Evening star., 1940-01-07
BY EDWARD S. MASON,

BY EDWARD S. MASON,
Professor of Economics. Harvard University.
Four months of fighting have not
sufficed, in contrast with the SINH
lar period in 1914, to indicate the
contour lines of this war. Cessa-
ton of hostilities in 1910 is still
possibility, and nothing short of this
possibility can explain the hesita-
tion of a stock market confronted,
in addition to war prospects, with
a rate of industrial operations rival
ing that of 1887 and 1929. On the
other hand, it seems equally posi-
BILE that war may engulf the whole
of Europe with no assurance that
other areas will not participate.
Under such circumstances it BELTS
the economic forecaster to speak
softly or not at all.
In estimating the prospects of
American industry in wartime one
has choice between alternatives.
On the one hand we can assume
war Of given duration and given
dimensions and consider its prob
able short and long run impact on
the American economy. The second
alternative is to attempt to esti-
mate the short run influences of a
war of, as yet, underlined duration
and magnitude on the basis of fac
tors which are of immediate or
foreSeeable importance. Until the
character of the war is determined
more clearly than at present the
second alternative appears more
profitable.
1t is generally agreed that to date,
outside of the airplane industry, war
orders have been negligible, in fact
probably insufficient to compensate
for the loss of exports to be attrib-
uted to the existence of war. At
the same time production has in
creased since September at an un-
precedently rapid rate. The con-
clusion drawn in some quarters is
that inventories have been accumu-
lating at dangerous rate and that
we may expect to see shortly an
inventory recession of serious magni-
tude. Admitting that inventories
have been accumulating in substan-
tial quantities, which is by no means
clear from available data, there are
two reasons for believing these fears
may be exaggerated.
Earlier War Orders Expected.
In the first place there seems to
have been some shift, on the part
OF professors and distributors, away
from the handto-mouth buying
which has characterized American
business since the recession of 1887,
to an inventory policy of holding for
a longer period. In the absence of a
serious disappointment of expecta-
tions there is no reason to believe
these inventory holdings will be
liquidated. Secondly, those war
orders which are likely to be avail
able will probably materialize much
earlier in this war.
What is significant about an in
ventory situation is not the absolute
size OF stocks on hand or even the
relation of stocks to current volume
OF sales. The critical relationship
Is between stocks and the prices
and rate of sales which are expected
to persist over the near future. The
increase in the level of wholesale
prices registered in September has
held tenaciously over the last three
months, the backlog of untitled Or
ders in many heavy goods indus
tries is still large and business
sentiment does not indicate lqui-
dation of inventory positions such
as would damp down the flow of
new orders. Whether plant expan-
sion and re-equipment in anticipa-
ton of war orders or of an in
creased volume of domestic business
is taking place on any considerable
scale, the statistics do not as yet
reveal.
The experience of the last war
is not likely to be a very good indi-
Gator of the timing of war orders
in the present conflict. 1t was not
until the last quarter of 1915, nearly
18 months after the commencement
of hostilities, that the impact of
the World War was appreciably felt
in the United States Although the
allies enter this war with much
larger stocks of war materials than
in 1914. then confront an opponent
who has been single-mindedly pre-
pairing for war for five years and
who has an advantage in many
fields which can be rapidly over
balanced only by calling on the
productive capacity of other coun-
tries. Furthermore England and
Eropca ora ,,ou aS fhev u,ere nof