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Tom Kemp

Europe and the Recession

(Winter 1959)

From International Socialist Review, Vol.20 No.1, Winter 1959, pp.17-21. [1*]
Transcribed &marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

America’s recession terrified capitalists in Europe. But the dreaded impact has not been felt as yet. A Marxist explains why

ONE of the most significant aspects of the American recession of 1957-58 was the attention which it received in the European press. Even before it became clear that it was to be the most acute since the war, it had probably occupied more space in the press, especially in Britain, than the two previous postwar recessions together.

The defenders and beneficiaries of capitalism in Europe began to lay bare some of the anxiety which had been dormant during the great boom era. Some resentment against the transatlantic big brother, whose every minor ailment was liable to afflict its weaker brethren with debilitating disease, was to be detected. Others sought in the lessons of the past the key to the “American Enigma” [1] and some dire predictions were circulating by midsummer, 1958, even in the sober pages of United Nations publications. It is true that all good men accepted that a recurrence of anything like the depression of the 1930’s was out of the question. [2] But if their arguments were subjected to rational appraisal it could be seen that faith played an important role in them.

As it happened, of course, more by good luck than judgment, the predictions of numerous economists on both sides of the Atlantic that the recession would be sharp but short seems to have been confirmed. The revival currently proceeding could be a mere respite before a more drastic downward plunge; such things have happened before. On the other hand the prospect of a renewed powerful upswing, based on a high level of new business investment, seems improbable for the moment. It seems unlikely, therefore, that the European economy will, in the coming months, receive much impetus from the United States; if anything the situation on this side of the Atlantic is likely to set limits to the extent of American recovery.

Both segments of world capitalism are in positions today somewhat unlike anything predicted. How did this occur? Even those who were confident that the recession in the USA would not be prolonged, often tended to be gloomy about its impact upon the rest of the capitalist world. Thus a long, leading article in the London Economist, regarded as an organ of City business, put forward a series of detailed proposals intended to deal with the threatened shortage of dollars consequent upon the recession. [3] Dollar injections into the world economy on a sufficient scale to prevent the volume of world trade being curtailed were to be effected either directly or through the underwriting of the Sterling Area and the turning of the International Monetary Fund into a “super central bank” well supplied with dollars. A heartfelt appeal to “economists in the American administration” to “start working on the minds of the non-economists among their colleagues” concluded the article, which reflected the prevalent anxiety in business circles at the time of its appearance in May 1958.

In the following month the Economic Bulletin for Europe contained a highly technical article on The International Impact of the United States Recession which made less specific proposals but was based on similar premises. [4] That is, a chronic shortage of dollars was in the offing and if world capitalism was not to be severely shaken by the inevitable trade contraction which would ensue, the United States should “take part in arrangements designed to alleviate the impact of the recession on international liquidity.” And these “would be needed even if domestic action were to be taken in the near future to raise demand in the United States.” There was another alternative to which the authors of the article pointed: “concerted action by the industrialized countries of western Europe to maintain high levels of output and trade in the international economy outside the United States.” [5] And this would entail some measure of discrimination against imports from that country.

The Labour party’s economic program, published in July, while seeing the “possibility of a world slump arising out of the present American recession,” evaded the question of how its effects in Britain could be countered. The main line of defense suggested was the restriction of dollar imports; i.e., discriminatory practices hardly to the liking of the US government. [6] Clearly the authors of this document sincerely hoped that the danger would never have to be faced. Not long before, one of the Bank reviews, discussing possibilities for government action to maintain home demand, added that it was “certain that the UK could not hope to spend itself out of a serious American recession.” [7]

From about May 1958 an undercurrent of serious doubt crept into discussion of the American recession for several months, especially in Britain which was particularly vulnerable to cold blasts blowing in from a disorganized world economy.

Precarious Equilibrium

The reason for the anxiety was that even before the recession began European capitalism faced the prospect of a serious recession of its own. [8] In both the previous postwar recessions in the United States powerful upward movements had persisted in most European countries. Then, throughout the 1950’s, Europe had experienced a surge forward of investment and production with a classic capitalist boom superimposed upon a high level of activity generated by armaments and other state expenditures. As a consequence there was a strong pull on the industries producing means of production both to expand their own capacity and to equip the industries turning out consumer goods. The extent of this investment boom differed in each country, being generally most rapid and far-reaching where wartime destruction and previous underinvestment had left a terrific backlog of investment opportunities, which, in the favorable conditions of an expanding world market and technological change, could be profitably exploited.

In the nature of things such a boom tends to exhaust itself – rising costs cut into profits, some sectors of industry grow disproportionately and markets tend to become saturated. Already during 1956 the rate of expansion had slackened and in many countries it slackened still further in 1957. [9] During 1958 a distinct contraction was perceptible in Britain, Belgium and the Netherlands and was incipient in a number of other countries. The emphasis of economic policy had shifted from coping with the inflation and recurrent pressures on the balance of payments, which had accompanied the boom, to the problems involved in utilizing capacity and maintaining the rate of new investment. Not only did the American recession threaten to confront the European countries with a new shortage of dollars to maintain their external trade but it could precipitate a sharp and perhaps uncontrollable plunge in domestic activity.

Despite the rapid recovery of the capitalist world market since the war, largely made possible by dollar injections through the Marshall Plan and other American aid programs, it is still in precarious equilibrium. The disproportion between the United States and the rest of that market still remains. It shows itself in the dependence of the other countries upon their ability to earn dollars for essential payments in the USA. And most capitalist countries – Western Germany is the main exception in Europe – have very slender reserves available to cushion adverse changes in their own balance of payments. The fear of a repetition of the 1940’s, with their chronic dollar deficits, hangs over foreign economic policy. Hence the measures taken by the British government in September 1957 to meet a drain of sterling, though that meant dampening down business activity at home. Hence, too, the measures proposed in many quarters during 1958 to meet the apparently imminent all-round shortage of dollars expected to be a consequence of the US recession.

The boom in the industrial countries was closely interlocked with the growth in their foreign trade, including increasing trade amongst themselves and with the USA. The expansion of demand from the primary producing countries consequent upon this boom in turn reinforced it. For some time before 1957, however, commodity prices had been falling, raising the prospect that within a foreseeable time they would have to curtail their imports from the industrial countries – setting in train, or contributing to, a contraction in world trade and depression in the industrial countries. The US recession introduced a new fear, that of further pressure on commodity prices by reason of the lower demand for imports, likewise playing back upon the industrial countries.

Such expectations had shown themselves to be only partly valid in the previous US recessions. As it happened in 1957-58 a number of other factors entered the picture, obscuring the clear-cut outlines that had been expected or feared. In fact the manifold relationships of the capitalist world economy do not lend themselves to mechanical representation as a series of two-way transactions or cause-and-effect sequences. They are inherently dialectical in their complex interactions; shot through with unevenness and contradictions. Moreover, each boom-slump cycle in capitalist development shows its special features: the effect of technology, harvest variations, wars and war preparations are among the factors which may impose variants on the abstract theoretical pattern. The resultant for any particular national economy of the happenings in the world market – to which it contributes in greater or lesser degree – are not easily deduced from the original elements. Thus, for example, a recession in the United States will not have easily predictable results on other countries. A good deal will depend upon the nature and extent of the recession, as well as upon the point at which it impinges upon the latter, whether they are booming, as in 1953-54, or on the threshold of contraction as during 1958. Likewise experience shows, as will be seen, that a downturn in the USA does not necessarily aggravate the outstanding economic problems of other countries. Some may, at any rate for a time, derive more good than harm from the fact.
 

Why They Escaped

The most direct way in which the recession could have made its impact upon the European economy was through a fall in US demand for its exports. All the main European producers have made special drives in recent years to extend their direct sales in the expanding American market, with not inconsiderable success. Had these sales dropped, the effect on the industries most concerned would have been severe. No doubt there would be a time lag until pre-recession orders had been fulfilled, but repeats could have expected to be lower. In fact, however, while some European exports did fall off others rose, making possible an overall increase for the first nine months of 1958.

The key to this unexpected outcome lies in the nature of the US recession to date. The main brunt fell on investment outlays, inventories, industrial production, business profits and employment, all spread unevenly over the economy. On the other hand, though consumer demand ceased to rise as it had been doing during the previous period, and even fell back a little in per capita terms, the aggregate level of consumption fell by no more than about one per cent. If European exports had entered the circuit of exchange via the production of means of production (Department I) as raw steel, heavy machinery, machine tools and raw materials, they would have felt the full blast of the reduction of American industrial activity. Indeed, since imports from Europe would have tended to be the first to be cut the effect would have assumed an exaggerated form; Europe would have become a depressed area. As it is, comparatively few European exports pass through those parts of the economy most severely affected by the recession. A considerable part enter more or less directly into the consumption stream, either in competition with the American-made article or as non-competitive specialties. The maintenance of consumption meant that their market was preserved, especially as they were not generally the kind of goods consumed by workers most affected by unemployment and short time.

Had the recession become increasingly virulent during the second part of 1958 there is no doubt that these favorable conditions would have been in jeopardy. Consumption would have fallen, and had it reached the higher income levels, European imports might have been severely affected. In addition, had higher tariffs been imposed under pressure from American manufacturers, or had they switched successfully to compete with the imported article, a valuable market might have been greatly reduced.

A special factor of considerable force was the ability of European automobile manufacturers not merely to maintain, but greatly to increase, the volume of their sales, despite the depression in the American industry. Not only did that mean valuable dollar earnings; but it contributed to the high prosperity of the European car industry which, both through its heavy investment outlays and its rising production figures, had been a star performer in the boom of the fifties. [10]

The behavior of American consumption was clearly a vital factor in preventing direct contagion of the European industrial countries. At the same time, the influence of American conditions on already existing world trends contributed to easing rather than intensifying their dollar problem as had been expected. It is true that these expectations had foundation in the light of the experience of the latter part of 1957 when there was some constriction of the flow of dollars into the world economy. Thanks to the maintenance of American consumption, decline of exports and continued foreign investment there was no overall shortage of dollars in the course of 1958.

As far as the industrial countries of Europe were concerned, the main operative factor was a continued improvement in their terms of trade as the prices of primary products continued on their downward course – assisted on their way by the fall in American demand. Consequently, coincidental with the recession in 1958, has gone a strengthening in their balance of payments, and additions have been made to their international liquidity in the shape of gold and dollar reserves despite a falling off in world trade. [11]

This process has imposed a serious strain on the primary producers, more particularly those whose staple exports have been subject to marked declines in world prices. Some have been running heavy deficits in their current balance of payments, drawing down reserves of foreign exchange previously accumulated in other centers, London in particular. Loans and credits from various sources, including the United States, have enabled them to go on buying from the industrial countries. In general, however, their position has become more precarious and will be made even more so to the extent that production falls in Europe. At any rate the industrial countries of Europe have automatically profited from their embarrassments up to now. Unless the recent slight recovery in primary product prices is confirmed and continues for some time, or further injections of foreign aid can be obtained, some of the underdeveloped countries will have to make cuts in imports and impose further trade restrictions. The attractions of trade with, or aid from, the Soviet Union will increase. The recent agreement between Argentina and the USSR is but another sign of the times, for Latin America is a comparatively new field for such deals as far as the latter is concerned. [12] It is noteworthy that business representatives of Germany, France, Britain and other countries have been scouring the region for years in an effort to extend their trade; rivalries would certainly intensify if Europe’s difficulties increase.

Up to the last quarter of 1958 the American recession has had few appreciable effects on European capitalism and may even have temporarily alleviated some of its more pressing problems. The fears which were so widespread a few months ago have tended to be dissipated. Confidence seems to have been favorably influenced by the behavior of Wall Street prices as well as by the easier foreign exchange position. The usual seasonal pressure on sterling, for example, did not occur this year; instead there has been an unusually high surplus on the balance of payments. Nevertheless, in Britain, Belgium, the Netherlands, and to some extent in France, recession is either developing or is feared.
 

Respite for How Long?

The threat to the equilibrium of the world market, and, even more dangerously, to the very survival of capitalism which would have followed upon a severe American slump spreading out on a world scale seems to have receded into the background for the moment. The spokesmen for European business are visibly relieved. Now they are wondering what sort of respite they have secured. As one of them wrote recently:

“Europe has so far remained largely insulated from American developments. Unfortunately it looks as though she will continue to be so in the immediate future, for it is unlikely that the American recovery will produce a rapid improvement in the economic climate here.” [13]

In other words, a number of European countries – West Germany seems the most important exception at present – are facing their own recession unaided by any powerful uplift from a full-scale expansion across the water. In this negative sense the American recession has had an important bearing on the situation of European capitalism. The mere failure of the United States to continue its boom through 1957-58 may deprive Europe of the spur it needed, and still needs, to prevent it from lapsing into a comatose state of semi-stagnation, symptoms of which have been apparent in Britain for some time. [14]

For the present, facing lowered production and unemployment that has risen above the 500,000 mark, the Conservative government consoles itself with the improvement in the strength of sterling. The shape of the problems looming before European capitalism are perhaps most sharply delineated in the case of Britain, but in essence they are to be found everywhere. In France and Germany they have been slower in coming to the forefront for a number of special reasons, but they may not be long delayed and would break through very quickly were there to be a sharp contraction of world markets, such as might be precipitated by a worsening of the position of the primary producing countries.

In the meantime the governments of the capitalist countries, under the pressure of business interests, have been considering how they can maintain their share of trade in the more intense competition now expected. The proposals for a European Free Trade Area for the sixteen OEEC countries (those which benefited from the Marshall Plan) and for a customs union, known as the European Common Market, of France, Germany, Italy and the Benelux countries, have been given a new appraisal in the light of changing prospects. Each country is now afraid of being at a disadvantage if others have their way; threats, menaces, bickering and horse-trading have characterized the negotiations of recent months over initiating the new structures. [15]

No substantial agreement has been arrived at internationally to deal with the eventuality of a deepening of the recession. Instead, steps have been taken to give exporters more generous credits or to diminish the threat of outside competition by restrictive policies. Each national capitalism seems likely to seek a solution of its own problems regardless of whether the measures adopted will adversely affect the prospects of the others. The race will be to the strongest. Thus the French industrialists, with their high production costs, seek to avoid a situation where they will have to confront their German competitors in their own territory with the lower level of protection which entry into the Common Market will impose. Likewise the British cotton textile manufacturers, hard hit by competition from Hong Kong (and to some extent from India, as well as from China in Far Eastern markets), have been trying to secure a “voluntary” limitation of exports into their home market from Britain’s colony.

Moreover, in general, recession seems to have a loosening effect on the common front which the capitalist powers have put up against the Soviet bloc since the war.

The immediate prospects of European capitalism depend upon the capacity of the system to extract and realize surplus value on an expanding scale. Clothed in special forms, concealed, if not modified, by the changes which it has undergone in recent decades, the classic dilemmas of capitalism still impose themselves. The most pressing question is whether markets can be expanded to enable the capacity built up during the boom to be profitably employed and to enable the producers goods industries – most threatened or affected by falling output – to resume their advance. [16] Even the adherents of the system are mostly convinced that this can only be done by some measure of state intervention amounting, in effect, to the provision of markets in which surplus value can be realized and which would not otherwise have come into being. [17]

In Britain there has already been some decline in arms spending as a proportion of national income, and Prime Minister Macmillan has offered this as one of the reasons for the growth in unemployment. On the other hand the continued rise in industrial production in France through 1957 was accounted for in part by “a steep rise in public expenditure, consisting primarily of higher military outlays connected with the Algerian conflict.” [18]

Although some German sources claim that the slight recession experienced in some sectors earlier in the year has been overcome, there is little doubt that performance will be less brilliant in 1958 than for many years. [19] In the first half of the year the rise in exports came to an end; they were expected to fall in the second half. The effects of this slackening has so far been counteracted by continued construction and investment, but the United Nations Economic Bulletin for Europe doubts whether this “will suffice to secure an accelerated increase in total output in the rest of the year given the tendencies towards stagnation or decline of private consumption and exports.” [20] The prospects of West Germany depend to a large extent upon the future behavior of world trade and whether incentives will be found for a continued high level of investment. Its comparative immunity from the effects of the American recession does not signify that it. will be able to continue on an upward course.

Now and in the near future the Keynesian claims that appropriate fiscal measures and government spending can avert depression will be put to the test. Already in Britain the rapid increase in unemployment within the last nine months has induced the government to step up investment in the nationalized sector, lower the interest rate from its crisis height of 7% down to 4½% and take measures to encourage installment buying of homes, cars and consumer durables. There is not much doubt that these measures can give some relief by creating, as it were, an artificial market. The volume of consumer credit, for example, is only about one-fifth that current in the USA. [21] With one car to twelve people, against one to three in the USA, the automobile manufacturers look hopefully towards a growth in the home market demand. At present, however, cars carry a luxury tax (known as “purchase tax”) amounting to 60% added to the factory price. Even with 10% deposit and two to three years to pay, as under the new credit terms, few workers can expect to buy a new car. [22] The Conservative government will no doubt consolidate electoral support with the middle class with such measures, but whether they will stem the drift into recession depends upon many factors, including important ones quite beyond their control.
 

Not Immune

Countries with high export ratios, such as those of Western Europe, cannot expect to expand for long unless the whole world market is doing so. A great deal depends upon whether the present limitation of the market is a passing phase or merely the prelude to a resumed expansion. The shift towards a more optimistic view of market prospects which has been taking place in the past two or three months in business circles is obviously based upon the latter view. [23] The growth in foreign exchange reserves – a result of falling import prices – has given the industrial countries the means whereby to finance the larger volume of imports needed in the early stages of a re-expansion. On the other hand, if their exports continue to fall not only would this tend to dissipate the reserves once more but government spending and fiscal policy would be of doubtful efficacy against the cumulative deceleration taking place within the economy. The main difficulty would be of maintaining those industries and sectors hardest hit by the loss of overseas orders, as well as by cut-backs in private investment which would also follow. [24]

A situation of this kind could have been expected to follow for Europe had the American recession deepened and extended through to 1959. As has been seen, other counteracting forces, largely of a kind which cannot be counted upon to recur, were sufficiently potent to alleviate, rather than intensify, the tendency to recession already apparent in Europe. Certainly the experience of the past year does nothing to prove the immunity of Europe – or of one or more countries on that continent – to a subsequent depression. Should it coincide with a contraction of the world market the most exposed sections of European capitalism would be thrown into an economic crisis which, while perhaps not as profound as that of the early thirties, might be even more significant in its political results.

That is not to say that the strengthening of the working-class movement in the European countries necessarily depends upon a sharp deterioration in the economic situation. The growing uncertainty, the threat to jobs, the swings from inflation to recession, the inability of the system to justify itself in terms of living standards will provide increasing opportunities for developing a new leadership on a militant socialist program. At the same time, the crisis of confidence on the part of the advocates and beneficiaries of the system, which came close to the surface under stress of recent events – in Britain the fear of an American depression, in France the crisis of the colonial system – may break through and stand fully revealed.

It is not suggested that these possibilities are immediate; but they do seem to sum up the tendencies in European capitalism. Taking account of the complex interplay of all the components; considering the effect of the spread and consolidation of the colonial revolution; adding the possible consequences of increased rivalry and pressure from the Soviet-Chinese bloc – then the prognosis of an indefinite smooth expansion of world capitalism seems entirely excluded.

A primary unknown is the time schedule. It is impossible to foresee how long it will take for these various processes to work themselves out and at what time conditions will be most favorable for superseding a system which has long outlived its historic usefulness.

Nor should it be assumed that capitalism will break down of itself. Without the intervention of the subjective factor, a conscious socialist movement, capitalism will always be able to “solve” its problems as it has done before: through crises, fascism and war.

 
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Editor’s Note

1*. This is a British Marxist view of the effects of the recession on European capitalism. Tom Kemp teaches economics at Hull University.

Footnotes

1. An article under that title in Barclays Bank Review, November 1957, concluded by stressing the need for a resurgence of production in the United States because “in a world so divided ideologically, capitalism as exemplified by the American way of life must demonstrate its ability to prevent a severe recession. “

2. Thus in the World Economic Survey, 1957 it was asserted that there is no question of the recession taking on the dimensions of the pre-war depression; a decline on any such catastrophic scale is inconceivable, on social and political, as well as on economic, grounds.

3. The Economist, May 3, 1958. A panacea long favored by some economists: e.g., R. Harrodin International Affairs, June 1958, was an increase in the world price of gold, a step which would depend upon the good graces of the American government. It would add automatically to the purchasing power of gold reserves, thus increasing the international liquidity of other countries. It would also boost gold-producing countries, such as South Africa and the USSR).

Another favorite is, while praising the United States government, “so friendly and so generous as we know them to be,” to ask them “to remove the obstacles to the growth of international trade.” The words are those of the British Minister Sir David Eccles at the meeting of GATT, October 1958.

Among other economists of similar opinion, R.R. Neild suggested: “Since the negotiation of a return to discrimination would take some time, the rest of the world is placing considerable faith in the US in abstaining from action now.” London and Cambridge Economic Bulletin, No.25, May 1958).

4. Vol.10 No.1.

5. Ibid. This article made clear that it was considerably easier for the West European countries to withstand the United States depression than the primary exporting countries, whose reserves had already been running low in 1957. It also pointed to the danger of a cumulative contraction spreading through the international economy. Another article in the same issue hazarded the guess that “it seems likely that economic activity in western Europe will be easier to revive than in the United States.”

6. Plan for Progress, Labour party, July 1958.

7. Westminster Bank Review, May 1958.

8. Thus Andrew Schofield, one of the most influential of British financial journalists, wrote in The Observer, June 29, 1958: “Even if the American recession gets no worse, clear evidence that it was failing to revive in the autumn could have a serious effect on business sentiment, on consumer-buying, and perhaps most important, on stock markets. The danger is that the second phase of the American slump and the first phase of the European slump might coincide.”

9. A useful summary of the phases in postwar capitalist development is given in chapter four of the World Economic Survey, 1957. The ending of the boom in Europe – though that did not lead immediately to recession – may have had some influence on precipitating depression in the United States, where expansion continued until about the middle of 1957. It is doubtful whether it could have been a major element. Policies of American businesses in Europe seem to have been more influenced by what happened in America than vice versa.

10. In the first half of 1958, foreign car registrations in the USA amounted to nearly 160,000, accounting for 6.7% at a time when new car registrations were the lowest for six years. The American market was the largest single overseas market for the automobile industries of Britain, France and Germany. Its growth in 1957-58 was an important factor in the prosperity of the industry in those countries. (Statistics from the London Financial Times, Motor Industry Supplement, October 20, 1958).

11. The American angle on this is to be found in the Survey of Current Business, September 1958, which comments: “The fact that the rise in foreign reserves was limited to the more advanced industrial nations, while the reserves of most of the other countries remained low with little field for maneuver, affects our export prospects.” Likewise it pointed out that “An increase in exports to Europe cannot be expected until the upward movement in general business activity there is resumed.” This was particularly so because of the supplementary nature of certain US exports to Europe. For example, coal has still been exported to Europe on the basis of longstanding contracts; meanwhile Europe’s unsold stocks of coal have reached unprecedented heights.

12. The $100 million deal with Argentina allowed for the credit purchase of oil-drilling plant, in certain lines of which the USSR enjoys an undoubted technical advantage. A severe shortage of foreign exchange threatens Argentina’s economy with disaster; increased production of oil from domestic sources would ease the strain and reduce dependence upon foreign oil companies. These later offered Argentina increased credit. A deal with Brazil followed, comprising barter of Brazilian surplus commodities against needed imports from the USSR.

13. The Financial Times, October 20, 1958. This article looked to “a renewed upsurge in demand for Europe’s exports from the raw material producing countries overseas.” The same journal stated November 1 that “There is general agreement among businessmen that exports will probably tend to decline over the next few months.”

14. It is worth noting that while exports to the USA have continued to increase, trade between the European countries themselves has been falling, a trend which has affected Britain to an important extent.

15. The French Patronat is afraid of German competition inside the Common Market; British and other businessmen are afraid of Common Market discrimination against their exports; the Commonwealth countries are afraid that their interests might suffer from some bargain reached between Britain and the “Six”; and so on. The prospect of the division of capitalist Europe into two rival trading blocs is now being considered as a possibility. “It is idle to speculate as to which side would come off worst “ writes the November 7 Financial Times. “The only thing that is certain is that both would come off badly.”

16. Thus, despite an apparent revival in business confidence in Britain and government measures against depression, the November 1 Financial Times, in commenting on the problem of unemployment in regions dominated by heavy industry, writes: “None of the expansionist measures taken by the Government so far has been able to make an appreciable impression cm this problem.”

17. “What is wanted is a general expansive force to raise output to something nearer its potential level and give an incentive to further investment.” London and Cambridge Economic Bulletin, September 1956.

18. World Economic Survey, 1957. A marked slowing of the growth in industrial output has been apparent since the summer, and talk of “recession” has been growing. Unemployment remains minimal, however.

19. Witness to continuing optimism is shown by the readiness with which the Frankfurter Allgemeine Zeitung (September 25) claims that Germany has already overcome the slight recession in the internal market of which there were signs earlier in the year. It adds, “The repercussions of the American economic crisis, with the exception of a few sectors, were slight. Proof has again been given that, in a large measure the West German economy is independent of the American conjuncture.”

20. Vol.10 No.2.

21. Mortgage debt outstanding is one-quarter of the annual national product in the USA, only one-tenth in Britain.

22. Automobile manufacturers fear that export sales will fall, especially if Detroit turns seriously to the production of smaller models. Britain’s share in world markets has been declining.

“This will mean that an extremely large number of vehicles will have to be sold on the home market if total capacity is to be fully utilised. It seems, therefore, that considerable surplus capacity may emerge in the industry as the present plans for extending capacity are carried out.” A. Silberston in The Structure of British Industry, Vol.2.

23. In a much-quoted speech made October 16, Cobbold, Governor of the Bank of England, while anticipating boundless expansion for the future, said that he did not see what the existing business confidence was based upon. In the course of his speech he suggested that Britain “may still have to feel more strongly the effects of the world-wide change in the last year or so from a sellers’ market to a buyers’ market” and “may not yet have felt the full effects of lower commodity prices on some of our best customers’ spending power. (Speech reported in the November Banker). Loss of earnings by Sterling Area countries, such as Australia and New Zealand, has, besides involving them in a foreign payments crisis, threatened them with severe depression which has so far been warded off mainly through expanding credit. In the first half of 1958 Australian exports fell 33% and those of Pakistan by 23%.

24. As perusal of the many articles on the possible repercussions of the American recession shows, the Keynesians are well aware that the kind of anti-cyclical measures they recommend depend upon two factors. The first is international cooperation – which, despite pious talk, does not seem likely to be realized, and would be hardly likely to succeed without the participation of the United States. The second is timely action. As the British economist E.A.G. Robinson puts it in the June London and Cambridge Economic Bulletin, “There is good reason to think that, as recession deepens, it becomes more difficult to reverse, and that in an anti-cyclical policy one of the most essential ingredients is promptness of action.” That also was not forthcoming in the United States; nor can it be said to have happened in Britain. The Conservative government waited until October before taking its very mild action against stagnationist tendencies which had been visible for many months.

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