Evening star., 1948-02-29
Price Drop No indication
Thut Depression Impends
Most Experts Believe Prosperity Will
Follow, Unless Signs Fail
BY DonaId MonfeonPrp


By Donald Montgomery
Price breaks on the commodity exchanges
and In the stock market during past weeks
have started widespread talk of a depression
in the offng. Producers, middlemen and con-
sunaers are all asking how far prices are likely
to fall-and what caused 1t all?
Economists, in Government and industry are
reluctant to risk their professional regulations
by public pronouncements regarding the ex-
tent and probable consequences Of the price
decline. But under the cloak of anonymity
they generally predict that prices will not fall
more than 20 per cent during the next FIVE
years-and they emphasize that price decline
does not indicate depression.
Opinions on the cause for the break in COM
modify prices vary. Some economists attribute
it to buyer resistance; others to overproduction
of staple crops, such as cotton, corn and wheat
Still other sources hold that there has been
no overproduction of, staples, but loss of con-
fidence in the anticipated demand for staples
which has led to heavy selling. But regardless
OF what caused it, prices have taken down.
ward swing
There are many reasons to believe that the
price decline will continue unless it Is reversed
by large-scale Government buying-either to
support farm prices or to fill foreign commit
ments
Although the recent price drop does not indi-
cate depression several large segments of
the population will be adversely affected by it.
For example, manufacturers who are holding
large inventories, spectators who are holding
commodities and those who bought real estate.
cars and household appliances with borrowed
money. The value of such holdings will decline
in direct proportion to the decrease in prices,
and the equity of buyers in the mortgaged
property will be diminished
But a much larger group Of the population
will actually benefit by break in prices In
this group are holders of War Bonds and other
types of Government obligations, those living
on a fixed income, white-collar workers gen.
orally and all those with accumulations of
cash. This group encompasses most consumers.
Most economists agree that there are at least
two ingredients necessary for depression:
Widespread unemployment and declining pro-
duction. Usually these are the results of over
production and excessive inventories. At pres
ent, neither of these causes of unemployment
exists. On the contrary, there is still labor
shortage and the demand for consumer goods
still exceeds production in almost all instances
-
Although production is now approaching
consumer demand at the present level of prices,
market that is more advantageous to buyers
undoubtedly will require increased production
to meet growing demand This growing de-
mand for items heretofore priced out of con-
sumers' reach is expected to put the brakes on
the price decline.
AS prices decline, the theory is that the
potential demand for consumers goods will find
the wherewithal to activate itself in widely
distributed cash-and near cash-accumula-
tions. Economists point out that there Is ap-
proximately $4,000 100000 In War Bonds dis
tributed among nearly 10000 900 holders An
other $4,000 1000 on deposit in banks brings
the total potential consumer demand to $780,
000000,000. This amount of accumulated pur-
chasing power is estimated as sufficient to sup
port the present level of production for five
years.
These accumulations of purchasing power
will probably come into the market gradually
as decreasing prices attract an increasing num-
Der of buyers. This gradual movement of money
into the market also will cushion the price
decline
Compared to its purchasing power during
the period 1935-1939, the dollar had value OF
go cents in January 1948. Recent price drops.
severe as they have appeared, probably will not
increase the purchasing power of the dollar
more than per cent and already the rate Of
the price decline is leveling off.
General economic conditions are taken by
some economists to indicate that prices will
continue to decline gradually and eventually
stabilize themselves at approximately 20 per
cent below the price level of January, 1948
That would bring the purchasing power of the
dollar to approximately rs per cent OF the 1885,
1899 average.
Unless some unforeseen circumstance injects
itself, economists generally predict period Of
genuine prosperity as an outgrowth of declining
prices. The periods of high prices were BOOM
times'-but not prosperity.
They point out that the standard of living,
and not prices Is the barometer of the ma
tional economy. High prices have kept the
standard of living static, whereas gradually
declining prices will probably raise it.
Unemployment Is not likely to result from
decreased prices, but downward revsions in
wages may occur. Any cut in wages will be
forestalled for time, however, by the labor
shortage and this will give wage earners at
least temporary rise in their living standard
It can be further expected that wage cuts
will not be in direct proportion to the decrease
in the price level. Unions will resist any such
moves on the part of employers to pass on to
labor the full effect Of reduced profits.
Employers probably will acquiesce in labor's
demands for some time to come desire Of
to keep their factories in full
operation to meet the rising demand caused
by decreased prices will make management
generally anxious to avoid strikes.
On the whole, the only effect economists see
in the price decline is that 1t will punish those
who profted by rising prices and reward those
who were damaged by them
were held at Rest Cottage, Miss Wilard's
home, at which were present only her relatives
and most intimate friends and the officers of
the WCTU." Then the coffin was taken to
the First Methodist Episcopal Church, where