The downward trend – The 6% Loan

No one can deny that after several years of rising prices for all the items necessary for our existence, a "wave of decline" has occurred in certain categories. But is this decline real, or will we be "deceived," as many people still believe, hoping for a less expensive life?

If we want to get to the bottom of the issue, we must not stop at specific cases such as the significant drop in the price of sugar or the slight decrease in the excessively high price of paper.

One of the main reasons for the fall in sugar prices is undoubtedly the reopening of several sugar refineries in the former occupied territories. However, speculation is having a particularly strong influence here, meaning that it is impossible to make any accurate predictions for the future. Since the price of sugar is ultimately a global price—the "American" price—its fluctuations can hardly guide us in drawing general conclusions.

The same applies to the exorbitant price of paper. This is due, in short, to the draconian measures applied by the Government to prevent cheap paper from Central Europe entering France ; and the customs duties levied at the borders are in fact sacrificing the interests of the vast majority of French consumers to the benefit of a few large French paper mills that have managed to reach agreements with the most influential figures in the government.

While we cannot draw general conclusions from such specific cases, we do not consider these cases to be insignificant.

Modern social life is so complex that every real phenomenon occurring in any sphere immediately exerts its influence in all directions. Thus, the decline in sugar prices necessarily affects the prices of all items in which sugar is an essential raw material: pastries, chocolates, molasses, fruit jams, etc.; Each of these items, in turn, has a greater or lesser impact on related items that satisfy similar needs: tea, coffee, milk, honey, etc. The same is true for paper and any other product.

In order to address our subject from a general perspective, we must still disregard not only all kinds of specific measures taken by governments, of which an article such as this paper provides such a sad example, but also the intervention of the major banks. This intervention may have accentuated, or even triggered, the decline in certain areas, but it is nevertheless a secondary factor, unrelated to the root of the problem.

The Bank of France recently decided to restrict credit on warrants and merchandise stocks, abolishing such credit for wholesalers who had established themselves since the war, it forced those profiteers who were in immediate need of funds to sell off their stocks. However, this measure undeniably contributed to the onset of a decline in prices for several items.

Eliminating all secondary factors as indicated, we consider the price drop that has just occurred to be real and very serious; and we will even conclude that there is a possibility of panic buying with regard to several items.

We base our conception on the general aspect of the phenomenon of decline, which is analogous to that which occurs following each period of high prosperity, during one of those periodic international crises whose regular recurrence has led economists to speak of "industrial cycles."

What does modern economic science say about periodic crises?

First, during each of these periods of calamity that it has recorded since 1825, the decline in prices has always primarily affected finished goods and everyday items. This was the case in 1836, 1847, 1857, 1864–66, 1873, 1881–82, 1890–91, 1900–02, and 1907–1909.

And it is only natural that the decline should first affect finished goods of primary necessity, because these are the items that have increased relatively the most in price during the period of high prosperity preceding each crisis; it is on these that speculation has always had the most pronounced effect.

During periods of high business expansion, the prices of raw materials, particularly those used in extractive industries, vary relatively little. Their upward movement begins later and is always less pronounced than that of prices for all other products. On the other hand, raw material prices often remain high for several months after prices in the manufacturing industries have already stopped rising or have fallen.

High prosperity and growing industries increase income from all sources: profits, workers' wages, interest, and rents. All classes of society spend more on direct consumer products. The big manufacturer or rentier buys a car; the worker buys a suit, a hat, shoes; families renew their linen and begin to eat better. And so on and so forth.

But it is precisely this that paves the way for the end of prosperity and the onset of crisis. After a few years, clothing, luxury items, bedding, etc., begin to sell less easily, as the basic needs of the masses are satisfied. And since industrial establishments that have expanded or been newly created during periods of high growth must continue to flood the market with the same quantities, — if not increasing quantities of all kinds of goods,— or risk operating at a loss, a catastrophic halt becomes inevitable.

After the war, we witnessed the same phenomenon. During the final years of hostilities, underproduction had already caused prices for all kinds of goods to rise considerably. Then came the armistice, followed by demobilization, freeing several million men who, while unable or unwilling to immediately resume their place in the workforce, immediately needed to be served as consumers. With tens of millions being spent by the state in the form of "petty cash," the demobilized men bought new clothes, and the excessive demand for clothing, shoes, linen, hats, etc., as well as increased consumption of foodstuffs, constantly drove up the prices of all goods.

A soft hat, "artist" model, sold for 11 or 12 francs before the war, was worth 60 to 80 francs a few months ago, a price increase of 600 percent. On the other hand, a "Salamander" model continuous-burning stove, currently selling for 400 to 500 francs at the beginning of winter 1920-1921, has only increased in price by 75 to 100 percent since the war. – 1921, has only increased in price by 75 to 100 percent since the war.

Today, it is clear that we are facing a period of stagnation in general growth for the reasons outlined above: the initial intense demand for clothing, linen, shoes, hats, etc., and even the occasional need for luxury items, which were felt immediately after the return to normal life after the war, have been satisfied. It is precisely the excessively high prices that have prompted consumers everywhere to economize!

Soon, commercial establishments that were able to make excessive profits during the boom times will come to a halt and "crash"!

Within a fortnight, a suit priced at $450 in a store on the grand boulevards fell—in the same store—to $195. We saw silk stockings advertised at $3.50 that had cost $25 and $45 last summer.

The decline occurred first in footwear. There, as well as in the wool and cotton clothing sector, trade intermediaries initially tried to resist the downward pressure.

But shoe manufacturers, faced with to choose between closing their establishments and declining, they began to establish direct representatives, and private trade had to follow suit, both in Paris and in provincial centers.

Certain signs already point to the traditional panic that accompanies major economic crises. A drop in the price of a suit from 450 to 195 francs in the space of a fortnight is undeniably a harbinger of panic, and as soon as a few large Parisian stores decide to liquidate their stock, the collapse of several thousand small retailers in the capital will be inevitable. The same will be true everywhere else.

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The traditional pattern of "industrial cycles" is as follows: After a few years of expansion in all industries, there is a brief period of high prosperity; then business slows down and suddenly a crisis appears, often taking on the character of panic; this is followed by a series of years of general depression until, slowly, industries recover one after the other and take off again.

If our predictions are correct—and we can never be sure of all the social factors at play—the period of depression will be particularly long this time.

This phenomenon was also observed immediately after the war of 1870–1871; the inability and indifference of capitalist governments, their lack of courage to take significant measures to remedy serious social ills, undeniably contributed to worsening the situation this time around.

What will happen now that tens of billions have been invested by the governments of almost every country in 5% and 6% bonds?

It will inevitably happen that a man who can earn 6% per year on his money by doing nothing, will hardly feel inclined to risk his fortune in industry, with the chance of making 4% or even 7 or 8% profit, but also with the risk of going bankrupt.

If the management of a steel mill were inclined to expand its facilities and adapt them to the latest technical requirements, it would be wise to approach Mrs. la Douairière de X..., asking her to subscribe to a few hundred thousand new shares. Mme la Douairière will proudly reply that, as a "patriot," she recently subscribed to the French 6% Loan and intends to leave her money where it is invested "in complete security." A reward for idleness.

"Anyone who only wants 4% of their money doesn't need to run a paper mill!" exclaimed the owner of a paper mill during the German investigation into the printing paper cartel before the war. the owner of a paper mill [[Kontradiktorische Verhandlungen über Deutsche Kartelle, Heft 4. Testimony of manufacturer Leonhardt.]] After the war, it will be possible to say that anyone who only wants 6% of their money does not need to risk it in an industrial or commercial enterprise. However, the consequence will be that the uninterrupted series of loans taken out in all countries of the world will weigh heavily on all initiatives among the peoples.

Unless they decide to make a clean sweep of these enormous levies that the idle classes claim to continue to impose, year after year, on social production!

Let us not be told that, with the rate of interest falling, the French 6% bond, which was at par, will soon be listed on the stock exchange at 120 francs, $130, etc., so that new buyers will soon receive only 4 or 4 1/2% of their money.

These are personal finance issues that concern only Pierre and Paul. If Paul has to pay $120 for a 6% bond and therefore only gets 5% of the money, it is because the difference has been pocketed by Peter, who sold a bond that cost him $100 for $120.

But all of us who make up society as a whole will have to pay, as before, to all the Peters and Pauls who hold 6% bonds, the same number of billions that will continue to weigh on social life.

It cannot be emphasized enough that an upturn in industry requires an influx of portfolio capital into industry. During periods of high growth, industrial stocks rise on the stock market, while "fixed-income" stocks fall. During periods of crisis, the opposite is naturally true.

Securing tens of billions in loans at 6% interest is therefore clearly the last measure that a government wishing to avoid social unrest should take.

The conditions under which the new loan was launched revealed the seriousness of the post-war situation.

Faced with the danger of immediate disaster as soon as the situation had to be resolved, the French government sought to buy time by spreading the burden, which had become unbearable for the productive masses, over a long series of years, while at the same time earning the gratitude of high finance and all the war profiteers who want to secure their stolen millions.

"After us, the deluge!" That is the motto of our leaders.

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