leads
to the official depreciation (devaluation) of its currency or the discontinuation of its free exchange for gold or for other currencies.
Just as the other types of money crises, monetary crises can be either directly linked with the economic cycle or arise owing to the relatively independent development of contradictions in the sphere of international payments. The direct link with the economic cycle is displayed above all in the influence of the cycle on the balance of foreign trade. All other conditions heing equal, a change of commodity imports by a capitalist country is directly connected with changes in the volume of national industrial production. In contrast to this, the commodity exports of a given country, ignoring other factors, change under the influence of fluctuations in the volume of the national production of other countries.
Imports rise swiftly in the phase of cyclical advance. If the growth of exports for some reasons lags behind, the equilibrium of the foreign trade balance is upset and thereby an economic basis is created for the rise of a monetary crisis. Such a crisis can either be a signal of an oncoming economic crisis or one of its first signs. The probability of a monetary crisis setting in during the phase of cyclical advance is the greater, the lower the competitiveness of the given country on foreign markets, the slower the growth rates of its exports, the smaller its gold and exchange reserves and the worse its balance of payments on non-trade operations.^^1^^
Monetary crises also arise outside a connection with a disequilibrium in the trade balance. Its direct cause could be the flight of capital from the given country, solely under the influence of relations arising in the money sphere. An economic crisis in a country, however, may promote the flight of capital and, consequently, a monetary crisis. In this case, the monetary crisis is more likely to coincide with the final than the initial stage of the economic crisis.
There is a strong feedback from a monetary crisis to the economic cycle. On the one hand, to reduce a monetary crisis, governments of capitalist countries take measures to restrict internal consumption and internal capital invest-
~^^1^^ See econometric models of external economic ties in Chapter 7.
86S. MENSHIKOV
STORMS OF THE WORLD MARKET
87ments^^1^^. Such measures may directly halt the cyclical advance and give rise to an economic crisis in the country. On the other hand, government measures may be of a more aggressive nature vis-a-vis other countries: the organisation of currency and ordinary dumping, the introduction of superprotectionist trade-political and monetary measures against foreign goods.
While in the first case the general economic crisis arises in a country subjected to a monetary crisis, in the second case there is increasing danger of carrying over the economic and monetary crisis to other countries. Among steps of this type, for example, were the so-called emergency measures of the US Administration in August 1971.
Table 3-5 shows the main external manifestations of the postwar monetary crises in capitalist countries.
The monetary crisis 'Of 1947-1948 in Britain and France was brought about by a sharp deterioration of their foreign exchange and economic positions, as a result of the Second World War, while the devaluation of the West German mark was a component part of the monetary reform which put an end to the economic dislocation in the Western occupation zones of Germany.
In contrast to this, the mass devaluation of capitalist currencies in September 1949 was caused directly by the economic crisis in the United States and the consequent deterioration of the foreign trade positions of other countries. The 1957-1958 devaluations in France are explained by specific reasons rooted in the general conditions of the country's economic development, but their coincidence with the world economic crisis can hardly be regarded as purely accidental.
'jThe devaluation of the pound in 1967 came as a belated reaction to the economic crisis in Britain in 1965-1966. This devaluation assumed an international character. It was followed by the partial discontinuation of the free exchange of dollars for gold. The devaluation of the franc in 1969 holds a somewhat special position, and it is not directly linked with the economic cycle.
JThe dollar crisis in May-December 1971 was not only a result of the drawn-out structural disequilibrium of the
~^^1^^ See also Section 6.3.
Table 3-5
Devaluation and Non-Convertibility of Capitalist Currencies
(data and percentage of devaluation
in relation to the dollar or of the dollar
in relation to other currencies)^^1^^
USA
Britain
France
FRG
January
1948-54.5
June 1947---in-
October
June
convertibility September 1949---30.5
1948-21.9 September 1949-4.9
1948---25.0 September 1949---20.7
October
1957---16.7
December
1958---14.9
March 1968---- partial discontinua-
November 1967---14.3
August 1969-12.9
tion of exchan-
ge for gold
August 1971---- complete discontinuation of exchange
for gold
December
June-November
1971---12.0
1972-10.0
February
1973---10.0
i Revaluations of currencies are not shown. The most important revaluations were of the West German mark (in 1961, 1969, 1971 and 1973) and of the Japanese yen (in December 1971).
US balance of payments but, moreover, was linked directly with the prolonged economic crisis and stagnation of 1969- 1971.
fThe most acute external manifestations of monetary crises conceal deeper processes in reproduction and also in the credit-money sphere. These processes cause balance-of-
S. MENSHIKOV
STORMS OF THE WORLD MARKET
payment deficits which are inevitably accompanied by a shrinkage in the gold and foreign exchange reserves of the respective countries. Table 3-6 shows that periods of balanceof-payment deficit are much more frequent than devaluations and other open displays of a monetary crisis. Between 1959 and 1971 the United States was three times subjected to periods of a sharp drop in its gold and exchange reserves,^^1^^ but only in the third case did it end in devaluation. In the first case, the US Government introduced restrictions on the export of long-term capital; in the second case, it stopped the exchange of dollars, held by foreign private persons and companies, for gold. The long delay of devaluation was possible only because the United States had a big gold stock, which was shrinking only gradually. Only when this stock dropped from $23,000 million (1957) to $10,000 million (l£»70) did the American authorities decide to devalue the dollar in order to stop the outflow of gold.
During the same period. Britain had five balance-of-- payment crises. Having no large gold and exchange reserves, and to prevent devaluation, the British authorities resorted several times to special measures designed to restrict internal consumption and imports. Britain repeatedly received big loans from other countries and from the International Monetary Fund; nonetheless she had to devalue the pound twice.
France was twice subjected to the blows of a monetary crisis. In the first case, it was comparatively mild but the second blow led to a reduction of the foreign exchange reserves accumulated over a number of years by more than 40 per cent and forced the government to devalue the franc.
Between 1959 and 1971, Japan was harassed by monetary difficulties four times, but in no case were they particularly acute. Most of the time, the Japanese authorities relied on foreign exchange restrictions, because the gold and exchange reserves of Japan were comparatively small up to the end of the 1960s.
In the Federal Republic of Germany, a balance-of-- paynaent crisis arose twice. The West German authorities did not resort to foreign exchange restrictions, because the Bundesbank had substantial gold and exchange reserves.
Periods of balance-of-payment crises seldom arise simultaneously in the principal capitalist countries. If one country has a deficit, some other countries must at the same time have a favourable balance, because the sum total of all the balances of payments of all countries participating in international settlements is always equal to zero. This is not the only point, however. It was already noted in the last century that balance-of-payment crises gradually spread from country to country and set in one after another.
USA
Britain
France
FRG
Japan
1959 60 61 62 63 64 65 66 67 68 69 70 71 72
Fig. 3-2. Periods of a Sharp Decrease in the Gold and Exchange Reserves of the Principal Capitalist Countries in 1959-1971.
Fig. 3-2 illustrates this regularity in the 1960s and the early 1970s. The first ``jolt'' in this series of balance-- ofpayment crises was felt in the mid-1960s in the United States and then spread to Britain, France and Japan. At the end of 1963 a fresh wave of the crisis arose in Japan, moving then to the FBG and Britain. The next wave, in 1966, began in the FRG and then also hit Japan, Britain, France and the United States. The balance-of-payment crisis of the United States in 1970-1971 was so strong and prolonged that for a certain time most other countries were in a ``favourable'' monetary position. Such a situation proved to be fraught with fresh sharp outbursts of the trade and monetary war.
~^^1^^ The onflow of gold from the USA continued almost unabated from 1957 to 1970. Here we refer only to periods when it rose steeply.
90
S. MENSHIKOV
To what extent are balance-of-payment crises engendered by a disequilibrium of trade balances? By comparing the data of Tables 3-6 and 3-7 we can arrive at the following conclusions:
1) In the United States, the monetary crises of 1967-1968 and 1970-1971 were, to a large extent, caused by the deterioration of the trade balance. In contrast, the 1960-1961 crisis had no "foreign-trade basis", while the deterioration of the trade balance in 1961-1962 and 1964-1966 was not felt in the monetary sphere.
2) In Britain, the exacerbation of foreign trade problems played a definite role in the development of the monetary crises of 1964 and 1966-1967. In most cases, however, a reduction of the gold and exchange reserves had other reasons.
3) In France, in both instances the monetary crises were connected with a deterioration of the trade balance. The prolonged disequilibrium in foreign trade in 1961-1964 did not cause a monetary crisis, because of the measures taken by the government in 1963-1964 to restrict consumption and internal investment.
4) In the Federal Republic of Germany and Japan balanceof-payment crises were associated almost exclusively with difficulties in foreign trade.
5) In France, the FRG and Japan all periods of deterioration in the trade balance coincide with the final phase of the advance preceding an economic crisis.
Thus, the balance-of-payment crises during this period were largely a manifestation of the economic cycle. In the United States and Britain, this connection in the 1960s is traced only in individual cases. Usually, however, periods of a deterioration in the balance of trade occurred most often at the early stages of postcrisis recovery.
Table 3-8 presents data on periods when short-term interest rates were lowered. Their movement exerts a considerable influence on the balance of payments. As long as the rates are high, they attract short-term capital to a given country and ease the consequences of the disequilibrium of the trade balance in the monetary sphere. A reduction of the rate in the period of economic crisis, on the other hand, promotes an outflow of short-term capital from the
Table 3-6
Periods of Decline in the Gold and Foreign Exchange Reserves of the Principal Capitalist Countries (the decline in per cent is given in brackets)
USA
Britain
France
FRG
Japan
May 1960---
December 1960---
March 1961---
April 1961
February 1961
July 1961
January 1962
(27.0)
(10.3)
(24.1)
(17.9)
November 1961---
October 1963---
September 1962
October 1964
(21.5)
(10.2)
May 1964---
February 1964---
February-
January 1965
May 1966
October 1966
(16.7)
(17.1)
(8.2)
November 1967--- June 1968
February 1966--- December 1967
July 1966- March 1967
(12.6)
(26.2)
(4.4)
September 1968--- May 1969
November 1967--- July 1969
May 1967--- May 1968
(11.0)
(41.5)
(8.1)
March 1970---
May 1972---
September 1971
October 1972
(30.0)
(25.9)
Table 3-7
Periods of the Deterioration of the Trade Balance of Principal Capitalist Countries in 1959-1971^^1^^ (quarterly data)
USA
Britain
France
FRG
Japan
February 1959--- March 1960
February 1960--- April 1961
(B-55.1)
(B-86.3)
January 1961---
January 1963---
March 1961---
•• January 1961---
March 1962---
April 1962
March 1964
February 1964
January 1962
January 1964
(A-41.6)
(B-55.3)
(C-255.1)
(A-65.7)
(B-84.1)
April 1964---
March 1965---
April 1963---
January 1966---
March 1966
January 1967
March 1965
April 1967
(A-52.0)
(B-95.6)
(C-102.3)
(C-603.1)
February 1967---
April 1966---
January 1968---
April 1968---
January 1968
April 1967
April 1969
January 1970
(A-80.5)
(B-91.6)
(B-84.8)
(A-47.6)
February 1970---
February 1971---
March 1972
March 1972
(C-350.0)
(B-569.0)
~^^1^^ (Given in brackets are the following values: A---decrease of the favourable trade balance, per cent; B---increase of the unfavourable trade balance, per cent; C---change in the size of the balance (per cent of the initial value) during the conversion of a favourable into an unfavourable trade balance.
Table 3-8
Periods of Reduction of Short-Term Interest Rate in the Principal Capitalist Countries in 1947-1971 (reduction in per cent of the initial level---quarterly data)^^1^^
USA
Britain
France
FRG
Japan
2nd quarter of
3rd quarter of 1948-
2nd quarter of 1949-
1949-3rd quarter
2nd quarter of 1950
1st quarter of 1950
of 1949 (8.6)
(28.6)
(7.1)
2nd quarter of
3rd quarter of 1952-3rd
2nd quarter of 1953-
3rd quarter of 1952-
1953-2nd quarter
quarter of 1954 (35.7)
4th quarter of 1954
2nd quarter of 1953
of 1954 (63.7)
(25.0)
(7.7)
3rd quarter of 1956-2nd
3rd quarter of
3rd quarter of 1954-4th
quarter of 1957 (22.8)
1956-3rd quarter
quarter of 1956 (13.6)
of 1959 (56.3)
3rd quarter of 1957
4th quarter of 1957-lst
3rd quarter of 1959-
1st quarter of 1958-2nd
-2nd quarter of
quarter of 1959 (51.2)
2nd quarter of 1959
quarter of 1959 (11.2)
1958 (69.8)
(20.0)
4th quarter of
2nd quarter of 1960-4th
3rd quarter of 1960-
3rd quarter of
1959-4th quarter
quarter of 1960 (23.4)
4th quarter of 1961
1960-lst quarter
of 1960 (52.4)
(14.0)
of 1961 (46.4)
3rd quarter of 1961-3rd
2nd quarter of
4th quarter of 1962-2ud
quarter of 1963 (43.8)
1963-4th quarter
quarter of 1963 (24.6)
of 1963 (42.6)
4th quarter of 1964-3rd
1st quarter of 1964-
3rd quarter of 1964-4th
quarter of 1965 (17.2)
3rd quarter of 1965
quarter of 1965 (48.4)
(22.5)
3rd quarter ol
3rd quarter of 1966-2nd
4th quarter of 1966-
2nd quarter of
3rd quarter of 1968-2nd
1966-2nd quarter
quarter of 1967 (21.8)
2nd quarter of 1967
1966-4th quarter
quarter of 1969 (13.6)
of 1967 (37.1)
(24.5)
of 1967 (69.9)
4th quarter of
2nd quarter of 1969-3rd
2nd quarter of
3rd quarter of 1970-3rd
1970-lst quarter
quarter of 1971 (30.8)
1970-2nd quarter
quarter of 1971 (26.5)
of 1971 (34.8)
of 1971 (51.2)
i For the USA and Britain interest short-term private bills.
Treasury bills; for France, the FRG and Japan, the discount rate and rate on
94STORMS OF THE WORLD MARKET
95S. MENSHIKOV
coantry and quite often results in a crisis of its balance of payments.
The movement of short-term interest rates is closely linked with the general course of the economic cycle. In the phase of crisis the rates are as a rule reduced. At times, rates begin to be reduced even prior to the crisis. At times (under the influence of government restrictions on credit), they rise at the beginning of the crisis but then drop. A comparison of Table 3-8 with the dates of economic crises fully confirms the existence of this regularity in the postwar period.
Figure 3-3 partly repeats Figure 3-2 but with one addition. Besides periods of a decrease in gold and exchange resources, it also shows periods of a reduction of short-term interest rates. At least in certain countries and individual cases, the connection 'between the movement of interest rates and foreign exchange reserves is quite clear. This applies above all to the United States (1959-1960, 1970- 1971), Britain (1960-1961, 1962-1963, 1966) and the FRG (1960-1961, 1963-1964). In these cases, the lowering of the interest rates on short-term loans facilitated the rise or exacerbation of balance-of-payment crises, although it was not always the sole cause. This regularity, however, was not displayed at all in France and Japan, where foreign trade remained the only economic basis of monetary crises.
This difference is explained apparently by the special role which the United States, Britain and the FRG played as the main spheres attracting short-term loan capital. Having accumulated, by the beginning of the 1960s, large dollar holdings, the FRG also began to depend greatly on the international migration of capital. The gradual accumulation of dollars in France and particularly in Japan in 1970-1971 could place them in a similar position in future.
In many cases, a cut in short-term interest rates is of a strikingly pronounced international character, being swiftly transmitted from one country to another. Such periods mainly coincide with the main economic crises in the principal capitalist countries.
Summing up this section, let us note the main distinctive features of the correlation of the economic cycle in the sphere of production with cyclical processes in the creditmoney sphere in the postwar period;
1) money (credit, stock-exchange and monetary) crises are closely linked with economic crises, either preceding the latter or being an important factor in their initial stages or of their consequences:
2) money crises acquire an international nature rather swiftly, promoting the rise or exacerbation of economic crises in other countries.
In this section we atstracted ourselves from the connection between money crises and inflationary processes. This question is examined in Section 6.3.
USA
V V \
Britain
V-,VO-V--V \
France
\ \ \ \
FRG
\x Y---.N
X \
Japan
\ v-v
-^ \
3.3. UNEVENNESS AND ASYNCHRONISM
The question of asynchronism of the world cycle in th? postwar period is among the most complex from both a theoretical and an empirical point of view.
First, the problem of measuring the degree of synchronism of the present-day cycle and comparing it with the corresponding data about earlier cycles has not been solved.
Second, in view of the growing integration of the economies of developed capitalist countries, a need arises for a precise explanation of the causes for the growth of asynchronism, when in evidence.
Fig. 3-3. A Comparison of Periods of Decrease in the Gold and Exchange Reserves (broken line) with Periods of a Cut in Short-Term Interest Rates (solid line)
90
S. MENSHIKOV
One view in the literature is that asynchronism of the cycle is caused by the weakening of economic crises in individual countries. In our opinion, this thesis is somewhat one-sided.
Let us examine these aspects of the problem consecutively.
In Chapter 2, we presented an initial periodisation of the economic cycle in five principal capitalist countries, on the basis of the movement of production. In sections 3.1 and 3.2 we demonstrated the operation of the mechanism of the international transfer of crises through foreign trade channels and described the mechanism of the interconnection between stock-exchange, credit and monetary crises. Now all this material has to serve as a basis for solving the problem of measuring the degree of synchronism and asynchronism of the world cycle.
In a monograph on international financial fluctuations, Oscar Morgenstern, the well-known economist and statistician^^1^^, made an attempt to measure two such periods: 1879- 1914 and 1919-1938. Morgenstern borrows the periodisation of economic crises from the studies of the National Bureau of Economic Research which, as we showed in Chapter 2, do not differentiate between cyclical and intermediate crises. Although Morgenstern's calculations do not take these differences into account either, we can utilise them as a certain initial base for comparing the postwar and prewar periods.
Table 3-9 shows the duration of coinciding periods of advance and crises (upturns and downturns in Morgenstern's terminology). An analysis made of the data in the table at once reveals a number of interesting and, at first glance, unexpected facts. If we take four countries, for which a direct comparison with earlier periods is possible (the United States and three West European countries), it turns out that the relative magnitude of some of the coinciding phases (used as a measure of the synchronism of the world cycle) does not decrease as compared with the interwar
~^^1^^ 0. Morgenstern, International Financial Transactions and Business Cycles, Princeton, 1959. A considerable part of the material had been collected by the author prior to 1938 when he emigrated from Austria to the USA.
Table 3-9
Degree of Synchronism of Periods of Growth and Decrease of Production in the Postwar and Earlier Periods^^1^^
Period and countries
Number of coinciding months of
Total duration of period, months
Number of months when phases coincided, per cent of total duration
Advance
Crisis
Total
Advance
Crisis
Total
USA, Western Europe and Japan (1953-1970)
65 3 68 21630.1
1.4
31.5
USA and Western Europe
1879-1914 1919-1932 1951-1970
13128 82
93 28 3
224 56 85
419 157 240
31.3 17.8 34.2
22.2 17.8 1.3
53.5 35.6 35.4
Western Europe
1879-1914 1919-1932 1951-1970
199 HO
118149 31 11
348 71 129
419 157 240
47.5 25.5 49.2
35.6 19.7 4.6
83.1 45.2 53.8
i Prewar periodisation is given according to the National Bureau of Economic Research and Development (see O. MorKenstern, op. cit., p. 45); for the postwar years we give our periodisation of advances and declines in industrial production (see Chapter 2). The difference in methodology of calculation makes the comparisons somewhat unprecise.
S. MENSHIKOV
period, although in both cases it was considerably smaller than prior to the First World War. If we confine ourselves only to West European countries, the degree of synchronism of the cycle even increased in the postwar period as compared with the interwar period, although it is stilJ considerably weaker than prior to the First World War.
These initial results prove to be completely natural if we delve deeper into the data about the relative synchronism of advances and recessions taken not in toto, tut separately. In the postwar period, the overwhelming part of the overall measure of synchronism fell on coinciding advances. In earlier periods, the share of coinciding crises was considerably larger.
Data about five capitalist countries (the United States, three West European countries and Japan) show that the overall indicator of synchronism of the world cycle is only slightly smaller than for four of the enumerated countries (except Japan). Unfortunately, we did not have at our disposal corresponding data for earlier periods.
Analogous comparisons have been made for two main indicators which characterise the cycle in the credit-money sphere (see Table 3-10). As can be seen, synchronism of the fluctuations of share prices in the postwar period was smaller than between the two world wars, when it rose in comparison with the earlier period. In contrast, synchronism in fluctuations of short-term interest rates rose in comparison with the interwar period, although it was smaller than prior to the First World War. Again, the degree of synchronism of upturns was essentially greater than that of downturns.
The general conclusion is that it is necessary to differentiate between synchronism of the cycle and synchronism of crises in different countries. If we measure the degree of synchronism by the above-mentioned methods, we find that synchronism of the world cycle has not become essentially smaller than in the interwar period, although it declined in comparison with the period prior to the First World War, while synchronism of crises has been essentially reduced in comparison with the period prior to the Second World War. This is a difference in principle, because it is the crisis that is the decisive, constituent phase of a cycle. Of no less importance, however, is the difference between
Table
Degree of Synchronism in the Movement of Credit-Money Indicators in the Postwar and Earlier Periods^^1^^
Indicator, country and period .
Vumber of coinciding $ months of
Total uration of
Relative duration of coinciding phases, per cent
Ad-
pances
Crises
Total
Period
Advances
Crises
Total
I. Share prices
USA, Western Eu-
rope and Japan
1953-1970
39 1 40 21618.1
0.4
8.5
USA and Western
Europe
1898-1913 1925-1932 1952-1970
47 13 58
25 31 6
72 44 64
188 96 228
25.0 13.5
25.4
13.3 32.3
2.7
38.3 45.8 28.1
Western Europe
1898-1913 1925-1932 1952-1970
55 13 69
38 38 27
93 51 96
188 96 228
29.3 13.5 30.3
20.2 39.6 11.8
49.5 53.1 42.1
II. Short-term in-
terest rates
USA, Western Europe and Japan
42---
42 24017.5
---
17.5
USA and Western
Europe
1878-1913 1925-1938 1951-1970
134 10 81
73 42 9
207 52 90
426 151 240
31.5 6.6 33.8
17.1 27.8 3.7
48.6 34.4 37.5
Western Europe
1878-1913 1925-1938 1951-1970
173 10 118
85 50 11
258 60 129
426 151 240
40.6 6.6 36.
20.0 33.1 6.2
60.6 39.7 42.5
i Data related to prewar period are cited by O.Morgenstern, op. cit.,pp. 99, 533
7*