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Economic monitoring and

Economic order From

Dr. Anton Reithinger

PUBLISHING HOUSE OF FELIX MEIN IN LEIPZIG 1936 LIBRARY OF THE GERMAN CENTRAL ARCHIVE DEPT. MERSEBURG

Foreword

This book is the result of my ongoing work as head of the economics department of a large chemical company, which focused on the careful observation of economic developments in all parts of the world. It is not intended to be an exhaustive treatise on the tasks and methods of economic order, but rather to show in a loose form new ways and insights of systematic economic observation and to demonstrate their usefulness for the systematic ordering of the economy. We live in a time in which the sum of economic events and the rapid change of the world view can no longer be overlooked by an individual, and in the observation of economic problems, too, community work comes to the fore. The abundance of examples presented in this book from the most diverse fields of economic observation has also arisen from such organized joint work. I therefore feel obliged to remember my close circle of collaborators - especially Dr. Bannert, Dr. Daumann, Dr. Hunscha, Dr. Platzer and Dr. Richter - when I hand them over to the public; but very special thanks are due to the company in whose bosom these works could develop to maturity. Berlin, July 1935. A. Reithinger.

Introduction

From free play to a meaningful order of forces

The change of economic-historical currents and ideas is always the spiritual expression of profound structural shifts in the political, -economic and social life of peoples. Thus the idea of capitalist liberalism is the face of an epoch in which the almost inexhaustible power of technical progress and the unsatiated political will for expansion of the European peoples broke up the traditional class order, built on carefully balanced allocation of social functions, and in ever new revolutionary transformations changed all the earlier foundations of human coexistence for a century. To the extent, however, that the tempestuous pace of growth merges into a calmer flow of development, this guiding idea loses its inner supports everywhere in the world and must more and more make way for the re-emerging forces of ordering consciousness, which try to strip economic events of their fateful character and to integrate them into a superordinate goal. This change in the content of ideas from allowing the free play of forces to the principle of their planned order and binding pushes all the more strongly towards realization, as in the meantime also the cognitive prerequisites have progressed further. The rapid catching up of the scientific basis of knowledge, the quantitative examination of the economic structure and its dynamics by statistics and the partly mathematical verification of economic theory are typical characteristics of our century, which strives to subject to its counting and measuring consciousness all individual processes formerly hidden in the million fold whirl of the economic process. In addition, many old forms of economic life and of world economic exchange relations have been destroyed by the war, and the construction of a new order has become necessary, both internally and externally, for the shaping of which the average experiences, forces and objectives of private economic agents alone are no longer sufficient. The individual market interest of a multitude of unorganized economic subjects, which under more easily overlooked political and economic conditions might guarantee the optimal development of the national economy, must necessarily fail at this point and subordinate itself to an organized form of economic order and economic management. Nor should it be expected that organization and rationalization can be carried to extremes in the individual economies without sooner or later entailing a corresponding rationalization and organization of the economy as a whole. It is of particular importance that a not inconsiderable part of the economic and social precipitation of the permissive development in the 19th century, as it shows itself as an erroneous development, for example, in the European industrial settlements or in the North American agrarian structure, cannot be undone by the previous path of free private initiative, but can only be adapted to the necessities of the 20th century by public planning. However, it would be wrong to believe that the realization of these necessities already means an enlightenment about the ways and means of the new economic organization, or that a planned order of the national economy 1

makes private initiative superfluous. Such misunderstandings only lead to the expansion of private mismanagement into the sphere of the even far more dangerous public mismanagement, as we see today in the Soviet Russian experiment and individual parts of the New Deal¹ in the USA, but in rudiments also in various European countries. The result is always bureaucratization instead of steering of the economy and paralysis instead of triggering of private initiative. For decades, the fiercest disputes have been waged over the problem of an individualistic, free economy or an economy based on community striving, the question of private or common property, class struggle, corporate profit, cart politics and a hundred other buzzwords have been interwoven with it, and in the process hardly anyone has become aware that the dispute was actually less about this problem than about the question of who should be responsible for the form and content of the orderly economy, the state or private enterprise. But this either/or is wrong, for the answer can only be that the decision must lie where there is better insight into the higher-level economic interrelationships, which can no longer be overlooked by individual economic entities. This can be both the state and an appropriate representation of the economic or professional classes. Probably, in a properly ordered economy, there will have to be different bodies - the state, professional associations, individual entrepreneurs - depending on the succession of levels of commitment, and presumably these will set much more precise frameworks for the activity of private initiative, but will intervene much less in their individual decisions than is the case today. Accordingly, private initiative will not become superfluous, but will only have to take place within other macroeconomic forms and according to the structure and order of the individual branches of the economy, in a different sequence of stages of boundedness or freedom of movement. One thing, however, must not be forgotten in such considerations, namely, that sovereign knowledge of economic interrelations is not a natural attribute of the public authorities or their organs, but a result of special efforts and expedient organization. Economic order and economic observation are therefore inseparable, and the first is inconceivable without the second. In the meantime, a new division of labor between communally organized and individually free solution of modern economic tasks has broken through almost by itself also in the economic sector, as it has already become a self-evident habit in other manifestations of our life. The replacement of the scholar's home library by the scientific central library with systematic card index and exchange system, the transition from lamp, well and stove to central electricity, gas and water supply or the development of a world-wide news system are such examples from other districts, which by no means replace the individual study of the scholar, the cooking and washing of the housewife or the private evaluation of the news, but on the contrary make it more rational and intensify it.

¹)New plan of the Roosevelt administration, the weakest points of which are the monetary policy originally based on a false gold theory, the regulation of industry in the NRA. system, which has since been largely withdrawn, and the unbalanced financial and trade policies.

In the economic sphere, too, the beginnings of a planned economic order have been developed further and further. It is not necessary to think of state trade policy, which established such orders for the exchange of goods between its own and foreign economies at an early stage; the branches of our economy developed in the 20th century, such as energy supply, aviation and radio, mostly no longer know a free economy in the sense of the 19th century, and since the war, national and international cartels have sought to regulate the most important world markets to an ever greater extent. At present, one third of the world's raw materials markets are bound by international production and sales agreements and another third by national market regulations. In various parts of the world, government intervention to control agricultural or industrial production is becoming increasingly visible. What all these examples have in common, however, is that they start only at one point of the economy, where technical or economic development has just become insufficient, and as a result they do not arrive at an organic economic order which can only start from the totality of all economic processes without thereby losing its diversity. But if we take the totality of economic processes as the starting point of our considerations, we must first familiarize ourselves with the basic facts of our economic structure and its dynamic forces of development. For just as the economy lives in political space, so the idea of economic policy can be realized only within the framework of practical conditions. In the development of the last years of crisis, the attempt to cope with the new problems by way of the unorganized-collective form becomes visible at first. Losses in the private sector were compensated by public subsidies. The central bank assumed currency risks to a certain extent, and the state assumed credit risk and default guarantees for transactions that had become disinterested for private entrepreneurs as a result of the circumstances that could no longer be overlooked. Finally, the state leadership had to intervene with coercive measures in the most diverse areas of the economy in order to remedy immediate emergencies and prevent the collapse of the economy as a whole. Attempts to achieve a collectively organized form of risk reduction through planned market organization and forward-looking market management have, however, been made only sporadically and only very recently. This is because it requires, first and foremost, reliable economic monitoring and a clarification of which agencies should be responsible for this, graded according to the comprehensiveness of the problems. In any case, the scientific, statistical and methodological prerequisites for conducting accurate economic monitoring are largely in place and can be used directly for these purposes. The justification for this assertion forms the content of the book¹).

¹)The basic ideas expressed here were first published in a contribution by the author to the "Jahrbuch für nationalsozialistische Wirtschaft," edited by Dr. O. Mönckmeier, Verlag von W. Kohlhammer, Stuttgart 1935.

I. The Material Foundations and Spiritual Goals of the Economic Order The economy does not take place in a vacuum, but in a politically filled space and must therefore also reckon with the political and social forces that shape it. For this reason, the question of economic order cannot be treated as a theoretical problem of thought or from an exclusively economic point of view; its answer and solution can only be found in a sober combination of the given basic economic and technical facts, whereby the political and social driving and reaction forces must be taken into account accordingly. For an agrarian state, different principles of order will always apply than for an industrial state, an economy strongly interwoven with the world economy will strive for a different order than a more or less selfsufficient economy, and in a nation with a predominantly urban settlement structure and large-scale forms of labor, different social driving forces are at work than in a country with evenly distributed settlement density and small- and medium-scale ownership and business organization. In addition, the problem of economic reorganization usually does not become a burning issue until the political and social forces of reaction have already been called into action by excessive shifts in the equilibrium of development dynamics, and intellectual currents have gained a foothold among the masses, which may be based on the correct recognition of the need for change in the existing situation, but not with equal certainty on the recognition of the existing possibilities for change and the attainable goal. In the economic sphere, the realization that things must be done differently is often followed only later by the knowledge of how things should be done differently. Therefore, it is necessary to briefly outline the basic features of our economic development in order to gain a secure starting point for further considerations. The cross-section of the present structure, by clarifying the precipitation of the past, usually reveals to the trained eye the direction of development of the future. Whether this development must be accepted as an inevitable constraint or can be changed by the means of technology according to one's own goals is another question. At any rate, it will be seen that the problem of economic order and its safeguarding by systematic economic observation has become an urgent necessity rather than an interesting possibility for the German economy. Since in the later sections recourse will have to be made again and again to the basic structure of the German economy and its interrelations with other economies, a brief outline of the most important lines of development of world economic exchange relations will also be given here in advance.

1. The dependence of the economic order on the economic structure and its development possibilities

If we let the economic development from the beginning of the 19th century until the outbreak of the World War pass by our eye, then one fact comes emphatically into our consciousness. The rapid growth and the unheard-of increase in the standard of living of the European peoples which occurred in this period is a direct consequence of their technical development inwardly and their colonizing spread outwardly over the whole globe. In modern industrial capitalism this development has found its economic form, in the liberalistic idea its spiritual expression. The result can be briefly summarized in some numerical proportions. At the end of this period almost two-thirds of the habitable surface of the earth and its population were in dominion and colonial possession, the rest in more or less great financial and economic dependence on Europe. In addition to the human labor force, additional machine labor armies with a total power of about 200 million horsepower were in operation in the world economy, of which slightly more than half served to handle the hugely increased traffic. World agricultural production has increased more than fivefold, world industrial production by an estimated twentyfold, and world trade turnover by more than fiftyfold. The result has been a visible increase in the general prosperity of Europe, which has grown from 175 to 450 million people during this period, with about a fivefold increase in the real income of its industrial labor force. However, the richness of the internal forms of development and the diversity of the world economic exchange relations brought about by this development cannot be exhausted by the numerical ratios mentioned. In particular, they do not reflect the diversity of Europe's financial and commercial interdependence, which has found expression in the pronounced division of labor between the European industrialized countries on the one hand and the food and raw material countries of the rest of the world on the other. It can be said without exaggeration, however, that the world economic equilibrium before the war was based on the fact that Europe, under English leadership, developed the rich agricultural and colonial areas of the world and, conversely, absorbed their constantly growing food and raw material production as interest and redemption for the loan capital invested and in exchange for industrial finished products. Germany, which had come to internal unification and thus to participation in world economic development relatively late, could only intervene in these relationships in the main by increasingly channeling overseas raw materials through its industrial plants and selling the finished products made from them to the European creditor countries. The world war essentially completed this development of the 19th century and initiated a new development, partly through its political and partly through its economic consequences. Let us recall on what the form of world economic exchange relations developed in the last century and known to us was based, namely: 1. on the fact that technically highly developed and politically expansive industrial countries on the one hand and politically less significant but economically developable 5

agricultural and colonial areas on the other hand stood opposite each other; 2. the fact that, under the leadership of the British Empire, an unimpeded system of free trade in goods and money was established throughout the globe, and that stable and internationally uniform exchange rate relations were created through the gold currencies, which provided the basis for the international payment transactions associated with the global economic exchange of goods. These conditions have been destroyed almost everywhere in the world by the war and its consequences. The Americas and Australia are largely developed in their habitable areas or are dominated by sovereign states which are closed to new immigrations of the white race from Europe. The Asiatic continent, which, with its dense population, came into question less as an immigration area than as a huge reservoir of goods for European industrial production, is increasingly becoming the exclusive sphere of influence of Japan in its Far Eastern areas. Thus, the colonial expansion of the European industrial peoples in the future has been essentially confined to the neighboring continent of Africa. To this must be added the fact that Europe's dominant creditor position vis-à-vis all other parts of the world before the war now applies only to a certain extent to Great Britain, while the continental European states have become debtors of USA and Great Britain. In particular, the USA, which owed about RM. 10 billion to Europe before the war, have capitalized their asset balance by nearly RM. 100 billion and before the dollar devaluation possessed net foreign claims of nearly RM. 90 billion, while conversely the former credit balance of Continental Europe of about RM. 45 billion has become liabilities of about RM. 80 billion and has turned into a debt balance of about RM. 35 billion.

Nettoguthaben und Schulden 1930 gegen 1913 in Mrd. RM¹)

Continental Europe North America Great Britain

1913 + 45 -9 + 77

with war debts 1930 Change - 35 - 80 + 88 + 97 + 66 - 11

without war debts 1913 1930 Change + 45 -8 - 53 -9 + 62 + 71 + 77 + 72 -5

¹)Including monetary gold and foreign exchange holdings, which must be included. The year 1930 is chosen as the last year before international currency devaluations and the cessation of war debt payments.

The change in the balance of payments structures expressed in these figures had to lead to the collapse of the international monetary system and of world trade because, as already mentioned, the monetary and trade equilibrium situation before the war was based on the fact that Europe received the raw material and food production of the overseas debtor countries as interest and redemption payments for the invested capital and in exchange for 6

its industrial goods. The reversal of capital balances caused by the war, and thus of the previous direction of the flow of interest, which was not accompanied by a corresponding reversal also of the flow of goods, was bound to lead to the dissolution of the original state of equilibrium, with the well-known consequences for currencies and international trade. This structural crisis, which was delayed until 1929 by Europe's continued borrowing, then came to a head with the attempt to withdraw credit throughout the world. Since the adjustment of world economic commodity flows to the new capital and balance of payments situation proved impossible, a return to the free gold currency system and the unrestricted international exchange of goods is out of the question until the debt situation has undergone fundamental adjustments. Even if one can expect that a part of these stagnations of the world economic exchange traffic will neither be solved in the foreseeable future by the non-fulfillment of the war debts and all obligations which cannot be fulfilled in commodities, one must not believe that the preconditions of the former world economic exchange relations would thereby be restored. For in the meantime a development which had already become visible in its first beginnings before the crisis has taken full effect. While the industrialized countries of Europe have suffered a serious structural crisis as a result of the restructuring of their balance of payments, the agricultural and colonial countries, which for the same reason have been hit by severe crises in agriculture and raw materials, have undergone a rapid process of reindustrialization which is already bearing the seeds of new crises. We can see how the expansion of the milling, sugar and textile industries is being completed at the fastest pace in all previous agricultural and raw material countries, how the establishment of wood, iron and metal goods industries is being tackled, and how even in mechanical engineering and chemistry the first steps toward self-sufficiency are being taken. No one who follows this development closely can be unaware of what it means for the industrial peoples of Europe, rich in humanity and accustomed to a high standard of living, whose masses of workers are employed to a decisive extent in the textile, iron and metal industries, in machine and vehicle construction and in other export industries. The latest progress of this industrialization throughout the world is shown in the following overview. In the same period that saw the rise of industrial Europe, Germany grew from 25 to 65 million people. At the same time as the rise of industrial Europe, Germany grew from 25 to 65 million people and from a purely agricultural country to a densely populated industrial state with a predominantly urban settlement structure. This development was only possible because of Germany's intensive involvement in global economic exchange, with raw materials being procured mainly from overseas countries and finished industrial products being sold mainly to European creditor countries after extensive processing. Only later did Germany also appear as a colonial power and as a supplier of industrial finished goods to overseas markets. Before the outbreak of the war, one-fourth to one-third of Germany's net industrial output was probably sold abroad, about 3-4 of the approximately 10 million industrial workers were employed by the export industry, and a much larger proportion was practically dependent on the import of foreign raw materials needed for the domestic market. 7

The development of industrial production since 1913=100

Europe: Old industrialized countries Newly industrialized countries

1913

1924

1928

1934

100 100

91 109

111 126

99 152

100 100 100

139 121 114

159 160 137

114 280 127

Rest of the world: USA Other non-European countries World

Germany's economic and social structure had become that of an industrial creditor country with a high demand for raw materials and a large export surplus of manufactured goods and a generally negative balance of trade, the balance of which was financed by the income from capital investments abroad. The transformation of our former creditor position into a debtor position as a result of the lost war forced a change in our economic structure in the sense of an activation or at least a balancing of our trade balance, which was repeatedly delayed by new borrowing from abroad until the beginning of the crisis. This development can be shown by means of statistics.

The German Balance of Payments in the Pre- and Post-War Periods 1908/1913 Million M. Foreign trade balance on the liabilities side Covered by: Services and interest received Surplus = gold inflow or capital lending

- 1470 + 1520 + 50

1925/1929 Million M Foreign trade balance on the liabilities side bridged by: Borrowing abroad Difference = excess consumption for political payments

- 1190 + 2810 - 1620

In this context, the aforementioned peculiarity of our German foreign trade structure has been preserved, namely that until recently we obtained about 60 percent of our raw material imports from overseas countries and only 40 percent from Europe, while selling about 80 percent of our finished* goods exports to European countries and only 20 percent overseas. Since, as a result of the reversal of creditor-debtor relationships described at the beginning of this article, and thus of the balance of payments, the old forms of the gold currency system and of international trade can no longer be maintained, the principle of a bilateral settlement of trade balances has prevailed throughout the world. Germany, which as a result can no longer maintain its previous high level of activity with the European countries, sees itself 8

forced to reduce its passivity with the overseas countries. However, this can only be done by increasing Germany's own production of foodstuffs and raw materials and by a far-reaching change in its previous trade patterns. If we can see these shifts in the economic structure throughout the world and the inevitable repercussions on our own national economy, fathom their causes and interpret their probable further development, then we must put to ourselves the question. What will be the final situation of our German economy in this general structural change, what means do we have of recognizing the shifts under way, and what means can we use to adapt to them? Before we go into this question, however, we must briefly consider the influence of the political and social forces shaping the course of economic events.

2. The connections between economic order and political and social design

We can observe everywhere that periods of economic upheaval are usually accompanied by violent political and social reactions. This is understandable, since the repercussions of the economic process affect the individual strata of the population at different speeds and in varying degrees, without it ever being possible to completely eliminate this undesirable inequality of pressure on employment, income and the standard of living of the various strata of the population. Now we can determine from economic observation the probable movement of the economic process, but not the strength and direction of the political and social driving forces. But we know from experience that economic laws are effective only within certain limits of social tension and that beyond these limits they translate into political activity. Economic monitoring must therefore extend to some extent to following the main political and social processes in order to be able to judge with some certainty the driving forces of development, even in the longer term. Although it is not the task of this book to give an account of the possible applications of economic observation in the political and sociological field, it must be pointed out that a systematic economic order can never dispense with the most attentive tracing of the influences or repercussions operating from this side. For the actual course of the economy is both a resultant between the economic conditions and the political will, and -the result of the ever-present polar tension between the collective economic aim and the individual economic striving. Thus the fact that Germany, which fifty years ago was still a peasant nation, is today in its overwhelming majority an urban industrial nation, is to be taken as a given for our conclusions, as is the result of the occupational statistics that this nation consists almost half of workers and that, apart from agriculture, where independent ownership predominates, in industry, commerce and transport dependent labor is by far the predominant form of employment. This development may be regretted, but for the time being it must be accepted 9

as the status quo, as must the fact that the German industrial population is not evenly distributed throughout the Reich, but that almost half of it is concentrated in the Rhine-Ruhr area, in Saxony and in Berlin. There can be no doubt that the driving basic forces of our political and social development of the next decade will form not in the countryside but in the urban centers of labor. Here, organizational problems of the greatest magnitude are still developing, the misunderstanding and ignorance of which have failed previous governments. The following overview hardly needs any comment. We also know, however, that structural facts are not final, but a transitional stage, and that the limits of social tension are extremely flexible, depending on the political and psychological conditions. In constitutional and administrative democracies, the social reaction phenomena are essentially different from those in authoritarian leader states with tightly organized government power. In the former, the tensions arising from economic development tend to vent themselves from below through the interest groups and parties and, as we have recently observed in France, can even paralyze the entire economic life and the state administrative apparatus at times. In Germany, National Socialism claims that, to the extent that social tensions have arisen from the economic structure or are in the process of forming again, it will balance them out in an authoritarian manner from the point of view of the national community. It need not be emphasized that such a conception of the state requires a much greater knowledge of economic interrelationships and their repercussions and counterrepercussions in the social sphere and thus assigns a particularly important task to economic observation.

The Development of the German Settlement and Social Structure 1875-1933

Around

1875 1910 1925 1933 ¹)Estimated

Share of urban population as % of total population

Share of metropolitan population in % of urban population

Proportion of blue-collar workers as % of the workforce in industry and crafts

39 60 64 67

16 36 42 45

52 73 76 76

Share of industrial workers in Rhineland, Westphalia, Saxony, Berlin as % of the Reich figure 30¹) 36 42 42

3. The Spiritual Principles and Goals of the Economic Order

As we have already emphasized in the preceding section, existing conditions of the economic structure are not unchangeable and economic development tendencies are necessarily only insofar as the political or social preconditions are regarded as unchangeable. The influence of the spiritual forces of formation must therefore at least be touched upon here, regardless of whether their origin is to be derived from the economic sphere or not. In almost all the more important countries - whether one looks to Germany, Italy, to England, the USA, Russia or Japan - new principles of economic management are becoming apparent today. These new principles can be summarized as follows. 1. the principle of economic self-preservation, insofar as the supply of essential goods is in question, but not complete autarky. This principle appears in the old industrialized countries in the form of striving for increased self-sufficiency in agricultural and raw materials, and in the agricultural and raw materials countries in the form of increased efforts for industrial expansion. 2. the principle of the superiority of state 'economic management over private initiative, since the necessities and tasks of economic structural change can no longer be solved by private initiative alone. The overriding of national economic interests over private interests in the course of development is becoming increasingly evident in the economic and trade policies of all countries. 3. The principle of economic control and awareness of economic processes in place of the free and unrestrained play of forces. It is the guiding principle both in the various multi-year plans of the individual states for industrial development, the elimination of unemployment, the reform of agriculture, or the development of transportation, and in the growing importance of economic observation and market research among economic associations and private business enterprises. In addition, especially in Germany, intellectual currents have become powerful that go far beyond the framework of the change in economic thinking that is taking shape internationally. The two poles around which the thinking of the Third Reich revolves are the national and the social, the organic integration of which into the new economic order is being struggled for today. The pole of the national finds its most significant expression at present in the economy's aim to regain freedom of military service; the pole of the social is anchored especially in the efforts of the German Labor Front. The overriding demand of the people's community, which draws from the same sources, brings a new direction into the sphere of purely economic thought. It is averse both to the liberalist principle of competition, which it seeks to replace with the collective principle of cooperation, and to the idea of the freedom of the economic individual, which it contrasts with the principle of the bond in the sense of the social community. The economic goal sought is no longer the capitalist one of speculative market production from the point of view of profit for the individual, but the socialist one of a planned economy to meet the needs of the whole. The transitional development so far 11

clearly shows that even the consumer, who in the capitalist economy is practically the last judge of economic success, is by no means granted this privileged position in the economy of demand satisfaction. Even his freedom in the satisfaction of needs is subject to certain limits which result from the structure and the objectives of the economy as a whole. To what extent the economic and especially the technical development is ripe for an immediate and complete transfer of these principles into the economic reality may be left open here. In addition to these fundamental points of view, which represent a program for the long term, there are at the present time in the German economy objectives of scarcely lesser importance, which simply take account of the real requirements of the present need. * The most important is the struggle against unemployment, to which all other aspects - financial performance, wages and working conditions, raw material supplies and operating profitability - are subordinated, and the struggle to maintain exports, which is being waged from the same objective of securing our raw material and foreign exchange situation. In addition, there is the struggle for a new work ethic and work ethic, which has been championed by the German Labor Front in particular. Finally, the economic problems of Reich planning connected with the political reorganization of the Reich must also be mentioned, since the demand for greater balance among the individual Reich constituents in the questions of industrial site distribution, settlement, transport and operating profitability is likely to entail significant interventions in economic life from other than purely economic points of view.

II. systematic economic monitoring as the basis of the orderly economy

1. Parallels of the development of statistics at the beginning of the 19th century and of the exact economic observation at the beginning of the 20th century

a) The Development of Economic Statistics in the 19th Century Statistics in the modern sense is a relatively young science. The need to record the interesting mass phenomena of economic and social life by means of planned observation and to trace the emerging regularities in the structure and development of the national economy did not essentially become apparent until the beginning of the 19th century. For it was only with the development of the early capitalist economy and the advance of modern technology that mass phenomena and their organizational problems in the political, economic and cultural spheres became so important that the development of this new science became necessary. Statistics in its present form arose essentially from the union of three hitherto separate branches of knowledge - official administrative statistics, state or German university statistics, and political arithmetic - in which the beginnings for the study of the new problems were found. Of these three roots of modern statistics, state administrative statistics reach far back into antiquity. The need of the state administration to obtain the documents necessary for its activities, especially in the fiscal and military fields, very soon led to official administrative statistics, the first task of which was usually the census of the population, wherever larger states were in the process of being formed and were increasing in territorial extent. The methods and results of the periodic censuses of antiquity are known to us from the Chinese, Egyptian and Greco-Roman cultures. After overcoming the political and territorial fragmentation of the Middle Ages, the emergence of powerful central states in the age of mercantilism and enlightened absolutism then led to a new flowering of official administrative statistics. In France, the oldest centrally administered state in Europe, Colbert, the great statesman of mercantilism, established trade statistics as early as the middle of the 17th century; in the Scandinavian states, "table commissions" and "table offices" were founded toward the end of the 18th century, and with. At the beginning of the 19th century, Napoleon established the first statistical office, which then became the model for the statistical offices established in all European states in the following decades. However, the results of these official administrative statistics were not published and were generally considered state secrets, serving only to inform the state administrative authorities. Statistical science owes its current name to its second root, the subject of descriptive state and regional geography taught at German universities, which under the name "Collegia statistica" mainly brought a collection of facts of the state and administrative law, 13

ecclesiastical, financial and military systems of the individual states. This discipline, whose beginnings can also be traced back to antiquity, reached its heyday in the 18th century, but was hardly concerned with the compilation and processing of numerical material. The third root, political arithmetic, whose representatives, starting from the field of population statistics, set themselves the goal of scientific research into statistical regularities and their practical evaluation, increasingly penetrated official administrative and university statistics from the beginning of the 19th century and, with its scientific methods, forms the actual basis of today's statistics. The field of research of the political arithmeticians was essentially the population processes, whose regularities they tried to uncover. The Englishman Graunt had already analyzed London birth and death lists around the middle of the 17th century; Petty compared the economies of England and France according to the same method, and Halley wrote the first mortality table on the basis of mortality data he had obtained from Germany. The most important German representative of political arithmetic was Joh. Peter Süßmilch, a Prussian field preacher, who in his main work published in 1741 investigated the totality of population processes and proved their general regularities. Knies baptized the new science with his 1850 publication, "Statistics as an Independent Science." At about the same time, the Belgian Quetelet conducted the first census organized according to scientific principles and thus gave the stamp to statistical science and its international application for decades. The strongly sociological influence of the work of its most important representatives already reflected the newly emerging social question of early capitalism. Its bearer, the liberal bourgeoisie, which then put an end to the bureaucratic system of the old authoritarian state with the profound political upheavals around the middle of the 19th century, gave statistics a new tremendous impetus. The individualistic and constitutional-democratic spirit of the times, which, with the growing participation of the population in politics, demanded insight into all events of public life and accountability of the state to the people, also gave the impetus for regular statistical publication activity. With the growing importance of economic problems and the increasing expansion of individual national economies towards world economic cooperation and division of labor, a new wave of founding statistical offices poured over all states and continents in the second half of the century. At the turn of the 20th century, statistics had taken up observation posts all over the inhabited world and had initiated a lively international cooperation and organization. The assumption of ever new tasks had gradually extended the field of activity of statistics to all areas of public and private life. Population and trade statistics were joined by statistics on agriculture, trade, prices and wages, the entire monetary and credit system, finance, welfare and the legal system. Statistical observation began to transcend the boundaries of countries and, in painstaking detail, to form the picture of the earth with the precision that the growing trade relations of nations required. In addition to the expansion of statistics, which for financial reasons had to be left to the official statistics, there was also a deepening of statistics in scientific terms, which was essentially carried out by the representatives of scientific and private statistics. Thus, in the course of time, a fruitful division of labor between official and scientific statistics emerged. 14

Official statistics worked "honestly for the purposes of legislation and administration and saw their main field of work in the collection and methodical processing of the statistical raw material, while scientific and private statistics analytically evaluated the material presented by official statistics for their own purposes. Finally, the numerous economic interest groups that had been established and the economic and scientific departments of the large private insurance companies, banks and large-scale industries were active in both collecting and researching in their special fields.

The World War brought "|t the organization of economic perseverance a maximum of demands on the statistics with itself, which penetrated namely with the Central Powers into all details 'of the economic life. After the first breathing space, the post-war period confronted statistics with new formidable tasks. Communism in Russia united the management of the entire economy in the hands of the state and, with its socialization and planned economic policy, set statistics the most formidable task since ^ its existence. A few years later, fascism in Italy subjected the economy to state control in order to manage it along uniform lines. In Germany, after Nazism came to power, in the USA ' under Roosevelt, the problems of planned economic management assumed a scope and set statistics tasks of such magnitude that the official statistics of the prewar period; appear little comprehensive by comparison. In the other countries, too, the pressure of the world economic crisis gave governments numerous new tasks of an economic and social nature and helped the breakthrough of planned economic ideas. In the international arena, the economic crisis led to associations of producers in a number of important world commodity markets in order to regulate the markets by jointly curbing production. Careful statistics of these international associations are an indispensable prerequisite for the success of their actions. After the deep cut of the great war, the real age of statistics seems to have dawned in the political and economic development of the world with the change from individualism to collectivism and the transitional phenomena from the free capitalist entrepreneurial economy to the state-bound demand economy.

b) The Expansion of Business Cycle Research and Statistics in the 20th Century The emergence of business cycle research is a clear proof of the awareness of economic processes and the rationalization of economic thinking and can be regarded as the turning point of the transition of the occidental economy from the epoch of blindly rushing high capitalism to the epoch of calculating, planning late capitalist economic forms. The free economic expansion, which had been conditioned by the technical progress and the political expansionism of the European industrial peoples, passes more and more to contraction and internal reorganization, in which the forces of a conscious binding of the economy in the sense of superordinate political and social objectives come to the fore. Crisis-like disturbances of economic development, which could have been the subject of shortterm statistical research, have always existed. If we disregard reports of individual monetary 15

and credit crises, which were already known in antiquity, the history of major trade crises begins with the famous crisis of Dutch tulip speculation at the beginning of the second third of the 17th century, which even then affected other markets such as London and Paris. In the following two centuries, a number of other national and international crises occurred, all of which had their roots in certain speculative excesses in commodity or securities trading and were openly recognizable to any contemporary. Whereas until then the responsibility for a crisis lay clearly with a small circle of speculators and there seemed to be no compelling reasons for the occurrence of a new crisis, after the Napoleonic wars the first long-wave price crisis known to us and, in connection with the emergence of modern central banking under the leadership of England, a chain of rhythmically successive credit and trade crises began, which became characteristic for the economic development of the 19th century and even of the 20th century. At that time, the first crisis theories emerged, which sought the reasons for the business collapses, which were now recovering with ever greater regularity, in fundamental flaws in the capitalist economic organization and accordingly demanded their elimination or correction in the most diverse areas of economic and social life. The decisive transition to modern business cycle observation, however, did not take place until the beginning of the 20th century, when the theoretical dispute over crises as a symptom of the internal flaws of the prevailing economic system was put aside and attention turned instead to practical research into the causes of rhythmic fluctuations in economic activity as inherently normal growth phenomena whose periodic crisis-like intensification was hoped to be mitigated by gaining a better insight into business cycle interrelationships. Within three decades, this change in the problem of economic observation led to an unprecedented intensification of economic knowledge and its utilization for economic policy and practice. Economic statistics have not only provided important services, but have also been stimulated and developed to an immense extent by the new problem. Whereas in the last century the organs of public administration were not only almost exclusively the producers but also almost as exclusively the consumers of economic statistics, the knowledge, use and collection of economic statistical data have penetrated into the widest circles of the population working in the economy with the triumphant advance of business cycle research. In the still short history of the development of modern business cycle research, three periods can be distinguished: First, there was the phase of theoretical and statistical preparatory work up to the outbreak of World War II; second, the phase of mainly economically oriented research by official or semi-official economic institutes, which began during the war and was rapidly brought up to a high level with the return of peace; and third, the phase of mainly privately oriented economic and market observation in the economic or statistical offices of large private companies, which emerged alongside the institutes' activities at the end of the post-war inflation. An isolated forerunner of the systematic study of cyclical periodicity in economic life was the Frenchman Juglar, who, around 1860, examined the business cycle in France, England and the United States of America for regularities using bank balance sheets and other statistical series. America, using bank balance sheets and other statistical series of figures. However, the actual beginning of a series of empirical-theoretical works on the business cycle problem was marked 16

by the studies of Tugan-Baranowski on the theory and history of trade crises in England, published in 1894. After him, the works of Sombart (1902), Pohle (1902), Spiethoff (1903), Bouniatian (1908), Schumpeter (1910), Lescure (1910), Aftalion (1913) and Cassel (1918) should be mentioned. Apart from the theory's question of the causal relationships governing business cycle movements, some researchers with an interest in statistics had already been working on the statistical graphical representation of the wave-shaped course of economic activity. Neumann-Spallart (1887), Julin (1911) and Mortara (1915), for example, calculated general index figures for the annual changes in the economic and social situation of a country by combining numerous series of economic and social statistics. De Foville (1887) and Benini (1892) combined annual assessment indices on a wide variety of economic processes to form a mosaic picture with different colors for favorable and unfavorable data, to which they gave the name barometer. Finally, as early as 1913, the Austrian Sorer calculated independent group index figures for production, transport and consumption and, in selecting the series of figures on which to base his calculations, applied for the first time the correlation calculation method which became particularly popular in American business cycle research a few years later. After empirical research had found a series of regularities in the succession of cyclical reactions, the attempt to express these regularities numerically by analogy with the natural sciences through the systematic application of mathematical-statistical research methods was obvious. The decision to move from a humanistic approach to a scientific method is, in a sense, the birth of modern business cycle research. It is no coincidence that it originated in the USA, for here thinking about business cycles and crises was less inhibited than in the European industrial countries by brooding over the value and unvalue of the prevailing economic and social system. In addition, the lower level of tradition in the humanities led to a greater willingness to tackle the new methods with an open mind, although expectations were far too high. The new research direction started with the fundamental work of W. C. Mitchell on "Business Cycles" published in 1913, which was followed by a series of further methodological basic studies by W. M. Persons. As early as 1917, under the leadership of Persons and Bullock, the Harvard University Committee of Economic Research was founded, which served as a model for many later foundations in other countries. This first economic institute, which was also recognized by the scientific community, set itself the goal of enabling predictions of the economic cycle through the computational construction of economic barometers. In doing so, it followed a path that had already been taken by a number of purely commercial private institutes using more primitive methods. The prediction of the development of the business cycle on the basis of such economic barometers was based on the assumption that certain economic processes tend to follow one another within a number of months that can be determined with relative certainty. However, the barometers established on the basis of past periods usually proved to be inadequate for the subsequent course of events and often had to be corrected in order to remain close to reality. The Great Crisis of 1929 finally shook the economic system that had been established in the USA and exploited by a large number of commercial "economic researchers" to such an extent that further research activity in America now also turned more strongly to 17

the logical penetration of causal relationships in economic life. Whereas American business cycle monitoring served primarily to inform private business interests about the likely development of the economy, Russian institute research, which began as early as 1920, arose from the need of state planning agencies for a sound knowledge, above all, of the structural facts and development trends of the Russian economy. In particular, the problem of the long wave in Russia received considerable attention, in contrast to the short-term oriented American research. The official and semi-official business cycle research agencies established in rapid succession in the various European countries from 1922 onward mostly closely followed the American model. In contrast, the German Institute for Business Cycle Research, founded in 1925 under the direction of Professor Wagemann, then President of the Imperial Statistical Office, placed greater emphasis from the outset on the logical than on the formal mathematical processing of the abundant numerical material available. Instead of summarizing the data into overly simple basic curves, the institute sought to break down the business cycle into as many different causal groups as possible, whose graphical comparison with one another seemed to offer stronger control possibilities than the frequent use of correlation calculations. Strictly mathematical treatment for prognostic purposes was limited to areas where the underlying causal relationships made the assumption of fixed time intervals seem reasonable. The research of narrowly defined individual markets, which today constitutes a substantial part of the research work of business cycle institutes and statistical institutes at universities in Germany and abroad, already forms the transition to the business cycle and market research of large enterprises, which has become increasingly important in recent years. From time immemorial, the major banking institutions have been collecting economic data in archives, which is now being expanded in many cases into systematic business cycle monitoring. In turn, business cycle research in large industrial enterprises began in USA, where the comparison of their own business development with the barometer curves of the general business cycle services provided the initial impetus for this development. The continuation of this work then usually led to the independent initiation of business cycle analysis for the industries related to one's own business and, depending on the scope of the company, extended to both national and private economic problems. Today, the statistical processing of the general economic processes and the company's own business data is usually aimed at securing the forecast of the company's financial budget.

c) The attempts of a systematic economic observation and economic order since the crisis. A brief tracing of the development of statistics in the 19th century and the expansion of business cycle research in the 20th century reveals some remarkable parallels. Both unfold with the onset of the long-dropping price wave of the new century, but gain their overriding importance only in the later course. Both are brought to full flowering by a fundamental change in economic structure - statistics with the expansion of the early capitalist economy and its mass problems triggered by technology, business cycle research with the transition of 18

Western industrial economies from expansion to compression and internal reorganization. And finally, the beginnings of their future fusion for the great tasks of the political and economic reorganization of peoples and national economies are already discernible in both today. The attempts at systematic economic observation and economic order which have begun with the crisis throughout the world are, however, only an imperfect transition and will still have to overcome many setbacks and reaction phenomena before they reach a truly organic order of the economy. The first comprehensive economic control came about under the special circumstances of the World War and placed the entire economic activity of the belligerent powers under the exceptional right of wartime economic needs. However, after peace was concluded, most of the experience gained by these still highly deficient wartime economic organizations was lost again in the collapse of the Central Powers and the general fatigue of the victorious states as well. In Germany, the admonitions of a man who came too soon¹) , who had already made clear the urgency of comprehensive raw materials management at the outbreak of the war and who, after the conclusion of peace, fought for the necessity of a planned transformation of the war economy into a peacetime economy, were ignored in the confusion of inflation and the healthy credit boom that followed stabilization. Only in Russia did a new system of economic planning emerge immediately after the war from the collapse and the Bolshevik revolution, the fundamentals of which are summarized in the 5-year plans that have since been drawn up. Even if the fulfillment of the plan generally fell far short of the projections, it is nevertheless remarkable that, with technical assistance from abroad, heavy industry could be developed to such an extent that, after completion of the first 5-year plan, coal, iron ore and oil production, as well as iron and steel production, had increased to two to three times the pre-war level, and electricity production to ten times the pre-war level. The sacrifices under which the partial realization of these plans succeeded are well known. The burdens of the expansion of heavy industry, which was greatly accelerated in the interests of armaments for the Red Army, were passed on to agriculture, neglecting the production of consumer goods and the population's standard of living, so that there can be no question of economic order. The agricultural and land reforms carried out after the conclusion of peace in the newly emerged or enlarged countries of Southeastern, Eastern and Northeastern Europe belong here only to a limited extent.

¹) Wichard v. Moellendorff. Cf. his writings: "Der Aufbau der Gemeinwirtschaft," "Deutsche Gemeinwirtschaft," and others.

In the Western industrialized countries, it was not until ten years later that the uninterrupted continuation of the long price slump that began after 1920 and the crisis that followed the postwar economic boom of 1926 to 1928 triggered the urge for a new economic order and freed the political forces for its implementation. The result has been mostly belated interventions, by no means always based on appropriate economic knowledge, which have greatly changed the economic face of these countries but are still far from a planned order. The extent to which these economic interventions, often based on insufficiently developed or evaluated economic monitoring and, at the time of the crisis, usually carried out hastily, are subject to later changes can be ignored here. More important for our considerations is the fact that this development is advancing inexorably. Even a cursory glance at the events of recent years in all parts of the world is enough to convince us of this.

Europe Germany: With the takeover of the government by National Socialism, the entire agricultural sector has been detached from the capitalist economy and placed under an agricultural market order that regulates production and distribution according to internal economic criteria, independent of the world market. In the field of trade and industry and labor, the reorganization in the Reich Chamber of Commerce and the replacement of the private employers' and employees' organizations by the public organization of the German Labor Front created fundamentally new conditions. Direct and indirect state control of the economy in the areas of raw material supply and control of production, prices and foreign trade, as well as increased public investment for job creation, no longer allow the concept of a free capitalist economy for the present organizational form of the German national economy. Italy: Fascist economic policy first subjected the entire agricultural area to a planned reorganization. The wheat slaughter and the colonization of the swampy and malaria-infested Campagna are visible successes of the new system. After the collapse of finance and much of industry during the crisis, state control has been extended to the commercial economy. In addition to efforts to achieve self-sufficiency in bread grains and textile fibers, and to reforest deforested areas, particularly noteworthy are the attempts to strengthen the domestic supply of raw materials and to expand the armaments industry. In contrast, however, the results achieved so far in the field of industrialization must be judged much more skeptically. Western European countries: In the Western European countries, the type of free-capitalist economic forms has so far been preserved to the greatest extent. In France, until recently, public aid measures were limited to the protection of particularly important agricultural branches of production, wheat and wine, and to state financial and trade policies. However, the Laval government's new emergency decrees to balance the national budget have ushered in a transitional period that abandons the traditional forms of French economic policy. Official reductions in the prices of bread, coal, electricity and gas, the reduction of rents by 10 percent, interest rate cuts and salary cuts largely intervene in the consumer economy. In the Netherlands, extensive government aid measures have been initiated for the conversion of 20

agriculture and horticulture and moderate public job creation. In Switzerland, government aid measures are still mainly limited to agriculture and price monitoring for import-restricted goods. Following the rejection of the crisis initiative, new government measures to combat the crisis are in preparation. In Belgium, following the devaluation of the currency, a special Office for Economic Recovery has been created as a central government agency to combat the crisis. Great Britain: Although government policy since the devaluation of the currency has refrained as much as possible from direct intervention in the economy, increasing state protectionism and indirect control are unmistakable in Empire policy and in the economic measures of the narrower mother country. Public measures, apart from monetary, capital market, and trade policies, are limited to strong agricultural protection, the reorganization of construction and housing, and help in the resettlement of industry. The plans propagated by Lloyd George, but rejected by the Baldwin government, show that even the mother country of high capitalist development is no longer a stranger to planned economic ideas. Scandinavian countries: In Denmark, the state provides extensive assistance for the conversion of agriculture and the expansion of industry. In Norway, Sweden and Finland, too, public aid for agriculture and industrial expansion continues despite the good economic situation. In some cases, new plans for combating unemployment are being considered. Baltic Sea states: Extensive state protection measures as well as fixed prices and export premiums for agricultural products have been in place for years. In some cases, public licensing laws apply to the establishment of industrial enterprises; the state's right to control industry is being further expanded. Poland: State economic policy is under pressure to equalize the territories taken over from Germany, Russia and Austria. The two main problems are solving the agricultural overpopulation by intensifying the agricultural economy and expanding or reorganizing industry, some of whose former foreign markets have been lost. For agriculture, there is a five-year plan aimed at relocating the agricultural population from the overpopulated areas, dividing up the large estates and merging the dwarf farms. Repeated debt relief operations and strong subsidies for the export of arable crops and livestock products complement the strong state influence in the agricultural sector. In the area of transportation, the most prominent features of pronounced public economic control are the development of the coal mainline and the port of Gdynia, and in the area of industry, the restructuring of old and the development of new domestic industries under the protection of state trade policy. Southeastern European countries: Reforms of the agricultural cooperative system and industrial organizations, monopolies regulating production and prices of important agricultural products, state aid for industrial development, debtor protection and, in some cases, public job creation measures reveal the state's extensive management and control of the economy in these countries. Southwestern European countries: The fifteen-year reconstruction plan recently adopted in Portugal provides for expenditures of 61/2 billion escudos for the improvement of water 21

management, road, railroad and port construction, and armaments. In addition, special measures are being taken to promote the construction of grain and to support the merger of distressed industries. In Spain, increased state intervention is evident in all areas of economic life, especially in reforestation, the promotion of cotton cultivation, the expansion of the merchant fleet and the railroad network, and the implementation of public job creation measures. An attempt at land and property reform is being made in the new Tenancy and Wheat Protection Law; the extensive state support measures for wheat cultivation have been expanded, and new aid measures are envisioned for wine, oil and sugar cultivation.

America USA: In Roosevelt's New Deal, an attempt was made, which can already be regarded as partially unsuccessful, to carry out the necessary adjustment of the American economic structure to the balance of payments situation, which had been completely changed by the war, by means of extensive administrative economic control. In the agricultural sector, the Agricultural Adjustment Act introduced a governmental production and price control for the most important surplus products. For industry, public control and regulation of production, labor, price, and other competitive conditions had been constituted in the National Industrial Recovery Act, which had since been declared unconstitutional by the Supreme Court, and had found expression in the drafting of 580 codes for the various industries. Through the Federal Emergency Administration of Public Works, with a spending authority of $3.3 billion, the federal government has been secured further influence over wage and working conditions; through the Tennessee Valley Authority, it competes with private industry in the field of power supply; through the Banking Act and the Securities Act, as well as through the Railroad Act, the administration has secured control over the money and credit system and increased influence over transportation. Canada: The bill recently introduced in Parliament provides for government control over all grain. The proposal is for the establishment of a government agency, to be known as the Canadian Grain Board, with sole authority to buy, sell, store and transport wheat, barley, oats, rye and flax. The preamble to the bill emphasizes that this proposal is expedient because of the entirely changed world situation. The government is also seeking to extend its central powers in the industrial sector. South and Central America: In all commodity countries, a more or less pronounced state control of commodity production and the attempt to convert monocultural agricultural economies to multi-sided production are becoming apparent. This goes hand in hand with efforts to push back foreign private capital. In Argentina, the grain export industry is under state control; in Brazil, the National Coffee Board is implementing tight regulation of the coffee industry; in Chile, the public sector is largely involved in saltpeter production. In Mexico, a six-year government plan calls for major work on land irrigation and road construction, as well as rehabilitation of the monetary and credit systems. Improvements in working conditions and corporate unification of the agricultural and industrial middle classes are being sought. 22

Asia Japan: The state government is stepping up its support measures for agriculture and is attempting to control production and pricing in the rice and silk sectors. At times, the public sector has intervened on a large scale in the purchase and storage of these vital national products. Under the Hamaguchi Cabinet's Silk Breeding Union Law, producers and processors have been united in the Nippon Central Silk Raisers Association as early as 1931; an official silk committee has been set up to study price relationships; and more recently, silk trading and exports have become subject to licensing and registration. The rapid industrialization of the last decade has been carried out with government assistance; under the Staple Industry Control Law, there is a broad right to supervise industry and industrial export. The law, which gives the government the power of compulsory association and price control of industry, has become the basis of all industrial association in Japan. After the government cartelization of the cotton, cement and petroleum industries, the merger of the iron and steel industries is now being considered. In connection with economic expansion on the mainland, generous plans for the economic development and penetration of Manchukuo are being carried out. The state and the military are the main vehicles of economic development here, in part through the instrument of the Manchurian Railway. China: The program of the central government in Nanking for the development of the country extends primarily to the expansion of the transportation network, regulation of the rivers, development of the mineral resources and promotion of the agricultural processing industries, initially in the provinces of central China under military control. For these purposes, a special national economic council has been formed under the well-known T. V. Sung. The formerly private central bank has recently been transferred to state ownership. Alongside the central government's program run the various plans and attempts at promotion by provincial governors and generals in the rest of China. Turkey: The First Five-Year Plan, designed closely along Russian lines, undertook limited industrialization under state supervision. The program included five groups of industriestextile, pulp and paper, artificial silk, ceramics, glass, mining and chemicals-to be built primarily on domestic raw materials. In parallel with the development of the industrial economy, the expansion of the railroad network and the improvement of agricultural crops will be pursued. The second five-year plan provides for the electrification of Anatolia through power plants to be built in the coalfield and the expansion of hydroelectric power plants in the south and east of the country, as well as a special mining program for the exploitation of coal and iron deposits.

Australia- New Zealand State control of the production and sale of agricultural products will be further expanded, and public job creation measures will continue.

Africa Egypt: The government has approved the five-year plan of the Ministry of Labor, which deals with the implementation of melioration, irrigation construction and reclamation of new land, as well as the promotion of grain and vegetable production. Public debt relief for agriculture is being considered. The implementation of an extensive program to improve the health care system is intended primarily to improve the drinking water supply and housing conditions. South African Union: In addition to expanding public assistance to agriculture and promoting agricultural exports, an extensive road-building program is underway. State influence has prevailed in the industrial sector through the setting of minimum wages. As this brief list shows, government support measures for agriculture, industry, transportation or banking are now in place in sub-areas in all countries of the world. Especially in the field of monetary affairs and foreign trade, the most extensive state economic control is under way through a system of clearing and compensation agreements, restrictive measures to protect the balance of trade and payments, and special interventions to promote exports. At the same time, new government bodies for ongoing monitoring of the economy have also emerged in many countries. However, with a few exceptions, these increasing public attempts at economic control do not yet start from the totality of the national economy and its economic processes, but rather apply in each case only to sub-points of the economy where the emergency has become particularly urgent. In some cases, the fiction is ideologically maintained that these are only temporary state emergency measures and that the full restoration of a free private capitalist economy will take place after the crisis has been overcome. In view of actual developments, however, the sober economic observer cannot ignore the realization that the age of free capitalist economic expansion is over and that in large parts of the world we have entered the stage of calculative planning and strongly politically tied economic forms. Nevertheless, this transition, although it sometimes gives the impression of total state economic control in the accumulation of public measures and interventions, is still far from an organic economic order.

2. the tasks of planned economic monitoring in the organized economy, its methods and results

A. Economic monitoring and economic policy in the relations of the national economy with the outside world The structural changes in the world economy briefly outlined at the outset and the struggle to reshape monetary and trade relations, which none of the countries involved in world trade can escape, have confronted both public economic policy and the self-governing organizations of the economy and private-sector individual enterprises with entirely new tasks. The 24

common characteristic of this development is the previously hardly known uncertainty which has arisen for the monetary and trade policy of the individual states as a result of the progressive dissolution of the world economic relations which were built on other preconditions and as a result of the adjustment of the individual national economies to their changed balance of payments situation. The most precise private-sector cost calculations and the most generous government export promotion measures become obsolete when currency devaluations on the scale of those in England or America bring about a complete reversal of international price and cost relations. In addition, the newly erected tariff barriers and the mutual closure by means of quotas or currency policy measures have forced substantially different forms of goods traffic and are also pushing private-sector buying and selling across borders more and more in the direction of economic compensation considerations. Under such circumstances, private-sector price calculations often have to take a back seat to balanceof-payments considerations and geographical or political complementarity. Currency, raw material, import and export problems are thus inevitably extended more and more from private-sector commodity and credit transactions to overall economic considerations. In the settlement of international monetary problems there is still no permanent final solution in sight; the same applies to the settlement of war and other international debts. In addition, the question of the supply of raw materials and the sale of finished goods for the European industrialized countries will in the future take on a completely different face than it did in the days of colonial expansion. It should be noted in passing that modern war technology has brought with it new aspects and requirements for the organization of domestic and foreign trade. The surplus of gold and capital, which is constantly piling up throughout the world under the veil of the present monetary and credit unrest, will also confront the economy with new tasks in the course of our generation, which can no longer be solved on the basis of individual experience and free entrepreneurial initiative alone, but require systematic economic observation and joint economic precautions. These burning questions of systematic economic observation, especially in the fields of monetary policy, raw materials policy and foreign trade policy, have so far received almost incomprehensibly little attention, despite the immense abundance of official and private exhortations, lectures and publications. In times of normal functioning of the world gold currency system, monetary policy was a reserve of the central banks, which handled it according to the traditional rules of classical discount policy, but hardly founded it systematically. Despite the experience and lessons of the past war, the gap that the monitoring agencies found after the outbreak of the commodity crisis shows how little really useful basis for observation exists in the question of commodity supply. The same is true of trade policy, which until now has generally merely followed private initiative, lending its political influence to the private sector where it encountered resistance outside its borders or needed protection against foreign competition within them. Only slowly is a fundamental change beginning to take place here as a result of the dissolution of the previous global economic interdependencies and the new perceptions of the tasks of the state.

a) Monetary monitoring and monetary policy Monetary policy, which used to be a technical matter for central banks, has now become an issue of fundamental political and economic importance. This is already evident from the fact that the world is currently divided into three groups - the dollar-pound-yen group, the gold bloc, and the group of countries with blocked currencies - for which monetary policy has virtually become the basis of an opposing economic and social policy. No country interested in world economic exchange can escape the influences of this state of affairs on its monetary and credit policy, its raw materials situation, its wage, labor and price policy, its export situation and its general economic development. This makes the systematic observation of monetary conditions all the more important both for public economic policy and for the dispositions of private business enterprises interested in foreign trade. Since this field of systematic economic observation is still relatively little known, it will be discussed in more detail here. The ongoing observation of monetary conditions in the world and the derivation of reliable forecasts useful for economic policy and practice are particularly difficult because the weight of monetary fundamentals in shaping the exchange rate has increasingly lost importance in favor of general economic and social policy conditions. Nevertheless, a careful analysis of monetary fundamentals is still a prerequisite for accurate currency monitoring and will gain in importance again later on. In addition to knowledge of banking law, special attention must therefore be paid to the periodic reports of central banks on the movement of their gold and foreign exchange holdings, their lending to the economy or the government, their banknotes in circulation and the size of central bank deposits. Furthermore, knowledge of the balance of payments structure and ongoing observation of its most important items - foreign trade balance, travel, shipping, insurance, emigrant remittances, long- and short-term capital movements - is indispensable. Particularly important is the ongoing monitoring of the currency country's price ratios vis-à-vis the world market and its main source and destination countries, since major changes in these price ratios inevitably entail a change in the most important balance of payments items. Of course, the valuation of the exchange rate on the main stock exchanges must also be followed as closely as possible in the short term. This is where the influences of economic policy already begin, from which the motives of government monetary policy likely to arise from the general economic situation must then be sampled. These can be gleaned with some reliability from an analysis of the existing or to be calculated index figures of the money and capital markets - money rates, mortgage bond yields, stock price movements -, price movements - wholesale indices, retail indices, cost-of-living indices -, production and sales volumes - production indices, railroad freight traffic, sales indices -, unemployment and the development of public finances. In particular, the public finance policies and budgetary management of individual countries provide a good insight into the driving forces or inevitable developments facing the monetary policy of the country under observation. In view of the increasing importance of economic and political factors, even internal political processes within the government or the political parties can no longer be disregarded, so that the scope of observation ranges from an examination of the legal and technical preconditions for monetary policy to an analysis of the most important series of 26

economic statistics and the utilization of political news material. The following combination of questions then emerges. Do the figures of the central bank statement, the balance of payments and the external balances or debts indicate a complete independence or a greater or lesser sensitivity to possible speculative operations at home or abroad? Do the ratios of the balance of payments and the price differential with the world market work in the direction of strengthening or weakening the monetary position? Does the development of general economic conditions and public finances influence the management of the state and the central bank in the direction of strengthening or endangering the currency parity? Up to this point, with a little skill, a secure statistical basis can be built up for the further conclusions, which now lead to the question of which theoretical view of currency the men currently in charge of the state and the central bank profess, how far currency propaganda has penetrated the population, how the political distribution of power of the individual groups that gain or lose from a change in currency parity must be evaluated in order to gain an idea of the psychological driving forces or forces of resistance. The final judgment on the currency under study then builds from the analysis of all these documents. In order to illustrate this field more clearly, the analyses and forecasts carried out according to these methods are given below for some important world currencies - pound, dollar, franc, franc, yuan - selected at the same time in such a way that the various points of view decisive for the judgment are given special prominence in turn and the results important for the economic-political conclusions become visible.

The English pound The basis of judgment Until the devaluation, the long-term difficulties for the British pound were due to the excessively high postwar stabilization, which, measured against the development of the price level, meant a disproportionately strong appreciation of public debt and, in view of the ongoing transformation of the world economic structure, a disproportion between prices and wages, which had not been reduced to the same extent, that was hardly sustainable for exports. The acute difficulties were triggered by the imprudent credit policy of the major British banks, which, unaware of or misjudging the structural changes in the world economy that were already becoming apparent, took out large amounts of short-term loans from France and the United States of America and, in practice, borrowed on a long-term basis from the United States. America and practically lent them on to the Central European countries on a long-term basis¹). This resulted in the peculiar situation that Great Britain, which itself had extraordinarily high long-term foreign balances, financed its short-term foreign lending and, moreover, part of its domestic monetary needs from short-term foreign money. As a result, the Bank of England's discount policy had for years been dependent on the situation in the ¹) This is a typical case where the private economic operations of an economic group have created the most farreaching obligations for the state economic and social policy. It is impossible for the state power to stand idly by and watch such commitments of its decisions. Many governments then drew the consequences of this lesson in the later course of the crisis through new banking and capital market laws.

New York and Paris money markets and had more than once been forced to raise its interest rate spread over the lowest international discounts in order to stem capital and gold outflows. In addition, after the restoration of prewar parity in 1925, England's per capita public debt, excluding foreign war debts, which have ceased to be serviced, had quadrupled in prewar purchasing power and, as a result of the deflationary policy adopted after the return to prewar parity, had risen further to five times that amount. Even today, after the devaluation of the currency, this development still has a decisive influence on British economic and monetary policy.

The development of public debt per capita converted into marks of pre-war purchasing power

England France Germany

1913/14 546 784 479

1918/19 1534 1634 1701

1925/26 2031 1287 94

1933/34 2565 1431 350

In the balance of payments, there was a threefold increase in the foreign trade deficit with roughly equal revenues from services and shipping, which was initially offset by increased but rapidly declining interest income with the onset of the crisis.

The development of the main items of the U.K. balance of payments in million £

Foreign trade balance after deduction of revenue from services Investment income from investments abroad Capital lending (-) or borrowing (+)

1908/13

1925

1931

1934

- 48

- 245

- 318

- 215

+ 216

+ 310

+ 200

+ 205

- 167

- 62

+ 69

+ 135

Anyone who carefully observed this development on the basis of the aforementioned series of figures must have been aware as early as 1930 that, with the outbreak of the long-awaited credit crisis in Central Europe, British monetary policy was no longer free to act1). As expected,

after the German banks had closed their doors, the Bank of England was so hard pressed by extensive withdrawals of short-term foreign claims amounting to about RM 4 billion that, after heavy gold losses and a useless increase in the discount rate from 21/2 to 6%, it was forced to stop redeeming gold in September 1931. Since the abandonment of the gold standard, there has been a complete change in British monetary policy, which is now guided exclusively by economic policy considerations. As a result of its shrewd capital market policy, the details of which would go too far here, Great Britain has today achieved a remarkable economic upswing, which has already taken the country's production and sales volume considerably above the level reached in the last economic cycle of 1927/29. The losses of the old export industries - coal, iron, shipbuilding, textiles - which will never regain their former importance, have been largely compensated for by the revival of important domestic industries, which, however, has necessitated a fundamental regional reorganization of the British economic structure that has not yet been completed.

¹)It is all the more remarkable that the fall of the pound in 1931 took numerous central banks, major banking groups in various countries and countless private companies completely by surprise, most of them suffering heavy losses.

The development of employment in important branches of the English Industry

Export industries: Coal mining Textile industry Shipbuilding Domestic market industry: Construction industry Metal industry and electrical engineering Automotive industry

1923

1929 in millions of employees

1934

Change against 1923 in %.

1226 671 180

907 675 163

650 530 83

- 47,0 - 21,0 - 53,9

586

743

776

+ 32,4

263 170

348 228

405 243

+ 54,0 + 42,9

After all, maintaining a certain minimum level of exports is a vital question for Great Britain, and if, from the point of view of regaining London's former position as the international financial center, the British interest is also decidedly directed toward keeping the pound stable at its present level, consideration of the development of its price relations with the major world market competitors North America and Japan, in whose political and economic sphere of influence the greater part of its foreign capital investments lie, will remain the decisive 29

factor in British monetary policy for the foreseeable future.

The distribution and trade interests of Great Britain

Capital investment Trading revenues

Of the capital investments and trade interests lie within the U.S.-Japan sphere of influence Outside the U.S.-Japan sphere of influence. America Asia Australia Together Europe Africa Together % % % % % % % 34 26 22 82 7 11 18 19 18 10 47 39 14 53

Consequently, when observing the pound, special attention must be paid to the development of the British price level compared with the American/Japanese level. Measured against the pre-war ratio, the British price level is still about 10 percent too high in relation to America/Japan, even though for the time being it has achieved a lead of about 20 percent over the gold bloc countries. Thus, as long as on the part of the USA and Japan do not make a final determination of monetary policy, and as long as there is a danger that renewed currency cuts by these countries will widen this price band, no inclination on the part of British monetary policy to commit itself prematurely to a new parity can be expected. A stronger revaluation of the pound from its present exchange rate level is out of the question. The figure shows the development of the most important economic series for currency monitoring of the English pound, to whose rate movement the currencies of the entire Empire - Canadian dollar, Australian, South African, Egyptian pound, Indian rupee - plus the currencies of Scandinavia, including Finland and Estonia, and Portugal are connected.

The monetary situation in mid-1935 The pound bear market of early March, which for the first time pushed the pound below its old parity with the dollar, has often been interpreted as a prelude to a stronger devaluation of the pound, which the British monetary authorities do not dislike. There are weighty reasons against this view. Although British monetary policy must reckon with the fact that the devaluation advance and thus the price advantage of British export industries over the goldcurrency countries will be at least partly lost again in the long run through exchange rate adjustments, it has no interest in provoking a new lowering of the parity of the dollar or the gold currencies in the struggle. Both its position as the world's leading foreign creditor - the yield on England's foreign assets in 1934, at £205 million, covered more than two-thirds of the foreign exchange requirements for the still high import surplus - and London's need, as an international financial center, for some value protection for the international funds invested here, argue against England's participation in an international currency race. 30

Thus, while a rapid and sharp fall in the British currency is not likely for the time being, limited fluctuations in the exchange rate are still within the realm of possibility. The wait-and-see attitude still adopted by the British government toward all proposals to stabilize the pound, together with the presence of large amounts of short-term foreign capital on the London market, creates the basis for ever more speculative fluctuations in the pound exchange rate. The undermining of the old dollar parity led in early March of this year to strong international anxiety, which was initially remedied by the re-firming of the pound. However, the rising trend of the last quarter is not expected to continue. It speaks for the low popularity of inflationary methods in British politics that even Lloyd George's reform plans currently under discussion provide for financing by bonds for generous job creation. On the other hand, in view of England's peculiar commercial situation, a stabilization of the pound may not be expected until the USA have finally determined their monetary policy or the adjustment of the excessive price parity of the gold bloc has taken place. For the time being, there will be no change in the cautious wait-and-see attitude of British monetary policy.

The U.S. Dollar

The basics of judgment Unlike the pound, the development of the dollar was to be judged from the outset not from a monetary but from an economic policy standpoint. The USA is the strongest power in the group of creditor countries, to which the capital and gold holdings flowing out of the debtor states are directed. A look at the balance of payments of the USA shows that the dollar position has been unassailable at every moment of its development so far. The only real liability item is services, primarily additional expenditures from travel, which are offset by assets from merchandise tape, interest receipts, and political payments. The dwindling of the asset balance in foreign trade and the complete cessation of political payments enabled the USA easily compensate by restricting their travel. After the capital withdrawals of 1932/33, the excessively high gold reserves are hardly offset by any significant short-term foreign balances. The outbreaks of distrust in the American currency, which had already taken place sometime before the final devaluation of the dollar, were caused exclusively by fears of economic policy, which had their roots in the growing indebtedness of the federal government and the municipalities, in the illiquidity of the banks, and in the poor situation of agriculture and the urban land market. The policy initially adopted after Roosevelt took over the government of adhering to the gold standard and parity had little chance of penetrating the growing devaluation propaganda of the monetary theorists and strong economic interest groups under the overriding burden of internal debt, the necessary deficit economy in the public budget,

and the collapses in the banking and agricultural sectors, unless it decided to adopt an extensive credit expansion policy.

The development of the main items of the balance of payments of United States of America in millions of dollars

Foreign trade balance Services (travel) Together

1908/13 + 481 - 395 + 86

1925 + 633 - 766 - 133

1931 + 284 - 691 - 407

1934 + 400 - 350 + 50

- 200 -

+ 460 + 186

+ 536 + 113

+ 320 -

+ 112 1905

- 585 4399

+ 418 4460

+ 950 8191

Investment income from investments abroad Income from political payments Capital lending (-) or capital borrowing (+) Monetary gold holdings

That this did not happen was due to the president's lack of knowledge of monetary theory, the particular views of his monetary advisers at the time on the relationship between gold supply and price movements and, finally, the procrastination of the economic crisis during the change of government, which soon thereafter broke out openly with the bank closure and necessitated immediate measures. The individual phases of this development, which ultimately led to the gold embargo, the devaluation of the dollar and later to the temporary reduction of the parity to 59 %, cannot be detailed here. The development of the most important economic series, whose movement made the coming event probable, are given below.

The Development of Important Economic Series in the USA 1929 = 100

Year

Production Bankruptcies, index liabilities

1929 1930 1931 1932

100,0 79,8 67,2 52,9

100,0 138,3 152,4 192,1

1933 1934

63,8 66,4

104,1 54,7

Grain Wage producer totals prices Before devaluation: 100,0 100,0 83,5 81,1 52,1 61,3 36,4 42,1 After devaluation: 51,2 44,1 76,9 57,2

Unemployment at year-end in millions

Stock index

3,2 5,5 8,9 12,1

100,0 78,7 49,5 25,4

10,8 11,3

33,3 38,1 33

It is particularly difficult to make a reliable forecast for the dollar because U.S. monetary policy has to such a large extent detached itself not only from traditional principles of monetary theory but also from a consistent evaluation of economic conditions for monetary policy and has already deviated at least temporarily from the basic line of a sensible economic policy on several occasions in favor of tactical maneuvers. In the course of developments to date, this has already necessitated two changes of judgment with regard to the future development of the U.S. currency, whereby, in contrast to England, it was not monetary or economic but predominantly domestic political factors that tipped the scales. Until the end of 1932, despite the repeated bearish attacks against the dollar, the forecast of its stability could be unwaveringly adhered to because, given the conservative monetary view of the industrial and financial capital which, with President Hoover, was politically decisive, it could be expected that, if necessary, the strength of the monetary and balance-of-payments position would be used against the international bearish attacks. At the beginning of 1933, the assessment had to be changed because, on the one hand, the internal debt and the situation of banks, railroads, agriculture and the real estate market demanded a quick solution from the economic side, and, on the other hand, the policy of the pro-inflation agrarian wing, which had come into power with Roosevelt's inauguration, and the well-known theories of the president's advisors led to the expectation of a solution in the monetary direction. By the end of 1933, most of the economic and domestic arguments for further dollar devaluation had fallen away as a result of the consolidation that had occurred in the meantime. The capital market situation, the interest of government credit, the monetary position, and social developments all urged in the direction of stabilization at the exchange rate level reached so far. Even as government measures became known, there were increasing signs of a return to a more conservative policy, which was then confirmed by the temporary fixing of the exchange rate at 59% of the former parity. In summary, it can be judged today that the monetary position of the dollar has hardly ever been stronger than at present, that the reasons arising from the economic position of the country argue not for but against further devaluation, and that the continuation of dollar devaluation cannot solve social unrest but will certainly increase it. Opposition to currency experimentation and to Roosevelt's advisers who advocate it has, to all appearances, been growing steadily until recently. A further devaluation of the dollar can thus be said to be out of the question at this stage, even though the country's major economic problems have by no means been definitively solved and may involve a further revision of this judgment later on.

The monetary situation in mid-1935 Since the temporary stabilization at the end of January 1934, the dollar's fluctuations have been practically within the limits of the new gold points. After the gold clause ruling in February also failed to produce any new points of view, speculative interest in the dollar exchange rate has again receded into the background. The renewed resurgence of government purchases of silver abroad has also contributed to this. The activity of current items in the U.S. balance of payments is estimated at $381 million for 1934, as against $193 34

million in the previous year, with cash of $1,351 million, of which about $1 billion was financed by repayments or inflows of capital from abroad. Lower balance-of-payments activity will have to be expected in 1935, since the U's export surplus has been greatly reduced by import curtailments in important European markets in early 1935. Part of the shortfall to be expected from this, however, is not likely to be offset by either the reduction in government purchases of silver abroad expected in the long run. Given the record level of monetary gold holdings in the USA, the U.S. balance of payments, even in the event of unfavorable developments, will initially be of little significance in shaping the value of the currency. For the future, domestic political reasons alone will be decisive in any new monetary policy resolutions. The motivation for the devaluation of the dollar put forward by Treasury Secretary Morgenthau in his radio speech on monetary policy, namely consideration of the competitiveness of U.S. exporters, indicates - apart from its incorrectness - that the U.S. government does not intend any new devaluation of the currency for the time being, but also no final fixing of parity. How far in the long run economic revolutionary tendencies in the USA will be able to prevail and possibly lead to a new devaluation of the dollar cannot be estimated at present. There is no economic necessity or even expediency for such action at present. Even in the event that the inflation bills repeatedly introduced by Parliament should lead to a considerable expansion of money in circulation and thus to a corresponding increase in the U.S. price level, there is no need for a subsequent currency devaluation in view of the still considerable margin against foreign prices.

The French Franc The basics of judgment Thanks to its strong reserves, French monetary policy is able to withstand any external attack, even if the peak of France's power in international capital movements has now been passed for two years and cannot be reached again for some time due to the deterioration of the French balance of payments. However, the favorable gold situation should not obscure the fact that the tensions resulting from the balance of payments and the budget will continue and will sooner or later also have to lead to a review of the gold block parity. This is all the more likely because France's deflationary policy is weakening the position of its partners in the gold bloc, who are unable to follow this policy, and a further reduction in prices to AngloSaxon levels must also loosen the internal structure of the gold bloc.

The Development of French Public Credit and the Money and Capital Markets Year

1929 1930 1931 1932 1933 1934 1935¹)

Government Government revenues spending

47,71 50,99 47,71 35,41 43,65 42,50 47,00

47,78 53,63 53,21 41,42 50,57 48,00 47,80

Deficit

Public debt

+ 0,07 - 2,64 - 5,51 - 6,02 - 6,92 - 5,50 - 0,80

271,96 266,64 271,90 285,50 295,00 307,00²) 340,00³)

Return of the 3 percent pension 3,99 3,48 3,48 3,85 4,38 4,14 3,79

Stock index 1927/29 = 100 125,8 108,4 76,4 60,8 57,6 48,4 48,5

¹)Estimated ²) September 1933 ³) August 1934

The franc, and with it the currencies which have hitherto adhered to the gold bloc, are increasingly being confronted with three options as a result of developments in the dollarpound group. Either they refrain from raising the price level they reached at the low point of the crisis, in which case they also refrain from the possibility of an early and radical improvement of their economic situation as well as from the relief of the weight of their domestic debt, which has been greatly increased by the fall in prices. Alternatively, they may try to enforce a price increase of the necessary magnitude for a time against external price pressure by tightening exchange controls, cutting off foreign trade and artificially cheapening exports. After the devaluation of the Anglo-Saxon currencies, they will probably have no choice but to devalue their currencies against gold to create the scope for a nominal price increase in their countries. 36

At present, the franc exchange rate shows little deviation from the price formation of gold, but the changes in both the gold movement -and the credit markets indicate a steadily increasing weakening of the franc position. The development of the main items of the French balance of payments in millions of French francs

Foreign trade balance Revenue from services (travel) Together Investment income from investments abroad Income from political payments Capital lending (-); capital withdrawals (+) Monetary gold and foreign exchange holdings

1913 - 1280 + 960 - 320

1926 - 3550 + 13950 + 10400

1931 - 13088 + 6900 - 6188

1934 - 4500 + 4500 0

+ 1900 -

+ 240 + 1420

+ 3350 + 1320

+ 1500 -

- 1020

- 6910

+ 13720

- 7000

7160

11975¹)

89273²)

83580²)

¹)1927 ²) Due to the new parity

The gold inflows at the Bank of France in the spring and summer of last year, which were mainly the result of the liquidation of domestic hoards, were replaced by sustained gold outflows at the beginning of this year. Money rates are rising, bond prices have largely lost the temporary improvements they achieved, and stock prices are falling back into their declining trend after temporary bullish tendencies stemming from valuation fears. The decline in prices and production continues. Given the impossibility of raising the necessary funds on the capital market or from banks, the strained financial situation necessitates a new curbing of government spending. Even if the franc has been pushed back into a defensive position in monetary terms, the abandonment of franc parity is probably the last of all gold currencies to be expected. The country's financial and economic reserves have not yet been exhausted, and the psychological resistance of the pensioner population to the devaluation demanded by the export economy has by no means been finally worn down. Thus, devaluation, which is difficult to avoid in the long term, can initially be expected only under special political conditions.

The monetary situation in mid-1935

In monetary terms, the French franc has finally been forced into a defensive position. The renewed domestic anxiety is exacerbated by the fact that the devaluation of the belga has given new impetus to the devaluation propaganda supported by the export industry and agriculture. The government firmly rejects the possibility of a second devaluation of the franc 37

and is publicly supported in this not only by the province and the broad savings community, but also by the representative bodies of industry and commerce. If, given the still strong monetary position, a unilateral abandonment of the franc parity can hardly be expected for the time being, the particularly lively interest in France in the international stabilization discussion must indicate that a willingness to correct the gold parity of the franc at a later date within the framework of international agreements is likely. On July 17, the Laval Cabinet published 28 emergency laws aimed at eliminating the deficit in the state budget (7-8 billion frs.) completely and in the municipalities and railroads (railroads 4 billion frs.) for the most part. Overall, a relief of the budget by 11 mill. frs. is envisaged. For private incomes, the reduction in interest payments and salaries results in an immediate loss of income of almost frs. 6 billion, about one-third of which is to be made up by simultaneous price and rent reductions. Private wage cuts are not intended. It is safe to assume that these deflationary measures will lead to a new reduction in the French price level and thus probably also in industrial activity. The extent to which this will result in new revenue shortfalls and new restructuring needs remains to be seen. In relation to foreign countries, the adjustment to the price level of the devaluation countries will make renewed progress, so that the pressure on the French franc emanating from here should ease further. Although it is questionable whether the deflationary course can be sustained politically to the end, a departure of the franc from its current gold parity is not to be expected at present.

The Swiss franc

The basics of judgment The devaluation of the Anglo-Saxon currencies has particularly affected Switzerland among the gold bloc currencies, 40 percent of whose national income normally comes from abroad. The demands for a currency adjustment, raised by the export industry and the tourist trade, which have been the main victims, have so far been repeatedly rejected by the government and the majority of the population. However, while Switzerland is absolutely capable of maintaining the franc at its gold parity in monetary terms, the economic policy conditions are unlikely to be sufficient to do so in the long run. The gold and foreign exchange holdings of the Swiss National Bank, which had been inflated from 1 billion to 2.7 billion sfrs. during the crisis years 1930-1932 by inflows of foreign flight capital, had been reduced again to 1.2 billion sfrs. by mid-1935 as a result of the withdrawal of foreign capital and the domestic hoarding that had got under way. Since the current level of banknotes in circulation requires gold and foreign exchange holdings of only about 1/2 billion sfrs. - before the war, the Swiss National Bank's gold and foreign exchange holdings amounted to 170 million sfrs - Switzerland should be able to cope with further withdrawals. In the good years, the permanently existing liability balance of the trade balance was exceeded by revenues from tourism and capital income by about 200 million sfrs. The decline in these revenues during the crisis and the simultaneous sharp increase in the import surplus led to a slight balance of payments liability from 1930 onward, which grew to the threatening level of over 350 million sfrs. in 1932. Although the consistent curbing of imports made it possible to reduce the foreign trade passivity in the following years, this was partially offset again by the simultaneous decline in income from services and interest. Nevertheless, it was possible to limit the balance of payments liability to the order of about 150 million sfrs. in 1934.

Main items of the Swiss balance of payments in millions of francs

Foreign trade balance Revenue from services (travel) Capital receipts from investments abroad Together Capital loans (-) or inflow (+) Monetary funds

1928 - 533 + 420

1929 - 580 + 380

1930 - 750 + 335

1931 - 852 + 275

1932 - 916 + 250

1933 - 712 + 210

1934 - 565 + 200

+ 330 - 217

+ 380 + 180

+ 400 - 15

+ 350 - 227

+ 300 - 366

+ 250 - 252

+ 250 - 165

+ 40 797

- 44 972

+ 105 1058

+ 1866 2451

+ 638 2558

+ 26 2015

- 37 1917

The argument against devaluation, which Switzerland has long been reluctant to deal with 40

publicly, namely the danger of a precipitate withdrawal of all foreign capital, has lost much of its significance after the withdrawal of flight capital, which has continued for two years. The frequently used official objection that Switzerland, as a creditor country, would damage itself by a currency devaluation is hardly valid. The net amounts of Swiss foreign assets are fairly consistently put in the order of 5 billion sfrs, of which, however, just under half are likely to be denominated in Swiss currency, while the remaining assets represent investments and real property abroad which would not be affected by a currency devaluation. Of the incoming payments from interest and dividends, which currently amount to about 250 million, about 100 million sfrs. are likely to be actually affected by a currency devaluation. The reduction in these receipts to be feared in the event of a moderate devaluation - perhaps 25 mill. sfrs. bears no relation to the shrinkage of exports from 2.1 billion to 0.8 billion sfrs. and to a decline in tourist receipts from an estimated 300 to perhaps 150 mill. The import dependency argument has the greatest significance for Switzerland, which depends on foreign countries for 80 percent of its grain supply and for almost 100 percent of its industrial raw material supply. Although the argument of an undesirable increase in the cost of raw materials and other industrial goods is valid, it should not be forgotten that the devaluation of the AngloSaxon currencies has previously caused a corresponding reduction in the price of the most important raw materials on the world market, and that the share of raw materials in the finished industrial product is not too significant for the high-quality Swiss processing industry. The main argument in favor of devaluation, which makes it doubtful whether Switzerland will be able to maintain its present currency parity in the long run, is the relatively large increase in the price and wage level of this exporting country compared with the world market. Compared with the pre-war situation, the overvaluation has recently increased to about 25 percent compared with the other partners in the gold bloc and to about 50 percent compared with England and the overseas markets, and it is having a paralyzing effect on exports and tourism. A sufficient adjustment of the Swiss price level to the world market level by way of deflation would have to have such an aggravating effect on the crisis that it hardly seems conceivable without serious disturbances in the social sphere. In addition, agriculture is not viable even under the government's subsidy protection without comprehensive debt relief measures. The direct expenditures of the federal government for agriculture in the last year were in the order of nearly 100 mill. sfrs., the burden on the economy as a whole by the price overcharge is estimated at about 300 mill. sfrs., and the price level itself is several times above the world market level for the most important agricultural products. Nevertheless, the indebtedness of Swiss agriculture is in part higher than the capital value, and production costs exceed revenues. The hotel industry, which is part of the export industries, is in a similar condition to agriculture. The decline in tourism as a result of the excessive price level also has a direct impact on the situation of the federal railroads, whose reorganization is said to be necessary to the tune of about sfrs. 1 billion. Thus, Switzerland will have to bring the excessive price level back into line with the world market level to some extent if it does not want to face a permanent shrinkage of the most important sectors of the economy - the export industry, tourism and the railroad system. Under these circumstances, adherence to the present currency parity would make a long41

lasting deflationary crisis with all its unpleasant side effects unavoidable. The extent to which the sociopolitical consequences of such a deflationary crisis will lead to a change in the current monetary policy at a later date must be left open today. Even if such a change is not to be expected in the near future, it cannot be assumed that the favorable monetary situation alone will lead to a definitive adherence to this policy in the long term.

The monetary situation in mid-1935

The Swiss franc exchange rate has been under pressure again since the fall of 1934. Since the end of the year, there have been ongoing strong gold outflows, which assumed extraordinary proportions in April following the devaluation of the belga. At the beginning of June, the Swiss National Bank's gold and foreign exchange holdings still amounted to about sfrs 1.2 billion. The sight deposits at the Swiss National Bank, which are to be regarded primarily as liquidity balances held by Swiss banks to cover foreign deposits, shrank accordingly from 1.2 billion sfrs. in September 1932 to 300 (against 170 million sfrs. in May 1931). The sharp decline in bond prices accompanied by rising stock prices and the rise in money rates at the end of April for the first time in a long time are clear signs of the increasing tension in the Swiss monetary situation. Added to this is the poor situation of some banks, which finds eloquent expression in the development of the price level of their shares.

Price development of major Swiss banks since March 1935 in sfrs.

Pieces at 500 Swiss francs March 1, 1935 April 1, 1935 May 1, 1935 June 1, 1935 July 1, 1935

Basle merchant bank 158 108 76 55 32

Swiss Federal Bank 220 148 130 125 130

Swiss Bank Corporation 428 350 305 300 290

Swiss Credit Institute 545 445 408 401 350

The discount rate increase from 2 to 21/2% p.a. at the beginning of May is unlikely to be sufficient to restore monetary equilibrium. The presence of still substantial short-term foreign assets and the declining liquidity of the banking system will necessitate the use of stronger defenses if gold withdrawals continue. In the long run, Switzerland will be less able than other gold-denominated currencies to avoid adjusting its exchange rate to changing purchasing power parities. Nevertheless, for the time being, the psychological situation has not yet reached the point where an immediate devaluation threat is to be expected.

The Chinese Yuan

The basics of judgment As a silver currency, the Chinese currency was originally exclusively dependent on the silver price development for its exchange rate movement. Currency monitoring of the yuan, including the other Asian silver currencies - the Hong Kong dollar and the Persian crane - was thus ultimately an observation of the price of silver. As a result of the American silver policy initiated in mid-1933, the fate of the Chinese currency has become largely dependent on political factors. These factors are: 1. U.S. silver policy and its likely impact on the world silver market; 2. the Chinese government's countermeasures against the undesirable repercussions of silver price increases on its currency exchange rate; 3. the influences arising from China's administrative organization and balance of payments for a currency detached from the metal backing. It would go too far to show the fundamentals of American silver policy in detail here. It may suffice to point out that the previous increase in the American purchase price for silver to 77 cts. per ounce and the proclamation of a price target of 129 cts. per ounce has led to a strong international increase in the price of silver, the continuation of which is theoretically at the discretion of the American Treasury. This increase in U.S. silver policy has had highly undesirable repercussions on the currency and economic situation in China. China's economy had been largely spared the world crisis by pegging its currency to silver, because silver had followed the fall in the price of all goods against gold and therefore the price level in national currency had remained relatively stable. Only the appreciation of silver led to a strong revalorization of the currency and thus to a crisis in the price level. The Chinese central government has therefore had to decide to detach the yuan exchange rate from the silver price movement after several unsuccessful protest steps in Washington, in order to avoid the deflationary repercussions of the American silver policy on its country. The government's actions to date have sought to maintain parity between silver and currency for domestic use and to achieve the disengagement of the currency rate abroad from silver price movement by manipulating the yuan rate abroad in contact with the rate movement of the British pound. This manipulation is accomplished through an export duty and a compensatory levy on silver equal to the difference between the London silver parity and the prices set by the Chinese central bank. However, the increase in silver prices has led to a large outflow of silver from the Chinese currency area and to lively silver smuggling through Hong Kong, which cannot be stopped given the country's lack of administrative organization and wide borders. The persistence of these silver outflows has put the Chinese government in an extremely difficult position and has already led to several bank failures. The path taken so far of devaluing the yuan externally 44

and maintaining silver parity internally is unlikely to prove feasible in the long run under these circumstances. Thus, the Chinese government is faced with the dilemma of avoiding the pressure on silver stocks that sets in with every increase in the fcilber price by slowly bringing the yuan exchange rate back to the former silver parity, i.e., allowing a corresponding increase in the currency exchange rate, although this is expected to lead to a deterioration in the balance of trade and payments and thus to new silver outflows. If the USA persists in the policy of driving up the American price of silver to the American silver coin parity by government purchases, further increases in the price of silver can be expected initially, but in the longer run only the danger of increasing demonetization of silver and thus the eventual collapse of the bull position on the world silver market. That the current silver valorization of the Americans will ultimately lead to the same collapse as the two preceding ones in 1878 and 1890 is not doubtful.

The development of the main factors of the Chinese currency

End of year

1929 1930 1931 1932 1933 1934 1935 June

Silver price New York ets. per oz.

Silver inventory in Shanghai in t of fine silver

Silver coin value of the yuan in RM

Characteristic value of the yuan in RM

52993 38154 28700 27892 34727 47993 71920

5979,8 6699,5 5935,6 10052,6 13728,2 8186,7 8188,7

1699 1228 0.945 0.895 0.863 0.924 1351

1,76 1,27 0,93 0,93 0,87 0,87 1,007

Deviation of the price value from the silver coin parity in %. + 3,6 + 3,4 - 1,6 + 3,9 + 0,8 - 5,8 - 25,5

The monetary situation in mid-1935

After silver prices on the world market have risen sharply again since mid-February in connection with various events - dollar bull market, commodity price increases, new currency uncertainty - and under these circumstances the U.S. federal government has raised the purchase price for newly mined domestic silver from 64.65 to 71.11 and 77 cts. per ounce, there is a further strong tension in the Chinese currency situation. The increase in the domestic American silver price, which initially only affected the takeover price for newly mined American silver, has also strongly pushed up the world market prices for silver and leaves open the possibility of further speculative fluctuations. Under these circumstances, the scope for movement in Chinese monetary policy has been further restricted. 35

If the exchange rate were to move in line with the silver coin parity, this would lead to increased deflationary pressure on the economy, which has already been severely hit by the previous development, while an increase in the countervailing levy to avert these consequences would, conversely, have to stimulate the outflow of silver again by way of smuggling and further weaken the already weak currency base. U.S. imports of silver have again risen sharply since January, following a slowdown in December of last year, as have imports from the London silver trade and exports to the U.S.

London silver trade in 1000 £ 30.11. till 27.12.1934 28.12. till 31.1.1935 1.2. till 28.2.1935 1.3. till 28.3.1935 29.3. till 2.5.1935 3.5. till 31.5.1935 1.6. till 27.6.1935

China

Import from: Hong Kong

504 449 34 18 74

275 1246 138 57 192 408

Other countries 530 1019 975 965 1587 2106 2266

Export from: USA Other countries 617 532 2830 222 2593 82 3196 723 1508 429 905 385 374 179

The silver holdings of Shanghai banks did manage to hold steady in the first months of the new year, and by the end of 1934 had stopped the ongoing reduction in their silver holdings. It is likely, however, that the new sharp rise in silver prices will restart the downward movement here as well. The weakening of China's currency position is expressed in the persistent sharp fluctuations in the yuan exchange rate since the end of February. The distrust in the further development is best characterized by the failure of the currency rate to keep pace with the silver price increase. The spread between the currency rate and the silver coin parity, which had narrowed to about 7 percent at the beginning of March this year, has currently increased to 25 percent. A rapid fall in the Chinese currency rate is to be expected.

b) Raw material monitoring and raw material policy The regulation of the German raw materials industry is so closely linked to the organization of our economy's relations with the outside world that it is not only in the private market interests of individual raw materials consumers, but also of all raw materials-dependent economic groups and even of the public economy itself. It is not only necessary to think of our current shortage of raw materials. It is sufficient to point out that even in normal times, the production and production costs of our major processing industries - such as the metalworking industry, the textile and leather industry, the rubber industry and many smaller branches of industry - are largely dependent on the purchase and procurement price of foreign raw materials. The raw material purchases of these industries, including the associated branches of wholesale and overseas trade, have a major influence on the balance of payments situation, 37

the gold and foreign exchange situation, and the price relations of our national economy to the world market, and thus also on official monetary policy. The private-sector dispositions of such industries thus take on a much more national-economic character than the dispositions of a purely domestic branch of production, such as the construction industry, whose business activities, however, have a decisive influence on the capital and credit economy and the level of employment from the point of view of the domestic economy. For the above-mentioned economic groups, therefore, systematic observation of the world commodity markets and planned market management should be among the central tasks, the solution of which is all the more necessary the more the economic group is structured on a medium- and small-scale basis and thus distanced from the possibilities of a world economic overview for the individual companies. Since fundamental changes in the world economy have occurred in the development of the raw material markets and can be expected to continue, the previously valid rules based on experience can no longer be regarded as sufficient in this area without the underpinning of planned observation. Therefore, in the following I would like to give some examples of the methods and experiences of market observation developed here, namely from the field of agricultural materials I would like to deal with wheat, from the field of textile materials with cotton, from the field of metals with copper and from the other more important raw materials with rubber, which is particularly sensitive to economic cycles. First and foremost, commodity monitoring is a continuous observation of world production, world trade, world consumption and the development of world stocks, broken down according to the most important producer and consumer countries and groups, which, if carried out systematically, will provide extensive protection against unwelcome price fluctuations. However, it is important to monitor commodity markets over as long a period as possible in order to obtain information on the basic trends on the commodity markets. The determination of possible price influences from the currency side is hardly less important for a planned raw material observation, since experience shows that currency devaluations are not compensated by corresponding price increases in paper. In order to be clear about this, it is first necessary to determine the most important production areas for the individual raw materials, as shown in the following overview.

1) In the case of petroleum derivatives, approximate account had to be taken of capital ownership ratios deviating from political boundaries. 39

It shows that the price influences to be expected from the currency on world market commodities are no longer of great importance. A possible alignment of the gold bloc currencies with Anglo-Saxon currency and price relations would only lead to price reductions in gold for rubber, tea, sugar and tin. However, forecasting the influences at work here is a matter for the currency monitoring discussed earlier. As already emphasized, the implementation of systematic and accurate commodity observation first requires an investigation into the long-term development trends of the commodity in question. In order to be protected from misjudgments here, it is necessary first 40

of all to obtain a clear picture of the long-term price movement in the first place.

The determinants of the long-wave price development

If one observes the price movement over a sufficiently long period of time, it becomes apparent that the rhythm of the economic waves rising and falling in perennial periods does not oscillate around a constant level, but follows long-wave oscillations, the appearance of which is no longer rooted in the economic alone. The impressive clarity of the long-wave movement in the curve of the total price level on our picture points to sociological mass processes of broadest generality as causes. From the end of the 18th century to the present we can distinguish three long waves, each of which, in its rising as well as in its falling part, fills approximately the span of a generation. The rising periods at the end of the 18th century, around the middle of the 19th century and at the beginning of the 20th century coincide with the epochs of great external warlike entanglements. In each case, the peace settlements initiate the turnaround of the long wave with sharp price drops. In addition to the preparation and development of great inventions in science and technology, the period of decline is mainly filled with the internal reorganization of social life, the tensions of which are discharged in revolutionary struggles, especially toward the end of the wave.

Course of the long price waves from 1787 to the present day

Price wave from 1787 to 1849

Ascending 1787-1809 Coalition wars of England, Austria and their allies against France, Napoleonic wars throughout Europe. Continental Blockade against England. Declining 1810-1849 Inventions in iron and steel production, mechanical engineering, low current technology and chemistry. Beginnings of telegraphy, railroads, steam navigation. Advance of the bourgeoisie in the struggle against absolutism.

Price wave from 1850 to 1896

Ascending 1850-1873 Crimean War, Italian-Austrian War, American Civil War, German wars of 1864, 1866 and 1870/71. Declining 1874-1896 New inventions in the field of chemistry. Expansion of heavy current technology and motor vehicles. Growing power of labor, unification in the International.

Price wave from 1897 onwards

Ascending 1897-1920 Spanish-American War, Boer War, Russo-Japanese War, Italian-Turkish War, Balkan Wars, World War climax of bourgeois power in politics, economics and science. Declining since 1920 Peak of technical rationalization. Expansion of aviation and radio technology. Conquest of government power by the workers' parties, with later replacement by military dictatorships or authoritarian governments with the goal of eliminating class antagonisms and establishing a national community. Development not yet completed.

Although one must be careful not to draw analogies, it can be assumed with a high degree of certainty that this long downward wave is not yet over and - if it is not interrupted by new wars - may continue until the middle of the century. This is all the more probable since not only the technical possibilities with regard to cost reduction have not yet been exhausted, but also the migration of agricultural and industrial production to places of cheap production is in full swing. The attempt made in many countries of the world to raise prices by currency debasement also has the same effect, since experience shows that devaluations cause prices in gold to fall further. Knowledge of the long wave is also important for short-term price assessment because of its influence on business cycle movements. If we observe the business cycles embedded in the long waves, we find that the cyclical upswing and downswing are longer and more intense when they are parallel to the trend of the long wave than when they are opposite. Thus, in the long waves studied, the duration of the economic upswing in the rise period averages 5 years, while the economic downturn lasts only 21/2 years, whereas in the downturn period of the long wave, the economic upswing lasts only about 3 years, while the economic downturn lasts 5 years.

Explanation: The dark shaded areas indicate the downward periods of the long price waves. price waves.

Short historical review

The period of the wave increase from 1787-1849 is filled with the wars of intervention of Austria, England and their allies against France and the Napoleonic wars, which were carried out in the entire European area from Spain to Moscow. The Continental Blockade against England added economic warfare to the military one, to which the sharp rise in prices from 1807-1809 can be attributed. The wars of liberation of 1812-1815 drove prices up again, but the devaluation of the currencies means that this no longer appears in gold. With the return of peace, a sharp fall in prices sets in, which lasts until the middle of the century. This period, undisturbed by any major war, is rich in advances in science and technology. Inventions in the iron and steel industry, mechanical engineering, low-current technology and chemistry, and the practical beginnings of telegraphy, railroads and steam navigation usher in the industrial-capitalist age. Towards the end of the period, the strengthened bourgeoisie asserted itself in part in revolutionary struggles against the absolute monarchy and the feudal bureaucratic and military state. The rising period of the second wave from 1850-1896 is again a period of warlike entanglements, but the wars do not involve entire continents as they did at the beginning of the century. The Crimean War, the Italian-Austrian War, the American Civil War and the German campaigns of 1864, 1866 and 1870/71 pave the way for the formation of new nation states. The period is ushered in by the discovery of the Californian and Australian gold fields and by the strong upswing in banking and credit, which also support the rise in prices from the monetary side. In the quiet way in which the rise had proceeded, the descent also took place. It is characterized by the agricultural crisis, which began with the competition of the new production areas in North and South America and in the East Indies, as well as with the cheapening of freight through the development of steam navigation. Alongside this runs an industrial investment crisis, the seeds of which had been sown in the previous period by investment activity running ahead of consumption development. The power of the workers grew with the unification in the socialist parties and the International. Inventions in the field of chemistry and heavy current technology and the transition to new raw materials and plastics, such as rubber, cellulose and artificial silk, lead to the rise of the third wave. The rise of the third wave from 1897 onwards opened with the Spanish-American and Boer Wars, continued with the Russo-Japanese, Italian-Turkish and Balkan Wars, and ended with the World War. The struggle for colonial space enters its final stage. The power of the bourgeoisie reached its peak in politics (parliamentarism and the military), economics (management of industrial, commercial and transport enterprises) and science (universities and research institutes). The sharp setback immediately after the peace accords of 1919/20 continues to the present. The period is again filled with social struggles, which in most European countries initially end 44

with a victory of the socialist parties, but are soon replaced, as in Turkey and Poland, by military dictatorships, and in Italy and Germany by authoritarian governments with the aim of eliminating class antagonisms and establishing a national community. Technology enters the stage of rationalization and mechanization, the development of aviation is completed, radio and sound film conquer the world. In the economy, planned economic ideas prevail, especially in Russia, Italy, Germany and the USA. The whole of Eastern Europe implements agricultural reforms, and in numerous commodity markets, a planned regulation of world production is sought beyond national borders.

I have touched here on the basic problems of the long wave without going into the price determinants in detail. In addition to the historical events highlighted, special movements due to crop fluctuations and technical developments are naturally expressed in the individual markets. In the case of agricultural commodities, the frequency of crop failures due to wetness or drought decreases with the improvement of agricultural technology and the spread of artificial fertilization; their effect on prices is also neutralized by the improved global economic balance, since crop failures are usually continental or at least confined to one of the two hemispheres. The same applies to the expansion of the cultivation of vegetable textile materials, whose price movement is also influenced by the greater fluctuations of harvest, consumption and speculation. In the case of metals, in addition to speculative factors, the influence of technical progress is more pronounced, as has been the case for copper in particular with the development of electrical engineering. If we now go into the price movements of the above-mentioned commodities in detail, then, in addition to examining the long-term determinants, we cannot dispense with the movement of short-term price formation. This must be determined from the general economic situation, the conditions of production and the particular analysis of consumption.

Nutrients - Wheat

The Price Ordering Reasons in the Long Wave The long-wave price movement of wheat, the most important foodstuff of three continents, shows in the smoothed curve of the real price1) a flatly curved arc, the peak of which is reached about the year 1840. Since the emphasis of the determinants of grain prices lies on the side of supply, which is much more mobile than the largely constant demand because of the fluctuations of crop failure, this curve shows first the inadequate supply until about 1840 - 1790 to 1815 almost continuous wars, in the subsequent period the beginning of industrialization -, then a short state of equilibrium and then a predominance of supply expansion of the European grain market to the world market, on which successively the Russian Black Sea territories, from 1860 the USA, from 1880 British India, from 1890 Argentina, Australia and Siberia and since the beginning of the 20th century Canada appeared as competitors. The World War brought only a temporary halt to this downward trend, which continued more sharply after its end, as the former European subsidizing countries initiated their reagriculturalization without the overseas surplus areas limiting their wheat cultivation accordingly. World wheat production more than doubled from 1876/80 to 1924/28 - from about 521/2 million tons to 117.7 million tons - while the population of Europe, America and Australia increased by only two-thirds - from about 400 million in 1880 to 673 million in 1924. Although this development is mitigated by the general rise in the standard of living, the longterm prospects for wheat remain unfavorable. The repercussions for agriculture, particularly in the four major overseas wheat-exporting countries, are likely to be a sharp selection process of the areas with the lowest production costs. A comparison of long-term trends in the other major world food commodities shows that the real price has been generally declining since the first decade of the 20th century. Even the war was able to interrupt this downward movement only for a short time. Restrictive measures have not been able to change this in the long term. At present, most agricultural commodities are subject to attempts at international price support. Accordingly, it seems justified to conclude that this is a trend that began with the expansion of cultivated areas, continued with the penetration of scientific and industrial methods into agricultural production, and has not yet ended. This does not affect the possibility of short-term and cyclical countermovement’s in the near future.

1) Nominal price divided by wholesale index. In the following, only this real price is discussed, because the movement of the nominal price, as far as it follows the general price movement, is already sufficiently characterized by the wholesale index.

USA Canada Argentina Australia USSR Brit. India European importing countries European exporting countries importing World countries exporting World countries World

18,41 10,76 5,20 3,12 20,61 9,01

111,10

96,85

1925

23,53 7,13 5,20 4,48 12,85 9,82

1924

65,20 116,87

27,20

22,62 11,08 6,26 4,38 24,87 8,84

1926

69,00 119,42

29,36

23,91 13,05 7,68 3,22 21,35 9,12

1927

77,00 131,95

30,00

11,80

26,60

24,90 15,42 9,50 4,35 21,97 7,92

1928

60,90 117,18

33,40

10,30

29,20

22,38 8,29 4,42 3,45 18,88 8,73

1929

73,00 132,87

29,00

12,10

24,90

24,21 11,45 6,32 5,81 26,92 10,64

1930

70,30 125,83

30,70

12,60

26,50

25,37 8,75 5,98 5,19 20,50 9,46

1931

64,60 124,85

37,00

7,60

33,00

20,75 12,06 6,56 5,82 20,25 9,17

1932

59,90 131,08

39,20

12,40

35,20

14,40 7,57 7,79 4,77 27,73 9,59

1933

53,50 124,55

36,80

8,80

32,30

13,53 7,51 6,49 3,67 30,41 9,52

1934

26,30 3,13 9,88

1935

Wheat annual production figures in mill. t

The price outlook in mid-1935 The short-term movement of all agricultural products is largely dependent on the failure of harvests, and supply-side factors tend to predominate in the period after the harvest and demand-side factors in the period before the new harvest, which is reflected accordingly in the price trend. The final balance of the world wheat year 1934/35, which ended on July 31, is likely to be less favorable than generally expected at the beginning of the year, according to the partial results that can be overlooked so far. Supply proved to be more extensive than was assumed a year ago due to the more abundant crop failure and the greater level of stocks in the European granting countries. On the other hand, demand was curtailed below the hoped-for level by more frugal economies in cases of actual shortage and by the abundance of trade barriers. As a result, world exports of wheat probably contracted further in 1934/35; in the first nine months of the crop year, they fell short of the previous year's result by about 5%. The reduction in world stocks and the improvement in the statistical situation on the world market did not materialize to the desired extent. Prices have not improved since April, helped by the largely favorable outlook for the new crop. For Europe, favorable weather conditions and the slight increase in acreage lead us to expect an even somewhat larger harvest than last year's already above-average crop. The Russian news is also favorable. The USA, which suspended acreage restrictions in March, will not yet have a normal crop this year, but apparently one sufficient for self-sufficiency. Canada, despite acreage reductions, expects an abundant crop whose export surplus, combined with current government stocks, should exceed storage capacity and create increased export pressure. However, the low quality of wheat may shift the weight of these volumes from the food to the feed market. British India is anticipating an export surplus. Wheat supply in the northern hemisphere is thus likely to increase, without the same being said of demand given the self-sufficiency efforts of importing countries. At most, China could become more import-dependent as a result of the new flood damage. Conditions in the southern hemisphere, which seem less favorable due to continuing drought in Argentina, cannot be finally overlooked until winter. The unfavorable nature of the impending deterioration in the statistical position is exacerbated by the political events in Canada. If the upcoming elections bring the Liberal opposition to the helm, their opposition to the current market support is likely to result in a rapid rejection of the high government stocks, which would have to depress the wheat price sharply. Conversely, the ItalianAbyssinian entanglements may cause the price to rise speculatively. On the whole, a sustained improvement in the price of wheat on the world market is unlikely, given the current statistical situation, until the harvest results of the North American continent and, later, of the southern hemisphere clearly justify it.

Textile fabrics - cotton The price determinants in the long wave

The proper movement of the cotton price, the real price determined by dividing the market price by the wholesale index, declines with strong fluctuations from the end of the 18th century to about the middle of the 19th century, then suddenly shows a sharp increase around the middle of the 1960s and then declines again until the turn of the century. From then on, the real price rises flat again until about 1920. The sharp increase in the price in 1790-1800 was caused by the uncertainty of supplies from the East Indies as a result of the French-English wars (1792 to 1797 and 1799-1802); at that time, India and the rest of Asia supplied about two-thirds of the world production, which was estimated at about 200,000 tons. In the same decade, however, the invention of the saw-dusting machine (1794) in the USA, the foundation was laid for the enormous expansion of cotton production there, which increased twentyfivefold from 1791 to 1801. The further expansion, especially of American production, was sufficient to keep the real price under fluctuation until the middle of the century, despite the rapid growth in world consumption - the first half of the 19th century saw the rise of the English cotton industry. The extraordinary price spike around 1865 -was caused by the drying up of North American exports during the Civil War (1861-1865), which led to the famous "cotton famine." However, the expansion of production in Egypt and India during the American Civil Wars was not remotely able to challenge the dominance of the rapidly recovering American crop, so that the USA soon regained its former importance for the world cotton supply. After a thirty-year decline, upward trends in real prices reasserted themselves from about 1895 onward. The industrialization of the European and American continents created the masses of millions of workers with their additional demand for cheaper cottons, which also largely displaced the more expensive woolens and linen. Even the third price spike caused by the world war, however, fell short of the two earlier ones, and in the course of the crisis the price sank to the lowest level ever reached in history. Production rushes ahead of consumption, and the incipient industrialization of Asia does not mean additional consumption, but only its shift from European to Japanese processors. Only the curbing of American production is currently putting a stop to the price drop. Nevertheless, cotton seems to be at the end of its century-long triumphant march, because the artificial fiber is now preparing to compete with the natural plant fiber for sales areas. In addition to the competition brewing here, the price war between the old production areas of North America, British India and Egypt will be accompanied by the newly emerging areas of South America and Africa, which can only be expected to bring about a temporary cyclical recovery in prices. The long-wave movement of the cotton price in the second third of this century continues to be downward. The long-wave movement of the real prices of all textile commodities shows as the most striking impression that, unlike the consistently downward movement of agricultural commodity prices, the long-term movement of textile commodities in the last 50-60 years has been weakly upward, with the exception of silk. The history of textile raw materials in the 50

period under consideration is a history of constant substitutions: of flax and wool by cotton, of silk and cotton more recently by artificial silk. According to American estimates, in 1783, 77% of the production of textile goods in Europe and America was accounted for by woolen goods, 19% by linen goods and only 4% by cotton goods. In 1883, cotton goods accounted for 73% of production value, wool goods for 21% and linen goods for 6%. At present, artificial silk has probably already taken a heavy toll on all three raw materials.

However, the rising basic trend in real prices caused by progress in the standard of living of all civilized peoples will not continue during the next decades for all textile raw materials, except for silk especially not for cotton and probably not for jute either.

The price outlook in mid-1935 In recent months, the price of cotton has not fully recovered from the setback it suffered in March as a result of the temporary threat of a relaxation of the American Crop Restriction Act. Nevertheless, it has held up well since May, to which the improvement in the statistical situation of the market may have contributed, even if it has been achieved by means of a reduction in cultivation. World stocks were reduced by around 25% in the cotton year 1934/35, which ended on July 31. If, despite this, the price is currently not above, but slightly below, the year-earlier level, this is due on the one hand to the fact that the relative weight of stocks has increased as a result of lower demand, and on the other hand to the fact that the larger size of the coming world harvest compared with that of 1934/35 is already foreshadowing a slight downward pressure on prices. The first official crop estimate of the USA on August 8 was 11798,000 bales, so that the government's delivery target of 105,000,000 bales (crop 1934: 96,36,000 bales) has been exceeded by more than 10%. Larger harvests are also expected in the other cotton countries, so that all in all the increase in supply is likely to trigger fiercer competition among cottonproducing countries and keep prices under pressure, especially in the next few months. However, the strongest uncertainty about the coming trend stems from two still unresolved issues in the support program in the USA, the MLR reform plans and the processing tax battle. There is no doubt that the price of cotton will continue to be supported, especially in view of next year's elections and the political importance of farmers. It is still uncertain, however, in what form and amount the government will lend new crop cotton - some indications point to a reduction of the loan rate below 12 cts - and how it will raise the funds to finance the crop restriction premiums and the loan if it has to surrender them under the onslaught of the processing industry and a possible final court ruling on the unconstitutionality of the processing taxes. The falling share of American cotton in world consumption can ultimately be halted only by greater equity, so that the USA may even have to grant export subsidies, i.e. deliberately depress the world market price. The movement of the cotton price therefore continues to show a downward trend.

Metals - Copper

The price determinants in the long wave The metal markets show in the long and short wave development a far-reaching difference from the markets of the food and textile raw materials treated before. Whereas food and textile raw materials have in common that year after year the uncertainty factor of nature again decides on the supply even under otherwise equal conditions, the raw material of metals only needs to be taken from the ground and its continuous extraction is subject to the free decision of the producers. Regulation of the supply of foodstuffs and textiles can only take place slowly - in the case of cereals at intervals of a year, and in the case of coffee, cocoa, 53

rubber, wool even only at intervals of several years -, whereas a change in the mining of ores is possible in much shorter periods. On the other hand, the production of food and textile raw materials requires relatively lower costs for the production and completion of the ready-touse raw material than the mining and smelting of ores. This unequal share of labor and capital in production implies a significant difference also in the form of operation. Agricultural and textile raw materials are produced by many, overwhelmingly small, capital-poor individual producers, whereas mining and smelting are possible only in capital-intensive large-scale operations. This again results in a difference in the ability to influence prices and to form cartels. While on the supply side the conditions for a smooth price development are much more favorable for metals than for food and textile raw materials, the situation is reversed on the demand side. Demand for foodstuffs is very stable; demand for textile raw materials is less rigid, but still relatively stable, since, like the former, they are used almost exclusively in mass consumption, which is less sensitive to economic cycles. In contrast, the demand for metals, which is almost exclusively driven by capital investment, fluctuates extremely strongly in line with the business cycle. This counteraction in the determinants of short-wave price formation also affects the movement of the long wave. While in the long-wave price movement of agricultural and textile raw materials the influence of the relatively calm development of the demand factors - population increase and rise in the standard of living - completely recedes behind the influence of the supply factors - opening up of new cultivation areas, improvement of production technology - in the long-wave price formation of metals mainly the influence of the demand side - change in consumption technology and development of new customer industries - comes to the fore. As far as copper is concerned, as a metal important to the war effort, it shows a steep price wave in the war decades 1790-1810. The peak of a renewed but moderate price increase since about 1830 is reached in the mid-1850s. These decades saw the triumph of telegraphy. From then on, the price of copper fell considerably until about 1890. During this period, the USA and Chile had displaced Europe from the lead in world production. The rebound in the real price since 1890 is related to the upswing in heavy current technology. During the World War, probably as a result of the loss of Central European consumption, the real price fell after a temporary small increase. Since world copper production already exceeded the pre-war level by 20 % in 1923, the international copper cartel, which existed from October 1926 to the end of 1932, succeeded only temporarily in driving up the price. In 1934, the annual average price of copper was below the lowest level ever reached in history, with a drop below the level of many decades having occurred. As an impression of an overview of the entire metal field, besides the close connection with the course of the business cycles, the steadiness in the course of the long wave and the relatively small degree of its absolute change remain. The price of copper has been falling for about 80 years; the price of lead, on the other hand, has shown great resilience, while the price of zinc and tin rose uninterruptedly until about 1910. Since that time, the price of zinc has declined sharply, while after a temporary interruption, the price of tin is initially still held in its upward direction by the cartel. The price of silver has been trending sharply downward for 50 years. All mealy metals are currently subject to artificial supply shortages by international cartels - copper, lead, tin and silver - or discussions 54

are underway to renew the former cartel - zinc. This circumstance alone indicates that a free play of forces would lower prices even more in the long run. This is further supported by the tendency toward self-sufficiency in metals as well, as is evident in the actions of Germany and the USA (tin). Finally, the reduction in production costs justifies this expectation. In the case of copper, lead and zinc, the American flotation process, which makes ores that were previously unworkable usable, has made a major contribution since the war. In the case of tin, production cost reductions have been achieved by mechanizing the operations. A few figures from the last two years show the progress that has been made in reducing production costs. One of the major African copper producers reduced its cost price by around 5% from 1932/33 to 1933/34, the world's largest lead mine achieved a reduction of 11% in 1933, while the reduction for bank tin was as much as around 33% in 1933. Metal prices, like agricultural prices, will therefore show a downward trend in the long term, which is only likely to be weakened, but not reversed, by a longer duration of the general arms race in the world.

1) Including Mexico and the rest of the Americas. ²) Africa as a whole.

The price outlook in mid-1935 The months-long rise in the price of copper, which had been triggered at one time by the armaments boom, but especially by the conclusion of the international restriction agreement, turned into a substantial decline at the end of May as a direct result of the court ruling on the unconstitutionality of the codes under the American NRA legislation. The unfavorable consequences of the Code's removal of order from the U.S. domestic market were seen as more serious for the copper market than the benefits it brought. The abolition of the Code did eliminate the distinction between newly produced domestic copper and export copper to be drawn from inventories, and thus the urge to sell this domestically unsaleable copper on the world market. However, this was countered by the discontinuation of all Code production ties, which made the participation of USA in the international restriction only against the promise of export restriction. Voluntary compliance with the Code by American producers, initially contemplated, violated the Anti-Trust Act and also failed to attract sufficient participation. At the end of June, the American domestic price of 9 cts. per 1b, originally fixed by law and then still maintained by association, was reduced to 8 cts.; the export price, which had fallen below 61/2 cts. in February of this year and had reached 8 cts. on May 31, stood at only 7 cts. on June 29. The price then firmed in early July on news of a meeting of the Sales Committee of the International Copper Restriction Convention called for July 15; moreover, the lower price had caused a largely speculative increase in demand in America and in England. The official announcement of an agreement on all questions reached at this London meeting makes it possible to conclude that the Americans, too, have made satisfactory statements and that the New York Agreement will continue without change. If this is indeed the case - the American export figures for the next few months will bring clarity on this - this circumstance, in conjunction with the continuing armaments boom and the apparently hardly avoidable ItalyAbyssinia war, should allow the price of copper to continue the renewed rise which has begun.

Rubber

The price determinants in the long wave The long-term price development of rubber is an interesting example of the adaptability of supply to demand for a new commodity in the world economy, overcoming even exceptional difficulties, provided only that the price of the new commodity rises high enough. As early as the middle of the 18th century, finished rubber from Central America had been processed in Europe on an experimental basis. But only after the invention of vulcanization in 1838 had eliminated the defects inherent in rubber articles, and in 1852 another highly important rubber product was found in hard rubber, did its importance in the world economy assume greater dimensions. The development of demand was determined by some inventions and the industries that emerged from them. Consumption for waterproof fabrics and pure rubber goods was joined from about 1880 by use in the burgeoning large-scale electrical engineering industry. The invention of the explosion engine in 1883, the low-riding bicycle in 1884 and the pneumatic rubber tire in 1885 laid the foundation for the development of the tire industry,

whose demand for rubber increased accordingly with the tremendous growth of the new means of transportation since 1890. Supply was unable to keep pace with the increased demand that began around 1850 until 1910. This lagging behind was due to the peculiarity of rubber extraction, namely the collection from the wild-growing trees of the virgin forests. Until the end of the 19th century, only wild rubber was available on the world market, with Brazil being the only producer from the Amazon river basin until 1850. Around 1860, collection was extended to the forests of Central America; Southeast Asia was also added at this time, but was quickly surpassed by Africa after 1870. By 1900, Brazil collected about half of the world's rubber production, with the rest of tropical America, Africa, and Asia dividing into the other half. The finally achieved usability of rubber goods and the emergence of new areas of use on the one hand, and the insufficiency of supply on the other, caused the price of rubber to rise sharply in the basic direction until 1910. The year 1910 then marks a turning point in the price history of rubber. The price, which had been rising since 1845 and did not fall even during the downturn in the general price trend from 1873 to 1896, and the realization of the importance of the new raw material had already led to attempts to plant indigenous rubber plants on Java around 1860. The basis for the Asian plantation economy, however, was formed by Brazilian rubber plants, which had been brought to Ceylon in 1876 by interested English circles in violation of the Brazilian export ban. However, the heavily silvicultural nature of the rubber plantation business - the investment of large amounts of capital over the long term without immediate returns - and the uncertainty about the competitiveness of the plantation rubber against the old imported wild rubber still stood in the way of a rapid expansion of the plantation business.

Only the price increase of the years 1894-1899 and especially 1902-1905 caused a strong expansion of cultivation in plantations. Corresponding to the growth period until tapping maturity, in each case 6-7 years after the price peak shows a strong increase in plantation rubber production and consequently a sudden fall in price. The peculiarity of rubber production, which is unstoppable as soon as the planted trees are ready for tapping, caused the production of plantation rubber to increase almost tenfold in the years 1910-1914, despite the sharp drop in prices. As a result of overabundant production, the real price continued to fall even during the war. In 1924, plantation rubber already accounted for 93 percent of world production, which was more than three times higher than in 1914, as cultivation had been greatly expanded again during the war years in anticipation of a new price boom. However, these expectations were not fulfilled. The pent-up demand of the Central Powers, which did not fall in line with world consumption, was soon covered. Russia initially failed as a consumer at all. The year 1921 showed the real price of rubber at a low of only 12.6% of the 1913 price. In order to prevent the imminent danger of American capital overrunning the English planting areas, the British government now tried to curb exports by introducing the so-called Stevenson scheme on November 1, 1922. Since 80 percent of the world's plant rubber production at that time was in British hands - Dutch India had refused to participate - the restriction was initially successful. Particularly in 1925, the strong increase in consumption caused the price to rise again. But the growing production of Dutch India, the difficulties in implementing the scheme, smuggling, and, above all, the organized defense of the decisive consumer, the USA, deprived the scheme of ultimate success. While in 1922 the share of regenerated rubber in the total consumption of USA was only 19 percent, it was exactly half that amount in 1927. The price fell sharply again from 1926, and the scheme had to be abandoned at the end of 1928. By mid-1932, the nominal price in gold had reached the lowest level in its history and was only 3.6% of the 1913 price. This situation forced producers back to the negotiating table. On April 28, 1934, a new restriction agreement was concluded between the governments of British Malaya, Lower India, Ceylon, British India, French Indochina, North Borneo, Sarawak and Siam for 41/, years. It was kept elastic, unlike the Stevenson scheme, with export quotas set quarterly. The sore point of the agreement is the production of the so-called "native rubber". Although the statistical position of the world rubber market has not yet improved significantly since the start of the restriction on June 1, 1934 - the depletion of the high world stocks is making little progress - the price has nevertheless risen to around 270% from the 1932 low. The long-term price movement of rubber thus shows two major stages: from the middle of the last century to 1910, and the years after 1910. Until 1910, wild rubber predominates, and its collection lags behind demand, so that the price rises sharply. In the last period of this rise, plantation rubber culture becomes profitable, and with it a strong capitalist trait, which includes scientific-technical management, enters the organization of supply. This organized production breaks the monopoly of wild rubber in a few years, and the center of gravity of world production shifts from South America to Southeast Asia as a result. At the same time, however, planned production becomes the prisoner of the production forces it unleashes and

replaces decades of scarcity with overproduction that cannot be contained even by repeated attempts at restriction. Thus, the tendency toward a permanent reduction in the real price of rubber, which can be observed in the case of the other raw materials of agricultural origin, wheat, sugar, coffee, cocoa, cotton and silk, has also become established.

1) Consumption (i.e., accounting for stock changes) only for USA and Great Britain.

The price outlook in mid-1935 At the end of May, member countries' compliance with the restriction and the seasonal increase in consumption in the second quarter of the year caused world stocks to fall below the previous year's level for the first time in years. The price rose by about 9 percent from April to June, easing slightly in July as May statistics showed a substantial overrun in the reliable total exports of the restricting countries, but made less significant by the fact that a somewhat larger unused export quota had accumulated from January to April and has now almost disappeared. The tightening of the restriction from 70% to 65% of the basic quotas, which came into force on July 1 for the second half of 1935, is intended to further reduce inventories; however, it also increases the risk of the permissible quotas being exceeded, so that the unused quotas of this year may be replaced by an unpermitted over-export. Price developments in the near future will depend on whether the tightening of restrictions or the usual slowdown in consumption in the second half of the year will improve or worsen the balance of volume and inventory movements. However, changes in the price upward or downward are likely to remain within fairly narrow limits for the time being.

c) Foreign trade monitoring and foreign trade policy The methods and results of systematic foreign trade monitoring, like those of currency and raw materials monitoring, are of the greatest interest both for government economic policy and for the economic groups and individual companies involved in exports. In view of the rapid change in world economic conditions that has set in with the dissolution of the former world economic order, neither public trade policy nor private export business can be based on the practical experience of the merchant alone. The question of export possibilities for the various branches of industry in a country is difficult for the average individual to overlook in the restructuring of the world economy which is now in full swing. The same applies in normal times to the question of how, for example, the export possibilities for the various branches of industry rise or fall in the course of economic development and cyclical movements in the world. Even if these problems are outside the scope of small and medium-sized exporting firms, they are all the more important for the profession and for public trade policy, and they are also of interest to government economic management because they usually have a direct impact on the employment situation at home. Particularly in the field of trade policy, a planned study of the inevitable or probable lines of development of the various countries can render valuable services for the enforcement of one's own aims and the choice of means to be employed. The present methods of trade policy of most nations, which, out of the momentary necessity of their particular industries or, yielding to the urgings of counterparties, make shorter or longer-term deals, differ little from the business methods of the private merchant and hardly justify the name of trade policy. The continuing stagnation of world trade is not only a stagnation of material conditions, but also of intellectual leadership in the trade policy of the whole world, which is not yet able to form constructive ideas from the given facts. The question of the planned adjustment of trade relations to the balance-of-payments preconditions and their rearrangement according to the necessities of the new development, which is characterized by a loosening of the old world trade relations and the search for new complementary exchange fronts, can be solved only by systematic economic researches. The commodity compensation business, which will continue to dominate foreign trade in its various forms for some time to come, should be at the forefront of these investigations. This also applies to its refined dynamic form, namely, the influencing of the production of the exporting country, which is more favorably situated in terms of trade policy, by the initiative of the importing country, as has been tackled on a large scale, for example, in the transplantation of soybean cultivation from Manchuria to the countries of southeastern Europe. In this context, the important question of export promotion and the granting of longterm commodity credits by the weak-currency countries in competition with the gold credits of the strong-currency countries is also likely to gain increasing importance in the not too distant future. With regard to the above-mentioned problem of export promotion, I would again like to explain a number of different methods of systematic foreign trade monitoring, the results of which are important both for public economic management and trade policy and for the private exporter. 62

Structural transformation of import routes and import demand As already stated at the outset, as a result of the reversal of the balances of payments caused by the war, the former routes of world trade are largely clogged, while at the same time the increasing industrialization of the former agrarian and colonial countries is creating fundamental changes in the demand for imports and in the direction of imports. This clogging of the old world trade routes, the extensive withdrawal of the individual national economies to their own economies, and the equalization of capital and commodity balances in two-way trade have resulted in a departure of the international exchange of goods from the principle of overseas long-distance connections, which is already becoming visible in clear outlines today, and in the transition to shorter continental connecting routes. The European continent, moreover, is increasingly covering its subsidy requirements for food and raw materials, which have been reduced according to plan, in its hitherto neglected peripheral regions as well as in neighboring Africa and the Near East instead of overseas, while the USA, through its capital and trade policy, is eliminating itself from its former position as a supplier of raw materials to Europe. Under these circumstances, the international trade in goods splits into a continental European-Small Asian-African group and an Atlantic-Pacific group. The new industrialization of the former agricultural and raw material countries, which is increasingly taking place at the same time as this development, is also bringing about a comprehensive shift in the commodity composition of foreign trade. The purchase of raw materials and finished goods ready for consumption by the European consumer goods industries is declining, while imports of raw materials and technical production goods are increasing. This development initiates not only a shift in the export share of individual industries, but also in the share of various countries in world trade. To a certain extent, shifts in foreign trade routes originating in the political sphere also belong here. For example, after the war, the former close connections of the successor states with Eastern Europe, the trade relations of Poland with Central Europe and the transport relations of the Baltic Sea rim states have shifted considerably for political reasons. Thus, of Polish imports and exports, about half to two-thirds of which were still in the immediately neighboring Central European region in 1925, three-quarters have now shifted to non-contiguous European and non-European countries; the Austrian successor states, which since their breakup have no longer been able to assert themselves as mediators of trade in the eastern and southeastern regions, have had to regroup their trade interests with the southern and western European areas, although this is unlikely to last; finally, in the case of the Baltic rim states, there has been a far-reaching loosening of former continental relations in favor of stronger trade ties with England. The following overviews illustrate these developments so vividly that they require no further explanation. The planned rearrangement of foreign trade relations made necessary by this development can only be clarified by systematic 'economic investigations, and that in close agreement of private initiative with public trade policy. Determining in which countries and products a decline is inevitable and, conversely, in which countries and products there are opportunities to increase exports, will save a lot of useless time and money and concentrate the export power of the economy as a whole and of individual enterprises in those places where it 63

promises to be successful. Here, systematic economic observation has to solve a multitude of precisely defined questions of the practical export business.

The Shift of the Trade Policy Interdependence of the Successor States 1922-1934 Of the total import of the successor states came in %.

From Successor States Germany West Europe South Europe

Austria 1922 34,7 22,4 10,8 5,1

1934 25,0 17,1 14,3 4,3

Hungary 1922 1934 52,7 29,9 16,6 14,9 9,9 12,8 2,8 11,7

Czechoslovakia 1922 1934 13,2 7,1 27,9 19,5 15,1 20,8 2,3 3,9

The regrouping of Polish foreign trade 1925-1934 Of Poland's total exports or imports, in %.

At Central Europe1) Rest of the world

1925 64 36

Export 1930 44 56

1934 28 72

1925 48 52

Import 1930 41 59

1934 23 77

1)Germany, Austria, Czechoslovakia

The Relaxation of Continental Relations in the Foreign Trade of the Rim States 1923-1934 Of the total import of the peripheral states came in %.

From Germany England West Europe Scandinavia

Lithuania 1923 1934 80,9 28,4 5,3 25,3 1,7 13,9 1,2 5,2

Estonia 1923 54,7 14,8 2,2 12,6

Latvia 1934 21,2 16,4 11,9 11,1

1923 42,3 18,6 7,0 7,7

1934 24,4 22,6 14,9 4,1

Foreign trade shifts due to population development

In addition to this extremely important development in the shifting of foreign trade routes and foreign trade requirements in the world, which must be kept in mind if one does not want to let the contracting party dictate the law of action in trade policy without interruption, the influences emanating in our narrower circle of vision, Europe, from population development are also of increasing importance for the organization of foreign trade. In the course of our generation, the population of our continent, excluding Russia, will increase by about 50 million. This increase will be concentrated mainly in the eastern and southern regions of Europe. Since there are only limited possibilities for agricultural settlement or emigration for this increase, the countries of Eastern and Southern Europe are approaching rapid urbanization and industrialization, which will also cause a strong increase in the demand for imports. In the foreseeable future, therefore, new export opportunities will open up, particularly in the eastern European region, which, if skillfully exploited, can at least partially compensate for the unavoidable losses in certain overseas markets. A description of future population trends in the eastern region is given in the following section on economic monitoring as an aid to foreign policy, so that a more detailed explanation can be dispensed with here.

Example of export analysis - Hungary

Given the strong protection that all countries have afforded their domestic markets and will continue to afford them in the long term, there is no point in fighting a country's own industries on a large scale in the individual export markets; instead, it can only be a matter of competing on these markets against the foreign competitors that are present on the market in each case. Therefore, export promotion that makes sense from a political and trade policy point of view should not be used to compete against the country's own industries on the individual markets but, if possible, against foreign competitors.

The above figure gives an example of a concrete export analysis. I have singled out Hungary from the large number of countries observed because this example is particularly instructive. The figure on the left shows, first of all, that the trade and balance-of-payments conditions of 66

our foreign trade with this country are not particularly favorable. The German export surplus to Hungary and the German import share in total Hungarian imports have been declining steadily for years. The middle figure shows the extract of market-analytical observations on two of the most important Hungarian industries, namely textiles and leather. The sharply falling curves of imports of finished textiles and footwear and the equally sharply rising curves of imports of raw materials for the textile and leather industries impressively express the rapid development of Hungary's industrial self-sufficiency in these two fields. Finally, the picture on the right reflects the market policy conclusion of this investigation, which has already become practical export business here - namely, the existing opportunity for import growth in textile machinery, textile and leather chemicals and dyes. It would be pointless to try to increase textile and footwear exports to Hungary or even to encourage them by compensating losses from the export promotion fund, given the situation established by the market survey. On the other hand, an increase in export efforts in the field of textile and footwear machinery as well as textile and leather chemicals and dyes is in line with the development, the neglect of which would mean an irreparable loss for our export economy in terms of private and national economy. As can be seen from the picture, the export opportunity shown has been unevenly taken by the machinery industry and the chemical industry.

d) Economic monitoring as a foreign policy tool

Since the World War, the reevaluation of many values has led to a revision of views in foreign policy as well, views that used to be, so to speak, part of the ironclad stock of political offices. As is always the case in times of political and economic upheaval, in the field of foreign policy, too, the inertia of traditional principles is struggling with the dawning realization that the changed circumstances make new objectives and methods necessary. The attempts at political reorganization, from the founding of the League of Nations and its multiple transformations to the numerous regroupings of its members or opponents that have become visible since then, are clear signs of this general unrest. For the constructive shaping of political conditions, however, a reliable estimate of the forces of development of the individual nations and of their strength and direction is indispensable. The more reliable this analysis and the methodical processing of the current observation results, the more secure should be the epistemological basis of foreign policy leadership and the greater the assertiveness of constructive ideas and their will content. Of course, scientific research can only prepare the ground for action, not bring about or replace the political decision. Nor can it predict in detail the course of coming events, but it can determine with a fair degree of certainty the strength and direction of the forces at work, and from this it can deduce a judgment on the probable expression of the political will and the possibilities and prospects of success of the political objectives of the individual states. There are, however, as yet hardly any approaches to such systematic observation as an aid to policy. Statistical observation of the forces of development to which the governance of the individual powers is 67

subject, systematic deduction of the inevitable basic lines which result from this for external as well as internal policy, and judgment based on this about the overall political constellation as well as about the prospects of success of the respective political tactics should in future be part of the scientific armament of the political leadership of every great power. There is still more than enough room for political intuition in the assessment of conditions that defy methodologically exact recording. The fact that the individual powers still have little need for such a foundation of foreign policy is probably due to their lack of knowledge about the reliability of analytical methods and the versatility of the application of statistical forecasting in the field of politics. In addition, the systematic use of a statistical research apparatus for political leadership requires not only a long-term observation of the intricate world political and economic interrelationships as a whole and the peculiarities in the development of each individual country, but also a versatile talent for combination and an open-minded sense of the political consequences of economic and social development processes. Since the content of the book is devoted to economic observation and its evaluation for economic management and practice, only one example will be given here, which, however, traces one of the most problematic crisis intersections in postwar Europe.

The Danube problem

The population of continental Europe will grow by about 50 million people in the course of our generation. Of these, 30 million will be in the Slavic East and 10 million in the Mediterranean countries, while the population of Western and Central Europe is already almost stagnant. The population center on our continent will thus have shifted to the east and south by the middle of the century. The individual population migration, which has already proceeded uninterruptedly in the east-west and south-north directions during the last century, is likely to receive an increased impetus as a result, also in the form of the closed folkish expansion drive to the west and north, if it cannot be diverted elsewhere. This development is particularly important for Germany because it must withstand this pressure at the eastern and southern borders of the German settlement area without being able to escape to the west.

The main part of the population growth is to be expected in the east and southeast of our continent, where both Poland and the group of Balkan states are in the process of formation as new European great powers. The development of the population strength in the European East can be calculated from the birth and death rates under the condition of a peaceful further development.

Growth of individual ethnic groups in Europe from 1800-1960 1800 Germanic group Romance group Slavic group Continental Europe

46 64 36 146

Germanic group Romance group Slavic group Continental Europe

32 44 24 100

1900 In millions 86 103 78 267 In % 32 39 29 100

1930

1960

104 121 103 328

113 133 132 378

32 37 31 100

30 35 35 100

Population Development in the Eastern Region from 1920-1960 1920

Poland Danube region¹) Balkan countries²) Together

27 29 39 95

Poland Danube region¹) Balkan countries²) Together

28 31 41 100

1930 In millions 31 30 44 105 In % 30 28 42 100

1960

Growth 1920/60

43 34 58 135

16 5 19 40

32 25 43 100

74 17 49 42

¹) Austria, Hungary, Czechoslovakia. -²) Yugoslavia, Bulgaria, Romania, Greece.

The provision of sufficient food and employment opportunities for this increase in population will be a difficult problem inasmuch as agriculture in the eastern region must already be regarded as overpopulated. While in Western and Central Europe the population surplus, which could no longer be absorbed by agriculture under the condition of a growing standard of living and culture of the peasant population, has migrated to industry or to the overseas agricultural areas, in Eastern and Southern Europe, where sufficient possibilities for emigration or urban industrial formation were lacking under the principle of the Schollengebundenheit, an agricultural population density has developed which is almost twice as large as in the rest of Europe. The density of the agricultural population here currently ranges between 75-100 heads per square kilometer of agricultural land, compared to 45-50 on average in Central and Western European countries.

Agricultural population density per square kilometer of agricultural agricultural land Balkan countries Bulgaria 98 Romania 74 Yugoslavia 77

Successor states Czechoslovakia 66 Hungary 62 Austria 47

Central and Western Europe Germany 48 France 45 Denmark 38

If it were not possible to create opportunities for migration to industrial employment opportunities at home or abroad, the agricultural settlement density in Eastern and Southeastern Europe would be almost three times as high as in Central or Western Europe and about twice as high as in the territories of the successor states shortly after the middle of the century. Conversely, since agricultural yields per unit area in the countries of Eastern and Southeastern Europe are still substantially lower than those achieved by the countries of Central and Western Europe, agricultural production, and hence purchasing power per capita of the agricultural population, is only about one-fifth of the corresponding figure in Central and Western Europe. The still possible increase in agricultural yields alone cannot provide sufficient relief here. Under these circumstances, pressure on the area of the successor states will increase from both the northeast and the southeast. The disintegration of the Austro-Hungarian monarchy is largely a consequence of this development, which was hardly seen until the world war. If the surplus population in the Eastern European area cannot be bound by urbanization and industrialization or diverted by migration to the east and south, further political and biological developments will bring the danger of a complete loss of the originally Germanic settlement areas in this area within reach. The attempt of the Italian policy to establish itself here arises from the special political constellation after the war and the strong overpopulation pressure of Italy, whose natural outflow to the African settlement areas is narrowly limited by the property rights of the two oldest European great powers. The attempt must, however, under the given conditions of population policy in the southeast, be regarded as a political experiment, which, though costly to Italy, has little prospect of success and is likely to be abandoned sooner or later. Germany has an interest in ensuring that the growing population pressure in southeastern Europe is bound by industrialization. In the foreseeable future, the countries of Southeastern Europe will need increasing amounts of investment funds for the expansion of their transportation systems, their cities, and their industry, and for this purpose they will require foreign credit assistance, which can be given to them in the form of either gold or commercial loans. To enable German industry to obtain long-term supply credits for investment materials will be one of the tasks of Reichsbank policy in the near future, the solution of which may become a vital question for the German production goods industry and at the same time a political question of the first order for Germany. The long-term supply of investment requirements would be possible for Germany without burdening the balance of payments or the financial status, if at the same time the necessary additional imports of agricultural 70

products from these countries are covered.

B. Economic monitoring and economic management in the relations of the national economy with the inside. In the internal relations of the national economy, two large market areas in particular have shown themselves to be in need of planned observation and order, the monetary and credit system and the area of labor; two others are likely to be added in the future, the proper adjustment of our production organization to the framework of the new economic conditions and goals and the planned rationalization of the distribution organization. This is followed by a number of problems of hardly lesser importance, including first and foremost the question of how the economic cycle can be influenced by public financial policy and the awarding of contracts.

a) General business cycle monitoring and business cycle policy The state has a crucial interest in having a clear picture of the development of the national economy at all times and, above all, in being able to form an opinion about the probable effects of its economic policy measures. This interest is given, on the one hand, by the fact that the state literally and figuratively determines the outer limits of the economy, on the function of which, conversely, the inner strength of its political action depends, and, on the other hand, by the fact that the state also exerts the strongest direct influence on economic development through its tax and expenditure policies. If this is already true in times and countries where the state leadership limits its direct intervention in the economy as much as possible, then it is all the more true for today and for Germany, where the economic revival is due even more than in other countries of the world to the government's economic policy measures. For this reason, since the end of the war, economic institutes have been set up in almost all countries with government support, partly by methodically processing the figures supplied by official statistics and partly on the basis of their own surveys, to monitor economic developments and prepare the ground for economic action by government policy makers. The methods originally developed by the Americans and further developed by the European institutes are presented in a comprehensive literature, so that there is no need to go into them further here. A brief overview of their origins has been given in the section on the development of short-term research and short-term statistics. In part, their methods and results have also been exploited in the sections dealt with so far from the special point of view of monetary observation, commodity observation and foreign trade observation and in further examples in the following sections on the observation of the money and credit market, labor and the organization of production and distribution. The issue of tax policy and the balancing influence of government spending on the course of the economy has also received greater attention in recent years, which has found expression in corresponding statistical surveys and works.

b) Economic monitoring and economic management on the money and credit market Money and credit are economic goods that are not produced by credit institutions for consumption, but are managed in the interest of the entire national economy. In its modern form, the banking apparatus with its apex, the Reichsbank, has become, as it were, the center of the economy's bloodstream. No responsible state and economic leadership can allow its vital functions to be disrupted, even temporarily, by a private-sector bankruptcy, following the process of the coming and going of the many small entrepreneurial cells from which the whole body of the economy is built. The development of banking crises in recent years has demonstrated the necessity of this approach in all countries. For this reason, money and credit management in the modern national economy has moved from the sphere of free private initiative with entrepreneurial risk and profit to the sphere of a collective administrative task with public responsibility and backing. This development need by no means necessarily entail nationalization of private banking, but its far-reaching public control, and in turn demands of bank managements the transition from the practice of tact to systematic market observation as the basis of correct money and credit distribution. Laws alone, which seek to prevent a repetition by special provisions of the mistakes that became evident in the crisis - partly through no fault of the banks and of the private sector in general - are not enough. To the extent that the state exercises control over the monetary and credit system, it can do less than ever without an orientation of its policy on the basis of comprehensive economic monitoring for its own security as well as for the protection of the economy. With today's methods and means of statistical economic monitoring, it is relatively easy to follow with sufficient certainty the trend and cyclical development of the individual branches of the economy and, accordingly, to regulate credit policy and the distribution of credit according to macroeconomic criteria. This is all the more important now that the economic expansionary pressure formerly stemming from strong population growth has weakened and the consequences of incorrect credit distribution will not be corrected almost automatically as in the past. This is because the question of credit policy also looks substantially different in an economy moving from expansion to compression than in the reverse case. The fact that, beyond the prevention of a wrong distribution of credit, the state still has the unsolved task of steering economic development by means of its credit policy in the sense of a long-term balance of the national production bases should only be mentioned. It hardly needs to be said that in our present employment boom, which is financed by government credit, the problems of economic monitoring and economic management in the money and credit market have acquired an unprecedented importance. The questions of credit creation, credit distribution and credit utilization, their magnitudes in the context of the performance of the economy as a whole, and their primary and secondary effects on the employment situation, the price structure, government finances and the currency have virtually become questions of state policy of the first order, the systematic study and observation of which fall far short of the importance to which they have risen in the practice of state economic management as a result of the developments of recent years. The structural changes resulting from the continuation of this state credit conjuncture, which the longer, the more, cause profound changes in the whole economic organism, the necessities resulting from 74

the transition of this economic conjuncture from the basis of the prefinanced state credit to the basis of the national savings credit or real income, as well as the possibilities of the later consolidation of the preloads assumed by the public authorities, have virtually placed the problem of economic observation and economic management on the money and credit market in the center of the state economic policy. This development presents the private banking and credit system with the corresponding task of taking far greater account of macroeconomic aspects and, accordingly, of monitoring the economy more systematically than before. For example, for an organic credit policy, including the allocation of decentralized credit through the branch system, the usual practice of checking the credit security of bank customers according to purely private economic criteria is insufficient and must be supplemented by an economic examination of the credit needs and security of the entire economic sector. Without such a central examination of the market development of the individual economic groups in the context of the economy as a whole, the most careful credit security according to the private-economy principles of liquidity or profitability will always leave open the possibility of wrong dispositions, such as are known from the history of banking and financial crises in all countries. Systematic economic monitoring in the field of the money and credit market initially largely parallels the general cyclical statistical monitoring objectives, but it has special tasks in addition. To the extent that the methods and results of systematic economic monitoring from the banking point of view are similar to those of scientific economic monitoring or privatesector market research, they are not discussed here because they are dealt with in the corresponding sections. In addition to monitoring currencies, commodities and foreign trade, credit banks in particular need to systematically monitor individual economic groups as a basis for a healthy distribution of credit, and they need to monitor the stock market for their own information and for the purpose of advising customers. The work of the large bank archives, which in recent years have moved further and further from the administration of their large company and credit archives into the field of general economic observation, is by no means sufficient for the exact clarification of these relationships. The planned observation of the individual economic groups will be dealt with separately in the section on the economic order in the organization of production and distribution, so that only the stock exchange observation will be briefly discussed here.

The monitoring of the securities markets

The development of securities markets is of interest first of all for reasons of general economic monitoring. First, at the turning point of business cycles, it reflects the turnaround in speculative expectations regarding future business activity some time before the actual economic factors such as employment, production, sales and prices start to move. And second, in the course of the rising or falling wave, it registers with sufficient accuracy the point in time at which the capital market has normally become ripe for financing the upswing or, 75

conversely, is no longer able to sustain the further progress of the business cycle. However, what Mer means by planned stock market monitoring for the purposes of credit banks is precisely the opposite approach, i.e. estimating the likely course of price movements on the securities markets from general economic factors.

In stock market observation, too, the longest possible studies are necessary in order to gain clarity about the basic tendencies of the markets. A long-term observation of the leading world stock exchanges clearly shows that the price movement on the securities market oscillates in quite specific rhythms with the long-wave development of prices and other economic factors, but as a rule reacts in advance and considerably more violently. As an example, the picture of the price movement of U.S. industrial and railroad stocks in comparison with the development of production, prices and interest rates may serve, from which, apart from the subsequent and counter movements, the speculative exaggerations of both the bull and bear market peaks become clear. The trend of the Tn. dustrieaktienindex, like that of the industrial production index, is initially slow until about 1895 and from then on steeply upward. There can be no doubt that both curves, leaving aside the senseless speculative exaggerations of stock prices in 1926-1929, continue to trend upward. In the case of railroad stocks, the trend increase is not nearly as strong, but the price fluctuations are much more violent than in the case of industrial stocks. What is unmistakable is the sharp bull market that starts with the first interruption of the long-wave price decline after the Civil War and the World War - the first time around 1880, the second time around 1925 - and then turns into a price decline that lasts until the end of the long price wave. It is only shortly before the turning point of the new upward wave around 1895 that a strong rebound in share price levels takes hold, lasting for more than ten years. Similar movements are likely to be repeated in the near future. However, it would be very dangerous to transfer findings about the price movements of a particular national market to, say, foreign economies. How differently the individual securities markets react in the course of the economic development of their countries may be illustrated by the next picture, which shows a comparison of the price development on the leading world stock exchanges. It should be noted that by mid-1932 the price level on the international securities markets had reached a low for which there was no longer any justification in the overall economic situation. This was particularly true for the German securities exchanges, where a price average roughly corresponding to the low point after the collapse in 1918 was at odds with the actual economic situation, and furthermore for the British and North American stock exchanges, where, in the face of falling money and capital market rates, the decline in stock prices had resulted in an excess of stock returns which could only be regarded as temporary. By contrast, for the Western European stock exchanges, in line with their unfavorable economic development, the likely price movement could only be assessed within much narrower limits. The price increases since then have been particularly strong in Berlin (around 100 percent), London (around 50 percent) and New York (around 25 percent), while in Paris, in line with the continuing crisis, the price level has fallen by a further 14 percent. These differences, not only in the economic situation but also in the reaction of the individual markets in similar or similar economic phases, are continuing at present. A comparison of the four stock exchanges in Berlin, London, New York and Paris clearly brings them to light. In Germany, the government's capital market policy has pushed the yield on fixed-interest securities down to 4.7 percent in June 1935, but at the same time, as a result of continuing price increases, the average yield on stocks has fallen to 3.7 percent and is now only 77

insignificantly higher than the money market rates of 3 percent.

Price level and yield development in Germany Period

1929 1930 1931 1932 1933 1934 1935 January February March April Mai June

Stock return

5,69 7,11 8,72 5,62 4,14 3,83 3,63 3,79 3,77 3,84 3,71 3,68

Yield on fixed-income securities

Private discount

7,40 7,16 7,20 8,38 7,15 6,57 6,23 6,26 6,23 4,71 4,69 4,69

6,87 4,43 6,78 4,95 3,88 3,77 3,47 3,38 3,38 3,38 3,09 3,00

Span between Share yield and interest on capital - 1,71 - 0,05 + 1,52 - 2,76 - 3,01 - 2,74 - 2,60 - 2,47 - 2,46 - 0,87 - 0,98 - 1,01

Interest on capital and interest on money + 0,53 + 2,73 + 0,42 + 3,43 + 3,27 + 2,80 + 2,76 + 2,88 + 2,85 + 4,33 + 1,60 + 1,69

The English securities markets continued their slow upward movement in connection with the general economic trend, with the situation remaining largely balanced. At 3.1 percent, the return on equities can be described as normal compared with the return on fixed-interest securities of 2.9 percent and the private discount rate of 0.7 percent. This is because the return on equities, which is more sensitive to the business cycle and thus less secure, must be higher than the standard national interest rate on capital determined by the yield on first-class bonds and substantially higher than the rates on the short-term money market rain. By contrast, the low level of the U.S. securities markets must be described as abnormally low in view of the vigorously advanced consolidation of the financial and credit situation in the past year and the level of production and sales volumes. The unusually low money rates suggest a further substantial reduction in capital interest rates, and the increasing industrial and construction activity a continuation of profit increases. The pressure on the stock market is not economic, but purely political, and is rooted in the psychological reaction against government action. In addition, the U.S. stock markets do not tend to react as quickly as the European stock markets, either in their rise or in their fall, to changes in the economic situation. The upward movement during the years 1928-1929, which continued long after the already clearly pronounced turnaround in the general economic picture, seems to be repeated at present in the prolongation of the bearish tendencies with a long since obvious reversal of the economic trend. After all, this can only be of relatively short duration, so that correspondingly sharper upward price swings are to be expected.

Development of the price level and yield in England

Period

1929 1930 1931 1932 1933 1934 1935 January February March April Mai June

Stock return

4,16 4,86 5,46 4,84 3,59 3,12 3,20 3,08 3,16 3,28 3,19 3,11

Yield on fixed-income securities

Private discount

4,60 4,48 4,40 3,80 3,39 3,09 2,69 2,79 2,91 2,86 2,84 2,93

5,26 2,57 3,61 1,98 0,71 0,83 0,39 0,41 0,59 0,59 0,59 0,70

Span between Share yield and interest on capital - 0,44 + 0,38 + 1,06 + 1,04 + 0,20 + 0,03 + 0,51 + 0,29 + 0,25 + 0,42 + 0,35 + 0,18

Interest on capital and interest on money - 0,66 + 1,91 + 0,79 + 1,82 + 2,68 + 2,26 + 2,30 + 2,38 + 2,32 + 2,27 + 2,25 + 2,23

Price level and yield development in U.S.A. Period

1929 1930 1931 1932 1933 1934 1935 January February March April Mai June

Stock return

3,47 4,51 6,15 7,43 4,26 3,72 4,24 4,24 4,51 4,35 -

Yield on fixed-income securities

Private discount

3,65 3,40 3,46 3,74 3,46 3,41 3,36 3,37 3,43 3,45 3,47 3,50

5,10 2,53 1,65 1,34 0,67 0,29 0,16 0,16 0,16 0,16 0,16 0,16

Span between Share yield and interest on capital - 0,18 + 1,11 + 2,69 + 3,69 + 0,80 + 0,31 + 0,88 + 0,87 + 1,08 + 0,90 -

Interest on capital and interest on money - 1,70 + 0,87 + 1,81 + 2,40 + 2,79 + 3,12 + 3,20 + 3,21 + 3,27 + 3,29 + 3,31 + 3,34

The outlook for the securities markets of the Western European gold bloc countries continues to be less than favorable. Now that these countries have decided to reduce their internal price levels, which are excessive compared with the world market, by means of deflation, there is 80

no end in sight for the time being to the economic stagnation and thus also to the downward trend on their securities exchanges. In France, the restructuring measures planned by the individual governments have led to repeated increases in the price level, but these are only of a temporary nature and will not be able to prevail in the long term against the basic downward trend. In Zurich and Amsterdam, too, the exchange rate level has declined after temporary increases due to currency fears. For the practical use of banks, however, much more extensive investigations are needed into the different cyclical sensitivities and subsequent and counter movements of the various industrial groups or branches of the economy and, within the various groups, again into the different responsiveness of the individual securities. Such studies may become of crucial importance for the type and timing of capital investment and for the assessment of the risks assumed. If we stay with the German securities exchanges, the price movements of the individual groups of securities show astonishing differences, which should not be indifferent for the decision to invest capital and thus for the customer advice of the banks. For example, the price movements in the groups of banks, insurance companies and public enterprises are much more subdued than in the groups of manufacturing industries, where again the fluctuations are particularly mild in the group of food, textile and leather industries. Price fluctuations are most pronounced in the basic industries and the technical production equipment industries. A comparison of the yields, i.e. the interest income of the capital investment for the individual groups and securities, shows hardly less marked differences than the price movement, in which the speculative profit opportunities and loss risks of the capital investment are expressed. Even the usual yield calculations show extensive dispersion. However, these yield calculations are almost invariably misleading, not only because they mostly relate the dividend of the past fiscal year to the share price, whereas the latter expresses future dividend expectations, but above all because dividend shortfalls cannot be taken into account in the short-term yield calculations. If, in order to determine the real return on an investment in the long run, the average prices of the individual securities are related to their dividend yield over the nine-year economic period from 1926 to 1934, astonishing differences emerge. The result shown in the figure shows that in the period under review the values least sensitive to the business cycle, i.e. the values with the lowest capital risk, also generated the highest return on capital, and conversely the values with the highest capital risk generated the lowest average effective return. Pension stocks ranked first, followed by stocks in utilities, mortgage banking, food and beverages, textiles, leather and rubber, and chemicals. The average return of the particularly cyclically sensitive stocks of mining, iron and machine industry, electrotechnical industry reaches in the nine-year average period mostly only half or less of the return of the stocks mentioned before. Such observations can provide much better insights into one of the most controversial areas of the economy than the sixth sense usually attributed by the public to the stock market, which consists at most of some insider information and otherwise of speculation. Finally, an ongoing calculation of theoretical yields is also extremely informative, as their comparison with actual 81

stock market prices forms a good basis for assessing the intrinsic value of the price building and usually also provides information about the direction of future price movements some time in advance.

c) economic monitoring and economic control for the protection of the national work In addition to the systematic monitoring and regulation of the monetary and credit systems, one of the main areas of public economic policy in the future will be the systematic monitoring and regulation of labor relations. The field of labor is a prime example of a decisive economic and social problem in which the necessary reorganization must be carried out with the greatest possible help from the state. This is because technical rationalization, together with the strong birth cohorts entering the labor force after the war and the simultaneous restriction of emigration opportunities, has created a surplus of labor supply in all industrialized countries that can no longer be reduced to a socially tolerable level by private-sector means alone. Of the total of 30 million unemployed released at the low point of the crisis, more than 20 million are still unemployed today, now that large parts of the world are again experiencing an economic upswing. It should be borne in mind, however, that of the 10 million accommodated, at least half could only be brought back into working life through public job creation schemes. Even in England, where a "theory-based" boom has now been achieved with the classical methods of economic policy, unemployment could not be brought down 82

much below the level of 2 million against 3 million during the crisis. In the field of labor, a completely intolerable state of affairs had developed in Germany and in other countries as a result of the mutual struggle between employers' and employees' organizations, the development of which was only possible because both sides used a semicollective form to fight out private economic interests - namely the hourly wage and the profit rate. The development of the last decade has shown that the wages fought for in this way on the one hand and the forced rationalization on the other have in their final effect only resulted in the losses and costs of this struggle being passed on to the general public in the form of unemployment burdens. It has already been pointed out elsewhere1) that the disruption of the labor market was caused in part by the fact that in the highly rationalized investment industries, with fixed working hours, job capacity was reduced and hourly wages increased, and that this wage increase, under the compulsion of trade union policy, was schematically transferred to the only slightly rationalized consumer goods industries and led there to corresponding price increases. This disruption could only have been stopped if, instead of equal hourly earnings, equal weekly earnings had been aimed at in all industries, and if the increased labor output in the rationalized industries had been compensated by a corresponding reduction in working hours with a fixed number of workers. Although the calculations made on this problem can by no means be described as ideal, they will be included here for better understanding.

Rationalization, wage and working time policy and unemployment

Despite the sources of error and deviations associated with the choice of methods, the study of the increase in labor output caused by rationalization in the years 1925-1930 clearly revealed the similar development of technically and organizationally related groups of industries. Among the production industries, the strongest increase in labor output was shown by individual branches of mining and the large iron industry, as well as mechanical engineering, which are also otherwise primarily considered to be the carriers of the rationalization idea:

Mining up to Large iron industry up to Machine and vehicle construction Iron and metal ware industry

Average increase in work output 1926 to 1929/30 60 % 35 % 35 % 25 %

This is followed by a number of more medium-scale industries that have become considerably motorized or rationalized through expedient work organization during these years:

Wood and carving fabric industry Construction Chemical industry

Average increase in work output 1926 to 1929/30 16 % 15 % 13 %

The industries, some of which are still largely organized along craft and small trade lines, showed the weakest increases in labor output:

Industry of stones and earths Paper industry and printing Food and wholesale industry Electro technical industry

Average increase in work output 1926 to 1929/30 10 % 10 % 10 % 6%

The two distinctly consumer goods industries - textiles and leather - did not show a structurally assessable increase in performance until 1930:

Textile industry up to Leather industry up to

Average increase in work output 1926 to 1929/30 10 % 5%

Structural unemployment, which had been progressively intensified by rationalization in industry since 1925, was cyclically masked by the simultaneous increase in the volume of production in 1927 and 1928 and only became fully visible in 1930/31, when the volume of production again approached the size of 1926. This development becomes clear if one compares the movement in the volume of production and the volume of work. The production volume in 1930, which was more than 10% higher, was already achieved with a number of working hours below the average for 1926, and the production volume, which was only slightly below the magnitude of 1926, only required a quantity of labor that was more than 15% lower in 1931. Accordingly, the change in the number of employees for industry as a whole in the years 1926-1931 is made up of the following components:

In line with the increase in labor intensity, there have been considerable increases in hourly wages in the highly rationalized branches of industry in 1927/30, some of which have lagged behind the increase in output per hour worked, so that the share of wages in total output is showing a downward trend. This process is quite normal, since the share of capital costs in production must rise with the investments to achieve the increase in output.

Year

1927 against 1926 1928 against 1926 1929 against 1926 1930 against 1926 1931 against 1926

Structural through performance improvement in 1000 - 487 - 924 - 1357 - 1214 - 1016

Cyclical due to change in production volume in 1000

Calculated change in workforce in 1000

Actual change in workforce in 1000

+ 1996 + 2495 + 2734 + 805 - 505

+ 1509 + 1571 + 1377 - 409 - 1521

+ 1253 + 1373 + 1110 - 345 - 1282

Increase in work output in 1930 vs. 1926 = 100 Machinery industry Iron and steel products industry

135 125

Increase in collectively agreed wages 1930 vs. 1926 = 100 125 125

The general wage movement in the years 1927-1930, however, transferred the increase in time wages, which in the highly rationalized industries was based on the increase in output intensity and thus economically justified, in a quite schematic way also to the little or nonrationalized consumer goods industries, in which the increase in hourly wages was not matched by a corresponding increase in labor output.

Increase in work output in 1930 vs. 1926 = 100 Paper industry Electro technical industry Textile industry until

110 106 110

Increase in collectively agreed wages 1930 vs. 1926 = 100 124 125 125

The consequence of this development was the tendency toward an increasing share of wages in the total product and thus toward an increase in production costs and prices, which automatically pushed neither in the direction of a return of the real wage to the level justified by the production output. This development can be clearly traced.

Machinery industry Mining Iron and steel products industry Wood industry Textile industry

Change in the wage share of of volume production 1930 of value production 1930 vs. vs. 1926 = 100 1926 = 100 93 89 99 93 100 104 110 105 124 125 85

Depending on the weight of the labor share in production, this development of the labor cost share also sought to be reflected in the pricing of the finished product. However, since price developments do not depend solely on the movement of production costs, but primarily on market conditions, only symptomatic tendencies can be traced here. In the upswing years after 1926, the price development of the products of the most rationalized industries generally shows a smaller upswing than the price development of the products of the less rationalized or non-rationalized consumer goods industries. A comparison of the development of sales and total wages best shows the error of the theories still propagated in Germany during the downturn, according to which an increase in purchasing power was supposed to be brought about by raising wages alone. That this cannot be a permanent increase in real purchasing power without a corresponding increase in labor productivity hardly needs proof. A comparison of the individual industrial groups shows that the labor force of the rationalized industries has increased its production considerably more than its income, while the labor force of the little or non-rationalized consumer goods industries has increased its purchasing power far beyond its production.

Machinery industry Iron and steel products industry Textile industry Leather industry Food industry

Increase in volume production 1926 = 100 166 150 125 117 120

Increase in payrolls 1929 vs. 1926 = 100 149 139 140 130 135

The result of the development in the period under observation was therefore not only an increase in production costs which varied from industry to industry, but also a strong differentiation of purchasing power within the various occupational groups of the labor force, to the disadvantage of the labor force of the rationalized production goods industries, which, in addition to the risk of greater sensitivity to the business cycle, also had to bear the main part of the unemployment caused by the increase in output. Thus, the schematic trade union policy aimed at equalizing the hourly wages of the various economic groups has in reality led to the greatest inequality of labor incomes in the various occupational groups of the labor force and has shown that apparent equality and justice can in fact lead to the sharpest inequality and injustice when it is imposed without knowledge of the economic conditions and consequences. Although public labor policy has now greatly eased the burden in this area, our employment situation is still far from organic consolidation. As extensively as official statistics today examine the questions of working conditions, working hours and wages, the observation of this fundamental area of national labor is for the time being still stuck in the beginnings of an unemployment arithmetic or, at best, an unemployment social statistic. The economic-statistical observation and investigation of the relationships between working hours, work performance and wage levels, the relationship of wage costs to the total costs of production with changed capacity utilization, the relationship between manual and machine 86

labor in the individual industries, including the question of the "fair wage," still offer a wide field for fruitful cooperation between the trustees of labor, the business and professional associations, the German Labor Front and, last but not least, official and scientific statistics. It is all the more welcome that the German Labor Front now intends to open up these conditions to systematic study by founding an institute for the study of labor.

d) Economic observation and economic order in the organization of production and distribution.

The importance of systematic monitoring of economic groups is given both for the economic management of the state and for the organization of the economy. Particularly in economic self-government, it plays a role that should not be underestimated for the foundation of 87

economic management within the individual economic groups and their orientation to public economic necessities, as well as for advising the affiliated individual enterprises. This latter task is especially important for economic branches and associations with many medium-sized and small enterprises, which are not in a position to maintain their own scientific apparatus for these purposes. Monetary, commodity and export monitoring and management, which is important for agriculture as well as for industry to the extent that it is not maintained on the part of the state and the central bank, has already been discussed in the previous section. The tasks and methods are the same when carried out by the organizations of economic selfgovernment. The same applies to general economic monitoring. Therefore, as an example of the areas of economic monitoring and organization falling within the sphere of interest of business associations and private enterprises, only the monitoring of the individual economic groups will be discussed here from the point of view of the domestic market. I must say in advance that the important question of economic monitoring and management for agriculture can only be touched upon here, because the entire agricultural area has already been subjected to a reorganization through the creation of the Reichsnährstand and a comprehensive agricultural market organization. However, the results are still so largely in flux, and the work being carried out or prepared in the individual departments of the Reichsnährstand, partly in cooperation with scientific research institutes, is also too obscure for the outsider to be able to go into details. Perhaps the suggestion may be interwoven that the investigations should not be limited to the agricultural area alone, but should be extended more to the mutual interdependencies and dependencies between the agricultural and industrial economies, or more generally, to the special ties and limits of agriculture as part of the overall German economy. For it is clear that, especially with the economic and social structure of the Reich outlined at the outset, agriculture is not only a vital foundation but also a serving member of our state and national economy, whose proper and organic integration into the totality will be of great importance. After these brief remarks, which, however, cannot do justice to the importance of a planned economic order and economic management in the agricultural field, I would like to turn to the problem of economic observation and economic order in the field of the industrial economy. Most economic groups today keep statistics on their affiliated enterprises and sometimes also compile documents on the course of business in their sector, without, however, advancing to a really systematic and sufficient observation of their economic sector. Experience has shown, however, that the tendency toward collectively wrong dispositions of all enterprises in an economic sector is particularly strong in the case of structural shifts, such as those resulting from major wars, because the economic development triggered by these shifts is beyond the personal experience of the individual managers and, in most cases, even of the living generation. The misallocations in Germany, the USA and other countries, where a particularly strong shift in the economic structure took place after the last war, are too well known to need special mention. As a result of the general structural change of the individual national economies and their world economic exchange relations, which is becoming more and more apparent in our wave, this problem of collective misallocations has not yet lost any of its topicality. But such collective errors, which arise from a lack of market knowledge and 88

market organization, also become apparent in every period of cyclical upheaval. An example is the machine disposition of the textile industry in the last cyclical period. From experience, the textile industry is an industry that leads the other industries in every turnaround period, both in the upswing and in the downswing. This industry had already reached its production peak at the end of 1927, while machine orders did not peak until mid-1928. The peak in machinery orders thus occurred at a time when textile mill activity was already declining and the newly acquired machinery could no longer be put into full operation. Such and similar discrepancies between the dispositions made on the basis of the current employment situation and the cyclical statistical experience of the strength and duration of the cyclical economic movements of the individual branches of industry can be reduced, if not avoided, by appropriate economic management of the profession today. What has been said here about the domestic market naturally applies equally well to the systematic observation of foreign procurement and sales markets on the export side. I will therefore give a few examples of planned economic monitoring for two of the industries that have been particularly promoted by public contracts in recent years, the textile industry and the leather industry.

The German textile industry

As the leading consumer goods industry, the textile industry differs to a large extent in its business cycle from the production goods industries, such as iron and machinery. While the course of business in the production goods industries depends primarily on the financing possibilities and determines the business cycle by swelling in times of low interest rates and slackening when capital becomes scarce, employment in the consumer goods industries, and especially in the textile industry, depends on the purchasing and inventory disposition of the retail trade and secondarily on the development of mass purchasing power, apart from government orders, which can become of extraordinary but only temporary importance at times. However, while the increase in purchasing power and thus in retail sales tends to lag employment growth by several months, the expectation of rising prices prompts retailers to speculative covering purchases at a relatively early stage, so that orders and employment in the textile industry tend to rise immediately after the increase in the production of goods, but also to fall again just as quickly. By contrast, the difference between peak and trough production in the boom and crisis periods is nowhere near the margins that are common in the capital goods industries, especially in the iron and machinery industries.

The sharp rise in German textile production in the first few years after inflation - interrupted in the summer of 1924 and the winter of 1925/26 by the financing crisis in the wake of stabilization - was driven by the need to replenish stocks among consumers and retailers alike. However, as early as the beginning of 1928, while the production of manufactured goods was still increasing, this one-time special boom for the textile industry came to an end. Nevertheless, textile production held at a relatively good level until early 1930. As a comparison of production, raw material inventories and prices shows, the slowdown in raw material purchases in mid-1927 and the curtailment of production in the spring of 1928 were not a consequence but rather a cause of the decline in textile raw material prices that began in mid-1928. Retail sales did not peak in value terms until 1928, and in volume terms did not fall by nearly as much as production. As the economy began to decline in the second half of 1929, the situation for the textile industry also worsened. Wholesale prices for finished textile goods, which had already begun to crumble in 1929, fell sharply in early 1930, with retail prices following at intervals of several months. Production and prices reached their lowest point in mid-1932, but the annual average decline in production in 1932 compared with 1927 was only 26%, against 64% for the capital goods industries and 39% on average for all industries. The impetus for the renewed increase in production came in mid-1932 from the turnaround on the world raw materials markets in connection with the Lausanne Agreement. As early as spring 1932, imports of raw materials had increased slightly for the first time since 1927. In July 1932, prices for raw materials and semi-finished goods began to rise, and in May 1933 the market situation again permitted an increase in wholesale prices for finished goods, which retail prices initially followed hesitantly. The full-scale public procurement of labor in mid-1933, reinforced by the special boom in clothing for political formations, brought textile production in the fall of 1933 back close to its 1928 level. The need to curb imports caused a drop in production in the cotton-processing industry of around 20% from June 1934, but this was not followed by the other branches of textile production. At the beginning of 1935, business activity in all textile sectors was on average around 2 percent higher than at the beginning of the previous year. H. higher than at the same time the previous year. A guide to assessing the profitability of the textile industry is provided by share prices and the frequency with which payments were suspended. The stock index of the textile and clothing industry shows the picture corresponding to the general stock market trend of recent years. However, the return of the textile industry is -significantly lower than the return of the manufacturing industry as a whole, which shows its less favorable situation and the relatively high valuation of its shares on the stock market. The curve of bankruptcies and composition proceedings shows a pronounced countermovement to the curve of the stock index. At present, the number of bankruptcies and composition proceedings is still lower than in 1927. The favorable employment situation in the textile industry in 1927 and 1928 caused the strong new investments, which are visible in the extraordinary increase in orders for textile machinery in these years. Machine orders in 1934 substantially exceeded the 1928 level; the huge increase in October and November 1934 to 182 and 232 percent of the average 1928 level is due to the compulsion to convert spinning mills, in particular, to the processing of 91

previously unused fabrics and the expansion of artificial silk and artificial fiber production. For an assessment of the current situation, an examination of raw material imports is instructive. The import figures since 1925 confirm the abundant supply of the textile industry in the past year. The high level of imports in 1933, with production only equal to that of 1930, led to an exceptionally large increase in raw material stocks, which in April 1934 almost reached the peak level of 1927. On the other hand, imports in 1934 were insufficient in relation to the level of industrial activity, which was only 7.4% below that of 1927, so that recourse had to be made to accumulated high stocks. An overall view of the present situation still shows relatively high production, but because of the insufficient supply of raw materials for this purpose, it can only be sustained by a sharp reduction in inventories. The inadequate relationship between imports and production also exists between raw material supplies and production. The level of production in January 1935 is roughly equivalent to production at the end of 1928, but the average raw material stock at that time was almost 50 percent higher than current stock levels. These figures on production, stocks and imports shed light on the tensions presently existing in the textile industry as a whole. They are less severe in some of the industries included here, and more severe in others. The development of imports and the increase in in-house production of raw materials will become the decisive factor in this shrinking of inventories. Neither the current easing of the retail trade situation, which occurred after the end of the purchasing wave of the previous year, nor the latest increase in imports should obscure this. The latter is seasonal and too small.

The German leather industry Like the textile industry, the leather industry is also dependent on foreign countries for its supply of raw materials, and just as there, Germany's additional imports of raw materials are normally matched by additional exports of finished goods - leather and footwear. However, the dependence on foreign countries for raw materials is less pronounced than in the textile industry, since around half of the hides and skins required come from domestic slaughtering. Hides and skins are by-products of meat production; therefore, the level of raw material supply on the domestic market is not determined by industrial demand, but by factors outside the leather industry, namely domestic meat consumption. The relatively uniform level of this consumption also means that the supply of hides and skins is subject to only minor fluctuations. As a result, the fluctuations in the industry's raw material requirements resulting from the respective business situation are transferred to the part of requirements to be additionally covered by imports. The movement of additional imports of hides and skins runs parallel to the course of business in the leather industry and is therefore informative both for the course of business and for the planning of the leather industry. The leather industry comprises leather production - tanning and finishing - and leather processing, within which the shoe industry deserves special attention because of its outstanding importance. More than 80 percent of leather production is processed into shoes. In the case of the shoe industry, moreover, the business trend can be monitored directly in 92

the short term with the aid of monthly shoe production; for leather production and other leather processing - manufacture of transmission belts, leather and saddlery - it can only be inferred indirectly from the level of employment. Since the stabilization of the mark, the business performance of all three branches of the leather industry has followed the familiar economic rhythm of the post-war period in Germany. However, there are significant differences between the individual branches of the leather industry and between the development of capacity utilization and actual production. In the boom year of 1927, with production up by 16%, capacity utilization in the leatherproducing industry was lower than in 1925, a result of the rationalization measures implemented immediately after inflation. In the footwear industry, capacity utilization increased by 4% from 1925 to 1927, while production rose by 38%. In addition to rationalization, this exceptionally strong upswing in production was also due to a change in footwear consumption, which began to give great influence to fashion, especially in the case of women's shoes. The disproportion between leather production and shoe production is explained by the advance in the manufacture of lighter footwear with lower leather consumption and by the unusual leather import surplus in 1927. In some cases, production was also speculatively exaggerated as a result of the mediated rise in hide prices on the world market. At its peak in early 1928, the boom in raw material prices triggered sales and financing difficulties in the leather business, which led to an increase in bankruptcies. The expansion of production in the shoe industry, which began in early 1925, served at the same time as a systematic defense against Czechoslovak competition in lighter and cheaper shoes on the German market, which, especially in 1928, had transformed Germany's usual export surplus of shoes into an import surplus. The peak of this import surplus in early 1928 resulted in a low in German production, but from then on the German shoe industry succeeded in pushing back the foreign competition. Foreign trade and domestic sales in the German leather industry are clearly moving in opposite directions. With good domestic sales, additional exports remain small; a reduced absorption capacity of the domestic market forces an increase in exports. The German market's hunger for goods after the end of the war and inflation led to peak imports of raw materials as well as surplus imports of leather and footwear. The crisis at the beginning of 1926, on the other hand, caused not only an emergency export of leather but even a small export surplus of hides and skins. From 1928 to 1932, Germany was able to maintain a more or less constant level of leather exports. The increase in exports of footwear also reflects the interaction between domestic sales and exports. At the low point of the crisis in mid-1932, the leather-producing industry recorded a drop in production of around one-third compared with the peak of 1927. The shoe industry held up better, with output falling from 108.5% to 85.3% between 1927 and 1932, i.e. by less than a quarter of the 1928 level; however, its capacity utilization also fell by almost 40%. It is largely a belt manufacturing industry, i.e. a production goods industry whose production is subject to much greater fluctuations than that of the consumer goods industries; on the other hand, its

leather goods cover a far more elastic demand than the shoe industry. Capacity utilization fell from an average of 56.8% in 1928 to 23.5% in 1932. The beginning of an adjustment of world economic conditions as a result of the end of German reparations in mid-1932 brought about a trend reversal on the world's raw materials markets. The price increase led to covering purchases by the leather-producing industry and rising production. The purchasing wave spread to the processing and especially the shoe industry, whose stocks also had to be replenished. The year 1933 brought the leather industry the special boom of a strong increase in consumption as a result of equipping the new associations and formations with sports shoes and marching boots. The demand for leather goods lifted employment in the leather processing industry, where it had declined the most during the crisis, relatively the most. On average in 1934, shoe production already exceeded the 1929 level again. A comparison with the production indices of other industries gives the following picture.

Year

1925 1928 1932 1934

Shoe industry

Textile industry

78,5 100,0 85,3 104,1

89,8 100,0 80,0 100,8

Consumer goods industry 79,7 100,0 77,7 93,1

production goods industry 82,1 100,0 50,2 81,0

Total industry 80,1 100,0 61,2 85,8

The domestic character of the leather industry's recovery since 1932 is evident from the movement of its foreign trade. Additional exports of leather and footwear have declined, and since the beginning of 1934 there has even been a leather import surplus on several occasions. By contrast, raw material imports have increased steadily since 1932, although in the spring of 1934 all German raw material purchases had to be suspended for a time. An agreement concluded with Argentina in September 1934 enabled Germany to increase imports of hides considerably. January 1935 saw the highest increase in imports since January 1925. In addition, the shortage of fodder caused by drought in the fall of 1934 increased the domestic supply of hides, which had been subject to planned government management since May 1934, to such an extent that the total supply to the industry, i.e., domestic supply and additional imports, was more than 50% higher in January of this year than in 1928. Industrial output fell far short of this ample supply, especially since equipment for associations, which is of a oneoff nature, declined rather than increased. Retail sales in December 1934, the peak month of each year, also lagged not insignificantly behind December sales in 1933. The plentiful supply of raw materials had led in the spring of this year to the allocation of small special quotas to the mills and, at the same time, to two reductions in the target prices which had been set soon after the curtailment of purchasing in the spring of 1934 in order to prevent the price increase in hides and skins which was to be expected if forces were allowed to play freely. As world market prices fell significantly in the course of 1934, the stability of German prices led to a 94

temporary high compared with those on the world market, but this has since disappeared. The special boom in the leather industry, particularly in 1933, was also reflected in the valuation of its shares on the stock exchange. The price, which was already well above the average for shares in the manufacturing industry, was far ahead of the rest in 1933 and early 1934. As a result, shares in the leather industry are currently not significantly below the level of their highest level in 1927/28, while textile shares have reached only one-third of that level, although the curve of bankruptcies and composition proceedings there also remains at the low level of those boom years. In summary, the picture for the German leather industry is much more favorable than for the textile industry. Until recently, raw material supplies were more plentiful than ever before. Its decline in recent times does not pose a threat to business and thus to employment in the industry, since despite a strong recovery from the crisis, it has not yet reached the level corresponding to the supply of raw materials. The reintroduction of compulsory military service brings a new powerful boost to the leather industry, which can succumb to it more easily than the textile industry, for example, because of its relatively lower dependence on foreign raw materials. As everywhere else, however, the importance of exports becomes apparent, so that the supply of raw materials can be adapted to the new necessities. For the time being, however, the overall outlook for the leather industry is not unfavorable, which is also reflected in the high valuation of its share prices.

Such graphs and series of figures as those shown here can, of course, only provide a general, but for this very reason particularly valuable, basis for the ongoing observation of the course of business in the industrial groups concerned. It need not be emphasized that, in addition, studies on the location, the operational structure and the development of the most important enterprises in the respective industry cannot be dispensed with. As far as observation and order in the distribution organization are concerned, extensive and valuable work is being done in this field in the research center for retail trade, which has now been transferred to the Reichskuratorium für Wirtschaftlichkeit, and in university institutes, which, however, have so far been more concerned with the private-sector problems of trade. Only recently has a more macroeconomically oriented review of the organization of distribution and the routes of individual goods from the producer to the last consumer begun. There is no doubt that a systematic examination of the individual routes of goods will yield quite remarkable results. The organization of distribution, with its strong sociological ties, follows the rapid changes in production and transport technology only very slowly today; as controversial as this area has occasionally been and will again become, one may hope that it will not escape a loosening up in the sense of a more rational organization from a macroeconomic point of view in the long run.

C. Business monitoring and market research in the private sector The areas discussed so far, in particular currency and raw material monitoring, monitoring of domestic and foreign procurement and sales markets, and monitoring of capital markets and economic groups, are, in addition to general economic and business cycle monitoring, also of decisive importance for the large private companies, as long as their careful maintenance by the trade associations does not make the affiliated companies' own work superfluous. In addition, however, it is important for the individual companies to observe the market for their own products and to combine these results with the figures obtained from internal operations. Economic monitoring in large industrial companies is therefore directed both inward, where it must continuously record and control the results of the company's operations in figures, and outward, in order to record changes in the economic environment and their repercussions on the course of business and the company's economic policy:

a) Accounting and statistics as the basis of the internal operating order. In recent decades, statistics in large-scale industrial enterprises have experienced a strong upswing, albeit with substantially different objectives and, in some cases, different methods than official statistics or statistics of economic and occupational status. As far as the collection and processing of basic statistical material is concerned, statistics in large industrial enterprises serves the central accounting department or the individual factory or sales accounting departments, which uses the usual technical and mechanical methods to arrange the accumulating numerical material of purchasing, production, warehousing and shipping, advertising and sales according to certain aspects that are important for the management. As a rule, this work is carried out in such a way that the copies of incoming and completed orders, work or wage slips, freight bills, delivery bills and sales invoices are sent to the statistical department, where they are processed and counted with the aid of Hollerith machines according to a wide variety of characteristics - for example, sales quantities and values by country, product and customer, and sometimes even according to the size and type of particularly popular packages. This statistical department, which is indispensable in large-scale operations, has only statistical-technical tasks to solve and the fidle of the numerical material accruing from current operations to process for accounting. This accounting material forms the basis for the current order in the internal operation, which enables an overview of the flow of goods and money in the enterprise and the results of the operating activity at any time. Therefore, in industrial enterprises, internal business statistics is usually also organizationally integrated into the accounting department. A description of the tasks of accounting and business statistics in detail can be omitted here, since there is sufficient literature on the subject. The other side of statistics in large industrial enterprises is the observation of the economic environment with the help of statistics, in short, statistical economic and market observation. While in the previously discussed case the statistical-technical processing of numerical material from the enterprise was decisive, this relatively young branch of private statistics involves primary statistical work only in special cases. As a rule, it is sufficient to collect the 97

statistical material supplied by official and association statistics as well as by the business press according to certain aspects and methods, to combine it with the numerical material from the company's own operations and to evaluate it for the company's purposes. In its aims and methods, this statistical work therefore resembles official statistics less than it does the semi-official or private economic and market institutes that have sprung up in all countries since the war, although it often has to venture far beyond this into the realm of estimates and forecasts. This is due to the fact that the economic statistics apparatus of a large company, which is really involved in the business, is asked questions - usually at very short notice - which would normally not be asked of any statistical office or business cycle institute, and which they would certainly refuse to answer. Since the tasks and methods in question are still relatively little known, a brief description of the most important will be given below.

b) Economic monitoring and market research as a basis for external market regulation. Apart from the areas of economic monitoring already discussed in sections A and B, ongoing market and price monitoring plays an important role in private enterprise. Every large industrial enterprise needs raw and auxiliary materials of domestic or foreign origin, and the cost price of these raw or auxiliary materials can have a great influence on the cost price of the finished product. The purchasing and sales policy is not a question for the statistician, but for the merchant, who must be oriented to his market. Nevertheless, statistics can provide valuable assistance here. This is because the merchant is normally only informed about shortterm price trends and about the prevailing market situation; as a rule, however, he knows nothing more from his work about whether the price level, viewed from a broader perspective, is to be regarded as high, low or normal, and just as little about whether and in what periods of time changes in the general economic situation must be expected, which would also change the calculation basis of his specific field of work. Longer-term price observation can be of excellent service here by determining the long-term price direction and assessing the current price level accordingly. It can also predict even shorter-term price fluctuations with a relatively high degree of reliability by systematically collecting all statistical material on production, consumption and inventories and by carefully monitoring the employment situation in the main consumer industries. The most extensive area, however, is the observation of sales markets for new or already marketed products of the company. It begins with a collection of all statistical documents on the sales opportunities for the product in question and ends with as complete a study as possible of the competing companies on the market. Since almost every single market investigation requires a different set of figures and data and, depending on the completeness and usefulness of the data, a different method of estimation and combination of conclusions is necessary, a uniform scheme for this task cannot be given at all. If it is a consumer good that is regularly consumed by a certain age group, income level or occupational class of the population and is perhaps also distributed by a very specific branch of the retail trade, then relatively good progress can be made with the official population and occupational censuses, with the tax statistics and, in certain cases, also with the production and transport statistics. 98

As a rule, however, the situation is not as simple as, for example, in the case of an investigation into the structure of the sales force for the distribution of a new article, which can be carried out according to the regional distribution of a particular branch of trade or commerce that is the main consumer or distributor of this article. In order to obtain a truly accurate picture of the market and competitive situation, it is not uncommon to have to directly interview consumers or consumer associations, e.g. housewives' associations, small traders or wholesalers, which may then necessitate an extensive organizational apparatus for interviewing and evaluating the results, depending on the breadth of the market. However, the further one penetrates into the area of production goods, the more quickly these possibilities fail and the more important other numerical material becomes, which often has to be compiled from partial statistics or individual data and often only permits indirect conclusions. For example, for machinery sales, the development of the individual branches of industry and their employment situation is important, depending on the purpose of the machines; for paint and chemical sales, the development and course of business of the textile, leather, glass and paper industries, their cyclical fluctuations and fashion changes are of particular importance. The documentation for studies of these markets cannot be limited to the employment situation of the industries mentioned, their consumption of raw materials and their sales of finished products, but must also cover the influences of domestic and foreign customs policies, the development of the population's purchasing power and, where industries are mainly dependent on financing, as in the case of construction, for example, the situation on the money and capital markets. The same applies to the currently particularly important question of introducing a domestic substitute product in place of foreign raw materials and finished products. The production of a new metal requires investigations into the uses and magnitudes of the previous consumption of other metals in the various areas of consumption; the production of a domestic plastic suitable for insulating purposes requires a review of the previous importation of insulating materials from abroad together with their commercial significance, which varies greatly depending on the trade or foreign exchange agreements in force. It should be noted in passing that the existing organization for the further distribution of the imported materials within the German economy and their final use by consumers must also be clarified. The ongoing monitoring of export conditions and export opportunities occupies a certain special position. It goes without saying that at the same time as the economic crises and the upheavals in the sphere of credit and currency, not only have old trade routes been blocked, but new ones have been opened. However, it is necessary to look for these ways. Studies of how and in what order export opportunities for various industries and products rise or fall in the course of economic development, industrialization or reagrarization of individual importing countries are important not only from the point of view of private business but also of the national economy as a whole. However, the forms of compensatory business in foreign trade which have arisen as a result of the collapse of monetary relations, if they are pursued systematically, presuppose a constant review of the trade balances and the individual import and export positions of the various countries. For the statistical department of a large 99

industrial enterprise, this branch of the export business in particular entails a wealth of new work, which it facilitates as far as possible by means of ongoing card-based evaluation of the trade statistics of the individual countries, their customs and foreign exchange legislation and their other economic developments. The economic success of the continuous market monitoring for the company is a better foundation of the business policy, a comprehensive and reliable knowledge of the market and its development tendencies and a protection against wrong capital investments. Carried out on a broader scale by individual companies, it can even lead to better regulation of the market and mitigation of its cyclical fluctuations. Therefore, some generally interesting examples of market surveys will be presented in their main features below.

c) Examples of different market analyses and their results When three examples of market analyses are given below, it is not possible within the limited scope of this topic to describe the various operations in detail, but only to present some particularly interesting working methods and results which give an idea of the versatility and usefulness of market observation both for economic considerations and for private-sector market dispositions. The three examples are selected in such a way that the first is taken from the field of capital investment and inventory policy, the second from the problem of domestic raw material supply, and the third from the subject of compensation considerations for the maintenance and promotion of exports. Analysis of the lignite briquette market Almost two thirds of German lignite briquette sales go to domestic firing and about one third to industry. The lignite briquette market is therefore much more dependent on developments in the field of domestic heating than on developments in the field of industrial firing. The analysis revealed in the short-term development a main dependence - the winter temperature - and a secondary dependence - the economic situation - and likewise in the long-term development a main dependence - the new addition of dwellings by size and type of construction - and a secondary dependence - the expected development of the industry. As far as the dependence of briquette sales on the winter temperature is concerned, an observation of consumption over the heating years 1926/27-1929/30 showed that a decrease or increase in the average winter temperature corresponds to an increase or decrease in consumption of lignite briquettes in domestic firing of about 0.8 million tons. The schematic diagram shows the determined influence of the winter temperature on the consumption of domestic briquettes. In the heating years 1926/27 and 1928/29, the winter temperature fell steadily and consumption of briquettes for domestic use rose accordingly. At the same time, as a result of the economic upturn, consumption of industrial briquettes also increased. The abnormally mild winter of 1929/30 coincided with the economic depression, so that the two factors determining briquette consumption now had the opposite effect on briquette consumption. In addition, the briquette calamity that occurred in the unusually severe winter of 1928/29 had prompted traders and consumers to stock up far beyond the normal level, 100

which could then not be sold in the winter of 1929/30, which, contrary to expectations, was mild. As a result, at the beginning of the 1930/31 heating year, traders and consumers still had around 2.4 million tons more than usual in stock. Although these stocks had fallen to the usual level by the end of the year as a result of a reduction in purchases, the briquette stockpiles of the mines and syndicates were 2.5 million tons higher than normal stockpiling due to a lack of timely adjustment of production to the market.

101

In addition, the unusually severe winter of 1928/29 caused traders and consumers to stock up on briquettes far in excess of normal requirements, which could not be sold during the unexpectedly mild winter of 1929/30. As a result, at the beginning of the 1930/31 heating year, traders and consumers still had around 2.4 million tons more than usual in stock. Although these stocks had fallen to the usual level by the end of the year as a result of a reduction in purchases, the briquette stockpiles of the mines and syndicates were 2.5 million tons higher than normal stockpiling due to a lack of timely adjustment of production to the market. Since no fundamental structural changes were expected on the coal markets, the anticipated demand up to the end of the heating year could be determined on the basis of the impact of cyclical and temperature fluctuations. Industrial consumption was estimated to be considerably lower than in previous years as a result of the further deterioration of the economy, and domestic demand was primarily dependent on winter temperatures. The anticipated total demand for lignite briquettes for the second half of the 1930/31 heating year was thus calculated at

for domestic fire on Industry Export Total

normal winter (+ 2,3 ˚C) 11,1 Mill. t 5,8 Mill. t 0,8 Mill t 17,7 Mill. t

Severe winter (- 0,02 ˚C) 13,1 Mill t 5,8 Mill t 0,8 Mill t 19,7 Mill. t

mild winter (+ 4,1 ˚C) 9,5 Mill. t 5,8 Mill. t 0,8 Mill. t 16,1 Mill. t

If the stocks of the mines and syndicates were to be reduced to the usual level, it was obvious that the previous production of the briquette factories could not be maintained even during a severe and normal winter. Thus, as a result of the analysis, it could be stated that the briquette production had to be reduced on average in the months of October 1930 to March 1931, with the average production in the months of June to September. In any case, a reduction in briquette production by 10%, but probably by 20%, was to be envisaged. at or on

normal winter 2,5 Mill. t 81 %

Severe winter 2,9 Mill. t 93 %

mild winter 2,2 Mill. t 71 %

If the long-term forecast was based on the assumption that the economic development would not be decisively influenced by technical inventions in the next ten years and that unemployment would be overcome to a level of about 1 million unemployed as a normal sediment, then the basic direction of the development could be defined in its order of magnitude. The anticipated consumption of lignite briquettes for domestic heating in 1940/41 was estimated to be 15 percent higher than actual consumption in 1930/31 on the basis of the expected net addition of housing units, which in turn was determined according to the development of future housing requirements, i.e., the increase in the number of households. For industrial firing, an increase in briquette consumption of about 15 percent was also 103

assumed on the basis of the increase in the number of people employed in industry and transport calculated on the basis of the employment forecast and the development trends in the major branches of industry. The long-term assumption thus resulted in the following orders of magnitude in millions of tons: Heating year 1930/31 Heating year 1940/41

House fire 24,9 28,6

Industrial fire 14,9 17,1

Together 39,0 46,0

The previous peak production in 1929 was around 42 million tons. Assuming that the export surplus of briquettes in 1940 would be approximately equal to the average for 1925/30 of 1.5 mill. t, it was possible to assume that 1940 would be about 47.5 percent or 5.5 mill. t higher than the previous maximum production. Cyclical changes have not been taken into account, so that, depending on the state of the economy, it is possible that the consumption estimated for 1940 may occur a few years earlier or later. The final result of the market investigation was therefore that, quite apart from the unfavorable economic prospects in 1930, capital investment in the construction of new briquette factories proved to be absolutely inexpedient, even in the longer term, because, given the tightness of the market, even a new plant operating profitably from a purely private-sector point of view would simply mean a reduction in employment and thus a destruction of capital at existing plants. In the short run, it was possible to determine, within sufficiently narrow limits, the extent to which factories would have to cut production in order to restore normal inventory levels.

Germany's supply of sulfur raw materials

The production of elemental sulfur, which in Germany is mainly obtained as a by-product from the purification of coal and lignite gases, has risen sharply in recent years and already covers more than half of Germany's domestic demand. With the expansion of lignite and hard coal hydrogenation and the long-distance sale of coke oven gas, the occurrence of elemental sulfur will continue to increase sharply. In the foreseeable future, domestic production is expected to exceed domestic demand for elemental sulfur. Since it is unlikely that German sulfur can be sold on the world market, new outlets will have to be found for the surplus production on the domestic market. As in other important sulfur-consuming countries, elemental domestic sulfur will thus have to be used to a greater extent in place of foreign sulfur raw materials, which would also be desirable for foreign exchange reasons. For this purpose, it was important to determine how large the consumption of sulfur raw materials is in Germany, expressed in pure sulfur. The sulfur raw materials consumed in Germany to date are mainly of foreign origin. From the standpoint of foreign exchange, labor and defense policy, there is therefore an interest in replacing the foreign sulfur raw materials with domestic ones, especially domestic sulfur 104

gravel and gypsum, to the extent that this can be done without serious disadvantages. The foreign sulfur gravels consumed in Germany up to now are also important raw materials for the German blast furnace plants and metal smelters due to their iron, copper, zinc, lead, cobalt, silver and gold content. The importance of foreign sulfur raw materials for the German metal industry therefore also had to be investigated and the consequences for the metal market of a switch from foreign to domestic sulfur raw materials determined. Without going into the details of the various series of figures required for the study, the results of the analysis will be briefly described. It was found that, measured in terms of the sulfur content of the sulfur raw materials consumed, about three quarters of German demand in recent years has been met from abroad and only about one quarter from the domestic market. Accordingly, even a sharp increase in domestic production could be substituted for foreign raw materials in terms of volume. In terms of price, however, considerable difficulties were to be expected from such a conversion, since the sulfur in the sulfur raw materials is much cheaper than elemental sulfur due to the addition of other minerals and metals. The study also showed that of the most important raw materials for the German sulfur supply so far, sulfur gravel covers about 85% of the demand, while the remainder is distributed more or less equally among zinc blende, gas purification mass and lead and copper ores. While these latter sulfur raw materials are mainly of domestic origin, the sulfur gravel comes almost exclusively from abroad, the most important supplier countries being Spain, Norway, Cyprus, Italy and Greece. This finding was important because Germany's balance of trade with these countries is active, and if German gravel imports were curtailed, difficulties could be expected for German exports to these countries. Furthermore, the investigation showed that the consumption of sulfur raw materials is almost exclusively accounted for by the sulfuric acid and sulfate pulp industries, the former by about four-fifths and the latter by one-fifth. Consumption by the sulfuric acid industry is concentrated in the Rhineland, Westphalia, Bavaria (including the Palatinate) and Central Germany, while consumption by the pulp industry is concentrated in Saxony, Southern Germany and East Prussia. Given the high metal content of the imported sulfuric raw materials in iron ores, copper, zinc, lead, cobalt, silver and gold, however, the final result of the market survey was that not only from the point of view of trade policy, but also from the point of view of foreign exchange, labor and capital policy, the increased processing of domestic sulfuric raw materials can be advocated only to the extent that the pyrites necessary for sufficient employment of the metal smelters are not sufficient to cover the German demand for sulfuric raw materials.

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The transplantation of soybean cultivation to Southeastern Europe1)

The analysis of export opportunities with the countries of southeastern Europe showed that a rapid intensification of trade there on a larger scale could only be expected if new agricultural products could be found whose importation by way of compensatory trade would not interfere with German agriculture on the one hand and could be expected to alleviate the increasing German shortage of raw materials on the other. In addition to other agricultural products and oilseed crops, soybeans were of particular importance in these considerations because, apart from their importance as a raw material for the German oil milling industry, they were not only resistant to the weather, but could also have a favorable influence on the soils of southeastern Europe, some of which had been severely depleted, and promote their subsequent cultivation with artificial fertilizers. The question of large-scale soybean cultivation in southeastern Europe in order to obtain corresponding compensation for German industrial exports was, from a private-sector point of view, primarily a question of comparing the calculated cost price of soybeans from southeastern Europe with the expected price development of Manchurian soybeans, in addition to the breeding of suitable varieties, the organization of winning over local farmers for this experiment, and a corresponding arrangement for the takeover of the resulting harvest by the German oil milling industry. Since the private-sector risk of pursuing this plan was thus determined primarily by the question of the pricing of Manchurian soybeans, in addition to the harvest risks that could not be eliminated, it was necessary to obtain the most reliable price forecast possible for practical implementation, which resulted in approximately the following: Seven-tenths of the world's soybean harvest is provided by Manchuria. Since the remaining quantity is essentially accounted for by Korea, Japan, the USA and the Dutch Indies, Asia harvests nine-tenths of the world's production. A comparison of Asia's production with its exports shows that only an average of 20 percent of the crop was exported in 1924-28, 34 percent in 1929, 21 percent in 1930, and 29 percent in 1931, so that Asia accounts for the bulk of consumption and pricing. The most important Asian consumers are southern China and Japan, which, despite considerable domestic production, usually has an import surplus twice as high. The bulk of Asian exports to Europe has so far been absorbed by Germany, which until 1931 was the processing center for Europe and, apart from its own, supplied a large part of Europe's demand for the products derived from the soybean - oil, meal, oil cake. The forecast of the long-term price development was not very encouraging and revealed approximately the following points of view. The purchasing power of the main consumer in Asia, China and especially southern China, is more likely to decline further in connection with

1)Highly protein- and fat-containing fruit that is an important staple food in the Far East, but in Europe serves mainly as a raw material for the oil milling industry and, in its residues, as high-quality animal feed (soybean meal). Investigation 1934

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silver and currency developments, and the consumption of soybean cake as fertilizer in Japan will be increasingly squeezed by growing competition from cheap artificial nitrogen fertilizers. One or more good soybean harvests in Manchuria, possibly combined with good rice and grain harvests in China, would have to fundamentally change the current market situation. In addition, India's hopes of finding better outlets in England for its linseed and peanut production through the Ottawa Treaties have essentially not been fulfilled, and Indian oilseed harvests may therefore put increased pressure on the world market. Since, according to experts, the price of Dairen locomotives should include about half of the freight due to the expensive Japanese tariffs, price surprises cannot be ruled out from the side of Japanese railroad policy. Finally, the possibility cannot be dismissed that increased soybean cultivation in the USA and in southeastern Europe could have a depressing effect on prices in the future. These factors, which are favorable in the long term, are countered by less favorable ones. On the one hand, there is the hope that a general upswing in the world economy and thus in the general price level will also support the price of soybeans. However, excluding the possibility of war, this hope is not very high, since the long-wave price tendency of most agricultural commodities is downward and also in dairy production the long-term line of development is in the direction of a migration from the areas of stable feeding1) (Denmark, Holland, peripheral countries) to the areas of year-round pasture farming (New Zealand). A second possibility would be the wide use of soybeans by the chemical industry, for example in the field of fat hardening or use in the plastics industry.

1)Feeding with the protein feeds (soybean meal) that particularly stimulate milk production.

Production in 1000 t Year

1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934

Manchuria

3088 3262 3448 4174 4776 4817 4834 4849 5298 5227 4268 5205 3599

Asia (without China) 5832 6416 6227 5316 6364 -

USA

World (without Russia) 6068 6749 6647 5674 6669 -

140 140 165 207 240 236 333 421 357 304 -

Russia

42 53 98 283 119 106 -

World (with Russia) 6121 6847 6929 5793 6775 -

Trade in 1000 t

Year

1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934

Export surplus Manchuria Asia Russia 895 1104 1487 1246 1364 1760 2411 2732 1959 2548 2661 2451 2498

924 713 819 1229 1775 1980 1370 1798 2073 1934 -

34 177 7 -

Japan 607 558 602 585 651 745 613 758 690 624 -

Import surplus Germany Denmark Great Britain 86 80 59 87 129 115 137 157 113 336 113 164 370 175 46 576 158 83 848 214 195 1024 235 206 889 176 93 1015 238 112 1187 229 163 1171 234 160 914 -

Europe 426 705 672 954 1437 1705 1235 1478 1665 1686 -

If, nevertheless, under the special economic conditions of the German currency emergency and the compulsion to find ever new compensation possibilities, the attempt could also be ventured from a private-sector point of view, then a considerably more favorable short-term price forecast was important in the first place, the considerations of which are to be reproduced below. 108

Time

Export from Manchuria

1939 MD 1931 MD 1932 MD 1933 MD 1934 MD

163,3 212,3 221,8 204,3 208,2

Germany's import surplus 74,1 84,5 98,9 97,6 76,1

Manchurian soybeans London Hamburg Lt. in £ 100 kg in RM 8/9/0 16,99 16,75 11,89 7/10/3 10,79 10,50 6/11/1 8,97 8,77 5/18/1 7,33 7,16

1934 January February March April Mai June July August September October November December

356,7 196,0 132,4 143,4 167,3 225,8 197,7 157,4 206,7 234,1 235,6 245,4

83,7 132,1 107,4 85,7 43,8 33,5 36,0 85,8 87,3 54,1 90,4 74,0

6/0/9 5/5/0 4/15/7 5/2/1 5/11/10 5/11/8 5/17/10 7/4/3 7/2/8 6/3/6 5/14/8 6/7/2

7,94 6,63 6,00 6,44 6,99 6,91 7,28 8,87 8,62 7,44 7,03 7,73

7,09 6,69 6,18 6,40 6,74 6,69 7,09 8,66 8,35 7,19 7,04 7,75

1935 January February March April Mai June July

167,2 247,2 131,7 115,3 105,5 103,8 158,6

53,4 63,2 53,4 45,9 58,8 33,4 31,4

6/16/10 -7/2/0 7/5/8 7/1/5 6/4/3 5/19/8

8,24 8,29 8,63 8,47 7,51 7,26

8,29 8,86 8,37 8,66 8,56 7,78 7,19

Manchurian production, which had been increasing for years, had caused the price to fall, but the rich harvests of 1930 and 1931 could be absorbed by China because 1931 brought the great flooding of the Yangtze River and, as a result, a complete failure of the rice and grain harvests. The fall in soybean prices came to a halt in 1932 as a result of the resulting increase in soybean consumption. The year 1932 then brought a soybean crop failure caused by flooding; however, the expected price increase did not materialize, as southern China brought in a good food crop and therefore took in only about one-third of the 1931/32 soybean imports in 1932/33. At the same time, Japanese soybean imports also fell by 20% because artificial fertilizer prices in Japan had been sharply reduced in the course of 1933, adversely affecting sales of cakes, many of which are used as fertilizer in Japan. This caused another sharp drop in prices, which led, among other things, to Manchurian farmers using the beans as fuel. However, the 1934/35 Manchurian crop is again very small, and its quality has also suffered

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from persistent rain. Japan has had significant crop losses due to the recent typhoon disaster, and the Chinese crop, for which reliable records are not yet available, may also have suffered from the drought of the year. Since most of the 1933 crop surplus has been burned, it can be assumed that there are no significant old crop stocks left. It could therefore be assumed with a high degree of certainty that the price would not fall below the low of RM 6 per 100 kg reached in March 1934 in the course of the next year, but apart from the usual seasonal weakness in the harvest period - would remain above this level and even strengthen somewhat. This trend is supported by the market development for other feedstuffs. Given the high degree of interdependency between concentrates - soybeans, peanuts, linseed and cottonseed - and between concentrates and feed grains, the future price trend for soybeans is also subject to the influence of price movements on the other feed markets. As a result of the low harvest of all cereals and especially of feedstuffs due to the drought in the northern hemisphere in the 1933/34 crop year, the price trend on these markets is almost entirely upward and thus provides good support against any drop in the price of soybeans. The reduction in German imports should therefore not have too great an impact at the moment, especially since the expansion of the company's own processing industries in England and Scandinavia should partly compensate for the shortfall in Germany. However, certain bearishness for the price development in gold is inherent in the currency movement of the most important producers when the Manchurian yuan is aligned with the Japanese yen. Since the yen's price movement is still slightly bearish, there would be some pressure on the price of gold from the currency movement, although it is not expected to be very strong. An apparent price decline would still occur if the quality of soybeans from the new 1934/35 crop were severely degraded by excessive water content. However, a falling price for these reasons would only reflect the reduction in quality of the commodity, not the market situation. (In the meantime, certain changes in the price problem have occurred as a result of the tightening of the German foreign exchange situation in that the possibility of purchasing raw materials by way of compensation has become more important than competitiveness at what is now only a fictitious world market price).

d) Basic features of the organization of an economic-statistical department in a large industrial enterprise. The range of questions to be answered by an economic and statistical department in a large industrial enterprise extends from an interesting newspaper article or a speech by a statesman or business leader, through all relevant questions of business and business policy, to the most complicated economic theory. The statistical apparatus must be prepared for all these questions and therefore needs as aids a small but solid special library, an extensive skeleton of statistical material collections always kept up to date, a company archive corresponding to the business volume of the enterprise, and a well-managed collection of newspaper and magazine clippings. Nevertheless, current interest is concentrated on a limited number of clearly defined areas, such as the economic situation and export prospects in individual 110

countries, currency issues, price trends for the raw materials required and finished goods produced, the size, composition and changes in the market for important products of the company and, last but not least, observation of the situation with regard to competing products and with regard to competitor and customer companies. Accordingly, the field of work is divided into a purely economic observation of the general economic, currency and price development on the basis of the economic-statistical numerical material, a purely private-economy observation of the customer and competitor companies and the competitor products on the basis of the business reports, the announcements of the daily press and other news, and a summary of the results of both fields of work for the purposes of the special market investigations and the current market observation on the basis of the economic and private-economy material. It is of special importance for the 'ongoing statistical material collection that it is built up only on the basis of a flawless and constantly checked numerical material and that it is always kept up to date. A statistical department which would only answer the recurring inquiries of the company management regarding currency developments, price movements of important raw materials or products, domestic and foreign procurement and sales markets, or customs and foreign trade developments for its products on the basis of the publications of statistical offices or economic institutes or other literature, would not be able to meet the requirements placed on it either in terms of facts or time. In order to cope with the abundance of questions arising from practical business and thus of economic observation material with an apparatus of people or material that does not grow out of all proportion, the most careful selection of the really important sources, the strictest systematic ordering of the material and the timing of the ongoing processing of the individual areas almost to the day and hour are indispensable prerequisites. In my experience, it has proved particularly practical to set up a skeleton of numerical folders and graphic sketches, arranged according to the most important groups of observations, which are always kept up to date and, if necessary, provide accurate information about a particular market in the shortest possible time. As already mentioned, the evaluation of the existing statistics and their combination with the statistical data accumulated in the company must in many cases be supplemented by own observations. For this reason, too, it is not possible to do without a company archive that is as complete as possible and contains documents on the competitor and customer companies, such as are customary in the archives of credit banks for monitoring the financial circumstances of customers. The content of such an archive consists mainly of the annual business reports, the notices of the business press, the news of the industrial special archives and the information of the business friends about personal relations, financial circumstances, business situation and development of the observed companies. These documents are continuously processed and supplemented annually by special balance sheet analyses. Not infrequently, where there are no suitable statistical documents on the production or consumption of a product, an attempt has to be made to obtain an estimate of the size of the market for the product on the basis of the individual references given in the annual reports of all the companies in the industry concerned. Experience shows that such estimates, if they are carried out with appropriate care and checked again and again on the basis of all otherwise 111

available numerical material, can usually be carried out within sufficiently small error limits and are suitable for practical business. It need not be emphasized that, in addition to the basic stock of statistical number folders and graphic sketches and a company archive corresponding to the field of activity of the enterprise, a systematically set up and properly carried out index of newspaper and magazine clippings is of good service. Here, too, it is important to limit the content to what is really important in order to prevent it from growing out of all proportion, to use a strict system with the greatest possible degree of subdivision in order to ensure that the records can be found quickly, and to comb through the records more frequently during ongoing processing in order to eliminate unnecessary ballast. Moreover, the reliability and efficiency of an economicstatistical apparatus always depends to a large extent on the careful selection, training and skill of the staff employed in it.

3. the natural bearers of the new economic tasks, their organic cooperation and systematic division of labor

From the previous description of the necessity and the possibilities of a planned economic observation and economic organization in the most diverse fields of economic management, economic administration and economic practice, the question of the bearers of these new economic tasks arises automatically. The problems described above cannot be solved without an organized form of national economy, and the appropriate organization and cooperation cannot be achieved without economic knowledge and planned economic monitoring. This is true for all economic entities, from the state to the business and professional organizations to the private enterprises, depending on the scope of the problems and the nature of the tasks involved. As can be seen from the grouping of problems in the preceding paragraphs, the field of monetary policy, the observation and ordering of the monetary and credit system, labor policy and the entire foreign trade policy, including the use of economic observation for the purposes of state policy, belongs to the regulatory sphere of state power and its cooperation with the economic self-governing organizations. For in these areas the public interests are so largely affected and the repercussions of economic processes on the social sphere and on relations with foreign powers are so immediate that no responsible state leadership can escape them. The area of raw materials policy, the ongoing monitoring of economic groups and the larger market interrelationships should fall to the care of economic self-government and its cooperation with affiliated enterprises. Even if there are still certain public interests, especially in raw materials policy and raw materials monitoring, because of their connection with foreign exchange and foreign trade policy, these areas are already so closely connected with economic practice that their organic solution belongs more to the sphere of economic self-government organizations and their cooperation with the state management. The task area of special market observation and of production, sales and cost organization in detail will be left more 112

or less to the sphere of interest of the individual private enterprises. In this gradual sequence, the organized form of the national economy should also be built up from the cooperation of these three bearers of economic life by way of systematic economic observation. Approaches to this already exist to a large extent. In the sphere of public economic observation we have the extensive apparatus of official statistics, in the transitional sphere from the public sector to the self-governing organizations of the economy we have the semi-official institutes and chambers, and in the professional organizations there are also a number of economic research centers which do excellent work in their fields. Finally, within the private sector, the archives and economic departments of major banks and large industrial companies have increasingly come to the fore, providing a wealth of material for ongoing economic monitoring. The shortage is not a lack of organizations, but a lack of mutual cooperation and appropriate division of labor according to a unified plan.

a) Economic monitoring as a tool of state economic management Of the three major economic institutions, the state carries out by far the most comprehensive economic monitoring through the organization of official Reich and state statistics. A glance at the Yearbook for the German Reich published by the Imperial Statistical Office will convince anyone that hardly any area of economic and social life at home and abroad escapes the attention of official statistics. Their interest ranges from the population and its economic and social structure to agriculture, industry, trade and transport, prices, cost of living, wages and working conditions, money and credit, public finance, health and welfare, education, justice and defense, and political events. This organization of imperial and state statistics is further followed by the organization of municipal statistics, which provides the basis for the narrower framework of municipal administrative work. Since it has occasionally become fashionable for private economic services and market institutes, which live more or less from the results of official statistics, to reproach them with backwardness and alienation from the economy, it should be gratefully acknowledged here that the work of domestic and foreign official statistics forms the indispensable basis of any serious economic observation. The shortcomings of official statistics seem to me to lie rather in the fact that, due to the lack of appropriately developed links among state ministries, economic self-governing organizations and private enterprises, a large part of the valuable statistical material remains unexploited for the purposes of state policy as well as economic management and economic practice. In addition, official statistics generally speak a technical language that is difficult to understand for administrative lawyers, business lawyers, or private entrepreneurs who have no previous training in statistics, and conversely, they are not familiar enough with the available statistical data and the methods in question to be able to use them for their own purposes. This is a task for scientific university education, which goes beyond the narrow field of teaching economics or private business. But in practical economic management, too, it is necessary for the economic and professional classes to intervene as intermediaries between official or scientific statistics and the private sector for the exploitation of those statistical 113

findings which are of common interest to all the associated enterprises. Apart from statistical economic observation and private-sector intelligence, as maintained in the official Reich and state statistics and the administrative statistics of the various Reich offices and new Reich agencies - Reich Institute for Employment and Unemployment Insurance, Reich Offices for Foreign Trade, for Foreign Exchange Control, Reich Commissariat for Price Control, Labor Trustees, etc. - Whereas the statistical offices of the state are not responsible for the collection of data, the state has transferred the clarification of important problems of economic life, the ongoing observation of which goes beyond the scope of statistical survey and processing methods, or which cannot be solved at all by means of statistical mass collection, to other institutes or has taken an interest in them by providing financial support. First and foremost, there is the Institute for Business Cycle Research, which focuses much more strongly than official statistics on the short-term movements of the economy and their methodological research, and the Reichs-Kuratorium für Wirtschaftlichkeit (Reich Board of Trustees for Economic Efficiency), which devotes itself primarily to the problems of rationalizing the business organization of individual branches of the economy. In a certain sense, the institutes that have emerged mostly from scientific research at universities, such as the Institute for World Economics and Maritime Traffic in Kiel, the Institute for Economic Observation of German Manufactured Goods in Nuremberg, the German Society for Consumer Research and, more recently, the economic research centers of the party and its organizations, such as the Labor Science Institute recently founded by the German Labor Front and the Central Office for Economic Observation at the Staff of the Deputy of the Führer, also belong here. Here, new and promising paths of economic observation are being pursued everywhere, with only one shortcoming to be regretted: that the organic cooperation and systematic division of labor necessary to go beyond the mutual competition that has been sown has not yet come about according to an overall plan.

b) Economic monitoring as the basis of economic self-government The organizations of economic self-government are perhaps the weakest point of planned economic monitoring today. Not only are these organizations themselves still in the process of reorganization and development, but the rapid deterioration of the foreign exchange and raw materials situation has burdened them with such an abundance of control and monitoring tasks that there are hardly any resources and forces available for systematic economic monitoring at the moment. There is even a danger that the statistical survey of the economy, which has been carried out with great haste and not always with the necessary expertise from the outset, will result in a certain fatigue. It would be desirable that, in the interest of a centralized consideration and treatment of these extremely important problems, the official national and state statistics be given a right of co-determination and consultation in the statistical organization of the official and semi-official agencies and, if necessary, even a right of veto against unnecessary or unobjective statistical surveys of private circles. All the more will it be necessary later on, in the interest of a calmer shaping of our economic development, to make systematic use of the approaches to economic observation existing everywhere 114

among the self-governing organizations of the economy for the purposes of a systematic economic order. Here, too, the necessary organizations are by no means lacking, but rather their planned cooperation. Apart from the offices of the various corporate members, which have been incorporated into the newly founded Reich Chamber of Commerce or are being set up there, the economic monitoring of the Reich Food Council in the entire agricultural area, which is being carried out in close cooperation with official statistics and the Institute for Business Cycle Research, deserves special mention. The trade sector created an economic monitoring body early on in the form of its research center, which was originally conceived as an organ of an interest group in close cooperation with the Hauptgemeinschaft des deutschen Einzelhandels (Main Association of German Retailers), but which, with its transition to the Reichskuratorium für Wirtschaftlichkeit (Reich Board for Economic Efficiency), is likely to be turned more strongly than in the past to the macroeconomic problems of the distribution of goods. Planned economic monitoring is least developed in industry. The intergovernmental chambers of commerce and economic conferences maintained by industry do form certain liaison posts for foreign trade, but for the most part they do not in the least meet the requirements that must be placed on planned economic monitoring. The organizations of the individual industrial groups themselves do keep certain statistics on their members and on the course of business in their branch of industry and, to the extent that they are able, also assist the affiliated companies in rationalizing their business organization. However, there is still a complete lack of a uniform procedure for the individual economic groups according to an overall plan, a division of labor according to the economic monitoring tasks that are important for each economic sector, and a uniform summary of the results at a central office. This is an organizational task for the Reichsgruppe Industrie which not only requires a determined approach, but which, if carried out correctly, will also represent a major step forward on the road to a healthy economic order. It hardly needs to be emphasized that this task cannot be solved by industry alone, but only in close contact with agriculture and trade and together with them with official and scientific statistics.

c) Economic observation and economic practice in the private sector. The tasks and methods of economic monitoring for economic practice have already been dealt with in detail in the previous sections. Therefore, only a brief description of the existing bases of systematic economic monitoring in the larger private enterprises and their cooperation with the corresponding organizations of economic self-government, scientific institutes and official statistics is necessary here. Both the official statistics and the economic monitoring bodies today require such a wealth of statistical documentation that the individual private enterprise often seems more than overburdened with answering statistical questionnaires. It is obvious that the existence of economic monitoring bases in larger private companies not only makes life easier for the company itself, but also enables official statistics and economic administration to work more quickly and reliably. Such starting points are available in every large company, and they do not always have to exist in a special economic department, but can also be taken over by a statistically trained economist in the personnel department or another central department. The important thing is not so much the organizational question 115

, but that a central consideration of this problem is taken up not only by the economic management, but also by the economic administration and economic practice, and that it is traced back to its consequences for the preliminary economic training. Without an understanding of these interrelationships, also in the individual private enterprises, any attempt at economic observation and economic order starting from the economic whole will always be subject to strong inhibitions. Apart from this macroeconomic consideration of the problem, special offices for the ongoing observation of economic and market conditions have increasingly been set up in the last decade at the larger private enterprises, credit and mortgage banks, insurance companies, corporate groups and cartel associations as well as at the large transport institutions from a purely private economic point of view. Reference may be made here to the relevant offices of the Reichsbahn, Reichspost, the archives of ReichsKredit-Gesellschaft, Berliner Handelsgesellschaft, Deutsche Bank and the joint group of German mortgage banks, to the economic departments of Vereinigte Stahlwerke, SiemensBetriebe, I. G. Farbenindustrie, to the statistical and scientific departments of the coal syndicates, the nitrogen syndicate, the economic association of German rye and wheat mills, etc., which need by no means shy away from comparison with the corresponding organizations abroad and whose publications in some cases make considerable contributions to ongoing economic observation. As in the case of the previously discussed bases and approaches of planned economic monitoring in the area of state economic management and economic self-administration, however, the lack of planned cooperation and division of labor among each other and with the above-mentioned areas of organization from the larger point of view of assistance in the overall economic monitoring and organization of the national economy is to be noted. This lack is not due to a too strongly individualistic attitude of the individual private economic agents, but to the fact that the central consideration of the problem of economic order and economic observation and its practical approach is still in its infancy.

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III. Wirtschaftsbeobachtung, Wirtschaftsordnung und Wirtschaftsführung im neuen Staat

1. economic management, economic administration and economic practice

In the previous section it was already emphasized that economic observation and economic order must be anchored in the organized national economy within the sphere of the main pillars of the national economy - the state as the supreme authority of the national economy, the economic groups as the organs of economic self-administration and the individual enterprises as the private economic cells in which the economic cycle practically takes place graded according to the comprehensiveness of the problems and the nature of the tasks. Furthermore, it has been shown in which basic areas systematic economic observation is to be utilized for economic management, economic administration and economic practice and which methodological aids can be used for this purpose. Finally, the necessity of a systematic cooperation and division of labor between the main agencies of economic observation and economic organization and their most important points of connection have been pointed out, so that only a few connections between public economic management, economic selfadministration and economic practice need to be briefly mentioned here. However much emphasis may be placed on the need for governmental management and control of the economy within the limits set by politics, one must not be deceived into thinking that governmental management of the economy is synonymous with governmental regulation of all individual economic processes, thereby relieving the private sector of responsibility for its proper organization and private initiative of the need for its own efforts. A particularly extensive intervention of public authorities in individual economic processes may be necessary in times of political and economic crisis, but it can never be made the permanent basis of economic order and economic and social progress. Such an error about the innermost nature and tasks of the state and the economy, which at the same time also comes from a misunderstanding of the conceptual content of leadership, administration and practical economic activity, would have to lead to economic stagnation instead of economic order. There is no doubt that the extension of state economic regulation - as we have seen in the Soviet state as a political worldview, in the V. St. v. America, Germany, Italy and other countries as crisis emergency measures - always brings this danger with it when it is prolonged. It is further increased by the fact that the best economic knowledge and the most unerring economic management will in practice always be subject to inhibitions on the part of its executive organs, which can be overcome only by slow and laborious educational work down to the last bearer of the state executive. This makes it all the more important for the state's economic leadership to keep checking when and where it can relax the economic regulations it has set up as a stopgap measure in exceptional cases and give free rein to private economic initiative within the limits it has set. In this respect, experience has shown that all official 117

admonitions and appeals to the initiative of private enterprise are useless if the state's economic leadership does not itself take the initiative and show the courage to experiment, even in breaking away from rigid ties. The fact that this does not mean a return to outdated economic systems need not be emphasized in light of the book's contents. In these questions, too, systematic economic observation will help facilitate the not always easy decisions of state economic management. Similar considerations apply to the organization of relations between economic self-government and practical economic activity in the individual enterprises of the private sector. There is one more point I would like to make in this context, and that is the changed direction of the economic associations. The organization of the economy built up in Germany after the war was dominated by the opposition between employers and employees, which was partly elevated to an economic principle. This front has been dissolved by National Socialism and the unification of all economic organizations in the German Labor Front has been reintroduced with the new political goal of full unity. It would be urgently desirable if the energies released here were used in the direction of closer cross-connections between the individual economic groups. For an organized economy, a satisfactory reconciliation of the natural and unavoidable contrasts between agricultural and industrial interests, between producers', distributors' and consumers' needs, and between operational ties and the social freedom of the working man is urgently needed, and this reconciliation should already take place to a large extent in the joint work of the various economic groups. For here, too, the task of state economic management is normally limited to defining and monitoring the basic political, social and economic direction of goals, and it requires the sympathetic cooperation of economic selfgoverning organizations and private business. If these principles are temporarily obscured at present by particularly urgent emergency tasks, they must be kept in mind in the long run. In addition, it is hardly necessary to emphasize, but at least to mention when discussing economic organization, that the penetrating power not of state economic management, but of individual economic intervention, decreases and the responsibility of private initiative increases to the same extent as the practical economic process changes from the internal economy to the external economy, from simple basic production to the more fragmented processing stage, and from the basis of secure economic experience to the uncharted territory of technical progress. The same applies, from the point of view of the economy of demand coverage, to the much more easily overlooked circle of agricultural and mining basic and fuel production in contrast to the regionally, operationally and commodity-wise infinitely varied production of consumer goods, in which the basic features of capitalist market production can hardly be dispensed with for the time being. In such considerations, the advantage of a planned economic observation is expressed, which warns against obvious experiments and encourages promising ones by connecting the new economic idea with the fertile ground of real factual experience. The theoretical thoughts of this book on economic order and the many practical examples of economic observation that have been shown in the individual sections should not be concluded without briefly outlining the problem of the practical reorganization of the German domestic and foreign economy on the basis of some basic dimensions of the German economy 118

and its development traits.

2. Basic features and dimensions of the German domestic economy

In the near future, the German domestic economy will be confronted with three fundamental tasks, the solution of which will assign to the individual economic groups a very different position within the overall economy. The first task is to provide the nutritional basis for a population of 70 million, the second is to integrate the growing labor force into the current production and consumption process, and the third is to ensure an adequate standard of living for all citizens in the material and cultural spheres. We know that German economic development since Versailles has been decisively determined by our balance of payments, the effects of which we see every day in the chronic shortage of foreign exchange, the difficulties with raw materials and the restrictions on imports. Since a solution to this predicament was not possible by way of free private initiative, the state had to intervene with foreign exchange restrictions, transfer moratoriums, import quotas and job creation measures to prevent the collapse of economic life. Thus, to a large extent, a disengagement of Germany from its former world economic linkages has taken place, completed by the new agricultural policy. As a final result, we now have a price, cost-of-living and production cost level that is substantially above the world market and exerts decisive repercussions not only on our exports but also on the shaping of our domestic economy. Establishing this fact gives us three basic insights for the direction of our domestic economic development. The share of the public sector in the domestic market has become much more important than in the past and will remain a decisive factor for a number of sectors for some time to come. On the domestic market, this means a reduction in private initiative and competition in production and sales, and a strengthening of the administrative character of the economy with strong public ties. 2 The German shortage of raw materials is not a temporary but a chronic phenomenon of long duration, caused by our balance of payments. As a result, efforts to increase the switch to domestic materials must be seen not as a temporary emergency measure but as a task to be carried out systematically over the long term. First and foremost, it poses new problems and possible solutions for technology and science. 3 Our structure of consumption is still too strongly attuned to the active balance-ofpayments structure before the war and must undergo certain conversions in the sense of adapting to our present passive balance-of-payments structure. This does not necessarily mean a restriction of the standard of living, but a shift of needs from quality or fashion demands that are too strongly attuned to foreign consumer materials to higher demands on the technical standard of living that can be satisfied from the 119

domestic production structure. This is a task for advertising in particular, the solution of which will sooner or later be supported by appropriate price differentiation.

Agriculture - food security The first task of securing our food base falls almost entirely to agriculture, including agricultural research and its ancillary industries, chemistry and mechanical engineering. The secondary task of agriculture and forestry, the extraction of raw materials for industrial processing in the luxury food, textile, leather and wood industries, on the other hand, takes a back seat. Although the agricultural sector will be dealt with only briefly, it is necessary to point out some magnitudes that are often overlooked when assessing the German domestic economy. The agricultural sector is still by far the largest consumer of foreign currency in our economy and is likely to remain so for the foreseeable future. In normal harvest years, the demand for bread cereals, meat and potatoes is assured, but by no means the consumption of fats, eggs, fruits and vegetables, and especially of fodder and fodder protein for animal processing production. The development of the demand for food and feedstuffs is shown in the following table.

The development of the German import surplus of agricultural products since 1925¹) The import surplus of foodstuffs, which had been excessive after the war as a result of the previous depletion of the soil and livestock, was reduced again in most areas of food supply in the course of the first post-war decade. In particular, the demand for bread grain and meat has decreased considerably, but the import of fruit and vegetables and animal feed has increased even more. The new agricultural policy has then sharply, though not uniformly, curbed imports of foodstuffs, luxury foods and feedstuffs. Imports of bread cereals, meat, vegetable fats, dairy products and eggs have been reduced most sharply; on the other hand, they are still very substantial for fruits and vegetables and, in particular, for animal feeds, oil fruits and oilseeds, for which the reduced value imports are mainly due to price reductions. Accordingly, the problem of the German food industry lies in the supply of dietary fats and feed protein. Of the total food consumption of the German people, about 80 percent is currently covered by domestic production, taking into account calorie consumption and the use of foreign feedstuffs; in the fat supply, however, domestic production accounts for only 40 percent of demand. Compared with the industrial supply of raw materials, where domestic production accounts for only between 10 and 50 percent of demand, the degree of domestic self-sufficiency is considerably higher.

¹) + = Export surplus

120

Agricultural products Bread cereals, flour Meat, livestock Potatoes. Legumes Together

1925 2191 323 203 2717

Quantities in 1000 t 1930 1058 247 293 1598

Values in RM mill. 1930 1934 239 60 140 52 47 31 426 143

1934 367 126 223 716

1925 652 339 46 1037

Fruits, vegetables, tropical fruits Butter, lard, fats Dairy products, eggs Together

1210 333 322 1865

1538 176 235 1949

1306 158 113 1577

485 672 488 1645

559 451 317 1327

301 111 106 518

Colonial goods, sugar, spices Fish, fish preparations Alcoholic beverages, tobacco Other food and beverages Together

159 325 174 + 482 176

+ 42 295 97 + 788 + 438

286 196 150 + 482 150

336 128 290 49 803

369 123 252 28 772

174 44 131 13 362

Oil fruits, oilseeds Feed grains, oilcakes Together

1525 1928 3453

2312 2148 4460

2213 1079 3292

608 364 972

644 295 939

220 72 292

Wood

6082

4135

4971

404

266

171

Total agricultural imports

14293

11704

10706

4861

3730

1486

Accordingly, the problem of the German food industry lies in the supply of dietary fats and feed protein. Of the total food consumption of the German people, about 80 percent is currently covered by domestic production, taking into account calorie consumption and the use of foreign feedstuffs; in the fat supply, however, domestic production accounts for only 40 percent of demand. Compared with the industrial supply of raw materials, where domestic production accounts for only between 10 and 50 percent of demand, the degree of domestic self-sufficiency is considerably higher. This is where the first of the major links between agriculture and the economy as a whole becomes apparent, namely the dependence of its feedstuff economy for animal processing production on the foreign exchange receipts of industry. The second line of connection to the economy as a whole is the price relationship with the purchasing power of the industrial population. For increasing self-sufficiency in the food sector could be achieved only underprice sacrifices borne by the urban population and the industrial working masses. The domestic price level for agricultural products is considerably higher than that of the world market, in line with the other costs and organizational requirements of our agriculture. A further widening of the gap between domestic and foreign prices will, however, be possible only to a very limited extent, in view of the standard of living of the industrial labor force and the production costs of industry, because industry, for its part, must take on the much more 121

difficult task of integrating the growing working population into the economic process, in addition to procuring foreign exchange for the import of fodder. This brings us back to the mutual interdependence of the individual economic groups in the national economy, whose organic balancing of interests, in accordance with the importance of their functions for the economy as a whole, is the first task of economic management. Agricultural products Potatoes Bread cereals Meat Legumes Vegetables Fruit Southern fruits Milk Butter Lard Margarine Cooking oil Eggs Fish Cheese Beer Wine must Feed grain Oil crops, oilseeds

Bread cereals Feed grain Potatoes and legumes Vegetables, fruits, sugar Hops, must, tobacco

Meat Milk Eggs Fish

Wood 122

Domestic consumption in 1000 t 1925 12300 9600 2520 165 3100 2179 308 7300 324 217 410 110 390 617 293 4722 286 10098 1597

1930 11600 9300 2890 155 3245 1632 517 7200 478 231 479 130 522 684 360 4810 357 11241 2338

1934 12500 8900 3080 203 3199 2867 475 6800 487 205 421 125 445 657 378 3671 537 10410 2261

Domestic production as % of consumption 1925 1930 1934 99 98 99 95 91 93 88 95 98 53 54 27 89 89 92 86 74 88 0 0 0 100 100 100 70 72 87 53 65 79 0 0 14 17 3 7 62 68 81 47 56 70 75 83 91 81 96 96 56 79 84 81 81 91 5 1 2

Quantities in 1000 t Values in RM mill. 1925 1930 1934 1925 1930 Main products of land cultivations 11435 11606 12284 1621 1686 8184 9091 9432 455 462 41718 47423 47033 596 576 1599¹ 2547¹ 6155¹ 1354 1387 183 313 488 133 161 63119 70980 75392 4159 4272 Main products of the livestock industry 2525 3150 3544 4403 4304 21000² 21700 23700 2371 2197 250 364 360 406 492 218 314 401 56 78 23993 25528 28005 7236 7071 Main product of forestry 24900² 24000 29400 600³ 280 ¹) Sugar only. - ²) 1928. - ³) Quantities in 1000 fm.

1934 1485 359 756 1424 254 4278 3730 2289 479 72 6570 460

Commercial economy - job creation As far as the integration of a still growing number of employable persons into the production and consumption process is concerned, this task will have to be solved primarily in the sector of industrial production. This is because, assuming that the present standard of living is maintained, there are unlikely to be any significant opportunities either in the agricultural sector or in the sector of distribution organization. It goes without saying that some relief will have to be provided by siphoning off manpower for labor service, defense, and, to a lesser extent, for transport and administration. In the course of the next 15 years, the German population will increase by about 5 million to 70 million by the middle of the century. Assuming the present ratio of employed to inactive persons in the age groups capable of working, the number of employed persons will increase by about 3 million compared with the present situation, and provision will have to be made for their integration into the economic process.

Projected development of total population and workforce in millions Year

Total population

1925 1930 1935 1940 1945 1950

63,2 65,2 66,8 68,2 69,2 70,0

Increase 1935/50

+ 3,2

Of which expected to be employable Total Male 32,5 20,7 34,0 22,0 33,9 22,4 34,8 23,2 35,9 24,0 36,9 24,7

+ 3,0

+ 2,3

Thereof employees Total 19,8 21,4 21,3 22,2 22,9 23,5

Male 13,5 14,7 15,1 16,0 16,9 16,8

+ 2,2

+ 1,7

Since the reduction of unemployment from its peak of 6 million at the turn of the year 1932/33 to less than 2 million in mid-1935 had to be achieved mainly by job creation from public credit funds, which, in view of the financial situation, cannot be continued for decades in its present form, the problem is practically that, including the new growth, the permanent integration of about 8 million Volksgenossen into the current economic process has to be provided for. Even if one deducts from this a generous 1 million each for labor and military service, for the replacement of female workers and for rural settlement, and as a normal dregs of the labor exchange, there still remains the regular classification of a labor army of at least 5 million people as the economic and social problem of the German future. To accommodate this number in industrial production, the employment level of industry would have to be raised to about 141⁄2 million and the volume of production to about 70 million Reichsmark at today's prices. If the additional workers were distributed according to 123

the employment rate of the individual branches of industry, then the largest part would have to be accommodated in the food, textile and clothing industries, in the construction industry, in the wood and carpentry industry and in the iron, steel and metal industry. In reality, however, the direction of development is different, as can be seen from the development up to the crisis low and the replenishment of the employment rate since then. Given the strong structural changes in the domestic and foreign economy, it is difficult to estimate the factors of a future change in the development direction. Nevertheless, it is possible to gain some insights into the likely repercussions of both domestic market and export developments on the employment situation of individual industries.

The Development of the Number of Employees by Industry Group from 1907-1950

Construction Food, beverages and tobacco Wood and wood pulp industry including musical instruments and toys Clothing industry Textile industry Paper and printing industry Cleaning industry Gas, water and electricity supply Together

According to the business Calculated according to the ratio censuses of 1925 Of 1933 1907 1925 1933 1940 1950 1940 1950 Predominantly domestic market industries 1441 1546 1020 1592 1711 1518 1632 1174 1396 1427 1439 1546 2125 2283

855 1094 649 1127 1353 1376 1051 1419 1018 1215 848 1252 413 582 437 599 126 107 317 213 68 155 144 159 6448 7571 5893 7800 Predominantly export industries

1210 1524 1344 644 229 171 8379

968 1566 1264 652 473 215 8781

1040 1682 1357 700 508 231 9433

Electrical engineering, optics, precision mechanics Mechanical, apparatus and vehicle engineering Large iron industry Iron, steel and metal goods industry Mining Stone and earth industry Leather and rubber industry Chemical industry Together

192

603

351

621

667

524

563

709 403 744 538 710 159 191 3646

1302 600 887 885 698 235 321 5531

609 304 590 485 409 168 247 3163

1342 618 914 911 720 242 331 5700

1441 664 982 979 773 260 355 6121

907 454 880 724 610 251 369 4719

974 487 945 777 655 270 396 5067

Total industry

10094

13102

9056

13500

14500

13500

14500

A comparison of the gross production values of the individual industries and the share of production for the domestic market shows that the construction industry, the food and 124

beverage industry, the wood industry, the clothing industry and, to a lesser extent, the textile industry are almost purely domestic industries whose employment situation is mainly determined by the development of the domestic market. By contrast, the electrical engineering industry, mechanical engineering and vehicle construction, the large iron industry, mining, the stone and earth industry, the leather industry and especially the chemical industry normally have only four-fifths to two-thirds of their production and thus their workforce employed by the domestic market, even though they are now more dependent on the domestic market due to special circumstances. A rough calculation of how many employees are put to work by the domestic market, based on domestic sales in relation to total production value, reveals a relatively high dependence of our industrial employment rate on domestic sales. However, it should not be overlooked that the indirect dependence on foreign markets is much greater, because the domestic production of a basic industry contains shares of labor that are only exported in a processing industry. It can be said, however, that the direct significance of the domestic market for the employment situation of the individual industries is greater than is usually assumed. The decisive factors are the large labor-oriented domestic industries, such as construction, food and beverages, textiles and clothing, and wood and wood pulp. Of the export industries, only mining, the iron, steel and metal industry, and machinery and vehicle manufacturing are of greater importance to the employment situation. However, some of the major domestic industries are dependent on imports for their employment, primarily the textile and clothing industry and, to a lesser extent, the wood and paper industry and the leather industry, while import dependence is relatively low in the food, beverage and tobacco industry and in the technical industries, and is absent in the construction industry. The question of the import dependence of the domestic economy will be discussed in detail in the next section. In view of the continuing tightness of our balance of payments, increased employment must be sought in the export- and import-independent industries, i.e. primarily the food and beverage industry and the construction industry, while in the textile and clothing industry and the wood industry the level of employment should be increased, if possible, only on the basis of domestic production of substitute materials and more economical processing of raw materials.

125

As far as the question of replacing foreign raw and auxiliary materials by domestic materials is concerned, the better exploitation of domestic raw material deposits and the production of substitutes is first and foremost a matter of geology and chemical and technical research. The question of the economic substitution of foreign raw materials by domestic virgin materials or more economical processing at all points of the economy where this is possible without impairing production and consumption, on the other hand, is a question of systematic work in the millions of individual companies. One need not only think of the great shifts in consumption that have occurred with the replacement of Chilean nitrate by synthetic nitrogen, the displacement of silk and to some extent cotton by artificial silk and artificial fibers, or the increasing use of light metals in place of iron and non-ferrous metals, but one must also not forget the thousand possibilities of greater use of domestic plastics in electrical engineering, in the plumbing trade, and in many smaller branches of production. The problem of substitution and savings with foreign raw materials extends into the field of standards regulation. Systematic work on this task is not only necessary from the point of view of the national economy, but is also fruitful for the private sector because it helps to reduce the uncertainties associated with the procurement of foreign raw materials for individual companies. It hardly needs to be emphasized that these necessary shifts in industrial employment place increased importance on the appropriate distribution of the national savings volume and the creation of public credit, i.e., on the planned control of the money and credit market.

Consumption structure - maintaining the standard of living There is no doubt that the German economy will have to accept certain restrictions in the field of food and clothing, which will consist in foregoing the present level of foreign imports of finer foodstuffs and luxury foods and of certain fashion and quality products in the textile field, but will be able to compensate for this in higher achievements in the field of housing and settlement, of technical and cultural comfort and of meaningful leisure activities. Economies that are industrializing or have industrialized tend to spend a much higher proportion of their purchasing power on industrial products than agrarian economies. For example, according to our calculations, the average amount spent on food in 1925/29 was:

In Italy In France In Germany In Great Britain In the US

56 % 46 % 41 % 38 % 30 %

of national income. Conversely, the amount spent was on clothing and housing: 127

In Italy In France In Germany In Great Britain In the US

22 % 27 % 32 % 32 % 35 %

For industrial consumables were spent:

In Italy In France In Germany In Great Britain In the US

4% 5% 6% 7% 12 %

of the population's consumption income. Our present economic situation means an intensification of this development trend, and it may become an extremely important question in the foreseeable future, also from a sociopolitical point of view, how to compensate or overcompensate for the unavoidable reduction in the standard of living of our broad masses in the field of foreign food and consumer materials by raising their technical standard of living. I am thinking of the compensation of necessary restrictions in the field of certain food and clothing habits by an increase in consumption possible from the domestic economy in the field of home culture, traffic engineering, travel and art enjoyment. In short, better and sunnier housing to compensate for lower consumption of tropical fruits and tobacco, lower consumption of wool and cotton in exchange for more bicycles, motorcycles, domestic travel, theater and movie attendance. In solving this task, not only industry but also transportation, music, theater, film, sports and all the other cultural apparatus of our national economy are involved. The efforts of the German Labor Front, which have been mentioned several times, should be particularly emphasized here, along with its "Strength through Joy" organization. The many tasks that arise for systematic economic monitoring in the areas of production and distribution organization, labor relations, the money and credit market, and general economic development as a result of the need for a planned solution to these fundamental problems have been discussed in Section II 2 B Economic monitoring and economic management in the internal relations of the national economy.

3. Basic features and orders of magnitude of German foreign trade The fundamental tasks facing German foreign trade in the near future include the provision of the necessary foreign exchange fund to supply the domestic market with non-substitutable 128

foreign raw materials, the creation of additional employment opportunities for the growing number of workers in the context of export production, and the subsequent restoration of the freedom of trade, currency and prices that is absolutely necessary in the interests of both domestic and foreign trade. These tasks give industry a special position among all economic groups because it alone is capable of solving them. For this, however, industry needs sufficient support within the framework of the overall economic order, which is all the more important because the fate of our economic future more or less depends on it.

Securing the supply of raw materials

In the previous section, the import dependency of our feed industry and our most important domestic market industries was already briefly mentioned. Apart from the supply of fat and feed protein, the supply of raw materials to the textile and clothing industry, the iron and metal industry, the leather and rubber industry, the wood and paper industry and the transport industry is still largely foreign-based. The other sectors of the economy require certain imported raw materials, but these are of very minor importance for the foreign exchange balance.

Imports of raw materials by major economic groups in 1934, in millions of RM. Raw material balance Food industry Industrial economy Textile and clothing industry Iron and metal industry Leather and rubber industry Wood and paper industry Transport economy (mineral oils)

Import 1461 1968 680 409 272 214 137

Export 145 691 74 62 38 44 21

Import surplus - 1316 - 1277 - 606 - 347 - 234 - 170 - 116

The textile and clothing industry

Of the major domestic industries, the textile and clothing industry is the most dependent on imports. At present, 90 percent of the textile raw material supply is based on foreign raw materials and, given the current state of the art, it will not be possible to reduce this to below 75 percent in the foreseeable future if domestic sources of supply are fully exhausted. Of the fiber materials required, hard fibers, cotton and silk come entirely from abroad, while only a small fraction of wool and flax can be supplied domestically despite increased recovery of recovered fibers. Only the production of artificial silk and artificial fibers largely satisfies domestic demand. The main countries of origin of our textile raw material imports from 129

overseas are the V. St. v. America (cotton), Australia (wool), South America (wool, cotton), British India (jute, cotton), Egypt (cotton) and South Africa (wool). The European countries supply half of the raw materials, which they obtain from overseas and pass on to Germany partly refined, and the other half fibers, which they produced in their own country.

The composition of the fiber supply and the share of domestic fibers in 1934 Textile fabrics Cotton Wool Jute Manila hemp Artificial silk Flax Hemp Natural silk Total

In 1000 t

In %

368,4 115,3 105,1 43,9 42,3 58,6 20,6 2,8 767,0

48,0 15,0 13,7 5,7 6,8 7,7 2,7 0,4 100,0

Thereof domestic share In 1000 t In % 15,0 4,1 25,3 21,9 41,5 79,3 5,4 9,2 0,2 1,0 87,4 11,4

The German textile balance is normally strongly passive even when including the not insignificant re-export of textile raw materials and the export of finished textile products. Only once during the crisis did it become temporarily active, because the drop in prices of imported raw materials far preceded the drop in exported finished goods.

The German textile balance sheet in millions of RM. Year

1928 1929 1930 1931 1932 1933 1934

Total textile import 2853,0 2690,0 1888,3 1189,5 826,8 835,4 866,8

thereof raw materials

Total textile exports

thereof raw materials

2488,4 2329,6 1592,2 1002,1 736,9 771,0 802,4

1996,5 2284,5 1738,4 1391,3 725,5 629,4 480,8

660,9 688,6 488,9 336,2 199,7 174,5 143,2

Import (-), export (+) surplus - 856,5 - 605,5 - 149,9 + 201,8 - 101,3 - 206,0 - 386,0

The iron and metal industry

The German iron and metal industry is based somewhat less, but still predominantly, on the supply of foreign raw materials. In pig iron production, the share of foreign raw materials is 130

likely to reach 70 percent, and in the iron and steel industry as a whole, despite the much higher domestic scrap production, it is still almost 50 percent of the total supply. In the copper industry, the foreign share of raw materials can be estimated at 75%, in the lead supply at 60%, in the zinc supply at 20% and in the tin, nickel and aluminum supply at 100%. Iron ores are sourced mainly from Scandinavia, copper ores and copper come from North and South America, South Africa and the Belgian Congo, lead from Australia and Mexico, tin from the Malaysian states, zinc from Poland, nickel from Canada and the raw materials for aluminum production from Hungary and France. In contrast to the textile balance, however, the iron and metal balance is consistently active as a result of exports of iron and metal goods, machinery and electrical and precision engineering products.

German pig iron and crude steel supply in 1934 Iron raw materials New production from Ores Gravel firing Slags Scrap Together

Total supply In 1000 t In % 6000 650 1660 5810 14120

42 4 12 42 100

Thereof domestic share In 1000 t In % 900 30 1300 5410 7640

6 0 9 39 54

Leather and rubber industry The supply of raw materials to the leather and rubber industries is similarly foreign-oriented and has a considerable impact on the foreign exchange economy. In the case of leather, half of the required hides and skins normally come from domestic slaughtering. Here, the domestic raw material supply is determined by the relatively rigid meat consumption and is subject to only minor changes in its magnitude. Cyclical fluctuations are therefore transmitted almost exclusively to import requirements, which are consequently subject to strong change. In the case of rubber, more than 90 % of consumption is import-dependent, while it is estimated that less than 10 % comes from domestic regeneration. Raw material requirements for the leather industry are covered by imports from South and Central American countries, while rubber imports come almost exclusively from East Asia. Even with the inclusion of exports of finished goods, our leather and rubber balance sheet still shows a considerable deficit.

131

The German Leather and Rubber Supply 1932-1934 1932

1933

In t

Domestic accrual Import surplus Total supply Import surplus Regeneration (estimated) Import surplus Total supply

In % In t Beef skins and calfskins 11021 60 10813 7308 40 8476 18329 100 19289 Tannins 10224 11964 Rubber 4000 8 4500 45742 92 54989 49742 100 59489

1934 In %

In t

In %

56 44 100

12491 10945 23436

53 47 100

14137

8 92 100

5000 60282 65282

8 92 100

The wood and paper industry With normal forest utilization, just under two-thirds of Germany's wood requirements can be taken from its own forests, while the rest must be covered by imports. The supply situation for wood is therefore better than in the other large industrial sectors and is also more favorable due to the fact that, at least temporarily, there can be strong domestic logging. Nevertheless, the share of the foreign supply base and the consumption of foreign currency are of essential importance here as well. Under normal economic conditions, German wood consumption amounts to 35 to 40 million cubic meters of timber and 20-25 million cubic meters of firewood, with about 15 million cubic meters of timber having to be covered by imports in good years. However, the timber market is so sensitive to the economic cycle that imports fell to just under 4 million cubic meters during the last crisis, but have since returned to 11 million cubic meters. Wood is mainly imported from northern and eastern European countries. Even taking into account exports of finished goods, the German timber balance remains passive.

Domestic logging Import surplus Construction and timber Pulpwood Total supply Wood for house construction Wood for furniture making Wood for other construction wood for pits, sleepers and poles Wood for pulp, wood pulp and artificial silk Total supply

1927 1932 1000 fm. In % 1000 fm. Wood supply 24900 60,9 19900 16000 39,1 3700 12200 29,8 1400 3800 9,3 2300 40900 100,0 23600 Wood consumption 17000 42,8 7700 3000 7,6 1800 5000 12,6 2500 6700 16,9 4100 8000 39700

20,1 100,0

7200 23300

In %

1934 1000 fm. In %

84,3 15,7 5,9 9,8 100,0

29400 10800 4800 6000 40200

73,2 26,8 11,9 14,9 100,0

33,1 7,7 10,7 17,6

14000 2500 5000 4200

41,1 7,4 14,7 12,4

30,9 100,0

8300 34000

24,4 100,0

The above figures for these four major economic areas may suffice to show that securing our external supply of raw materials is a vital issue for the German economy. However, the demands on our balance of payments and foreign exchange arising from the import of raw materials are determined not only by the volume of imports, but far more by the price movements of raw materials, which at their peak often reach a multiple of their price level during the crisis. The importance of systematic commodity monitoring for a forward-looking policy in these areas, as discussed earlier, is thus readily apparent. Foreign exchange for the import of raw materials by the agricultural industry and the domestic market must be obtained mainly from the export of finished goods by the export industry. Apart from the chemical industry, mining and the mineral industry, only the iron and metal industry and the technical processing industries based on it, mechanical engineering and electrical engineering, are able to cover their raw material requirements from their own resources and even to bring in a foreign exchange surplus for the economy as a whole, while the textile and clothing industry, the leather and rubber industry and the wood and paper industry consume more foreign exchange than they produce. Thus, there is an extensive division of labor within the individual industries, not only in terms of importance for employment and production for the domestic market or exports, but also in terms of the production and consumption of foreign exchange.

The foreign exchange balance of important industrial groups in 1934 in RM mill. Industry Groups

Iron and metal industry, mechanical engineering, electrical engineering Chemical industry Mining Stone and earth industry Textile and clothing industry Leather and rubber industry Wood and paper industry

Export

Finished goods Import

1545 627 326 156 429 127 194

287 87 99 21 188 40 35

Export surplus

Raw material import surplus

Foreign exchange production (+) or demand (-)

1258 540 227 134 241 87 160

347 28 2 606 234 171

+ 911 + 512 + 227 + 132 - 365 - 147 - 11

The development of the German economy within an area poor in raw materials has meant that the consumer goods industry - food, clothing and the supply of everyday consumer goods to the population - is largely dependent on foreign countries for the supply of raw materials, but is mainly domestically oriented for the sale of finished goods. Conversely, the production goods sector - mechanical engineering, electrical engineering, chemicals - relies primarily on the domestic market for raw material supplies and needs the world market for sales of its finished goods. If the production values of the individual economic groups are calculated and these are compared with the net import of raw materials and the net export of finished goods, 133

the differences shown opposite emerge. Most of the raw materials imported by the consumer goods industries are used for domestic consumption and only small fractions are exported in the form of finished goods, while the production goods industries mainly use domestic raw materials and export them to enable the consumer goods industry to import coal. As the last column of the overview shows, the chemical industry exported for 1 RM. Foreign consumption brought in around RM 45. the iron and metal industry not quite RM 4, and the mining industry not quite RM 3, while the wood and paper industry recovers about RM 0.9 and the textile and clothing industry as well as the leather and rubber industry only about RM 0.5. This division of labor is not based on chance, but is rooted in the structure of the individual industries and the development of the world economy, and must be taken into account, especially in export promotion, if we do not want to face certain failures. At this point, therefore, it may be worth recalling the remarks on the problem of foreign trade made in the section on economic observation and economic policy in the relations of the national economy with the outside world.

Import and Export Dependency of the Main Industries in 1934 Industries

Industrial consumer goods industry: Textile and clothing industry Leather and rubber industry Wood and paper industry Production goods economy: Mining¹) Iron and metal industry, mechanical engineering, electrical engineering Chemistry

Production value

Raw material import surplus In Mill. RM

Finished goods export surplus

Raw material imports as % of production value

Exports of finished goods in % of production value

Finished goods exports to raw materials imports = 100

11700 6400 900 4400

1011 606 234 171

487 241 86 160

8,6 9,5 26,0 3,8

4,2 3,7 9,6 3,6

64 63 47 91

21800

399

2025

1,8

9,3

592

15400 3200

347 52

1258 540

2,3 1,6

8,2 16,9

378 4499

¹)Since mining cannot be broken down into coal import surplus and finished goods export surplus, imports and exports of mine products are compared here.

134

Creation of additional jobs In addition to securing the demand for raw materials, which means indirectly securing the employment situation on the domestic market, the export industry also has the task of directly providing additional employment within the German economy through its export work. If one tries to get an idea of the actual importance of exports for the employment situation, this can only be done by comparing the net production and net exports of the industry and dividing the employed persons according to this ratio. The overview shows the results of this calculation.

Net Production and Net Exports of German Industry 1928-1934 Industry Net sales in RM billion Net exports in RM billion Net exports as % of net sales Employees in 1000 For export Employees in 1000

1928

1929

1930

1931

1932

1933

1934

33,4 8,6 26 13147 3418

34,3 9,6 28 12881 3607

30,1 8,7 29 11362 3295

23,4 7,0 30 10322 3097

17,6 4,1 23 7741 1780

18,5 3,5 19 8623 1638

23,3 3,1 13 10946 1423

The volume of work created by industrial exports thus corresponded to an order of magnitude of 3t/2 million employees in the best years and had declined to about l1/2 million by 1934. The shrinkage of exports has thus resulted in the loss of a labor volume of about 2 million jobs, some of which are now being replaced by expansion of the domestic market with the aid of government credit. From the point of view of the individual industries, direct job creation through exports is of decisive importance, especially in the labor-intensive export industries, such as mining, the iron and metal industry, mechanical engineering and electrical engineering, while the capital-intensive export industries, such as the chemical industry, are more important in the field of foreign exchange procurement and securing raw materials, and thus indirectly for the employment opportunities of our large domestic industries. However, the question of planned export promotion from this point of view must take into account not only the varying suitability of the individual industries for achieving foreign exchange earnings and increasing employment opportunities, but also their export strength, which varies greatly in certain global economic constellations. The conclusions of the remarks made in Section II2 A on economic observation and economic policy in the relations of the national economy with the outside world are again obvious here. They may be supplemented by a few examples. The changes in the structure of pricing for the individual groups of foreign trade already indicate that, in line with the changes on the world market, products of the technical industries have been affected least, while products of the simple consumer goods industries have been affected most. If a domestic market-oriented production and pricing policy prevents the development of similar price differentials at home, a corresponding differentiation in the export strength of the individual industries must develop. 135

The different types of decline in export prices in the individual industrial groups compared with 1929, in %.

Industry Groups Electro technical industry Chemical industry Machinery industry Stone and earth industry Iron, steel and metal products industry Wood and wood pulp industry Clothing industry Paper industry Mining Leather industry Textile industry Food and beverage industry

1931 -6 - 13 -8 -9 - 12 - 18 - 19 - 14 - 11 - 25 - 23 - 28

1932 - 10 - 19 - 16 - 18 - 23 - 30 - 35 - 30 - 34 - 38 - 35 - 31

1933 - 19 - 23 - 22 - 27 - 28 - 34 - 43 - 37 - 42 - 44 - 43 - 45

In accordance with these price differentiations and the processes on the world market, the individual industries have also shown a very different resistance to the crisis in the face of export shrinkage, which has led to the far-reaching shift in the share of individual industrial groups in total German exports. By far the best export performance was maintained by the chemical industry; in addition, the mining, quarrying and iron, steel and metal industries successfully defended their exports, while the food and beverage, textile, clothing and leather industries were increasingly squeezed out of the world market. These differentiations are not only cyclical in nature, but are caused by the structural shifts of the world market and will have a more or less permanent character. The extent of the decline in exports is grouped in the same order in which industrialization proceeds. The food and luxury goods industries are developed first, followed by the textile and other consumer goods industries, while the production goods industries are usually developed later and the chemical industry in last place.

136

1934 - 24 - 27 - 27 - 29 - 34 - 35 - 41 - 42 - 47 - 47 - 47 - 48

The shift in the share of individual industries in German exports of finished goods Total industrial exports = 100 Industry Groups

1928

Chemical industry Large iron, iron, steel and metal goods industry Mining Stone and earth industry Machinery, apparatus and vehicle construction Electrical engineering Paper industry Wood and pulp industry Textile industry Clothing industry Leather industry Food and beverage industry

1931

1932

1933

1934

Jan/April 1935

Industries with increasing share 14,3 13,3 16,1

18,2

20,2

20,1

22,7 22,8 23,1 7,6 7,3 7,3 5,2 5,1 5,4 Industries with roughly constant share

23,4 7,6 5,9

23,9 9,0 6,5

24,9 9,2 6,7

12,2 15,0 15,8 5,4 6,3 7,1 4,8 5,2 5,5 1,9 2,1 2,0 Industries with declining share 11,2 10,2 8,7 4,3 4,2 4,0 2,7 2,8 2,4 4,4 3,3 2,5

13,8 5,7 5,1 2,1

12,6 6,0 5,2 1,9

13,5 5,8 5,5 1,3

8,9 3,9 2,9 2,7

7,5 3,2 1,8 2,2

6,8 2,9 1,8 1,4

Regaining freedom of trade, currency and prices

However, beyond the most urgent tasks of raw material procurement and the creation of additional employment opportunities, Germany's foreign trade must in the long run regain a lasting balance of payments equilibrium and thus freedom from currency and price fluctuations. The briefly outlined development trends in the domestic as well as in the foreign economy must be made to serve this goal in a planned manner. The solution of this task is also one of the most important prerequisites for genuine German economic and military freedom. A healthy further development of the German economy within the world economy presupposes that the German foreign economy also does not lag behind the development of world trade. This means that the volume of German exports should continue to grow in roughly the same proportion as the world economy. If one compares the development of German foreign trade with the development of world and European trade, it becomes apparent that the German share in both European and world trade has declined considerably since the war. If German foreign trade sales had maintained their pre-war share of world trade, they would today have to be about half as high as the sales figure actually achieved, i.e., according to current values, about RM 121/a instead of 81/2 billion.

137

The development of foreign trade turnover in Germany, Europe and the world Year

1900 1910 1913 1925 1930 1934

Germany Europe World in billions of M. or RM

10,4 16,4 20,9 21,7 22,4 8,6

54,2 82,7 98,1 138,4 129,1 53,5

82,2 131,4 160,2 268,0 228,7 96,0

Germany Share in % of European World trade trade 19,2 19,8 21,3 15,7 17,4 16,1

12,6 12,5 13,0 8,1 9,8 9,0

If the share of world exports had remained constant, German foreign trade would have amounted to RM billion. 10,4 16,4 20,9 34,8 29,7 12,5

Now, from the level of both German and world trade, which is still in the trough of the crisis, only very limited conclusions can be drawn at all about future developments. Better indications can be obtained by observing the trend development of foreign trade over a few decades. It then becomes apparent that German foreign trade, which after the war setback was again moving with great vigor toward its pre-war level, is currently undergoing a new major setback. A return to the normal trend would mean that by the middle of the century Germany would have doubled its foreign trade volume of 1913 and about quadrupled its present level - i.e., at 1913 prices, about RM 40 billion against RM 21 billion. 1913 and around RM 13 billion. 1934 - would have to be reached. Even if the figures seem unattainably high in terms of current volumes, this is not necessarily impossible, but it can certainly only be achieved under far-reaching structural changes in our foreign trade goods and foreign trade routes. For both in the structure of the pricing of individual export goods and in the structure of the import requirements of the individual world markets - not least due to the changed balance of payments and methods of foreign trade transactions - such drastic changes have occurred that a return to the earlier forms of foreign trade seems impossible for the time being. The reasons for this were mentioned a few pages earlier. The emergency trade policy measure of bilateral clearing of foreign trade balances to protect the balance of payments has today reached such a scale that the conversion of trade and foreign exchange policy from an all-sided system of exchange relations to a system of bilateral clearing relations, initiated with the collapse of the international credit edifice, can be regarded as complete. The extent to which the elimination of so-called triangular traffic from world trade has progressed is shown by a survey which has been carried out for the seven most important world trading countries, together accounting for about half of world trade.

138

The structure of foreign trade of the main world trading countries (Great Britain, USA, Germany, France, Netherlands, Belgium, Japan). Year

In two-way traffic, balanced trade sales RM mill. ¹) 1929 107424 1931 59604 1932 40344 1933 36708 1934 36300 1935 1st Quarter 9675

Trade sales brought to balance in multilateral traffic²) Mill. RM % 25176 10968 7140 6816 4908 766

16,9 12,6 12,4 13,1 10,3 6,5

Non-balanced trading revenues³) 16776 16344 9876 8340 6636 1357

¹) This is the trade turnover after deduction of the remaining asset or liability balances in bilateral trade of the seven countries with all reference and destination countries. ²) These are the asset or liability balances remaining in bilateral trade that are settled through a third or fourth country. ³) These are the remaining asset or liability balances in the trade balance of each country, which are only offset by other liability or asset balances in the balance of payments (services, interest, capital or gold movements).

According to this data, the value of triangularly regulated merchandise transactions dropped from a monthly average of over RM 2 billion in 1929 to RM 1ji billion in the first quarter of 1935 and accounted for only 6.5 percent of the foreign trade turnover of the countries studied, while the value of unbalanced trade turnover shrank from a monthly average of RM 1.4 billion to RM 450 million. Germany, whose activity with European countries and passivity with overseas countries used to characterize the many-sided balancing of world trade, has played the most significant role in the decline of foreign trade peaks. Whereas as late as 1931 Germany's foreign trade with Europe was active at RM 4 billion and passive with overseas countries at RM 1 billion, since then a change has taken place that was not recently thought possible. The reduction of our export surplus sought by the European countries has been carried out except for a vanishing remnant. Conversely, our foreign trade with overseas has been largely balanced, despite all the difficulties to the contrary.

Germany's foreign trade in millions of RM. With Year 1931 1932 1933 1934 1935 1st Quarter

Europe + 4014 + 2147 + 1521 + 627 + 147

Oversea - 1143 - 1075 - 847 - 906 - 308

139

Now that the restructuring of trade relations in the countries with the largest imbalances has largely been completed, an expansion of international exchange relations can be expected. In bilateral trade in particular, the smoothing of balances has created much more favorable conditions for such a resumption of expansion. Indeed, as long as the purchase of goods was viewed primarily from the negative point of view of the resulting unfavorable balance, a constant reduction in foreign trade was the result. After balancing, each partner can expect increased purchases of goods, so that in the future, in international trade in goods, the idea of compensation is likely to come to the fore in the positive direction of increasing sales. This development seems to be gaining more and more ground in both German and world trade. German exports, which had declined steadily until the first quarter of 1935, increased by RM 3.4 mill. in the second quarter and by RM 37.7 miss. in July. RM. or 11.7 per cent over the corresponding period of the previous year. Although the time is still too short to permit a definite judgment, and the danger of temporary setbacks is certainly still present, the low point of the export contraction seems to have been overcome. This assumption is justified above all by the fact that in the second quarter of 1935, out of 83 countries included in the German trade statistics, 47 countries reported an increase in exports compared with the previous year, 12 countries remained unchanged, and only 24 countries showed a further decline. However, the countries whose imports from Germany have increased are of lesser importance in the context of total German trade, but their combined share of total exports is 51.6%, while the countries to which German exports are still declining account for 47.8%. The increase in exports is distributed almost evenly over all continents: 15 of 27 European countries, 16 of 22 American countries, 8 of 13 Asian countries and 8 of 19 African countries show increases which are in part quite significant in percentage terms, although not very substantial in absolute terms. For example, exports to Hungary increased by RM 5.6 mill. (62%), to the Balkan countries by RM 17.1 mill. (58%), to South America by 23.0 mill. RM. (39%). In a large number of these countries, the increase in German exports was triggered by a preceding or simultaneous increase in German imports from these countries. Declining exports to the V. St. v. America, Holland, Belgium, Switzerland and Russia. The individual phases of the upheaval in foreign trade development are illustrated below, using the example of German imports and exports with Hungary, the Balkan countries and South America.

Change from the corresponding period of the previous year in RM million. Year 2nd half year 1933 1st half year 1934 2nd half year 1934 1st half year 1935

Hungary Import Export - 1,0 - 8,0 + 6,9 - 1,9 + 22,8 + 3,4 + 5,5 + 8,6

Baltic States Import Export - 22,2 - 23,8 + 0,5 - 3,7 + 19,5 + 18,4 + 25,8 + 26,4

South America Import Export - 45,3 - 3,8¹) + 36,0 - 19,5 + 3,5 - 2,1 + 40,4 + 37,0

¹)Excluding Brazil, which imported hardly any goods from Germany in the 2nd half of 1932 because of the revolution.

140

German imports are up on the previous year in 43 countries, 25 of which have also increased their imports from Germany. For the remaining countries, German imports have increased, but exports have not yet risen. For some of these countries, it can be expected that the increase in German imports will soon also lead to an increase in exports. Here, however, the presentation of the basic features and orders of magnitude already leads back to the question of economic observation dealt with earlier, so that this topic should be concluded.