Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-08-21
COMMODITY PRICES
HOLD KEY TO TRADE
-
!,
Advance in Raw Materials
: Declared Vital to Bust
: ness Recovery.

scovery from the present depression ana
that no sustained upward movement in
business is likely unless the downward
price trend is checked and reversed
says Andrew A. Brock In the Financial
World. Therefore, at any time during
recent months. when this relentlessly
downward movement which started in
the middle of 1929, seemed to halt,
optimism in business was prevalent,
only to give way to gloom and pss5imism
when later on the weekly indices again
revealed new lows Many and various
explanations for this phenomenon have
been given by students of economy and
teven more remedies and preventives
shave been proposed Aside from their
individual merits, all forcibly prove the
one fact-that this fall in commodity
prices is a vital question of interna-
tional interest and that upon its solu-
ton depends to large extent the
continuance of our present social ana
economic order.
r Two Sides to Question.
" There are two approaches to this
question, and they lead to various re-
suits in their conclusions. One school
emphasizes the commodity side itself
and blarnes the entire depression on
cfoo generously increased sources OF
supply. principally In primary COM
Ynodities. Believers of this theory see
in the control of production and oistrl-
sbrtion the only remedy for change
sof present conditions in the commonly
s1narkets. ...,.,,o
not entirely rejecting the theory OF over
production. stresses the monetary aspect
~ the question and regards the price
decline as a change in the valuation OF
the medium of exchange, which Is paSeo
upon gold. They explain the process s 81
-declining prices as dedation OF creol.
and currency which during the peLiou
ri prosperity had increased more rap
ifiIy than production of goods. ms
.<iefiation increases the purchasing power
of the monetary unit which IN terms OF
coYnmoIity prices means declining
.nrice level. The remedies proposed py
This latter school concentrate upon
monetary measures TO the enece Oh
,counteracting the efects OF tns u s.sal
afrn al sterilization Of the purchasing
loower Of the various currencies 70 pIang
about commensurably stable COMMONLY
81 Tar. however, monetary policies
have done little to correct the ooW al.L,
ward trend. as cheap ana pienSlul
,r,nnev can facilitate and stimulate re-
,.Isai a,,lv when basic conditions per-
NIT its commencement. The compieTlty
srf this problem and the many factors
entering into the price structure wnlcn
are heyond human control make II I'M
.fsnsxibie to devise panacea against the
afcononnic defects of price nuctuationS.
.Furthermore. in such discussions tneIe
f1s always mentioned the Term nO iI4.s.
-s,r,ces s. which however. has no virtue
in itself but is nothing more than
convenient medium Of comparison. Inc
3TJnitad States Department OF LABOR IN
its connn,oefty price index, as shown N
-fhe accompanying tabulation. REGARDS
i4e16 prices as equal to 100, wnicn
should not IN themselves be regarded
as normal
.Cost Of Production"
v A study Of commodity prices over
-gnncer reriod reveals two distinct move
Yner,fs short cycIical trend and
secular trend, the mtter not always
running parallel 70 periods Of depres-
sion and prosperity since the Degl ,u-
sTlfrsr az the current century the secular
Trend has been upward. reaching us
T6eak ia 1920, when the movement
i,as continued downward to the present
time. In the latter period three distinct
l,faseg sre discernible, perpendicular
decline until 1922, then more staDAe
DEVELOPMENT with prices moving IN
marrow range until 1929. when down
ward movement again set in, urst MOD
erateiv. then at an accelerated pace, 70
siov down IN 1881. yet in the period
from 1922 to 1929, when the secular
movement was downward, the United
states passed through period OF I'M
preeedented prosperity and business ae-
fivity, which eliminated ABOUT me
same time the sharp cyclical decline ~
conomodifv prices set in during the mid
This last sharp fan in prices started
sn 1929 Ia the primary rather than the
manufacturing Industries OF the Worlo.
Principally the result Of overproductlon
and ensuing accumulation q sgockS over N.sI
= number Of years, the break IN the
price structure Of these primary COM
T1odftIes. which, In some instances, were
rnore than nalved in the period OF enc
-zears caa,sed q rapid decline In the
purchasing power of the countries con-
cerned. Subsequently. their purchases
of manufactured goods from otner
countries declined and world trace
diYninisl1ed 10 an alarmingly low level.
Shrinkage OF manufacturing activities
IN the fndustYialized countries and en-
Si,fYly large unemployment further mar
rowed the markets for primary prod
lcts. and at this stage Of the depres-
sion underconguTnption rather tnan
oyerproduction is the primary cause ior
continuance Of low prices. Quantita-
lively. the primary commodity -produc-
ing countries have had to shoulder
larger economic burden than the in
Csustrial producers, as wholesale prices
for goods Of the former have declined
at a much larger rate than have retail
prices Of manufactured goods. Wages,
transportation, capital charges, distrinu-
ton costs and other items entering into
the costs Of industrial products have 80
FAR shown strong resistance against
anything like proportionate reductions
cx.~E.k,a~a a.. Tuc1,ue
Consequently, the shrtnkage in ma
stionaI income. through Worldwide
phenomenon has been most severe IN
the primary commodity producing
countries. This situation has been ag-
seTavated by their heavy Indebtedness
Ito foreign capitalistie countries. Their
exports, which, during the period OF
ua1feaer commodity prices, were sufhcient
10 take care Of such foreign debts,
under present circumstances fail TO pro-
vide enough foreign exchange for this
PURPOSE The two other alternatives
flesh borrowing and export OF gold
ERE unfeasibie, the former due TO con.
ditions IN the international capital
markets and the latter because Of lack
of surplus gold In these countries, Con-
hsenuent1y, moratorium and defaults on
international debts In most instances
can ultimately be traced to price de-
sclines in primary commodities,