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M r . Martin
This is the Gekker t r a n s l a t i o n you
wanted.
mnm
BOARD DF GOVERNORS
or T H E
FEDERAL RESERVE SYSTEM
Office Correspondence
To
Chairman Martin
From
Paul Gekker
Date September 21, 1965
Subject: Soviet Publication of
Columbia University Speech.
You may wish to note that the Russians have translated and
published a major portion of the address you delivered at Columbia University
on June 1.
The Russian translation, which is a generally faithful rendi-
tion of your text, appears in the August 1965 issues of World Economics and
International Relations, the monthly journal of the Institute of World
Economics and International Relations of the U.S.S.R. Academy of Sciences.
> i
v
The Russians have given your address a new title--ffIs the U.S.A.
Threatened by Another Great Depression?"--in place of the one you had
originally chosen ("Does Monetary History Repeat Itself ?ff).
they have made two major deletions from your texts
In addition,
they have omitted your
discussion of the 1931 sterling devaluation, and of the gold standard
mechanism.
The sole addition to the text, as reproduced, consists of an
editorial instruction to the reader to interpret your expression "the free
world" as the "capitalistic" world.
In addition to this shortened version of your Columbia University
address, the Soviet journal also published a two-page commentary entitled
"In Regard to Martin's Speech," by Sergei Menshikov, a member of the
Institute of World Economics and International Relations.
The author
happens to be the son of Mikhail Menshikov, the Soviet Ambassador in
Washington during most of the Khrushchev period and the immediate
Chairman Martin
- 2-
predecessor of Dobrynin, the present Ambassador.
Sergei Menshikov has a
background in journalism; during his stay in this country, when his
father was Ambassador, he became quite widely acquainted here as well as
fairly well informed about American conditions.
He thus enjoys something
of a reputation as an expert on the United States and frequently contributes
articles on various aspects of the contemporary U.S. scene.
As a matter of
interest, I attach my informal translation of Menshikov*s commentary.
In my view, MenshikovTs piece is more interesting as a curiosity
than as an expression of opinion that merits serious attention.
The
commentary is a typical example of Soviet propaganda treatment of important
foreign developments, especially of situations in which Soviet observers
fancy they detect some element of controversy or of internal contradiction
in the West.
The piece is standard, too, in that it is a vehicle for the
repetition of fairly well-worn themes, in this instance of what one might
term the
lf
neo-Sovietft analysis of the capitalist business cycle.
As one
would expect, Menshikov1s piece is disputatious, but it is not overly so.
Finally, Menshikovfs status as an expert on the United States is displayed
in his ability to identify the "eminent observers11 you mention in your
address.
This personal touch in his commentary may convey just that ring
of authenticity that appeals to Menshikovfs readers, whoever they are.
ff
In Regard to Martin's Speech"
by S. Menshikov*
William McChesney Martin is no rank-and-file figure in the
ruling circles of the United States of America.
He has already occupied
his position, which corresponds in other countries to the head of the
central bank of issue, for 14 years.
During this time there have been
three Presidents in the United States but Martin remains at the head of
the Federal Reserve System--among senior Washington officials, a rare
example of length of service.
This long service is evidently to be ex-
plained by the fact that Martin follows the line of the leading Wall
Street banks fairly closely, even engaging from time to time in controversy with other parts of the government, among them the Treasury
Department.
Martin is well known in Wall Street, having been president
of the New York Stock Exchange in 1938-41. All this explains why MartinTs
speech, which we are printing in our journal, exerted such widespread
effects, especially on the stock exchange.
One cannot deny that the views expressed in the speech convey a
certain sense of realism.
Martin admits that the current economic
situation is reminiscent of the situation prevailing on the eve of the
great depression of 1929-33.
He satirizes the official optimism of some
bourgeois economists who are now--as they were then--quick to declare that
capitalism has arrived at the stage of crisis-free development.
Martin
doesn't identify these people but it is easy to recognize them among his
* Translated from World Economics and International Relations, 1965,
No. 8, pp. 137-138.
- 2 colleagues--members of President Johnsonfs Council of Economic Advisers,
who only this year declared that recessions were almost entirely conquered
or, at any rate, would be conquered in the near future.
Nor is it difficult to recognize those "eminent observers,11
unnamed but described by Martin as making comparisons between the present
and the late 1920!s.
Among them is the London weekly Economist, which
aired views along these lines in an editorial this March; the French
economist Jacques Rueff, whose ideas have been used by de Gaulle in his
well-publicized statements on exchange questions; and a number of others.
It is a particular feature of Martin's speech that he makes his
comparisons between the present situation and that of the late 1920fs in a
fairly wide context.
To a certain extent, this comparison is correct,
with respect to general characteristics as well as to the contrasts between
the two periods.
However, it is in many respects a far from satisfactory
account.
Martin is mistaken in asserting that the last seven years have
witnessed uninterrupted growth in the capitalist economies.
It is
sufficient, in this regard, to recall the American recession of 1960-61--a
period of prolonged stagnation--as well as the partial and short-term
recessions in a number of Western European countries and in Japan in 196263.
His statements are also incidentally incorrect with respect to the
periods between the depressions of 1920-21 and of 1929-33, when the growth
in production was interrupted by recessions in 1924 and 1927.
It is necessary to be more precise on these matters in order to
be able to provide a more correct answer to the question posed in the title
- 3 -
of Martin's speech.i/
Cyclical growth in capitalist economies has not
been uninterrupted, no more now than it was in the 1920!s.
But it is
certainly the case now, just as it was then, that about seven years have
passed since the previous worldwide business cycle.
Inasmuch as cycles
of capitalist production have recurred every 7-10 years in the course of
roughly the last century and a half, it is clear that the time has come
to look for signs of a cyclical turning point.
Among capitalist economies there are at present many indications
that the current period of cyclical growth is coming to an end.
Last
year's recession in Italy, the stagnation and tendency toward recession in
France, the curtailment of output in Japan since the beginning of this
year, and in England from the end of last year as well, the onset of a
stock exchange decline in the United States--these and other circumstances
suggest that the period of "perpetual boom11 is already behind us.
Martin deals mainly in terms of credit, foreign exchange and
finance, and he distinguishes between factors that can be used to support
the argument that there will be a repetition of a crisis of overproduction
on a large scale, and those that operate in the reverse direction.
But an
answer to the question whether the 1929-33 depression will be repeated
cannot be given solely in terms of an analysis of monetary and credit
trends.
In this respect, Martin illustrates the usual tendency of bourgeois
economists to exaggerate the role of money.
The causes of economic
depressions are to be found primarily in the sphere of production.
The
17 Original title of the address was "Does Monetary History Repeat
Itself?"
- 4 -
analysis of the particular situation in the field of production, in any
given period, permits one to judge the sharpness of the coming depression.
The study of monetary and credit developments can only be a supplement to
this basic analysis.
In the contemporary capitalist economy, the strength and magnitude
of cyclical movements can hardly be the same as in 1929-33, at least at
the present time.
The capitalist share of world production has declined
significantly and now accounts for hardly more than 60 per cent of the
total.
In addition, commodity exchanges with the socialist planned economies
cannot help but influence the course of the business cycle.
In developing
countries, industrialization proceeds apace, in large measure with government support.
This creates a relatively stable demand for industrial
equipment manufactured in the industrially advanced countries.
In the principal capitalist countries the scientific-technological
revolution is continuing and, despite the contradictions inherent in
capitalist modes of production, this process is rapidly altering the
structure of production by creating all sorts of progressive branches of
industry and types of products, the output of which continues growing even
during periods when the traditional sectors of industry are experiencing
depressed conditions.
The workers1 movement in the principal capitalist countries has
registered significant successes.
Among the gains is the more or less
systematic increase in pay scales, which continues even during periods of
depression, the systems of unemployment compensation, and so forth.
- 5 -
Government-monopolistic capitalism has developed economic
programming on a national scale.
The use of electronic calculators in
management and intra-firm planning by the largest capitalist monopolies
permit greater precision in estimating future demand and operationally
more exact adjustments to the cyclical situation.
In short, capitalism has not eliminated--nor can it eliminate-worldwide cyclical crises; but its economic mechanism has changed to such
an extent that developments within the cycle are now quite different.
A
world depression can be serious, it can be prolonged, and it can be deep,
if simultaneously and suddenly there occur a sharp reduction in trade
between capitalist and socialist countries, a temporary curtailment of
industrialization in developing countries, and a temporary stop to the
growth of progressive industrial branches of industry in the developed
capitalist countries; if the growth in wage rates, under collective agreements, is replaced by a decline; and if capitalist governments and the
largest monopolies make large programming errors.
However, the combination
of all these conditions, and their concentration within a relatively brief
period, is rather unlikely.
But let us return to the area of money and credit, which can play
a significant role in determining the magnitude and strength of the economic
cycle.
At the present time, the foreign exchange position is undoubtedly
among the weaker elements in the cyclical picture.
Martin is correct in
saying that the capitalist world economy no longer suffers from the "cancer"
of reparations and international debts, which strangled capitalist
- 6-
international trade and the export of capital in 1929-34.
However, there
is now a different "cancer11--the extremely uncertain balance of payments
position of the United States and England, which account for more than
one-half of industrial production and for almost one-third of total exports
of the capitalist countries.
Inasmuch as the dollar and the pound sterling
are the main reserve currencies of the capitalist world, it is easy to
imagine how a crash or a shock to confidence in these currencies could
significantly intensify the crisis of overproduction.
Even the efforts by
the United States and Britain exert negative influences on the general course
of economic activity in the capitalist world.
The imposition of import surcharges by Britain has already caused
sales difficulties for the smaller countries in the Outer Seven.
But the
most influential country is the United States, whose commodity imports in
recent years has been a main prime-mover of growth in Western Europe and
Japan, and whose export of capital is an essential source of investment
finance in these countries.
President Johnson's announced program to restrain capital outflow
has already had adverse effects on capital markets of other countries.
If
the United States should move to curtail imports the consequences could be
quite serious.
Which will prevail--extreme nationalism in trade or commercial
policy, or joint action by the imperialist countries to rescue the major
capitalist currencies?
Martin raises this question in the concluding
section of his speech.
He urges that the second of these lines of action
- 7 -
be taken, because he recognises that efforts to overcome the crisis of the
dollar at the expense of other countries would have ricochet effects on
the American economy.
But Martin's reproach of those people who measure others only
by their own standard applies just as much to Martin himself.
For the
underlying theme of his entire speech is to present arguments against an
increase in the price of gold, against any change in the current role of
the dollar in international accounts, that is to say against the point of
view expressed by de Gaulle and actually held by certain other Western
European governments.
The whole point of Martin's speech is that it is an appeal to
safeguard the hegemony of the U.S. dollar, come what may.
It is precisely
in this respect that Martin displays very much the same economically
nationalistic outlook that he condemns in others.
If Martin's speech
presages further steps by American imperialism to shift the burden of the
dollar crisis onto the shoulders of others, this will strengthen those very
tendencies toward an intensification of the economic crisis, of which the
Chairman of the Board of Governors of the Federal Reserve System warns.
Translated by:
Paul Gekker
September 20, 1965
@FedFRASER