22. Drop in World Prices

(La Vie Française, November 28, 1952)

Are we at a turning point of the world’s economic evolution? Having maintained an almost uninterrupted upward trend, will the trend of prices reverse itself? Will the drop now begun be continuous or transitory, severe or moderate? Such are the questions that are asked to some extent everywhere, in Europe as well as in the United States, by economists, businessmen, and even by politicians.

The readers of this paper know by the graphs which are presented from time to time, the progress of the facts. I have no intention of approaching this problem by its statistical aspect. No one ignores the fact that the prices of the important raw materials, industrial and agricultural, have dropped in the last six months in relation to their level two years ago.

Whether it is lead, tin, rubber, cotton, cereals, steel, potash, the trend of the prices of all these materials is downward. These fluctuations, of course, are like the teeth of a saw. They may be upward for one or two months, but their general direction is obvious.

It is not Mr. Pinay’s policies that are responsible. We are referring to world products whose markets are in New York or in London, and over which French policies exert no influence. Neither is it the election of General Eisenhower that can alter the course of things, or the choice of remedies which America will use to fight a depression if one should occur.

A Universal Phenomenon

The profession of prophet is singularly hazardous. Nevertheless, I remain convinced that the coming months will continue, and perhaps for some time, to interrupt the rise in prices due to the war.

Why? My reasons are of a quite general order. The first is that a world rise in prices could not maintain itself today unless a certain amount of inflation in the purchasing power maintained constantly a higher level of demand for merchandise than the level of offer. It would suffice, in fact, that the inflation be curbed while production continues in progress for the prices to incline downward. It is a fact that is confirmed by all the experiences of the past.

On the other hand, the signs of a reversal always appear first in the markets for raw materials. After the First World War, the fall of the raw materials began in 1925, while the depression itself did not appear until 1929. At the present time, all the statistics continue to show a rapid and universal increase in production. The figures of 1952 all show progress in relation to those of 1938. But, at the same time, the inflation is systematically combated by the finance ministers of nearly all the countries, because no one has longer any doubt about the economic and financial disorder that results from the artificial creation of paper money.

A general increase in the offer of merchandise and stabilization of the demand; it is the very situation which must bring normally a change in the direction of the prices.

A great financier, who has since died, used to say after the First World War: “I have rarely been wrong in my predictions.” But he hastened to add: “save as to the dates.” Today, still, one can predict without great risk of making a mistake that a period of declining prices is ahead for the entire world. It is difficult to fix exactly the duration of this decline, but what we can state without too much risk is that it is unavoidable.

The Remedy: Increase in the Price of Gold

A few readers will conclude from what I have just said, that the remedy for such an eventuality can only be the continuation of inflation. I reply simply that there are two kinds of inflation: the inflation of paper money and the inflation of gold. The first no one wants, and with reason. Of the second, one can say that it has all the advantages of the first, without any of its inconveniences. It would suffice to increase the official price of gold in order to accomplish it.

In a recent, brilliant article, Mr. Raymond Aron, considering the economic policies which the Republican Party would perhaps have to adopt in the United States, in case of a general depression, enumerated the various financial measures which it could take.

He forgot (perhaps intentionally) to mention one: changing the price of gold. Less prudent than the distinguished contributor to the Figaro, I do not hesitate to say that it is in that direction that the chances lie of finding the best remedy for the depression, signs of which one begins to see a bit everywhere.

Examining the causes of the great depression of 1929, in the last volume of his Memoirs, published recently, former President Herbert Hoover declares that according to him, the monetary circumstances and, in particular, the return to parity of the pound sterling, had very little to do with it. Let us hope that the counselors of General Eisenhower will show more perspicacity in their views.

As to France, the worst error in policy which she might commit would be to attempt to raise her prices at a time when the trend in the international markets is downward. French exports would certainly decline. Those who speak lightly of a change in the Pinay policies would do well to think about it.