From the collection of the
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Also by Lewis Corey: THE HOUSE OF MORGAN
LEWIS COREY
The Decline of American Capitalism
COVICI-FRIEDE-Pl/BL/5//£;i?5 NEW YORK
COPYRIGHT, 1934, BY LEWIS COREY ALL RIGHTS RESERVED. NO PART OF THIS BOOK MAY BE REPRO- DUCED IN ANY FORM WITHOUT PERMISSION IN WRITING FROM THE PUBLISHER, EXCEPT BY A REVIEWER WHO MAY QUOTE BRIEF PASSAGES IN A REVIEW TO BE PRINTED IN A MAGAZINE OR
NEWSPAPER.
DESIGN : ERNST REICHL
MANUFACTURED IN THE UNITED STATES OF
AMERICA BY H. WOLFF, NEW YORK
TO
Esther
WHOSE FAITH IS PART OF THIS BOOK
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Contents
PART one: the AMERICAN CRISIS
Introductory ii
I. Ballyhoo: The New Capitalism 14
II. The Meaning o£ Prosperity 24
III. The Decline o£ Capitalism: General Survey 41
PART TWO : PROSPERITY, PROFITS, AND WAGES
IV. Profits and Prosperity 63 V. The Policy of High Wages 76
VI. Profits and Wages: State Capitalism 94
PART THREE :
CONTRADICTIONS OF ACCUMULATION
VII. Accumulation and the Composition of Capital 113
VIII. The Fall in the Rate of Profit 118
IX. Multiplying Contradictions and Capitalist Decline 130
PART four: the ANTAGONISM BETWEEN PRODUCTION AND CONSUMPTION
X. Economic and Class Contradictions 151
XI. Excess Capacity, Competition, and Speculation 160
XII. The Onset of Crisis and Depression 180
XIII. Production and Consumption: Capitalist Decline 193
PART FIVE :
UNEMPLOYMENT, TECHNOLOGY, AND CAPITALISM
XIV. Prosperity and Unemployment 225 XV. Disemployment and Surplus Population 241
XVI. The Economics of Technology 260
viii Contents
PART SIX :
CONCENTRATION OF INCOME AND WEALTH
XVII. Class Distribution of Income 305
XVIII. The Multiplication o£ Stockholders 322
XIX. Class Distribution of Wealth 341
PART SEVEN I
MONOPOLY CAPITALISM AND IMPERIALISM
XX. Trusts: Concentration and Combination 373
XXI. Monopoly and Finance Capital 395
XXII. The Dynamics of Imperialism 416
PART eight: the struggle for power
XXIII. Prosperity and Capitalist Decline 460
XXIV. State Capitalism, Planning, and Fascism 489 XXV. The Crisis of the American Dream 515
XXVI. The American Revolution 541
Notes: 577 Bibliography: 597 Index: 607
Graphs
I. Major Economic Trends — 1896-1919 35
II. Prosperity in Action — 1923—29 69
III. The Share of Labor in Prosperity — 1919-29 81
IV. Capital and Labor in Depression 91 V. Changes in the Composition of Capital 115
VI. The Fall in the Rate of Profit 125
VII. Contradictions in Production and Consumption 155
VIII. The Stakes of Speculation — 1923-29 175
IX. The Basic Factors in Capitalist Production 201
X. The Creation of Disemployment 231
XI. The Upward Trend of Unemployment — 1900-33 245
XII. Production, Wages, and Capital Claims 289
XIII. Class Distribution of Income — 1920-29 311
XIV. Class Distribution of Stock Ownership — 1928 331 XV. Class Distribution of Wealth— 1928 349
XVI. Concentration and Centralization — 1923-29 385
XVII. The Dynamics of Finance Capital 413
XVIII. American Imperialism in Action 441
XIX. American Class Divisions — 1 870-1929 563
PART ONE The American Crisis
Introductory
JyL MERicAN life moves and changes swiftly. Government and industry resort to new and desperate measures. Traditions break down. Ac- cepted truths are challenged or repudiated. The present is dark, the future uncertain and threatening. There is an accumulating pressure of underlying ferments and forces which create social explosions. Classes mobilize: ideas clash. These are all indications of a crisis.
One aspect of the American crisis arose out of the depression and the efiForts to overcome it. While ballyhoo promises a new and ever- lasting prosperity, a new world, millions hope merely for a job, any sort of job; for an income, any sort of income to ward off charity. Millions must accept charity, whether direct or in the form of "relief work." The mobilization of government to "war upon depression" aroused hopes which were meagrely realized.
Another and more fundamental aspect of the crisis involves the decline of American capitalism. It is a crisis of the economic order itself. This is evident in the inability to restore prosperity on any sub- stantial scale. The future is one of incomplete recovery: of economic decline, mass disemployment (including millions in clerical and pro- fessional occupations), lower standards of living, and war. Every de- pression is in a sense a crisis of capitalism. But this depression represents the development of a fundamental, permanent crisis in the economic and social relations of American capitalism. Only a deep-going crisis could force government and industry to adopt measures which were formerly condemned as opposed to economic progress. The interven- tion of government in industry is, of course, nothing new: the devel- opment of capitalism has been accompanied by growing government aid to industry. But such aid was limited in scope. It was, economically, an expression of the upswing of capitalism, of the necessity of gov- ernment action to "regulate" the developing relations of trustified capitalism. But to-day government intervention is on an unprece- dented scale. Its economics and politics are an expression of the decline of capitalism, of the necessity of government action to prop up the sagging foundations of the economic order. The avowed aim is to insure prosperity, formerly achieved by the working of "free" capi-
II
12 The Decline of American Capitalism
talist enterprise. The real need is for increasing use of government to manipulate economic forces, for state capitalism, because capitalist industry is unable to junction as of old. The forms of state capitalism may change, but the need remains, with fascism looming ahead. As capitalism declines, the state must intervene more drastically to aid industry and suppress labor. It is the death of the old world, not the birth of the new.
The depression which set in after 1929 was the worst economic dis- aster in American history. It was aggravated by the acute world crisis, a major catastrophe of capitalism. The downward movement of pro- duction began in July, 1929 and continued until March, 1933 — three years and nine months. No previous decline was as long or as steep, not even in the great depressions of 1873 and 1893. In the depression of 1920-22 the downward movement of production continued ten months, and two years completed the swing from recession to renewed prosperity. Unemployment, including clerical and professional work- ers, rose in 1933 to 17,250,000; 14,250,000 wage-workers or nearly 50% were unemployed, compared with 30% in 1921. Part-time employment was also greater. And the situation was not very much improved, for the depression did not end in March, 1933. The revival, largely because of its inflationary and speculative character, did not lead to recovery. There was the ominous spectacle of a minor but complete cycle within a few months: revival in April, recovery in May, and "boom" pros- perity in June; as production and profits outstripped wages and con- sumption, "prosperity" broke down in July, accompanied by a crash in the stock market; recession and depression again, and an intensifica- tion of the crisis.
These recurrent breakdowns of prosperity are a typical, damnable spectacle of capitalist civilization. Men, women, and children starve or agonizingly approach starvation while wheat and corn rot, vege- tables perish, milk and coffee are destroyed. The wheels of industry slow down while millions of workers eager to work are condemned to unemployment. Wants go unsatisfied on an enormous and oppres- sive scale, although all the means exist to satisfy the wants. (Depres- sion magnifies the condition prevailing even in periods of the most flourishing prosperity, when there are also millions unemployed; their wants and many wants even of employed workers are unsatisfied.) This monstrous state of affairs was unknown to the people of pre- capitalist civilizations: they knew want as the result of scarcity, nat- ural calamity, or war, and the torment of labor lay in its severity. Capitalist civilization introduced a new form of want, want in the
Introductory 13
midst o£ abundance; a new torment o£ labor, the torment of workers deprived of work while there is an abundance of the means and objectives of working. Our ancestors would have considered the situa- tion idiotic; it is considered idiotic to-day by the non-capitalist, develop- ing socialist civilization of the Soviet Union.
After every depression the cry has gone up, "It can never happen again!" But it did happen again, and will. The United States experi- enced, from 1790 to 1925, one year of depression for every one and one-half years of prosperity.^ Cyclical crises and breakdowns are inher- ent in capitalist production : depression is as characteristic as prosperity and nearly as frequent.
But this depression is more than the usual cyclical breakdown. Its duration, severity, and specific character are determined by non-cyclical factors of economic decline. It is not simply that another depression is inevitable after another short period of prosperity — although that in itself is enough to condemn capitalism, which must repeat the calamities of economic breakdown, mass unemployment, and mass starvation. Capitalism has survived many depressions: they have, in fact, been the starting points of new upswings of prosperity. This crisis of American capitalism involves two new developments of major historical importance:
In previous depressions economic forces were always strong enough to start and complete a recovery, but recovery now seems almost indefinitely postponed. Government intervenes to hasten the recovery, which is nursed and coddled and kept alive with all sorts of stimu- lants, government financial aid, and jabs of the inflation needle — an ominous contrast to the lusty capitalism of old!
Unlike former experience, this depression cannot end in any real upswing of prosperity, because cyclical recovery and prosperity are now necessarily limited by the pressure of capitalist decline, which involves exhaustion of the long-time factors of economic expansion. These are the critical developments which underlay the adoption of the National Industrial Recovery Act, of state capitalism. The captains of industry and finance, some say, have proven their incapacity: let the government act! But the incapacity is an old story: in the past it did not prevent the revival of prosperity, because capitalism was on the upswing, a progressive economic force. If the government must act now, must hand-feed industry, it is because capitalism is in crisis as a result of decline and decay, of the exhaustion of its progressive economic force.
CHAPTER I
Ballyhoo: The New Capitalism
JL HE acute nature of the American crisis appears in the failure of the desperate resort to more drastic state intervention in industry — in the failure of the National Industrial Recovery Act and its creations. It had to fail. For in essentials, in spite of differences in institutional forms, the Act merely introduced measures of state capitalism which have been tried in Europe and have not restored prosperity there. Yet Niraism was greeted as another "new capitaHsm," the beginnings of a new era in American civilization. Consider a few of the magnificent claims:
Senator Capper: "The changes are revolutionary." . » . H. I. Har- riman, president. Chamber of Commerce of the United States: "A new business dispensation; holds out the promise of a better day." ... A speaker at a convention of the Advertising Federation of America: "Marks the threshold of a new era." . . . Nelson B. Gaskill, president. Lead Pencil Institute and former member of the Federal Trade Commission: "The beginning of a new epoch; a systematized democracy." . . . Mrs. Laura W. McMullen, chairman, international relations department of the General Federation of Women's Clubs: "An economic revolution, in the course of which the institution of private property is being quietly undermined." . . . General Hugh Johnson, NRA Administrator: "A new era; high level of prosperity." . . . The New York World-Telegram: "A revolution to bring order to industry and security to the masses, to redistribute wealth, to fit the wage system into the power age." . . . Oswald Garrison Villard, liberal of the old school : "The revolution which has taken place in so short a time; taint taken off socialism." . . . William Green, presi- dent, American Federation of Labor: "Planning for national welfare; sound fundamental philosophy of the relationship between govern- ment and industry; serves the welfare of investors of capital and producing workers." . . . American Federation of Labor, Current Survey of Business: "Points the way to a new order." . . . Frances Perkins, Secretary of Labor: "We may find we have built up a new kind of civilization; a blessing beyond anything we in our genera- tion have ever dared to dream of." . . . Rexford Guy Tugwell, Assist-
14
Ballyhoo: The New Capitalism 15
ant Secretary o£ Agriculture: "To save our institutions from unlim- ited greed, and to turn the results of common efforts toward more general benefits: enlarged incomes for common people, greater leisure, security from risk." . . . Leonard Rogers, an interpreter of current events: "The American compromise w^ith communism."^
These claims, already shattered by events, are more than mere demagogic incitation. They are part of an ideology in the making, by means of which the decline of capitalism is masked and the way prepared for the ideological subjugation of the masses. At its basis is the conception of a "new capitalism." This conception is recurrent. Any new stage or twist in the development of capitaHsm is seized upon by apologists, who proclaim that the economic order is being transformed. The conception of the "new capitalism" is a form of struggle against the workers and farmers, the clerical and professional workers.
After the depression of 1873-79, marked in its later stages by aggres- sive labor struggles, a considerable ballyhoo arose about profit-shar- ing and the "partnership" of labor and capital. One economist, echoing others, spoke of "a new regime of production and distribu- tion," of an irresistible and continuous upward movement of wages, mass consumption, and standards of living, which would result in "the end of human poverty."^ Four years later the prophecy was answered by the depression of 1893-97, and by the following seventeen years during which wages, mass consumption, and standards of living were practically stationary. . . .
The immediate parentage of the NRA ballyhoo was the ballyhoo of prosperity which flourished in 1923-29, and ended in the most disas- trous of all depressions. It is important to recall this fact, not only because that prosperity is now mocked by depression, but because all its essential claims reappear in the "new capitalism" of the NRA.
The pre-1929 ballyhoo of prosperity, which expressed the "Golden Age" of American capitalism, had as its basic claim the old concept of "a new regime of production and consumption," thus restated by one bourgeois economist:
"Increasing productivity of labor and industry, advancing wages, higher living standards and greater consuming or purchasing power rapidly became the avowed policy and practical program of American industry ... a new industrial revolution which is the marvel of the civilized world." *
Another economist said: "A new principle works: consumption
i6 The Decline of American Capitalism
finances production. The more wealth is consumed, the more it will increase. In this country the demonstration o£ that idea occurred. It is the American contribution to economic experience."*
American capitalism, the prophets insisted, accepted the fact that prosperity depends upon mass consumption, and, consequently, upon increasingly higher wages. It was heady wine, this flattery of the capitahsts; they began to believe in the ballyhoo and millionaires gravely prophesied the end of poverty. . . . Charles E. Mitchell, presi- dent. National City Bank of New York : "A revolution in industry has been taking place that is raising all classes of the population to a more equal participation in the fruits of industry, and thus, by the natural operation of economic law, bringing to a nearer realization the dreams of those Utopians who looked to the day when poverty would be banished." . . . James H. Rand, president, Remington-Rand, Incor- porated: "The economic revolution of the 1920's will appear as vital as the industrial revolution in England and it will likewise mark the beginnings of a new era." . . . Andrew W. Mellon, Secretary of the Treasury and a powerful financial capitaHst: "America has adjusted herself to the economic laws of the new industrial era, and she has evolved an industrial organization which can maintain itself not only because it is efficient, but because it is bringing about a greater dif- fusion of prosperity among all classes." . . . Melvin A. Traylor, presi- dent, Continental National Bank of Chicago and the American Bank- ers Association: "We need not fear a recurrence of conditions that will plunge the nation into the depths of the more violent financial panics such as have occurred in the past." (This was in 1927, when a minor cyclical depression warned of the greater disaster to come.) . . . E. A. Filene, president, W. Filene and Sons Company: "What the socialists dreamed of the new capitalism has made a reality, but not by their methods. The ever-present human desire for greater total profits will lead to the adoption of the new principles." . . . Haley Fiske, president. Metropolitan Life Insurance Company: "Here is a new business era. The glory of wealth fades. Extent of power fades. What does remain here and throughout eternity is that every man try his best in serving God to serve well his fellowmen." ^
Captains of industry and finance appear Jovelike in prosperity and bewildered in depression, but at no time do they really understand the movement of the economic forces they exploit. Their pre-1929 invocations to the "new era" expressed sheer misunderstanding; but
Ballyhoo: The New Capitalism 17
they also expressed, i£ partly unconsciously, the defensive, self-justify- ing ideology of predatory capitalism.*
The prosperity ballyhoo reached its crescendo in a book, Ma\e Everybody Rich — Industry's New Goal, published a few months before the breakdown of prosperity in 1929. It is a curiosity of economic lit- erature. The theme was this:
"The real industrial leaders of present-day America do not need to be told that the goal of industry is to make everybody rich. It was they who discovered the fact . . . who discovered the economic necessity of high wages. . . . Not merely will prosperity be stabilized, but the rule of class will for the first time in human history utterly disappear." ^
Within a few months industry changed its "goal" and began to make everybody poor, an undertaking crowned with infinitely greater success. One of the two authors of Make Everybody Rich, Benjamin
* The invocations to the "new era" were also profitable. Among other successful exploiters was True Story, a magazine of highly sexy stories deodorized with moral platitudes and reached a circulation of over 2,000,000. At first True Story was used only by the cheaper class of mail-order advertisers. An advertising promotion story was necessary to "sell" the magazine to the big national advertisers. So True Story launched a promotion campaign, emphasizing that its readers were wage-earners, that wage- earner families constitute 86% of America, and that the income of wage-earners had increased enormously. "For the first time in history," True Story informed advertisers, "the wage-earner is a prospect for advertised goods. He is the New Market that may make or break to-morrow's merchandising leaders." The climax of the campaign was a series of full-page advertisements in the New York Times (some of them appeared in the issues of May 21, June 25, October 14, and December 9, 1929). Here are a few gems:
"The economic history of the past ten years has been startling. The volunteering of bigger pay and shorter hours, in order that labor might have the money to buy and the leisure to enjoy the things that it helped to make, has virtually ended a capital- labor war which has been going on now for upward of three hundred years. And the opportunity now offered to labor to own an interest in the concerns in which it works has opened up an experiment in equality that has never been known before in the history of civilization.
"In making labor co-partner in your efforts and your enterprise, sharing your profits and your dreams with so little to be gained on your part and so much to be lost, you have probably taken the greatest forward step iri human conduct that the world has ever known.
"To-day labor is buying over 65% in dollar volume of the things it helps to make. ... It is the freedom from care with which they are buying, the freedom from worry in their eyes, the freedom from fear in their shoulder blades."
It worked: True Story made millions in profits. But in spite of the imposing array of "economic" arguments and statistics, the campaign was based on distortions. Most of True Story's readers were not wage-earners; 86% of America was not composed of wage-earners, and they did not buy "over 65%" of consumption goods; the rise in wage-earner income was grossly exaggerated.
i8 The Decline of American Capitalism
A. Javits, has since been chanting the praises of the NRA in the same millennial terms he used to invoke prosperity everlasting. . . .
In addition to increasingly higher wages and mass consumption, the pre-1929 "new capitalism" claimed that it was introducing "industrial democracy." In 1924, Herbert Hoover spoke of "the great increase in ownership of industries by their employees and customers," and of "forces slowly moving toward some sort of industrial democracy." ^ Arthur Williams, vice-president of the New York Edison Company, a part of the electric power oligarchy under control of the House of Morgan, insisted that wage- workers were becoming capitalists:
"As a result of a gradual economic revolution we are beginning to see that every worker is a potential capitalist. Wealth is not only in- creasing at a rapid rate, but wages are rising. There are at least three kinds of evidence which indicate roughly the extent to which workers are becoming capitalists: the rapid growth of savings deposits, the investment by workers in shares of corporations, and the growth of labor banks." ^
These ideas were widely spread and believed and were echoed at the 1925 convention of the American Federation of Labor by Spencer Miller, director of the Workers Education Bureau. Miller maintained that "so significant is this whole economic change that it has been properly characterized as an economic revolution by students of our economic life." Out of this conception arose the theory of "trade union capitalism," whose basic assumption was that the "higher strategy of American labor" is "based upon the solid ground of capital owner- ship." ® This "capital ownership" was to be mobilized by labor banks, which the Grand Chief of the Brotherhood of Locomotive Engineers considered the "American answer to Marx and Lenin." ^° The banks are now a mass of ruins. . . .
The master mind of the "new capitalism" was Thomas Nixon Car- ver, professor of economics and major prophet of prosperity. His book. The Present Economic Revolution in the United States, originated all the assumptions of the pre-1929 "new capitalism." It is another curi- osity of economic literature, a fantastic combination of misleading statistics, apologetic economics, slipshod sociology, and rationalized prejudices. After smugly declaring that "to be alive to-day, in this country, and to remember the years from 1870 to 1920 is to awake from a nightmare . . . [no more] slums and socialist agitators, blatant demagogues and social legislation," Carver opened the case for the "new capitalism" with a distortion of history:
"The great war produced a number of political revolutions in Eu-
Ballyhoo: The New Capitalism 19
rope. It has not yet produced an economic revolution. The only eco- nomic revolution now under w^ay is going on in the United States. It is a revolution that is to v^ipe out the distinction betv^^een laborers and capitalists by making laborers their own capitalists and by com- pelling most capitalists to become laborers o£ one kind or another, because not many of them will be able to live on the returns from capital. This is something new in the history of the world." ^^
Not even, Carver insisted, was there an economic revolution in Soviet Russia, where the working class expropriated the capitalists and landowners. Carver was one of the bourgeois scholars who greeted the New Economic Policy in Russia as a "reversion to capi- talism," the final proof of the bankruptcy of Marxism. They dismissed as rationalization Lenin's argument that the new policy was merely a retreat to reconstitute forces for a new offensive. Yet in a few years the Soviet Union unloosed another offensive against capitalism and systematically began building the economic basis of socialism. Carver's American "revolution" led to the most appalling of cyclical break- downs and economic decline, the Russian revolution leads to economic advance and socialism — a trifling difference!
Blind, as only the scholar become ballyhoo-maker can be, to eco- nomic reality. Carver painted a glowing picture of the American revolution :
"Instead of the concentration of wealth, we are now witnessing its diffusion; but the old tirades against plutocracy are still repeated. . . . Instead of low wages for the manual trades, we are now having high wages; and yet the old phraseology, including such terms as wage slavery, still has a certain vogue. . . . Instead of the laborer being in a position of dependence, he is now rapidly attaining a position of independence. . . . Laborers are becoming capitalists. We are now approaching equality of prosperity more rapidly than people realize. . . . Neither state sociaUsm, guild socialism, sovietism, nor the or- dinary cooperative society presents a plan of organization so well suited to the needs of the workers who desire to own their own plants as does the joint-stock corporation. . . . The full development of the so-called capitalist system will not be reached until practically every- one has become a capitalist, that is, an owner or part owner of some of the instruments of production. ... It is just as possible to realize equality under capitalism as under any other system." ^^
Is it any wonder that the capitalists, as they scooped in the profits of industry and speculation, began to believe they were the saviors of mankind? . . .
20 The Decline of American Capitalism
Another aspect of the pre-1929 mythology of prosperity was the theory that cyclical fluctuations were now measurably under control. There were to be no more alternations of prosperity and depression, no more hard times— prosperity would be everlasting! (Similar claims were made for the "planful" system of "controls" instituted by the National Industrial Recovery Act.) Among the exponents of the theory of everlasting prosperity were the members of the President's Committee on Recent Economic Changes, including Owen D. Young, Daniel Willard, John J. Raskob, and Clarence M. Woolley, identified with corporations under the control or influence of the House of Morgan, and William Green, president of the American Federation of Labor. In its report, issued a few months before the breakdown of prosperity in ig2g, the Committee said:
"Control of the economic organism is increasingly evident. . . . Once an intermittent starting and stopping of production-consumption was characteristic of the economic situation. It was jerky and unpre- dictable, and overproduction was followed by a pause for consumption to catch up. For the seven years under survey [1922-29] a more marked balance of production-consumption is evident. ... A sensitive con- tact has been established between the factors of production and con- sumption which were formerly so often out of balance. ... In many cases the rate of production-consumption seems to be fairly well under control. . . . There is now a more even flow from producer to con- sumer. ... It would seem we can go on with increasing activity." ^^
An economist-statistician expressed the general illusion in "objec- tive" terms:
"There have developed in this nation mainly since the war period basic factors of a long-time nature which can be termed largely Amer- ican. . . . First, increased use of power per worker; second, the recep- tivity of the public to new commodities; third, modernized distribution technique; fourth, increased purchasing power of the public; and, fifth, industrial research. . . . American industry and business have reached that status of well-being where it no longer has to fear a recurrence of the radical spreads from prosperity to depression that formerly afflicted business and industry." ^*
More moderate, but definitely optimistic, was the opinion of Rex- ford Guy Tugwell, professor of economics at Columbia University, who later became a major prophet of Niraism:
"Depressions continue to recur. They seem, however, to lessen in extent. . . . Some of their worst effects may be said to have been mitigated. . . . We seem to have made some considerable progress
Ballyhoo: The New Capitalism 21
toward correcting the swings o£ the rhythm and toward smoothing out the fluctuations in activity." ^^
This confidence expressed itself in unlimited speculation. Much of the ballyhoo of prosperity was created by intellectuals and professional people, who were inflamed by their share of the "easy money" of speculation. One day before the stock market crashed in 1929, Prof. Irving Fisher said: "Current predictions of heavy reaction affecting the general level of securities find little if any foundation in fact." The market will "return eventually to further steady increases," and "gains are continuing into the future" — sentiments he repeated five weeks after the market crash, when he said there would be "no per- manent ill effects" from the "false fear" created by the fall in stock prices.^^ The belief in prosperity everlasting was so strong that the depression, in its earlier stages, was not taken seriously. Said Colonel Leonard Ayres, bank economist: "It does not seem at all probable that the bear market of 1929 will be followed by any slowing down of business at all comparable with the old business depressions. The business and banking of 1929 are almost inconceivably strong." ^^
Crudely expressed or subtly rationalized, the ballyhoo of the "new capitalism" evoked an enormous response. The "new" liberals and "progressives," while they continued sniping at abuses, believed that prosperity, with all its shortcomings, was working toward the "larger good." Thus Stuart Chase wrote just before prosperity crashed:
"The scene is at once ludicrous, arresting, inspiring, and always genuinely stimulating. . . . There is just a chance that America might whirl itself into the most breath-taking civiUzation which history has yet to record. . . . But to date the chief exhibit is activity." ^^
The form is negative but the content positive: American capitalism may create a new social order. This appeared more clearly when Chase wrote, after the collapse of prosperity, that capitalism in the United States and communism in the Soviet Union "both in the last analysis have similar goals, of which the most immediate and important is the abolition of poverty." ^® This is a conception as crude as those of any of the more vulgar myth-makers of prosperity. But the "new" liberals and "progressives" felt that American capitaHsm was dif- ferent, exceptional, and that in some mysterious fashion all its own it would remake the world. The faith was lyrically and mystically expressed by Charles A. Beard in the concluding words of the Rise of American Civilization:
"Belief in unlimited progress— the continuous fulfillment of the historic idea ... an invulnerable faith in democracy ... a faith in
22 The Decline of American Capitalism
the efficacy of that new and mysterious instrument of the modern mind, 'the invention of invention,' moving from one technological triumph to another, effecting an ever wider distribution of the blessings of civilization — health, security, material goods, knowledge, leisure and esthetic appreciation, and through the cumulative forces of intellectual and artistic reactions, conjuring from the vasty deeps of the nameless and unknown creative imagination of the noblest order, subduing physical things to the empire of the spirit — doubting not the capacity of the Power that had summoned into being all pat- terns of the past and present, living and dead, to fulfill its endless destiny.
"If so, it is the dawn, not the dusk, of the gods." ^°
Within a few years the "dawn of the gods" appeared in the most disastrous and brutalizing of depressions, with 14,250,000 wage-workers and 3,000,000 clerical and professional workers (and their dependents) abandoned by Dr. Beard's deities. Now the prophets of state cap- italism, including Dr. Beard himself, are invoking another dawn of the gods. . . .
Dr. Beard was, moreover, contradicted even by the pre-depression reality. Prosperity was unequally distributed, only meagrely shared by the workers and farmers. There was grinding poverty and terrible insecurity. Not only that: even if prosperity had been as great as its ballyhoo, it was still woefully incomplete, still far behind prevailing technical-economic resources. For capitalism always restricts produc- tion and consumption, the possibilities of abundance and leisure po- tential in the productive forces of society.
There was chaos in mining, textiles, and other industries, and in- creasing unemployment. The number of strikes decreased considerably, but the strikes that did occur were brutally suppressed. Poverty pre- vailed on a large scale. The deepening agricultural crisis made peasants of newer and larger groups of American farmers. The lightning of the Sacco-Vanzetti tragedy revealed the yawning gulfs of ruling- class savagery. But the mythology of prosperity, and particularly of rising speculative profits, cast a glow over the unpleasant aspects of economic reality.
Always, in one form or another, capitalism creates an ideology to disguise and justify its predatory character: it is a necessary device of class domination. Always there exists a deceptive millennial con- ception of capitalism. It accompanied the growth (and decay) of profit-sharing, flourished on the basis of the war-time controls of indus- try, and acquired magnificent scope in 1923-29. It appeared again in
Ballyhoo: The New Capitalism 23
the "new capitalism" of Niraism, with only slight revisions in argu- ment and style.
The pre-1929 myth-makers of prosperity did their job well. The ideology they created lingered, as a cultural hangover, after the break- down of prosperity and helped to prevent any considerable revolt. As the ideology began to crumble under the impact of prolonged depres- sion, it was revived and reinforced by the ballyhoo of the National Industrial Recovery Act. But when the ideology begins to crumble again, as it must, and the hopeless reality it disguises is revealed, the economic crisis of American capitalism will become a class and polit- ical crisis. We are witnessing not a "dawn of the gods" but the dawn of an era of momentous social struggle and change.
CHAPTER II
The Meaning of Prosperity
Jl HE crisis of American capitalism manifests itself as a crisis of prosperity. What is prosperity? It has three important characteristics: it is always limited in its mass scope, it periodically breaks down, and it cumulatively develops the elements of the decline of capitalism. This is clearly revealed by a survey of the movement and character of American prosperity, which necessarily becomes a survey of the major aspects of American capitalist development.
Capitalism in the United States came to real power with the Civil War and the progressive forces expressed and invigorated by that struggle. EarHer capitalism was still largely in the commercial stage. The commercial, not industrial, capitalist dominated the scene. Indus- try was not highly developed, and it was small-scale industry. Many industrial products were still imported; while foreign trade rose five- fold from 1820 to i860, imports of manufactured goods rose six-fold.^ The country was predominantly agrarian, and prosperity was primarily dependent upon agriculture (whether free or slave). There were still great unsettled regions and other regions only thinly settled. But industrial capitalism was developing rapidly; it played an important part in the crisis and depression of 1837 and a still more impor- tant part in the crisis and depression of 1857. ^^ industrial capitalism grew it came into conflict with the South's control of the national government. Commercial capitalism could tolerate the control, as it was concerned essentially with the buying of goods, whether pro- duced by free or slave labor, and it accepted the Southern demand for free trade because that permitted buying goods where they were cheapest. Industrial capitalism could not tolerate the slave South's con- trol of the government, as it was concerned essentially with the production of goods and free trade threatened its markets, while it depended, moreover, upon mobile free wage-labor and needed a na- tional banking system and transcontinental railroads, which the South opposed. Slavery not only repressed capitalism in the South, but interfered with its expansion in the North and West. The conflict was the irrepressible one of two social systems involving the antag- onistic relations of slave labor and free wage labor. As territorial
24
The Meaning of Prosperity 25
expansion was necessary for the South, to broaden the economic and poHtical bases o£ slavery, it antagonized the farmers (and work- ers) of the North and West who wanted "free soil" and who aHgned themselves against the South. Pressed in and its expansion prevented by the development of Northern industry and agriculture, the South resorted to war. The Union victory crushed the political power of the slave South, but it simultaneously crushed the agrarian democracy of Jefferson and Jackson. For the coming to power of industrial cap- italism subordinated agriculture to industry, and the costs of indus- trialism were piled on the farmers (and workers). The war accelerated the development of Northern industry, particularly in iron and steel and textiles, and it was increasingly large-scale industry. Within forty years American capitaUsm, economically and politically domi- nant, was the mightiest in the world. Prosperity was now overwhelm- ingly determined by the movement and the interests of capitalist industrialism.
Prosperity in the North flourished during the Civil War. Business failures and liabilities were negligible. Real profits in trade ranged from 12% to 15/0.^ Manufactures yielded exceptional profits: the dividends of a group of textile corporations, which averaged 8% in 1861, rose to 25% and 50%, while iron and steel profits were nearly as high.^ Great fortunes were made by profiteering in industry, ex- ploiting the government's war needs, and speculating in the com- modity and stock markets. The national wealth and income were redistributed, and their concentration increased, by rising prices and speculative profits. Accumulation of capital was unusually active. The war industries enlarged their capital equipment because of the greater scale of operation. But production as a whole was practically stationary. The increase of output in the war industries was offset by decreases in other industries, while the increasing output of capital goods was accompanied by a decrease in consumption goods. Sharply rising prices cut real wages, which by 1865 were probably one-third below the i860 level,* seriously reducing the workers' purchasing power and consumption. This was true also of the farmers, the prices of whose products rose less than the prices of products they had to buy. Luxury consumption rose but consumption in general fell; ^ for while production was stationary, an increasingly larger part of manu- facturing output was used for capital goods and for the destructive purposes of war. Prosperity during the Civil War was thus marked by stationary production, lower real wages, and lower mass consump- tion, by mass impoverishment instead of improved mass well-being.
26 The Decline of American Capitalism
But profits were high and the accumulation of capital correspondingly great. There was, particularly, a marked growth in money capital (most of it invested in government war bonds), whose real value was raised by the post-war fall in prices.
The prosperity of the Civil War period was based upon an artificial equilibrium created by the war's demands for goods and capital. An almost inexhaustible market was provided by the government's orders for munitions and other war goods. The industries producing these goods could augment their output without worrying about markets; and this meant also an augmenting of capital equipment. Deprecia- tion of the currency, by lowering real wages, deprived the workers of part of their consumption: more war materials could be produced, and more capital goods for whose output the war provided a market. The issuance of paper money, moreover, gave the government new purchasing power (in addition to taxation and loans), which was spent on the output of war industries, whose scale of production and, consequently, capital equipment, was further enlarged. Profits not invested directly in capital goods were invested in government bonds and increased the government's spending, while the bonds remained as money capital for use in the future.* This equilibrium created by the war was upset by the peace; two years of minor depression pre- vailed in 1866-67. Then prosperity surged upward.
The new period of prosperity was greatly influenced by the war's results. Capital was abundant and investment opportunities ample. Building construction, neglected during the war, led the upward movement, and stimulated the production of brick, lumber, glass, and similar products. Railroad construction was equally active, mileage doubling in six years. These two movements dominated the revival and prosperity. The import of capital stimulated railroad construc- tion and favorably affected foreign trade. Prices fell sharply and real wages by 1872 were much higher than in 1865 and even higher than in 1860,^ and the resulting increase in mass purchasing power promoted the production and sale of consumption goods. The fall
* The situation was altogether different in the South. Industry was not highly de- veloped. The war's direct destruction was immense. While there was an accumulation of money capital in the form of government bonds, their value was destroyed by the Confederacy's downfall. Reconstruction involved an economic plundering of the South, as well as the breaking of its political power. After Reconstruction, semi-servile Negro labor was reintroduced, with the permissive consent of the Northern capitalists, who shamelessly forgot all about the Negro. Industrialization in the South did not really begin until the 1890's, because the South was economically prostrate and its industrial development unimportant, as yet, to the capitalism of the North, except for railroads.
The Meaning of Prosperity 27
in prices also raised the real value of money capital accumulated during the war, augmenting investment and the output of capital goods. Industrialization proceeded rapidly; the output of machinery and other forms of capital goods w^as increased greatly by the mechan- ization of old industries and the development of new industries (iron and steel, boots and shoes, glass, petroleum, mining, mechanical trans- port equipment, milling, refrigeration, meat packing, and agricultural implements). Technological efficiency and the productivity of labor rose substantially. This increasing output and absorption of capital goods meant an active conversion of profits into capital. It takes time, particularly in the case of construction and railroads, for new capital goods to make any demands on consumer purchasing power. But the production of capital goods creates consumer purchasing power (wages, part of salaries and profits), which is spent mainly on the output of consumption goods industries. Thus an equilibrium is achieved which sustains prosperity. But the equiUbrium is unstable and temporary. For wages lagged behind profits and production be- hind consumption. Eventually the new capital goods threw an aug- mented mass of products upon the markets, and available consumer purchasing power was insufficient to absorb them. The output of capital goods began to fall. Construction and railroads, which had been seriously overbuilt, led the downward movement. As production began to fall it engendered a crisis and revealed the rotten conditions in finance. The collapse of speculation, particularly in railroad securi- ties, set the panic in motion: the failure of the great banking house of Jay Cooke and Company was mainly due to its enormous holdings of Northern Pacific Railroad paper. Financial crisis arose out of the underlying economic crisis. Prosperity crashed into depression: hard times, unemployment, and mass misery prevailed from 1873 to 1879.
From 1866 to 1897 there were fourteen years of prosperity and seventeen years of depression — three minor depressions (1866-67, 1883—85, 1890-91) and two major depressions (1873-79, i^93~97)-'^ Depression and prosperity, and the period as a whole, were affected by long-time factors of economic expansion, which provided increas- ingly larger markets for goods and capital, and insured, until tem- porarily limited by depression, the making of increasingly higher profits and their conversion into capital.
Production, in spite of cyclical interruptions, mounted steadily. The output of manufactures rose from $3,386 million in 1869 to $9,372 million in 1889.^ Profits were high. Small businessmen complained of severe competition and low profits, but that was mainly because they
28 The Decline of American Capitalism
were oppressed by the big producers and monopolist combinations, whose profits were all the larger. Profits often appeared small in terms of over-capitalization, as in the complaint that railroad dividends were very low; but practically all railroad stocks represented "water" and not any real investment; they were the "wages of abstinence" appropriated by buccaneering promoters and managements. The out- put of capital goods scored an average yearly increase (quantitative) of 7.2% in 1870-90 compared with only 4.8% in 1850-60.^ Labor's productivity rose constantly; from 1870 to 1880 alone it increased 50% in mining, 85% in manufactures and 110% in transportation.^^
Real wages scored the largest gains in American history. By 1868 real wages had made good the war losses and in 1869 began to mount over pre-war levels. There were interruptions, when wages fell, par- ticularly in the depression of 1873-79, t>ut they rose in each period of prosperity and in the period as a whole. By 1892 real wages were much higher than in i860, although nearly stationary since 1887. Gains in real wages were almost wholly a result of falling prices. The index of average hourly wage rates rose from 61 in 1865 to 69 in 1872, fell steadily to 59 in 1879, and rose again to 69 in 1892.^^ Wage gains were unevenly distributed, skilled workers gaining more than the unskilled and the organized more than the unorganized, while immi- grant workers were forced to accept the lowest of low wages; unem- ployment, moreover, both cyclical and technological, offset much of the wage rise.
Consumption also rose more than in any other period in American history. The average yearly increase per capita was 5.4% in 1870-80 and 3.2% in 1880-90.^^ Part of the rise represented a change from the use of goods produced at home or in neighborhood shops to the use of manufactured goods, particularly among farmers. But a consider- able part represented the increase in labor's consumption due to higher real wages. Other classes, however, gained more than labor. Among the newly rich there was an outburst of conspicuous competitive con- sumption (particularly among speculators and other financial buc- caneers), which flaunted itself in the face of workers who, despite higher real wages, were tormented by real poverty further aggravated by recurrent unemployment.
While labor shared in the gains of higher productivity, the capitalists secured the lion's share. Renewed concentration of income appeared in each period of prosperity; the number of millionaires rose from probably 500 in i860 to over 4,000 in 1892. Nor was higher produc- tivity the primary cause of higher real wages; they rose because of
The Meaning of Prosperity 29
steadily falling prices, and in spite of employers repeatedly cutting money wages, particularly in depressions. Wage cuts and cyclical and technological unemployment provoked strikes which frequently as- sumed the aspect of civil war. Railroad managements violently fought their workers in the great strikes of 1877, and the workers opposed violence to the violence of the troops and police; Jay Gould broke the telegraphers' strike and helped to crush the Knights of Labor; the eight-hour movement met merciless opposition and ended in the Hay- market tragedy; Carnegie and Frick mobilized hired gunmen against the Homestead strikers; President Cleveland used Federal troops to break the Pullman strike, during which the injunction was effectively used as a capitalist weapon in labor disputes. Labor's militancy forced higher real wages upon the employers: the resistance prevented money wages being cut more than they were, falling prices raised the purchas- ing power of wages, and lower prices and higher wages compelled the employers to increase the productivity of labor to secure higher profits. There is no direct or necessary connection between higher productivity and higher wages; rising prices and higher productivity are usually accompanied by stationary or falling real wages. Labor's gains (always subsidiary to capitalist exploitation and profit) were wrung from the capitalists by means of the blood and agony of strikes against which the state mobilized its physical and legal force.
Nor did the farmers share fully in prosperity, except the capitalist and speculative upper layers. Agricultural prices fell, surplus crops mounted, the burden of debt became staggering. Although their num- bers increased, the farmers' share of the national income decreased. Tenancy rose from 25.6% in 1880 to 35.3% in 1900.^^ These condi- tions produced the agrarian uprisings of the i87o's-9o's.*
The developments which produced prosperity also and necessarily produced disastrous depressions: they are the inseparables of capital- ism. Industrialization proceeded haphazardly, competitively, socially unplanned and unregulated. The expansion of industry and accumula- tion of capital exceeded balanced requirements. As new industries
* "For nearly the whole thirty years of the seventies, eighties and nineties, American agriculture, though it extended its horizons almost boundlessly, was in reality being operated at a small profit or none at all. The only thing that sustained the individual farmer was the constant appreciation of land values. . . . The high value of his land permitted him to convert his floating debts into mortgages with the result that the mortgage indebtedness was becoming heavier every year. ... A larger and larger share of the farmer's crops (because of his indebtedness and the increased valuation of his land) went for the payment of interest charges and taxes." Louis M. Hacker and Benjamin B. Kendrick, The Untied States Since 1865 (1932), p. 179.
30 The Decline of American Capitalism
(including railroads) developed they stimulated prosperity by absorb- ing capital goods and creating new purchasing power. But eventually they got out of balance with each other and with other industries, lessened their demands for capital goods, and strained the capacity of existing markets to absorb their output; for industry as a whole disbursed more investment than consumption income. Excessive ac- cumulation and overproduction, sharpening the disparity between production and consumption, upset the always unstable equilibrium which is capitalist prosperity. Prosperity turned into one depression after another. Depression lowered or wiped out profits, destroyed or depreciated large amounts of capital and thus prepared recovery and a renewal of accumulation. Depression had other effects. Manufac- turers were forced to adopt more efficient methods of production to insure profits, which created a demand for new and more efficient capital goods, while old equipment was scrapped. Many capitalists were eliminated, but the survivors became stronger. Thus concentra- tion of industry, a result of increasing large-scale industrialization, was strengthened by depression, a mighty lever of the centralization of capital.
Out of the process of capitalist production and accumulation as a whole arose a constantly greater tendency toward monopoly. The Civil War accelerated the growth of large-scale industry because of the heavy demands for war materials, making necessary more ef- ficiency, larger plants, the investment of more capital, and the con- solidation of plants. This movement was strengthened by the increasing standardization and quantity production of goods. In the post-war period falling prices and intensified competition encouraged the growth of large-scale industry; they emphasized the underlying necessity of capitalist production for greater efficiency, lower costs, and higher profits, which means an enlargement of the scale of produc- tion and, consequently, of capital equipment. As industry became larger it resorted more and more to the corporate form of organiza- tion, facilitating the consolidation and combination of industrial enter- prises. The trustification of industry began, and the emergence of monopoly, an outcome of efforts to beat down competitors, control markets and prices, and "earn" higher profits. By 1897 there were 82 industrial combinations with a capitaUzation of $1,000 million; in the three years 1 898-1900 eleven great combinations were formed with a capitalization of $1,140 milHon; and the greatest combination of all, the United States Steel Corporation, appeared in 1901 with a capitali- zation of $1,400 million.^* The development of trustification and
The Meaning of Prosperity 31
monopoly was accompanied by the multiplication o£ stockholders, deprived of any direct economic functions, and by the resulting sepa- ration of ownership and management. Management became the func- tion of corporate employees. Control was usurped by financial capi- talists, who increasingly operated through the great banking houses and who consolidated their control with interlocking directorates. For, as formerly the industrial capitalist replaced the commercial capitalist as the dominant factor, so now the industrial capitalist (except in small-scale industry) was being beaten down or transformed into a financial capitalist, who is deprived o£ all constructive industrial func- tions and prefers speculation to production. Monopoly, by extorting higher profits, increasing the disparity between production and con- sumption, and waging war upon small-scale industry, aggravated instability and the forces making for cyclical crisis and breakdown; and by the power to protect itself from the deflation and liquidation which are the preconditions of revival, monopoly tended to prolong depression. Moreover, by raising prices, restricting production and demand, and limiting technical progress, monopoly was identified with the elements of the decline of capitalism.
But the elements of decline were held in check by an important peculiarity o£ American capitalism: Monopoly appeared in the midst of developing industrialization and renewed expansion of the frontier, which was bound up with the continued growth of agriculture. Indus- trialization in the East was proceeding rapidly in the years 1870-90: and within the same period monopoly arose, although ordinarily there is an appreciable time lag. The highly industrial Eastern states would have produced imperialism and the tendency toward decline, but the frontier's expansion provided the opportunity to develop inner continental areas and resources. This stimulated railroad construction and absorbed large amounts of agricultural equipment. New markets were created by new settlements and the inflow of immigrants. The exploitation of agriculture provided cheap food for the workers, which raised their real wages without any cost to the capitalists, and the exports with which to pay for the imports of capital so necessary to rapid industrialization. Thus the inner continental areas, whose de- velopment provided markets for both capital goods and consump- tion goods, invigorated the long-time factors of economic expansion. These factors not only stimulated the upward movement of pros- perity after depression, they also overcame, for the time being, the elements of decline identified with monopoly capitalism. . . .
While the periods of prosperity, and the period as a whole, in the
32 The Decline of American Capitalism
years 1866-92, were marked by a simultaneous, if uneven, increase in production, productivity, profits, real wages, and mass consumption, this was not true of the years 1898-1914.
The depression of 1893-97 coincided with the measurable exhaus- tion of the long-time factors underlying the movement of economic expansion, accumulation of capital, and prosperity, particularly with the closing of the frontier. (There was further industrialization in the Western regions and its beginnings in the Southern states, but neither was on a scale capable of stimulating an unusual upsurge of pros- perity.) Railroad construction declined considerably in its rate of growth. No great expansion appeared in new or old industries, with the exception of electric power, which, however, grew slowly. But monopoly consolidated its domination and prepared new conquests; it "recapitalized" industry, scooped in enormous profits, and rela- tively hampered the growth of productive forces. Imperialism be- gan to emerge and shape American policy. Although capital was still imported, there was a considerable export of capital: American foreign investments by 1912 amounted to $2,000 million compared with $500 million in 1900.^^ Practically all the export of capital was in the form of direct investments by monopolist combinations, to develop new markets, establish branch plants, control sources of raw materials, and secure larger profits. Exports of manufactured goods increased rapidly; exports of crude foodstuffs decreased. Monop- olist combinations organized and integrated production; but the planning, wholly within the limits of particular enterprises, sharpened competition and speculation, and aggravated all the contradictions of accumulation and prosperity. Businessmen, economists, and speculators spoke of a "new economic era," of prosperity everlasting. At a dinner where J. Pierpont Morgan was the honored guest, John B. Claflin, millionaire merchant, said:
"With a man Hke Mr. Morgan at the head of a great industry, as against the old plan of many diverse interests in it, production will become more regular . . . and panics become a thing of the past." ^^
But prosperity sagged in the minor depression of 1903-04 and crashed in the major depression of 1907-08. In New York City alone there were 100,000 unemployed, innumerable breadlines, and men "eager to work for 35 cents a day." ^^ Clever people organized the "Sunshine Movement" — think prosperity and prosperity will revive! The depression was not as severe and prolonged as the two preceding major depressions. But there was no upsurge of prosperity: recovery was on a relatively lower level. Only fitful prosperity prevailed from
The Meaning of Prosperity 33
1909 to 1914, accompanied by unusually large unemployment: a "de- pressed" prosperity, the indication of economic decline. One element of this decline was monopoly capitalism. The financial capitalists, with the elder Morgan at their head, who had "settled" the financial panic of 1907 but were unable to influence the revival of prosperity, used the opportunity to extend and consolidate the power of monopoly. This power, by interfering with the free play of economic forces and preventing complete liquidation, hampered recovery, emphasized by lack of an upsurge in the long-time factors of expansion. Monopoly capitalism became more interested in the export o£ capital, more defi- nitely imperialist. Backed by the diplomacy of the Taft Administra- tion, American imperialism issued its challenge to the European im- perialist powers, demanding the "right" to share in Chinese loans and concessions. The elements of decline appear clearly in the fact that the average yearly increase in production was only ^.6% in the five years igog—i^ compared with "j.^^/o in the jive years 1^02—06.^^ There was a flattening in the rate of growth of production, which continued after the World War.
Crises tend to become constantly more severe; but their severity is expressed not only in the spread of the swings from prosperity to depression, but also in the level of prosperity after recovery. In post- war Europe the cyclical swings were not great, yet during the whole period, both in prosperity and depression, the tendency was for the general crisis of capitalism to become more acute and for permanent unemployment to increase — clear indications of the decline of capi- taHsm. . . .
In spite of relative economic decline, the output of industry and the productivity of labor scored substantial gains in the years 1 899-1914, although they were much lower than in the preceding period. Manu- factures rose 65.6% and output per wage-worker 19.9%;^^ the in- creases in mining and on the railroads were slightly higher. The comparatively small rise in the productivity of labor was due mainly to two factors: the practices of capitalist monopoly, which tend to hamper technical progress; and absence of the stimulus to efficiency of falling prices, as rising prices assured rising profits (although part of the rise was not real because of the depreciated value of money). Stock prices rose. An investment, in 1901, of $10,000 in the common stocks of 93 industrial, public utility, and railroad corporations yielded, by 1913, cash income of $8,661 plus an increase of 36% in capital value.^° The rise was much greater in the prices of stocks of monop- olist combinations, because of monopoly prices. Recapitalized com-
34 The Decline of American Capitalism
binations, such as the United States Steel Corporation, squeezed the "water" out of their stock by reinvestment of part of their great earn- ings. While the real income of all wage-workers increased an average of only 04% yearly and that of workers in manufactures decreased o.i/o, the real income of stockholders increased 1.2%.^^
Thus prosperity, although limited by the elements of economic decline, was accompanied by increasingly higher production, produc- tivity, and profits, but not by increasingly higher real wages. Real wages were practically stationary, except for small gains among small groups of organized skilled workers. Money wages rose, but their purchasing power was cut by rising prices, while a slight increase in real hourly earnings was ofFset by shorter working time. Real yearly earnings in the years 1 898-1906 averaged 3% below the 1891 level; they fell in the 1907-08 depression and rose again, but were only a trifle above the level of 1891.^^ Labor did not share in the gains of rising production and productivity.
The working class received a decreasing share of the national in- come, while the concentration of income rose considerably. In spite of the expropriation of independent small producers, the middle class increased its share of the national income, as a result of the growth of the "new" middle class of technical, supervisory, and managerial employees in corporate and trustified industry, of employees in the distributive trades, and of persons in professional occupations. Rising prices (and a relative restriction of agricultural production) favored the farmers, as the rise in the price of farm products was greater than the price rise of industrial products. While the farmers constituted a decreasing proportion of the gainfully occupied, they increased their share of the national income 14% per capita. Not all farmers made gains, however: prosperity was concentrated in the upper layers; the rise in capital costs exceeded the rise in prices; and tenancy rose from 35.3% in 1900 to 37% in 1910.^^ The largest gains were scored by the richest 1.6% of the population, the upper capitalist bourgeoisie, whose share of the national income rose from 10.8% in 1896 to 19% in 1909.^* All classes shared in prosperity except the wage-workers (hired farm laborers, however, made some small gains in real earnings).
While consumption among workers was stationary or downward, there was an increase in general social consumption. It was, however, considerably smaller than in the preceding period. Consumption rose an average of only 1.9% per capita in 1900-1910, compared with 4.3% in 1870-90.^^ Another estimate, covering the years 1901-14, indicates an average yearly increase in consumption of only 0.6%.^^ Produc-
RJC//£SrU% SHARE Of A/AT/OAfAl Xio fNCOME
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CONSUMPTJON H GrOODS
' PRODUCTIVITY ^ OF LA&OR n
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I. MAJOR ECONOMIC TRENDS— 1896-19 19.
36 The Decline of American Capitalism
tion was stimulated more by the output of capital goods than by the output of consumption goods: where the former made an average yearly gain of 5%, the latter made a gain of only 2.6%^ Accumula- tion of capital increased more than production; and prosperity was based primarily on the production of capital goods and of consump- tion goods whose increase was absorbed by non-workers.
The opinion was general, even in non-labor circles, that the workers had gained little if anything (except a small gain from shorter hours) in recent years. One liberal economist said:
"There is nothing in the facts . . . which can give the wage-workers cause for rejoicing. The doctrine so popular in certain quarters that while the rich have grown rapidly richer in recent years the poor have also steadily risen in the scale of economic welfare has no foundation
in fact." ^«
Another liberal economist, stressing the same facts, almost devel- oped a class conception of prosperity:
"It is perfectly possible, as history has repeatedly demonstrated, for the standard of living of a society as a whole to be improving while that of one or more groups within the society is declining. Moreover, if the distribution of economic power within a society is very unequal, it may happen that the group, the standard of which is declining, may constitute a very large proportion, even a majority, of the total population." ^®
Prosperity is not simply an economic category; its decisive aspects are class-political, its distribution determined by class power and the class struggle in general and by capitalist domination in particular.
A new upflare of labor militancy marked these years. Strikes were many and bitterly fought. Manufacturers' associations waged ruthless war on trade unions, while the unions moved toward more militant policies and action. Economic decline, the unequal distribution of prosperity, and the growing stratification of classes resulted in an increase of the socialist vote and a rallying of more radical workers to the Industrial Workers of the World. Dissatisfied labor, unclear about class purposes and means, largely merged itself in the progressive revolt against the trusts — the last stand of the older competitive and agrarian capitalism which since the i88o's had been urging the gov- ernment to smash or regulate corporate combinations: individualist middle class and agrarian radicals demanded collective state actjon to assure free competition! This movement became itself the means of defeating the purposes of its sponsors. Theodore Roosevelt used the movement to impose forms of regulation which consolidated the sys-
The Meaning of Prosperity 37
tern of industrial and financial centralization, of monopoly capital- ism;* the revolt of the small producers and farmers ended in their complete subjection, because of the economic weight of capitalist monopoly and its political power, expressed in the Supreme Court's decision to apply the "rule of reason" to the trusts. The complex rela- tions of monopoly capitalism and its tendency to aggravate contra- dictions and produce economic decHne made indispensable some measures of state intervention and regulation (the initial stages of state capitalism), but the measures were primarily in the interests of monopoly capitalism. Regulation was weakened in the fat years of post-war prosperity, but the depression and economic decHne resulted in the need and demand for more regulation, more state capitalism. This newer regulation, unlike the old, openly accepts monopoly capi- talism; according to an outstanding spokesman of the National Recov- ery Act and its institutional proposals:
"We are resolved to recognize openly that competition in most of its forms is wasteful and cosdy; that larger combinations must in any modern society prevail. We go further: we say that they should be allowed to prevail, but only under such conditions of control as assure a just distribution of the wealth they develop and now accumu- late to the people as a whole." ^°
Formerly the "just distribution of wealth" was to be assured by measures to restore or "protect" competition, now by "control" of monopoly; but the exploiting relations of capitalist production, par- ticularly under conditions of economic decline, determine the repeti- tion of the older experience: the strengthening of monopoly capitalism and the more unequal distribution of wealth. . . .
The years 1915-18 were marked by "war prosperity," which pre- vented another major depression and temporarily overcame the tend- ency to economic decline. War markets were almost inexhaustible. Production, profits, and the accumulation of capital surged upward. Manufacturing output averaged 31.7% higher than in 1913 and total production 23.5% higher.^^ Profits were extraordinarily high in 1916,
♦ Roosevelt, in relation to the trusts, spoke big but carried a small stick; he prac- ticed an essentially Fascist technique of using middle-class discontent to strengthen the forces against which the discontent was directed. His program was opposed by the more stupidly reactionary captains of industry and finance. J. Pierpont Morgan was Roosevelt's great antagonist; at a Gridiron Club dinner to bring them together, the President, after outlining the action necessary to meet the revolt against Big Business, shook his fist in the financier's face and shouted: "And if you don't let us do this, those who will come after us will rise and bring you to ruinl" See Owen Wister, Roosevelt, the Story of a Friendship (1930), p. 212.
38 The Decline of American Capitalism
because of the war demands of belligerent Europe and the capture of its foreign markets by American exports. The concentration of income increased greatly: the number of incomes of $100,000 and over rose from 2,290 in 1914 to 6,633 ^^ 1916.^^ After the United States, interlocked with the world market and imperialism, entered the war, profits mounted again, although part of them was appropriated by the gov- ernment in war taxation, while another part was reinvested to evade taxation. The distribution of profits was uneven; some industries were depressed while industries supplying war needs piled up large earnings, a new chemical industry was created, and most plants aug- mented or improved their productive equipment. Retail trade was prosperous. The accumulation of money capital, in the form of gov- ernment bonds, was great, and, as after the Civil War, its real value was increased by the post-war fall in prices. Farmers gained from the upward movement of prices and European demand, and their share o£ the national income rose again (although the rise in land values, as the farmers capitalized prospective profits, prepared disaster). There was a large export of goods and of capital: the United States became a creditor nation. The World War not only influenced prosperity and the tendency to economic decline but also the very structure of Amer- ican capitalism by forcing the maturity of three fundamental develop- ments: the control of industry by monopolist combinations, the export of capital, and the emergence of imperialism as a dominant force.
Again labor did not share in prosperity (except in the form of greater employment).* Real hourly earnings in 1915 increased 3% over 1 914 but were stationary in the following year and decreased (over 1915) 6% in 1917 and 4% in 1918.^^ Because of labor shortage and consequent full-time employment and overtime, yearly earnings rose slightly, but there was no definite upward movement in real wages. In most occupations outside the war industries, real wages dropped considerably, especially in some union trades bound by long- term agreements.
The movement of consumption was downward; in 1910-20 it fell an average of 0.8% yearly, mainly during the war years.^* The considerable increase in production was absorbed by luxury consump- tion and war needs, by exports to the Allies (paid for by loans, the export of capital), and by capital goods. Labor was excluded. . . .
* sharply rising prices and profits discouraged any substantial increase in produc- tivity, which in 191 9 was ony 2.6% higher than in 1914. Frederick C. Mills, Economic Tendencies in the United States (1932), p. 192.
The Meaning of Prosperity 39
One thing is clear: increasingly higher wages and mass consump- tion are not inseparable accompaniments of prosperity. Of the seven periods of prosperity in the years i860 to 191 8, only three periods totaling fifteen years were marked by increasing real wages and mass consumption, while four periods totaling twenty-one years were marked by stationary or falling real wages and mass consumption. Including the periods of depression, real wages and mass consumption were stationary or fell during forty-three of the fifty-eight years of the period under survey. So-called prosperity may assume four forms under capitalism :
1. Increasingly higher real wages, consumption (including labor consumption), production, productivity, and profits.
2. Stationary or falling real wages, production, and consumption, but increasingly higher profits.
3. Increasingly higher production, consumption, and profits, but stationary or falling real wages, labor consumption, and labor stand- ards of living.
4. Increasingly higher production and profits, but stationary real wages and consumption, the increase in production being absorbed by capital goods, the export of goods or the export of capital, or a com- bination of all three.
The productivity of labor rises in all four forms of prosperity. Only one of the four forms of prosperity, however, is accompanied by higher real wages and mass consumption. But all four forms of prosperity are accompanied by larger profits and accumulation of capital, which are always present: they are prosperity under capitalism.
As a class, the farmers (in spite of the great gains of some groups or individuals) did not share in the upward movement of prosperity in 1861-96, although the expansion of agriculture was a basic factor in prosperity. They shared in the gains thereafter up to and during the World War, mainly because of rising prices. But the farmers were definitely excluded in the post-war period: prosperity flourished while depression prevailed in agriculture.
Prosperity under capitalism is an economic condition which yields high profits and permits their conversion into capital by means of an increasing output and absorption of capital goods. These are the dynamics of capitalist production and prosperity. They depend, in final analysis, upon increasingly larger markets. But it is unimportant, in terms of capitalist prosperity, who composes the markets and who buys the goods, providing there are markets, sales, and profits. Con- sumption may increase among classes other than the workers. Goods
40 The Decline of American Capitalism
may be absorbed by conspicuous competitive consumption, useless and meretricious construction, and other forms of waste, which is an indispensable condition of capitalist production, by war, or by the export of goods and capital. The output of goods (and services), which under capitalism is always below the possibilities of the prevail- ing state of the industrial arts, is determined by the economic-class consideration of profit, not by any standards of what is socially most desirable and humanly most beneficial. Labor's gains are small: they are secured slowly and agonizingly, are interrupted by periods of prosperity in which the workers get none of the fruits of economic progress, and are wiped out in depression. For there is an inevitable and recurrent breakdown of prosperity, because the economic-class consideration of profit does not permit of a "balanced" development of production and consumption. Depression is a condition where pro- duction is temporarily unprofitable, profits are small, and their con- version into capital is restricted; the accumulation of capital lags, and therefore millions are thrown out of work and mass starvation prevails.
Thus, at the best, on the basis of previous experience, the prospect ahead is of a prosperity in which the workers (and the farmers and professionals) may not share or will share meagerly, followed by another depression in which they will suffer untold agony. But, in fact, the prospect is worse. In the past a higher level of prosperity arose after a depression, because the long-time factors of expansion stimu- lated an upward economic movement: profits were high, as the growth of new industries and the industrialization of new regions absorbed large amounts of capital goods and accelerated accumula- tion. Because of exhaustion of the long-time factors of expansion, prosperity must now be on a definitely lower basis, with lower prof- its, still lower wages, and greater unemployment. The prospect, then, is of a "depressed" form of prosperity worse than that which prevailed in 1909-1914. This necessarily means a crisis of the capitalist system. For the underlying cause of "depressed" prosperity, which is exhaus- tion of the long-time factors of expansion, is inseparably interlocked with the decline of capitalism.
CHAPTER III
The Decline of Capitalism: General Survey
Jl HE decline of capitalism was evident in Europe even before the crisis and depression v^^hich set in after 1929. A general economic crisis prevailed and cyclical prosperity was on a lower level than pre-war, while capitalism was crushed in the Soviet Union. Bourgeois econo- mists, particularly in Germany, admitted and analyzed the elements of decline. In the United States, however, it was smugly assumed that economic decline was the lot of lesser breeds outside the law — the law of American prosperity everlasting. For hadn't American capitaUsm solved the problem of prosperity? There would not and could not be any more depressions and hard times: prosperity was eternal, world without end, and a new world around the corner. But when prosperity crashed in the United States, and crashed more severely than in Europe, where the already existing economic crisis was aggravated by the new cyclical breakdown, the sentiment was general that "capitalism is on trial." Some prophesied the crack o' doom, others argued that capitalism might survive if it "reformed" itself. In Europe it looked like the end; American prosperity had seemed as firm as the Rock of Gibraltar, and now it was overwhelmed by the seas of depression.* A German bourgeois economist thus voiced the feeling of despair :
"Is the capitalist system really any longer justified if, in the richest country in the world, it is incapable of shaping an order which shall guarantee to a comparatively sparse population, admittedly indus- trious and capable, a subsistence consonant with the human needs developed by modern technique, without millions being from time to time reduced to beggary and dependence on soup kitchens and casual
* American prosperity became a political issue in Europe. "Look," said the capitalists and their apologists (including leaders of the British Labor Party), "look at American prosperity: universal, increasing, everlasting! It shows what can be done by organized, enlightened capitalism. American prosperity realizes the spirit and promise of capitalism; the European economic crisis is the result of non-capitalist factors, an aftermath of war. Why go communist? Why npt go American.?" This song is no longer sung. But some of the apologists (including leaders of the British Labor Party) later sang the NRA song! Hope springs eternal in the breasts of reformers.
41
42 The Decline of American Capitalism
wards? . . . The crisis of economic policy may easily become a crisis of the economic system." ^
Underlying much of the American comment on the depression was the feeling that new and imponderable forces are at work involving a crisis, an economic decline, or at least its possibility. Some of the despair disappeared with the coming of manipulated and speculative revival. But the NRA was itself an expression and recognition of the crisis. And the feeling of despair reappeared after the breakdown of the revival. For the decline of American (and world) capitalism condi- tions recovery, limits its scope and dominates the future. Capitalist decline does not result in complete collapse, in an inability to function or to restore a measure of prosperity. The cyclical movement con- tinues, but on a lower level, within the restricting circle of economic decline. This means a "depressed" prosperity, with increasing inse- curity, unemployment, and instability; while economic, class, and international contradictions and antagonisms become sharper and more threatening. There may be spurts of unusual prosperity, but these will merely intensify the decline.
The decline of capitalism is the outcome neither of the depression nor of the World War. It was the fact of decline which gave the war its specific historical character — decline producing war and war react- ing upon decline. The decline of capitalism is the outcome of general capitalist development and of the movement of social change. In long- time perspective, the decline of capitalism is determined by its having outgrown the historical necessity of its being. In the words of Prof. F. L. Schuman: "Western civilization is already old. It may already have run its course and be headed toward a long twilight of decline. In any case its problems are immediate, pressing, and threatening."^ This is a conclusion in terms of the future, not of a past compact of the wish-fulfillments of the agrarian-Junker reactionary, Oswald Spengler, whose lamentations, nevertheless, express the decline of capitalist culture. Minor social changes produce a situation where a major social change becomes necessary — the revolutionary substitution of the old order by the new. In short-time perspective, the decline of capitalism is determined by the high development of the productive forces and the relative exhaustion of the long-time factors of expan- sion. This imposes fetters upon the further development of industry, leads to a slackening rate of growth and eventually an absolute fall in production, and results in economic decline and social decay.
Capitalism appeared in history as a revolutionary force, waging war upon the economic, political, and cultural relations of feudalism.
The Decline of Capitalism: General Survey 43
Profits are the heart of capitalism, markets its circulating system; capi- talist enterprise consequently required the transformation of produc- tion for use into production for profit and increasingly larger markets. Capitalist production also needed a free labor market of propertiless workers distinguished from serfs and slaves by their "freedom" to work for wages anywhere, which was accomplished by expropriating peasants from the soil and artisans from their means of labor. These changes upset the old productive relations and their class, political, and cultural expression. Feudalism was based upon a static agriculture under the domination of the nobility; the growth of a dynamic capital- ist industry undermined both agriculture and the nobiUty. Feudal "collectivism" imposed restrictions upon capitalist enterprise; the ideo- logical and spiritual sanctions of feudalism had to be broken, which meant a struggle against the old culture and religion. This movement was bound up with the necessity for freedom of enterprise and com- petition, of laissez-faire, individualism, and democracy: the revolu- tionary representatives of the bourgeoisie, transcending immediate needs, invoked an ideal of individualism and democracy which is now completely repudiated by imperialism and fascism. The commercial revolution, with its new attitudes and its need for more goods and more efficient production, stimulated experimental science and its technological application. Out of foreign trade, colonial conquest, and settlements overseas arose the world market, creating increasingly larger markets and profits. Bourgeois development was being ham- pered by the political power of the feudal nobiUty; the upper bour- geoisie faltered and compromised, but action was forced by the pres- sure of the lower bourgeoisie and the downtrodden peasants and urban workers: the nobility's political power was broken by means of violent revolution involving dictatorship and confiscation of feudal property. The social-economic changes were completed by the tech- nical-economic changes of the industrial revolution. This revolu- tion, alongside the brutal exploitation of men, women, and children in the new factory system, stripped production of its technical fetters (although capitalism imposed new fetters). Capitalism remade the world economically, politically, and culturally.
Once in power capitalism abandoned its revolutionary ideals: they now threatened its own vested class interests. These ideals had always had a limited practical application; thus laissez-faire was never wholly accepted by the bourgeoisie (except in England, when it was the workshop of the world) and capitalism resorted to protectionism, monopoly, and state aid. The bourgeoisie did not make a clean sweep
44 The Decline of American Capitalism
of feudalism. The older relations lingered on in agriculture, while the nobility, frequently enriched by the industrial utilization of minerals in their estates, and exploiting the parvenu spirit and political inepti- tude of the bourgeoisie, clung to a considerable measure of power. Democracy was limited to bourgeois democracy. While developing as a condition favoring the social relations of capitalist production, democracy had also been an ideal and practice remaking the world; it was now limited, an ideology insuring capitalist domination, with labor forced to fight for democratic rights. Capitalism developed un- evenly; it produced recurrent economic crises and wars, limited expan- sion of the home market in favor of the larger profits of overseas markets, including colonial exploitation, and repressed or ruined agri- culture. (New expropriations, direct or indirect, of peasants from the soil supplied the human raw material of industrialism. Large numbers of expropriated peasants were forced by uneven and restricted indus- trialization to migrate to the new world, particularly the United States : thus American capitalism also played its role in the expropriation of the peasantry — in Europe.) The class which had flamed forth in revolution used its heritage in a fashion indicative of coming decline.
But these are the contradictory and antagonistic conditions of capi- talist development. There was economic expansion in spite of recur- rent crises and limitation of the home market, as well as an increasing technological application of science in spite of an inability to utilize fully the conquests of science and technology. Production increased enormously, the productivity of labor multiplied. Industry organized itself in large-scale enterprises, mobilizing large amounts of capital and labor^ developing an inner corporate planning which contrasted sharply with the outer social anarchy of production. Capitalist indus- trialism spread (unevenly, piratically) over the whole world, extend- ing the world market and changing national and class relations. The prospects of capitalist expansion and supremacy seemed unlimited, eternal, and this dream underlay the smugly unreal assumptions of bourgeois economic theory and the "hopeful" proposals of liberal and socialist reformism.
The nature of capitalist production, however, makes its develop- ment a perpetual struggle between the forces of expansion and decline, because of three fundamental factors:
I. Capitalist production depends upon profit, upon the accumula- tion of capital and increasing opportunities for its profitable invest- ment. But accumulation tends to outstrip itself and limit the means
The Decline of Capitalism: General Survey 45
of profitably investing capital, which results in a periodical overproduc- tion of capital goods.
2. The realization of profit depends upon increasingly larger mar- kets to absorb the rising output of consumption goods, a necessary condition for an increasing absorption of capital goods. But capital- ism tends to develop the forces of production beyond the forces of consumption; it cannot systematically and planfuUy balance produc- tion and consumption, which results in a periodical overproduction of consumption goods.
Thus the accumulation of capital and the resulting prosperity them- selves become fetters on the further movement of expansion, accumulation, and prosperity. This is the fundamental cause of cyclical breakdowns. In these breakdowns there is an element of decUne; they indicate the incapacity of capitalism to develop all the forces of industry, they express a definite, if temporary, exhaustion of economic progress, and they tend to become constantly more destructive in their upsets of prosperity. But the real element of decline appears in the third factor:
3. Capitalist production tends to exhaust the long-time factors of expansion and to limit, at first relatively, then absolutely, the pos- sibilities of economic advance. Capitalist production must yield profits and these profits must be converted into capital by means of an in- creasing output and absorption of capital goods. This is the accumula- tion of capital. In its early stages, capitalist production seizes upon the most highly developed handicrafts, already producing for compara- tively large markets, and destroys them by mechanizing their pro- ductive activities. The result is an increasing output and absorption of capital goods. Gradually all the older crafts are mechanized, which again means an increasing output and absorption of capital goods. Then the development of wholly new industries, the industrialization of new regions, and the mechanization of agriculture (although incom- pletely) create new and greater demands for capital goods. The work- ing of these long-time factors of expansion results in an enlargement of the scale of production and in an increasing accumulation of cap- ital. But as expansion is restricted or becomes exhausted, limits are imposed upon the possibilities of making profits and converting them into capital by means of an increasing output and absorption of capital goods. The resulting tendency toward economic decline is identified with monopoly and imperialism.
Capitalist monopoly arises out of the concentration of industry, which is accompanied by the massing of capital in large enterprises,
46 The Decline of American Capitalism
overdevelopment of productive capacity, limitation of the possibility of any considerable new^ expansion, and the intensification of com- petition. Profits are threatened. Monopoly answers the threat with control of markets, higher prices, limitation of output, and relative or absolute restriction o£ progress in technological efficiency. This is an element of decline, as it emphasizes the incapacity to develop fully all the forces of production and consumption. Another element of decline is monopoly's introduction of factors of rigidity (control of markets and prices, limitation of competition, resistance to liquida- tion in depression) into the structure of capitalism, whose basic re- quirement is the flexibility involved in the free play of economic forces.
Monopoly is identified with another aspect of capitalist decline: the export of capital and imperialism, the struggle to control foreign markets capable of absorbing surplus goods and surplus capital. This surplus of capitalist industry becomes constantly greater and more menacing as the inner long-time factors of expansion approach exhaus- tion. It becomes necessary to "industrialize" economically backward regions to absorb capital and goods (particularly the former) which are unabsorbable in the home market. Thus capitalism comes increas- ingly to depend upon exploitation of outer, the international, long- time factors of expansion. Where the older industrial nations of Europe once sought foreign outlets mainly for goods, the basis of the older colonialism, they began after the 1870's to seek outlets mainly for capital, the basis of imperialism. An increasing amount of capital and capital goods, produced by the older nations, was absorbed by mining, communications, public works, plantations, and factories in colonial and other economically backward regions. These regions, as a result of industrialization, also increased their imports of consumption goods. But while the export of capital and imperialism in their early stages stimulated home industry, by offsetting exhaustion of the inner fac- tors of expansion, the final result, particularly when the export of capital became primarily an export of interest "earned" on previously exported capital, was to slow down the rate of inner economic growth. Imperialism, moreover, tends quickly to exhaust the international long-time factors of expansion, and strengthens the tendency of capi- talism to decline.
Capitalist decline appeared in Europe in the years 1900-14. One of the factors in the decline was the advance of industrialism in coun- tries which formerly met with imports their needs for manufactured goods and capital. The situation was aggravated by the intensification of competition in the world's markets. While economically backward
The Decline of Capitalism: General Survey 47
countries increased their demands for goods and capital, there were now many more industrial countries and a larger mass of surplus cap- ital and goods to supply the needs. This restricted the production of profits and their conversion into capital, and capitalist decline became more definite and threatening.
The economic upswing after the i86o's materially improved the conditions of the workers (the basis of reformism in the trade union and socialist movements). Now the improvements virtually ceased, real wages were almost stationary, and permanent unemployment in- creased, a surplus population for which capitalist industry could not provide work.
As the output of surplus goods and capital mounted and markets became relatively still more limited, the struggle of imperialist nations for control of the world's markets led inexorably to the catastrophe of the World War. The war clearly revealed the decline, decay, and reaction of imperialist capitalism. One hundred years earlier, the Napoleonic wars had an objectively progressive character, an expres- sion of the lusty youth of capitalism, breaking down surviving feudal barriers and preparing an economic upswing. The World War ex- pressed the decadent old age of capitalism. Never did a war have more progressive pretensions and a more reactionary character. As a result of the struggle for imperialist power, the war weakened all the Euro- pean nations and intensified the decline of capitalism: its legacy was the post-war chronic economic crisis. The war's progressive preten- sions ("End war!" — "Make the world safe for democracy!") were mocked by the general reaction it unloosed — including fascism, the most violent expression of the decline of capitalism, to whose support it mobilizes all the most sinister and reactionary elements.
But economic and social decHne is a dialectical process. The forces of a new economic, class, and social synthesis appear alongside the forces of decline and begin a struggle for mastery. In the midst of feudal decline the new capitalist order shaped itself and began its struggle for power. At the basis of the decline of capitalism are the contradictions and antagonisms arising out of the new social relations of production, which clash with the old relations of private property and individual appropriation. These social relations of production, expressed in large-scale corporate industry and its accompaniments, produce monopoly capitalism and imperialism, but they are also an objective socialization of industry which is the basis for socialism and the coming to power of the working class. The World War led to the conquest of power by the working class in Russia, to revolutionary
48 The Decline of American Capitalism
struggles in Europe and among colonial peoples — an indication of capitalist decline emphasized and aggravated, particularly during the most disastrous of depressions, by the building of socialism in the Soviet Union. And to combat decline and revolution, the capitalist class resorts to fascism, the complete repudiation of all the ideals for which capitalism fought during its revolutionary youth. . . .
In its origins, growth, and decline, American capitalism has always been bound up with the capitalism of Europe. They have been dif- ferent, yet the same; the peculiarities of American capitalism have merely (but this is important!) affected the scope and tempo of its growth and decline.
American civilization arose out of the revolutionary youth of capi- talism. The colonial settlers were thrust forth by the mass migrations set in motion by the transformation of feudalism; they were overseas builders of the new order being created in Europe. (The early Puri- tans were not the sanctimonious weaklings pictured by the wishy-washy esthetes of to-day, but bourgeois rebels in whose blood was the iron of Cromwell's revolutionary vigor.) Not only were the colonies a product of revolution, they secured their independence through revo- lution, and the capitaHsm of the new nation consolidated its power in the essentially revolutionary struggle of the Civil War and Reconstruction.
American capitalism, unlike the European, was not fettered by feudal hangovers or compromise with the nobility. The great colonial landed estates, which attempted to introduce feudal relations, were undermined by, because dependent upon, the commercial revolution; they could not survive in the new world of unrestricted freedom of enterprise (except in the South, where Negro slavery altered the situa- tion and where pre-capitalist conditions were allowed to linger after northern industrial capitalism consolidated its political power in the Civil War and Reconstruction). Bourgeois individualism and democ- racy developed more freely and fully than in Europe. An almost "pure" capitalist ideology' arose, which permitted and justified unrestricted exploitation and accumulation. Feudal hangovers, class and ideolog- ical, measurably restricted capitalist development in Europe; even in England, where the aristocracy, more than elsewhere, merged into the new ruling class. Feudal elements favored "reforms" in order to strike at their capitalist rivals; certain aspects of industrialism were condemned and regulated, and ideas of the absolutist state interfered with freedom of enterprise. (The earlier absolutist state, however, had aided the development of capitalism, and it later did so again in Ger-
The Decline of Capitalism: General Survey 49
many and Japan.) American capitalism suffered from no such restric- tions. The government let enterprise alone, except where it helped — with tariffs and with grants of money and public lands to railroads, turning over the nation's vast natural resources to private enterprise.
The American economy and the American dream were greatly in- vigorated by the renewed expansion of the frontier. But there have been other frontiers in history, yielding other results. The frontier was one of the factors shaping the sectional forms assumed by some of the underlying economic and class interests and class struggles; this was important, but only in the peculiar forms it gave to the com- plex of interests and struggles in a capitalist economy. It is doubtful if pioneer life, except in the sense of personal enterprise and change, was marked by any great individualism; but the frontier strengthened the individualism of American life by its multiplication of economic opportunities — free land, the rise of petty industrial enterprise after it began to lag in the older regions, the impulse given to rising. While the frontier had some direct influence in shaping classes and ideology, its major significance lay in its influence on the growth of capitalism, in its contribution to the long-time factors of economic expansion. Exploitation of the inner continental areas and resources quickened the tempo and enlarged the economic basis of American capitalist development. Without this, however, the frontier would have been a totally different thing, restricted in scope and results. For capitalist development provided the markets for the agricultural (and mining) products of the frontier; and, incidentally, opportunities for farmers* sons to rise in the swiftly growing urban centers.
In one of its most important aspects the frontier meant the expan- sion of agriculture. The exploitation of agriculture is inseparably associated with capitalist growth: it provided a labor supply, cheap food and raw materials, and markets, and it bore the brunt of the costs of industrialization and accumulation in their earlier stages. In the industrial nations of Europe (particularly England), the pos- sibilities of expansion in agriculture were quickly exhausted, making necessary an increasing export of manufactured goods and import of agricultural products. In the United States, agriculture was continu- ously expanding, aided by the inflow of European labor. The number of American farms rose from 1,449,000 in 1850 to 5,737,000 in 1900, their acreage from 293 milHon to 838 million, and their value from $3,967 million to $20,439 million; the value in 1900 included $4,306 million of buildings and equipment.^ This great agrarian develop- ment was a tremendous factor in the upswing of American industry
50 The Decline of American Capitalism
and prosperity. In 1879 the large exports of wheat, the result of a serious grain shortage in Europe which created an increased demand and higher prices for American wheat, played an important part in the revival and upward movement of prosperity.* The farmers bought large amounts of capital goods in the form of agricultural equipment. They created new markets for manufactured consumption goods. And they provided the bulk of the exports to pay for the imports of capital and goods which stimulated the rapid expansion of American industrialism. The fact that capitalist industry gained more from the expansion of agriculture than did the farmers was the cause of the agrarian revolts in the 1870's— 90's.
Another aspect of the renewal of the frontier and the resulting ex- pansion of agriculture was the construction of railroads on a large scale. This was a most important factor in the movement of produc- tion, accumulation, and prosperity. Railroad mileage rose from 35,085 in 1865 to 177,746 in 1895; capitalization rose to $10,347 million.^ Most of the increase was due to construction of the transcontinental railroads, which depended mainly upon the transportation of agricul- tural (and mining) products. Railroads absorb large amounts of capital goods. The construction of railroads in economically unde- veloped countries is one of the main objectives of the export of capital and imperialism; it aroused the most bitter pre-war imperialist antagonisms (China, the Bagdad Railway, etc.).
Expansion of agriculture and construction of the transcontinental railroads were bound up with the growth of population and of cities, which proceeded on a much greater scale than in Europe. Population rose from 31,502,000 in i860 to 92,267,000 in 1910 (including 23,000,000 immigrants). Cities rose from 141 to 788 and their population from 5,000,000 to 35,000,000, or from 16% to 38% of the total population.^ This growth, which required construction materials, traction equip- ment, and other capital goods, and provided new markets, enor- mously stimulated the development of capitalism.
Thus the frontier, and its continental areas and resources, was directly connected with the long-time factors of economic expansion. It permitted an increasing output and absorption of capital goods because of the industrialization of new regions. The expansion of the frontier depended upon the development of agriculture (and mining), which in turn depended upon the markets of the industrial East- ern states and of Europe. And the frontier came to an end when in- dustrialization was measurably complete.
But while it existed, the frontier was one of the major peculiarities
The Decline of Capitalism: General Survey 51
of American capitalism. Its conditions of life renewed economic op- portunity and progress. It provided almost unlimited possibilities for industrialization and the accumulation of capital and created con- stantly larger mass markets. The industrial Eastern states exported manufactures to the newly settled regions and imported raw materials and foodstuffs. This permitted an enlargement of the scale of produc- tion and an increasing realization of profit and accumulation of cap- ital. Industries sprang up in the new regions, both local enterprises and branch plants of Eastern enterprises, which meant more absorp- tion of capital goods, more realization of profit and accumulation of capital. The expansion of the frontier was a perpetual re-birth of capitalism, energizing its upward movement, strengthening capitalism economically and ideologically; and its continental areas and resources performed, up to the World War, the same economic function that colonialism and imperialism did for the industrial nations of Europe. The upswing of capitalism invigorated the ideal and the reality of the "American dream." Elements of this dream, animating most of the early colonists, who were rebels against the feudal order, acquired new forms and vigor in the new world. They were consolidated by the American Revolution, vitalized by social-economic development on an almost wholly capitalist basis and by the "opportunity" and "self help" of the frontier and its influence in accelerating economic de- velopment. The American dream was an ideology compact of ten major elements:
1. Liberty: The right of the individual to live his own life in his own way (of which the original expression was freedom of con- science) ; tolerance as a way of life.
2. Democracy: The right of the people to decide their own destiny in their own interests and in their own way; faith in the creative initiative and action of free men and women.
3. Equality: The right of all to an equal share in the fruits of progress regardless of origins; differences of racial or biological inheri- tance do not justify social inequality and class oppression or exclude any people from the highest forms of civilization.
4. Mass well-being: The right of all to the good things of life, particularly the right of the mass of the people to share, and share increasingly, in the conquests of industry and civilization : the aboHtion of poverty.
5. Opportunity: The right to an equal share in economic and politi- cal opportunity, whose perpetual rebirth was assumed, unrestricted by origins; in its more subtle forms, an aspiration after higher things.
52 The Decline of American Capitalism
6. Education: The right to an education and faith in education as a means for personal improvement and progressive solution of social problems; the creator o£ new and finer ways of life.
7. No class stratification: The right to move freely from one class to another, including a disregard of class distinctions which colored American life and made it impatient of traditional restraint.
8. Limited government: The right to minimum interference by the state and faith in the creative action of the people; opposition to bureaucracy as a heritage of monarchy.
9. Peace: The right to peace and the peaceful settlement of disputes; monarchical tyranny means war, while democracy moves toward uni- versal peace.
10. Progress: The right and possibility of unlimited progress, the synthesis of all the preceding ideals; a steady, inevitable upward move- ment to new and finer fulfillments.
Now these elements of the ideology of the American dream were not peculiarly American. They are easily recognizable as ideals of the bourgeois revolutions and of most of the liberal and socialist reform- ism in pre-war Europe. But there was one peculiarity of major importance: nowhere were the ideals more largely realized than in the United States, because of the relative freedom and mobility created by the rapid expansion of industry and the frontier. True, the realiza- tion was woefully limited, the ideals exploited by the ruling class in its own interests and degraded by the buccaneers of industry, finance, and politics. Yet the ideology was not mere make-believe, not wholly tawdry. It could not have arisen in a slave or feudal society. It ex- pressed many real achievements and, still more, the possibilities of social progress. The ideology was real enough to dominate the labor and agrarian revolts of the i87o's-9o's. But it must be remembered that, in one decisive aspect, the development of capitalism is a perpetual struggle against its early revolutionary ideals, as they are a tempo- rary and not always an inseparable accompaniment of capitalism. Thus the development of American capitalism was a perpetual strug- gle against and increasing limitation and degradation of the ideals of the American dream. This appeared clearly after the Civil War and still more clearly in 1900-1914. For in spite of its great expansion and its peculiarities, which invigorated the American dream, American capitalism was not immune to the general laws of capitalist growth and decline. Around 1900, capitalist monopoly became ascendant, the frontier met its geographical and economic limits and was no more,
The Decline of Capitalism: General Survey 53
and the export of capital and imperialism began to develop. There was a slackening and decline in the rate of economic growth and a cor- responding restriction of opportunity, creating a minor crisis of the American dream, in which opportunity had been the unifying element. The crisis was not acute because of comparative agrarian prosperity, the growth of the new middle class, and the gains made by the privi- leged minority of skilled workers. It was acute enough, however, to produce a marked drift toward socialism. The crisis was overcome or evaded by the World War and the prosperity of 1923-29, But this prosperity not only produced the usual cyclical depression, it simul- taneously intensified, while temporarily overcoming, the elements of the decline of capitalism. But the decline now creates a major crisis of the American dream. At the moment when the high development of the productive forces makes possible a fuller realization of the tra- ditional ideals of the American dream, a condition arises which means a complete reaction against even the partial realization of those ideals, an increasing limitation of opportunity and progress.*
The crisis of the American dream is an expression of the crisis of the economic order, of the decline of capitalism. In one of its imme- diate aspects, the decline appears clearly in the program of the gov- ernment to spend over $10,000 million to overcome the crisis and revive prosperity! The Hoover Administration added $4,000 million to the national debt, the Roosevelt Administration over f6,ooo million in one year. By the end of the fiscal year 1934 the national debt had risen to the war-time peak of $26,500 million. Another $7,000 million will be spent in 1934-35, an estimate based on optimistic hopes of recovery. Public works will absorb $3,300 million, farm relief $2,000 million (including over $750 million to pay for acreage and crop reductions). On January 31, 1934 the Reconstruction Finance Corporation had outstanding $3,428 million, mainly in loans to corporations, includ- ing $1,000 milhon for the payment of bank stocks bought by the government.^ Only a part of the money is spent on relief or "made work" projects. Most of it directly, and all of it indirectly, is spent to prop up the sagging foundations of the capitalist economy: to restrict agricultural production, to sustain tottering banks, to permit railroads to buy equipment, to aid industrial and utility corporations, to protect capital investment and profits, to allow payment of interest and other
* This subject is discussed more fully in Chapter XXV, "The Crisis of the American Dream."
54 The Decline of American Capitalism
fixed charges.* Is there an American crisis! The expenditures of pub- lic money, involving a tremendous increase in the burden of taxation, debts, and interest, is part of a program based on the conviction that industry cannot revive and prosper without the artificial stimulant of state financial aid. Even if prosperity returns on any considerable scale, ^d corporations repay the loans, the burden on profits will be great, and still greater on the people at large in higher taxation (for most of the money is spent outright). If, as is most likely, prosperity does not return on any considerable scale, and there is a lower level of economic activity and income, the burden of taxation will be heart- breaking, for corporations will repay little if any of the public money they now receive. It will be worse if inflation is resorted to. And most of the burden will be thrust upon the workers (including farmers and professionals) : already there are sales taxes and lower real wages, and eventually there may be direct taxes on wages, as in some European countries.
State financial aid to sustain tottering private industry is the major aspect of the state capitalism represented by the creations of Niraism, but which may assume other institutional forms. This is definite evidence of the decline of American capitalism. It is exactly what governments have been doing in France and England, on a larger scale in Italy and Germany. In spite of differences in political forms, the same state-economic measures are adopted under the pressure of capitalist decline. Pre-fascist German governments poured public money into industry; the Nazis do the same. Fascist Italy issues state loans "for relief of private companies which find themselves in diffi- culties because of the depression." The American Reconstruction Finance Corporation serves as an organizational model for the Italian Industrial Institute, but its policy was already being pursued by the fascist government.^ A public-works program is the backbone of "recovery" efforts in Italy and Germany; to a lesser extent in France and England, where, however, it is increasingly urged. Highway- building is stressed, although new roads are largely unnecessary and include construction of "luxury" automobile super-highways. "In Ger- many the present roads might be able to carry ten times the present traffic. Only when viewed most optimistically does it seem possible
* In 1933 the von Papen government in Germany, in an attempt to stimulate revival, gave private industry what amounted to a subsidy of 750 million marks to be spent on capital goods. But most of the money was used by the recipients to pay debts. Gerhard Colm, "Why the 'Papen Plan' for Economic Recovery Failed," Social Research, February, 1934. P- 93-
The Decline of Capitalism: General Survey 55
that sufficient traffic will develop to liquidate the present cost of the scheme." ^ And the "recovery" program of Niraism depends in large measure upon public works. Thus the American government resorts to the state-economic measures characteristic of the decline of cap- italism in Europe. And this decline only a few years ago was con- sidered the lot of lesser breeds outside the law — the law of American prosperity everlasting!
Summary
JLn its immediate aspects the American crisis is an outcome of the depression and of the inability to restore prosperity on any consider- able scale. It mocks the pre-depression claims of prosperity everlasting. In its larger aspects the crisis is an outcome of the decline of capitalism.
Prosperity under capitalism depends upon the making of profits and their conversion into capital. The higher the profits and the lower the wages, the greater is the accumulation of capital. This lag of wages behind profits, and the resulting lag of mass consumption behind production, is a condition of accumulation. But it eventually upsets the balance between production and consumption, and creates recurrent crises and depressions. This has always been so and must always be so under the social relations of capitalist production.
While prosperity always broke down, every depression was succeeded by a new upsurge of prosperity because of the long-time factors of economic expansion. These factors — mechanization of old industries, development of new industries, industrialization of new regions — permitted an increasing production and absorption of capital goods, the basis of capitalist prosperity and accumulation. As, however, all the long-time factors of expansion approach exhaustion, capitalism begins to decline because it is no longer able to produce and absorb an increasing output of capital goods. The decline of capitalism is an expression of old age, of a crisis in its historical development: one social system grows into another. A new social order is in the making. But Niraism, and the state capitalism of which it is a form, does not represent the new order; its objective is to save the tottering old order of capitalist exploitation.
As prosperity depends upon the making of profits and their conver- sion into capital, labor may or may not share in its gains. When labor did share, it was meagerly; and there were whole periods in which prosperity was accompanied by stationary or falling real wages and mass consumption. But the tendency, at least, was upward. Now, in the epoch of the decline of capitalism, wages and mass consumption must tend downward; in other words, they experience an absolute
56
Summary 57
fall, where in the past the fall was only relative to the rise in pro- duction and profits.
The decline of American capitalism is conditioned by the exhaus- tion of the inner long-time factors of expansion. This exhaustion, which is relative and wholly capitalist, was brought to a head by the prosperity of the "Golden Age" of American capitalism. It as- sumed the form of overdevelopment of productive forces, saturation of capital plant, monopoly, the export of capital, and imperialism. The legacy was a restriction of the opportunities for an increasing output and absorption of capital goods, for the accumulation of capital. Thus, to understand the decHne of capitaUsm, an analysis is necessary of the prosperity of 1923-29, which involves an analysis of the funda- mentals of capitalist production. And the starting point of the analysis is the movement of profits and wages, which conditions both the upswing and the decline of capitalism.
PART TWO
Prosperity, Profits, and Wages
Introductory
JIn the claims o£ Niraism, of state capitalism, reappear, in slightly dif- ferent form, the basic claims of the pre-1929 mythology of prosperity. The older prophets insisted that under the "new capitalism" wages necessarily secured large gains from increasing production and pro- ductivity; the antagonism between wages and profits had been ended, the capitalists "recognizing" that high wages and high profits are inseparable. The prophets of Niraism also insist that high wages are profitable to the capitalists: they want to "raise" wages and "control" profits in the interest of prosperity and of assured and higher profits. Thus President Roosevelt claims that "fair wages and fair profits" is the aim of Niraism.^ The identity between the old and the new has been thus stated by a liberal critic:
"Both the plan for industrial codes and the Blue Eagle scheme were predicated on the assumption that capital would make volun- tary sacrifices for the benefit of labor, in a spirit of patriotic endeavor, and also because the capitalist, if the scheme worked, would profit enormously from the increase in business which would then ensue. It should be noted that this plan contemplated no fundamental reor- ganization of our moribund economic system. Its central feature was an application of the old Hoover-Ford doctrine of high wages, exer- cised in a time of desperate economic distress and not, as it was originally conceived, when ample profits were being produced."^
There is this difference: The pre-1929 apologists of prosperity in- sisted on the "unfettered" economic action of capitalism; the apolo- gists of Niraism claim that the government will "control" industry to compel the capitalists, in their own interest, to "raise" wages and "limit" profits, and thus assure ultimately higher profits. But in prac- tice both assumptions mean the same thing: It is possible to reconcile the antagonism between wages and profits if only the capitalists are convinced that higher wages mean higher profits and continuing prosperity.
The demand for government "control," which distinguishes the prophets of Niraism from their predecessors, is very significant. One result of the decline of capitalism is the necessity of increasing state
61
62 The Decline of American Capitalism
intervention to prop up the sagging economic order. This is the real purpose of Niraism and state capitalism: all else is mere ballyhoo. For intervention and "control" are by the capitalist state; they pro- ceed, in spite of minor institutional changes, on the basis of the fundamental relations of capitalist production, in which profits and the accumulation of capital are the decisive factors. Profits control capitalist industry and must control intervention by the capitalist state. The state capitalism of the imperialist nations of Europe has not limited profits in general or raised wages. To understand why, and why there must be a similar American experience, it is neces- sary to analyse the relation of profits and wages to one another and to capitalist production, prosperity, and accumulation. The relation is clearly revealed in the economic movement and changes of 1920-29.
CHAPTER IV
Profits and Prosperity
Jl HE ending of the World War in 191 8 produced an economic reces- sion, followed by an upward movement. A heavy export of capital and goods was the decisive factor in post-war prosperity. Stricken by war's destruction, intervening in Soviet Russia, and threatened by the revolutionary action of its own workers, capitalist Europe mort- gaged itself, kept on borrowing in the United States and imported large amounts of goods. American exports in 1919—20 were the largest in history: $16,148 million, with an excess of exports over imports of $6,965 million.^ (This economic intervention in Europe was "our" major contribution to the struggle against revolution.) But production in 1919—20 was lower than in 1918;* prosperity was essentially speculative, based upon rising prices and foreign demand. Profits rose while real wages were almost stationary. Although pro- duction fell, an overproduction of goods developed in particular lines because of excessive output resulting from competition and in all lines because sharply rising prices redistributed income and reduced mass purchasing power. The equiUbrium between production and consumption was upset. Prosperity crashed.
Prosperity revived in 1922, as in all previous depressions, by the action of economic forces independent of the planful intervention of the masters of industry and finance. This action assumes the form of liquidation of prices, wages, accumulated consumption goods and, primarily, of capital and capital claims (precisely as in 1929-34) : it resembles the blood-letting of medieval medicine. The most important aspect of liquidation is the wiping out of capital and capital claims, modifying the disproportionate accumulation of capital which set in motion the forces of depression. Liquidation reaches a point where the economic equilibrium is restored, on a lower level, and produc- tion, consumption, and capital accumulation begin to revive. An in- crease in the production of consumption goods, because of depletion of accumulated stocks, may be a minor cause of revival. The major
* The index of physical volume of production in manufactures was 104 in 191 8, 98 in 1919 and loi in 1920. A. M. Mathews, "The Physical Volume of Production in the United States," Review of Economic Statistics, July, 1925, p. 208.
63
64 The Decline of American Capitalism
cause of revival is a renewed demand for capital equipment, either
for replacements or new industries or both. New consumer purchasing
power is created. Industry begins to move upward, slowly and plan-
lessly.
The speed of revival and the scope of recovery and prosperity de- pend upon an increasing output of capital goods and the opportunities it provides for capital investment and accumulation. This in turn depends upon other than the ordinary cyclical factors, upon the de- velopment of new industries and unusual expansion of old industries. In the United States after the Civil War, accumulation was invig- orated by the mechanization of old and the growth of new industries, particularly the railroads, and by industrialization of agrarian and frontier regions. In early nineteenth-century England, prosperity was identified with expansion of the textile industry and later of the iron and steel trades, while expansion of the electrical industry pro- duced an unusual prosperity in the Germany of 1 890-1 905; another factor of expansion was the export of capital (and capital goods) to industrialize colonial and other economically backward regions. Only these long-time factors of economic growth stimulate the output of capital goods and insure an increasing accumulation of capital.
An unusual feature of the depression was the steadiness of machin- ery output, which ordinarily drops severely. While output dropped from $4,768 million in 1919 to $3,235 million in 1921, there was no great drop as prices fell; output rose in 1922 and was $4,727 million in 1923.^ The demand for machinery modified the depression and encouraged revival, and was mainly due to efforts to raise the pro- ductivity of labor, which rose substantially. There were, apparently, fewer of the "postponable" expenditures on capital goods which ag- gravate depression. . . . The demand for machinery was strengthened by an upswing in construction, the industry which led the revival. Unlike industry in general, construction was not overproduced, but had accumulated a large shortage. Construction was practically sta- tionary in 1 914-16, and in the following four years averaged 28% below 1913. In 1921 construction, which had decreased one-half the pre- vious year, regained all its losses and slightly more, and in 1922 was 35% higher than in 191 3, increasing by nearly $1,000 million;^ the increase was mainly in industrial and commercial structures, essentially an output of capital goods. . . . Railroads, whose ordinary requirements had been neglected during the period of Federal control, increased their capital expenditures to $1,059 million in 1923 and $3,996 million in the five years 1922-26.* . . . The depression drop in the output
Profits and Prosperity 65
of automobiles was small; output rose in 1922 and was $3,164 million in 1923, nearly $1,000 million more than in 1919 and a twofold in- crease considering the fall in prices.^ . . . The revival was essentially a product of the increasing output of capital goods, but it was strength- ened by an unusual development: a substantial rise in real wages, which increased mass purchasing power and consumption. Consump- tion was 6.5% higher in 1923 than in 1920,® an unparalleled increase, stimulating production and, more important, the output of capital goods. After 1923 the upward movement in real wages and mass consumption slackened and came practically to a standstill: while total production in 1922-29 increased an average of 4.1% yearly, capital goods increased 6.4% and consumption goods only 3.7%.^ Accumulation, as usual, outstripped consumption.
Prosperity was sustained by the upward movement in the output of capital goods, by increasing opportunities for the accumulation of capital. Construction moved steadily upward:* it was 31% higher in 1929 than in 1922, scoring an average yearly increase of 6.1%; total construction was $48,859 million, an average of $6,100 million yearly.® Automobile output (wholesale value) averaged over $3,000 million yearly in 1923-28, rising to $3,719 million in 1929; a consider- able part of the output consisted of capital goods : registrations of motor trucks, taxicabs, and buses increased more than private cars, while the wholesale value of motor trucks alone rose from $317 million in 1923 to $595 million in 1929.^ The lessened capital expenditures of the railroads was partly offset by the rise in capital goods represented by increasing commercial use of the automobile and airplane. The drive to raise the productivity of labor (to increase profits) not only stimu- lated the demand for more industrial machinery but resulted in an increasing electrification of industry, the extent of which rose from 56% in 1919 and 67% in 1923 to 82% in 1929; capital investment in the electric power industry was $12,500 million in 1929 compared with $5,000 million in 1922.^° The output of electrical machinery and ap- paratus rose from $1,293 million in 1923 to $2,273 million in 1929.^^ Expansion in new or comparatively new industries absorbed large
* The average yearly increase in apartments and hotels was 3.7%, in one and two- family houses 5.1%, in commercial and industrial structures 8.1% and 9.3% respec- tively, and in public works and utilities 11.4%. In 1927-29 the construction of indus- trial buildings increased 50%. Frederick C, Mills, Economic Tendencies in the United States (1932), pp. 264-66. The upward movement in construction was sustained pri- marily by the demand for structural capital goods. The lack of this demand has forced adoption of the government's public works program in an effort to fill in the gap.
66 The Decline of American Capitalism
amounts of new capital — the moving picture, radio, rayon, chemical, aviation, mechanical refrigeration, and power laundry industries, whose combined value output in 1929 exceeded $1,500 million. This expansion made "large demands upon construction — industrial and commercial structures, "movie palaces," and garages and service sta- tions; it also made large demands upon machinery, the output of which rose from $4,727 million in 1923 to $6,964 million in 1929.^^ The expansion of new or comparatively new industries is particularly important since it demands more capital expenditures than similar expansion in old industries.
An increasing output of capital goods (not consumption goods) is the decisive factor in capitalist prosperity. It provides for the accumu- lation of capital and multiplies the capitalist claims upon labor, pro- duction, and income. But this involves a fundamental contradiction: realization of profit depends in final analysis upon the circulation of commodities, upon consumption, which accumulation tends to re- strict. The stimulus to prosperity in the production of capital goods is twofold: it increases employment, wages, and profits (mainly profits) and creates consumer purchasing power, but for a time makes no demands or only slight demands upon consumer purchasing power to absorb new consumption goods. The danger to prosperity is three- fold : the output of capital goods may represent excessive accumulation of capital, it may be concentrated in particularly profitable industries whose expansion becomes disproportionate in relation to other in- dustries, and eventually the larger production made possible by the new capital goods outstrips the growth in markets and consumption. The output of capital goods begins to fall and wages, purchasing power and consumption are restricted. Prosperity crashes.
Two other factors affected American prosperity in 1922-29: the agricultural crisis and the recasting, by the World War, of inter- national economic relations in favor of the United States.
The sharp fall in agricultural prices, a result of the post-war defla- tion which threw most of the burdens of deflation upon the farmers, contributed greatly to capitalist prosperity — ^by increasing real wages and releasing urban purchasing power for manufactured goods and by lowering the cost of raw materials. In spite of much lower incomes the farmers were forced by the low prices of agricultural products to increase productivity with improved methods and mechanization: the output (less exports) of agricultural machinery rose from $101 mil- lion in 1923 to $137 million in 1929.^^ Most farmers did not share in prosperity. But not only was the agricultural distress no bar to pros-
Profits and Prosperity 67
perity, it was one o£ the contributing causes: the final proof o£ the decHne and hopeless state of American agriculture.
Where the World War aggravated Europe's economic decline, it contributed to the upsurge of prosperity in the United States by its stimulus to old and new industries, its creation of shortages, and its opening up of new foreign markets. From the American angle, the most important result of the war was the redistribution of world power in favor of the United States and the economic decline of its competitors. The American share of world exports rose from 12.3% in 1913 to 15.6% in 1928; the European share decHned from 55.2% to 46% and the British share from 13.9% to 11.2%.^* American ex- ports (mainly manufactured goods) rose from $3,971 million in 1922 to $5,157 million in 1929; a favorable export balance of $4,850 million piled up in 1923—29. The increase in exports was bound up with a growing export of capital; American foreign investments increased $6,293 million in 1923-29/^ Imperialism, new foreign markets for surplus capital and goods, created new means for the making of profits and their conversion into capital, for accumulation, and sus- tained prosperity for a time by lessening the demands upon the home market to absorb goods and capital. Increasingly the world market took the place of the frontier and of its long-time factors of economic expansion; but the experience of one is bound to be repeated by the other.
Rising investment, production, and accumulation were accompanied by a rising mass of profits. Profits in manufactures are the natural starting point of an analysis of the movement of profits (Table I). In 1929 profits were 22.9% higher than in 1923, total wages only 6.1% higher. If the two years of minor cyclical depression 1924 and 1927, are excluded, profits in 1925-29 averaged 9% higher than in 1923. Officers' salaries, a large part of which should be considered profit, rose steadily until in 1929 they were 16.4% higher than in 1923. The in- creasing productivity of labor was accompanied by higher profits and lower wages. But for the six years as a whole the profits of manufacturing corporations averaged only 1% higher than in 1923. (The rise was much greater, however, in comparison with 1922.) This seems to involve a contradiction — the productivity of labor and surplus value rose considerably, yet profits apparently failed to rise as much. The contradiction dissolves upon analysis and reveals the welter of contradictions and antagonisms inherent in capitalist production.
Corporate profits are usually understated. There are all sorts of
68 The Decline of American Capitalism
TABLE I
Profits, Salaries, and Wages, Manufactures, jg2^-2g
CORPORATE
officers'
TOTAL
YEAR
NET PROFITS
INDEX
SALARIES
INDEX
WAGES
INDEX
(millions)
(millions)
(millions)
1923
$3,872
lOO.O
$960
lOO.O
$11,009
lOO.O
1924
3,166
81.8
970
lOI.O
10,502
95.4
1925
3,877
100.2
•
*
10,730
97.5
1926
3,910
lOI.O
•
•
11,466
IO4.I
1927
3,431
88.1
*
•
10,849
98.5
1928
4,330
111.8
1,107
II5.3
10,366
94.2
1929
4,760
122.9
1,117
II 6.4
11,684
I06.I
* Not available.
Source: Net profits (corporations reporting profits, less taxes and intercorporate dividends) and officers' salaries (including bonuses and other compensation) — Bureau of Internal Revenue, Statistics of Income; w^ages — 1923, 1925, 1927 and 1929, Depart- ment of Commerce, Statistical Abstract of the United States, 1931, p. 813, other years, W. I. King, The National Income and Its Purchasing Power, p. 132, King's estimates are slightly higher than the Census figures. Wages are for all manufacturing enterprises, while profits include only incorporated enterprises, but this does not affect the trend.
devices for concealing profits. One device is to make excessive allov^- ances for depreciation to evade taxation. This was encouraged, during the "Golden Age" of American capitalism, by "liberalization" of the corporation income-tax law; the allowances in manufactures rose from $1,424 million in 1923 to $2,017 million in 1929,^^ a considerably greater increase than in capital equipment. Many corporations inflated the nominal value of their assets to permit larger depreciation allowances. Manufacturing enterprises, moreover, spent large sums on capital equipment which were charged to operating costs and do not appear as realized profits. These expenditures, which increase the productivity of labor and production, are capitalized surplus value.* Another por- tion o£ profits was absorbed by the increase in officers' salaries; this form of exploiting corporations is flagrantly revealed in the "bonus" system by which the higher officers extort an additional "compensation" of millions yearly. At least one-third of salaries represent profits.
The distribution of profits (and of prosperity!) is always uneven. It was particularly uneven in 1923-29 because of the many and rapid changes in industries, technical equipment, and consumer buying
* Such sums spent on capital equipment do not appear in surplus, which rose from $13,060 million in 1923, to $19,465 million in 1929. Bureau of Internal Revenue, Statistics of Income, 1923, p. 63; 1929, p. 332. Corporate savings or surplus are an impersonal, social form of the accumulation of capital.
STOCK fAtCOM£: /6%
2^0
aao
200
ISO
160
PR0Fin:i2% mOES'. 0S%
rr
fiiVERAQE yeARLY RAre OF //VCR£ASE
d
STOCKHOLDERS' CASH INCOME 1 .' SI L>J-
pijjEW CAPITAL 'SSUESf-^ / /
H CORPORATE PROFlTSh
INDUSTRIAL
rj 5 •
\<\ll +4.>*»JW iqiS" 19ZG l<12.7 WZ« MM
V
II. PROSPERITY IN ACTION— 1923-29.
70 The Decline of American Capitalism
habits, and of the resulting intensified competition. There were many laments about "profitless prosperity." Some industries were severely depressed while others were exceptionally prosperous. The automobile industry increased its profits an average of 22.5% yearly, machinery 14.9%, and chemicals and drugs 12.3%;^^ automobile super-profits were characteristic of the newer industries. But high profits among the newer industries was partly conditioned by lower profits among the depressed older industries, whose losses were frequently disastrous.* Profits were unevenly distributed, moreover, as between smaller and larger corporations. The movement of increasing technological effi- ciency, production, and competition, resulted, as always, in greater industrial concentration and centralization of corporate control: in 1923 the largest 1,240 manufacturing corporations received 64.9% of all corporate net income, while in 1929 the largest 1,289 corporations received 75.6%.^^ An increasing number of corporations, mainly the smaller, reported deficits — 34% in 1919, 41% in 1923, and 47% in 1929.^^ These deficits, which depressed the mass of profits, are a condition of capitalist production and prosperity and of the profits of other corporations.
A characteristic of capitalist production is that its drive for larger profits creates a series of antagonisms which limit the realization of profits. Output increases more than profits, because capitalist produc- tion tends toward an absolute growth of the productive forces regard- less of the capacity of markets and of the development of consuming power. Competition is intensified and prices fall to levels which yield small profits or no profits — one result of the higher productivity of labor, which simultaneously increases surplus value and sets in motion forces which prevent its complete realization. As competition is inten- sified by the higher productivity of labor and larger output, which outstrips markets and consumption, there is an increase in the costs of distribution, of merchandising and advertising, costs which are a charge upon surplus value and cut into profits: in 1923-29 that part of "value added by manufacturing" represented by overhead costs increased more than profits (and wages). The drive for larger profits creates a final antagonism : it develops the forces of cyclical breakdown
* While profits (including intercorporate dividends and before payment of taxes) increased in 1922-29 an average of 7.4% yearly for all manufacturing corporations, profits decreased among 815 corporations in 28 industries, including textiles, canned goods, lumber, paints, glass, textile machinery, and railroad equipment; the increase in the profits of the more prosperous corporations averaged 9.8% yearly. Mills, Eco- nomic Tendencies, p. 401.
Profits and Prosperity 71
by increasing productivity, production, and profits more than wages and consuming power, disturbing the balance between production and consumption and between one industry and another. The con- sequent disproportions interrupt prosperity with minor depressions, and eventually prosperity collapses into a major depression. Profits in manufactures fell considerably in the minor depression of 1924 and in the minor depression of 1927, which severely lowered the yearly average of profits in 1924-29. Depression is one of the most drastic means by which capitalist production limits the realization of profits. While profits in manufactures did not rise as much as production, the productivity of labor, and surplus value, profits as a whole rose more substantially. The general rise was larger than in manufactures; for surplus value, which exists originally as a definite portion of unpaid labor, as a surplus product, is finally realized only in the process of the circulation of commodities. The transactions of the market do not produce or increase surplus value, but they distribute and ap- portion it. All sorts of queer things now happen which are normal under capitalism. Not only may the industrial capitalist realize as profits only a small portion of surplus value or none at all, if prices are unfavorable, but a struggle occurs over the division of the surplus value extorted from labor, and an increasing part of it may become the profits of the non-industrial capitalist. The profits realized by the individual capitalist or corporation depend considerably upon trickery, the chances of the market, and other similar circumstances. Financiers may plunder the manufacturing corporation, speculators may seize its profits. Chain stores compel small manufacturers to sell at prices yielding low profits and often no profits at all; large manufacturing corporations (e. g., the automobile industry) pursue the same tactics with small manufacturers of semi-finished raw materials or parts. Bank loans may absorb an increasingly larger share of manufacturing income. Finance and holding companies exploit operating companies by extortionate "service charges" and other predatory devices: high profits in the one case arise out of low profits in the other. Thus finan- cial and speculative capitalists are enriched. The mass of profits accord- ingly appears only in their final realization and distribution as a whole (Table II). Total profits rose and rose substantially. The profits of all corporations are understated, as in manufactures. In addition, inter- est, as much as profit, is realized surplus value : corporate interest pay- ments rose from $3,277 million in 1923 to $4,924 million in 1929.^° Profits in 1929 were 41.1% higher than in 1923, and officers' salaries 29.7% higher. Average yearly profits for 1924-29 were 12.7% higher
72
The Decline of American Capitalism
TABLE
II
The Movement of Profit
s, Salaries, and
Wages,
19^3-^9
CORPORATE
officers'
INDUS- TRIAL
ALL
YEAR
PROFITS
(millions)
INDEX
SALARIES
(millions)
INDEX
WAGES
(millions)
INDEX
WAGES
(millions)
INDEX
1923
$7,721
lOO.O
$2,575
lOO.O
$18,105
lOO.O
$28,691
lOO.O
1924
6,705
86.9
2,635
102.3
17,200
95.0
29,051
IOI.3
1925
8,413
109.0
*
*
18,083
99-9
30,762
107.2
1926
8,444
109.4
*
*
19,068
105-3
32,604
II3-7
1927
7,851
IOI.7
«
#
18,524
102.3
32,884
114.6
1928
9,921
128.5
3,199
124.2
18,050
99-7
32,235
112.4
1929
10,892
141. 1
3,336
129.7
*
*
*
#
* Not available.
Corporate profits — net profits of corporations reporting profits, less taxes and inter- corporate dividends. Officers' salaries (corporations) includes bonuses and other com- pensation. Wages — all wages includes wages paid to farm laborers, servants, and workers in non-corporate industrial, commercial and service enterprises; industrial wages, more. nearly equivalent to corporate wages, are the wages paid to workers in manu- factures, mines, quarries and oil wells, construction, and transportation (railroads, express, transportation by water, street railways, electric light and power, telephones and telegraphs).
Source: Profits and officers' salaries — Bureau of Internal Revenue, Statistics of Income for the respective years; wages — ^W. I. King, The National Income and Its Purchasing Power, pp. 132-33-
than in 1923. Profits rose more than production and the national income, and more than wages. The yearly average o£ all wages for 1924-28 was higher than in 1923; but this is not the true measure of wages in relation to corporate profits, for it includes the wages of servants and of workers in non-corporate enterprises, whose profits are not included, and all of which, however, have large elements of social-economic parasitism. A truer measure are industrial wages (manufactures, min- ing, construction and transportation) ; for 1^2^-28 the average of indus- trial wages was only o.f/o higher than in 192^.
As in the case of manufactures, the distribution of total corporate profits favored the monopolist combinations of capital; the greater trustification of industry resulted in a greater concentration of profits:
In 1923, the largest 1,026 corporations, 0.26% of all corporations, received 47.9% of all corporate net income, an already dominant concentration.
In 1929, the largest 1,349 corporations, again 0.26% of all corpora-
Profits and Prosperity 73
tions, received 60.3% of all corporate net income, an increase of over one-fourth in concentration.^^
The concentration of industry in monopolist combinations and the multiplication of stockholders result in the usurpation of control by a financial oligarchy, groups of financial capitalists operating by means of a system of centralization of financial control dominated by the great banks. Industry depends more and more upon the financial oligarchy, which consequently absorbs an increasingly larger share of the surplus value extorted from labor. This v^as particularly marked in 1923-29:
The profits of non-financial corporations rose from $4,948 million in 1923, to $5,645 million in 1929, or 14%, the profits of financial cor- porations (including banks, investment banks, finance and holding companies) from $870,000,000 to $2,438 million, or 177%, a phenomenal increase.
The profits of non-financial corporations in 1924-29 averaged 2% lower than in 1923, the profits of financial corporations 69% higher."
A considerable portion of financial profits, particularly in 1928—29, was a result of frenzied stock-market speculation, the gains of which represent both previously appropriated surplus value and claims upon new surplus value. Finance capital, interested more in the speculative production of profits than in the production of goods, dominates in- dustry; the appropriation of surplus value and profits is increasingly separated from their production.
Corporate disbursements to investors increased greatly. Dividends (excluding intercorporate dividends) rose from $3,299 million in 1923 to $5,765 million in 1929 and interest payments from $3,277 million to $4,924 million. Total corporate disbursements in seven years amounted to $88,000 million. While the average yearly increase in industrial wages was only 0.5/0, the increase in stockholders' income was 16.4%.^^ Part of the immense profits was spent on the living expenses of their appropriators, whose income was further swollen by extortionate salaries or fees and by speculative profits; but most of it was invested, used for the production of more profits. The great mass of available investment capital was enlarged by the profits of non-corporate business and by the large savings of the middle class and the small savings of better-paid workers and farmers. (There was great competition for the "marginal" income of the "common people." Bankers and brokers shouted: "Save and invest!" Manufac- turers and merchants shouted: "Spend and make prosperity!") The enormous accumulation of capital exerted tremendous pressure on the
74 The Decline of American Capitalism
investment market. Many issues were made out of whole cloth, and investment bankers often forced corporations to issue new securities. Abundant capital and "easy money" tempted corporations to improve and enlarge plant equipment, which temporarily stimulated prosperity but resulted in an increasing displacement of labor and overproduc- tion. The flood of new securities was swollen by the issues of invest- ment trusts (guilefully offering security and large profits!), trading companies, and holding companies, an important source of the phe- nomenal financial profits. Foreign issues increased; American bankers accepted any business yielding good commissions and their loans contributed to sustaining the Fascist dictatorship in Italy and the military dictatorships in Cuba and Venezuela. The superabundance of investment capital made easy the absorption of an unusually large mass of new issues:
The total of new securities (excluding refunding) rose from $4,304 million in 1923 to $10,182 million in 1929, an increase of 137%.
New corporate issues rose from $2,031 million in 1923 to $8,002 mil- lion in 1929, a four-fold increase; total corporate issues in the seven years amounted to $30,523 million.
New foreign issues rose from $892,000,000 in 1923 to $1,572 million in 1927 and slumped to $762,000,000 in 1929, the total for the seven years being $7,805 million; where domestic issues (excluding invest- ment trusts and trading and holding companies) increased an average of 7.7% yearly, foreign issues increased 10.1% — an indication of the rapidly increasing importance of the export of capital.
The aggregate of all new issues in 1923-29 amounted to $48,548 million.^*
In addition to raising capital by issuing securities, corporations cus- tomarily reinvest up to one third or more of their profits; surplus rose from $33,596 million in 1923 to $50,725 million in 1929. In the year of the great crash, in 1929, capital expenditures of all sorts (in- cluding pubUc works) probably totalled $15,000 million. Total corpo- rate capital rose from $191,000 million in 1923 to $233,000 million in 1929.^^
Thus increasingly higher profits and their conversion into capital by means of an increasing output and absorption of capital goods resulted in an upsurge of prosperity. The active accumulation of capital expressed an unusual combination of the long-time factors of expansion: it appeared only once before in American history, in the period immediately after the Civil War. Then the major factor sus- taining the upward movement of prosperity was the development of
Profits and Prosperity 75
old and new industries, particularly building construction, iron and steel, railroads, and agricultural equipment. In 1923-29, prosperity was sustained by expansion in building construction, electric power, and new industries. In both cases expansion created increasing demands for capital goods, which stimulates the making of profits and their conversion into capital. The most important difference was replace- ment of the frontier by greater industriaUzation of the South and by the export of capital. The latter was the more fundamental difference: it offset exhaustion of the inner long-time factors of expansion by imperiaUst exploitation of similar international factors.
But the maintenance of prosperity requires a proportional distribu- tion of investment and consuming income, a sustained balance between the output of capital goods and consumption goods, between produc- tion and consumption. There was no such distribution or balance; and the basic reason for its absence was the antagonism between prof- its and wages, resulting in the lag of wages behind profits. This antagonism is fundamental in capitalist production.
CHAPTER V
The Policy of High Wages
JIn spite of the available facts, there was, in 1923-29, an almost universal belief that American employers had accepted the "policy of high wages" as the basis of prosperity. An economist wrote: "Increas- ing productivity of labor and industry, advancing wages, higher Uving standards, and greater consuming or purchasing power, is now the avowed policy and practical program of American industry." . . . An economic historian: "The cultivation of consuming power became the direct concern of manufacturers, with results that profoundly affected wages and price adjustments [recognizing] that to raise wages and reduce prices was the way to promote and safeguard prosperity." . . . The President's Committee on Recent Economic Changes: "Leaders of industrial thought began consciously to propound the princi- ple of high wages." . . . The dogma of the "policy of high wages" was generally accepted in Europe, although a German trade union delegation was skeptical and British employers frequently stated that American employers did not pay any higher wages than they had to. Two British investigators reported that not only did American em- ployers constantly raise wages but that they never limited earnings on piece rates or cut rates! ... A German economist, ajter prosperity crashed into depression: "The industrialists had to revise their eco- nomic theories. Henceforward, in common with the principal groups of organized workers, they regarded high wages not as a costs item involving higher prices, but as an element creating increased purchas- ing power, and with it the potentiality of increased sales." ^
There were two basic assumptions in the dogma of the policy of high wages:
In 1921-22, enlightened employers, recognizing that high wages promote and safeguard prosperity, voluntarily raised wages, where- upon prosperity burst forth in all its radiant glory.
In 1923-29, the employers practiced the policy of high wages; they voluntarily and constantly raised wages, which rose higher and higher, to increase consumption, production, and prosperity.
But wages are not determined in this fashion, neither in an "unfet-
76
The Policy of High Wages 77
tered" capitalism nor in a capitalism upon which are imposed the "controls" of state capitalism. The facts are clear:
Real wages rose in 1921-22, but the increase was imposed upon the employers by falling prices and labor s militant resistance to cuts in money wages.
The rise stopped as a real upward movement after 1923; money wages and real wages were practically stationary in igi^—ig, precisely when American capitalism was being touted as having accepted in- creasingly higher wages as its "avowed policy and practical program,"
The immediate post-war period was one of sharp struggle between labor and capital. Press and employers demanded a "liquidation** of labor and of "high wages." According to one of the apologists of pros- perity: "The burden of all business discussions, as well as political debates bearing upon financial and industrial problems, was the con- stantly reiterated declaration that there 'must be a return to normalcy* . . . meaning a reversion to pre-war wages, industrial conditions and prices." ^ In spite of the employers' resistance, and by means of embat- tled struggle, labor forced up money wages, which in 1920 reached an exceptionally high level, an all-time high. In 1921—22, the employers' resistance developed into a general offensive to cut wages. An ally of the House of Morgan, the National City Bank of New York, declared high wages were responsible for the depression and retarded revival. The National Association of Manufacturers and other employers' organizations proposed to "deflate" the trade unions, whose "pretensions" were considered "menacing," by means of the "American plan" of "open shop." The unions, cajoled during the war, were now stigmatized as a menace to American democracy and civili- zation. Samuel Gompers, president of the American Federation of Labor, was met with derision and denunciation when he urged : "High wages, the best possible wages, are the greatest incentive to pros- perity." A storm of wage cuts beat upon the workers: hourly money earnings in manufactures were cut 15% in 1921 and another 5% in 1922; there were similar cuts in non-manufacturing industries, while the strongly unionized building trades workers had their hourly rates cut nearly 6%.^
Labor resisted the capitalist offensive. There were 2,226 strikes in 1920 involving 1,463,054 workers and 2,684 strikes in 1921-22 involv- ing 2,711,809 workers."^ Great strikes broke out in the mines and on the railroads. Rebellious memberships in the unions forced strike ac- tion upon the reluctant union bureaucracy; "outlaw" strikes disre- garded the bureaucracy and agreements with the employers. Capitalism
78 The Decline of American Capitalism
resorted to its usual methods of legal and physical force to crush the strikes. During the war, although strikes led by the Industrial Work- ers of the World were brutally suppressed, the government maintained a velvet-glove policy toward "patriotic" labor, under pressure of polit- ical necessity. But the iron fist was revealed immediately after the war. In 1919, President Woodrow Wilson denounced the coal miners' strike as a "fundamental attack, which is wrong both morally and legally, upon the rights of society and the welfare of the country."® The violence and other repressive measures against the miners and steel workers in 1919 were used again in 1921-22 to crush strikes. The courts issued injunctions upholding the employers against the work- ers; injunctions to limit picketing were declared constitutional by the United States Supreme Court, while it declared unconstitutional any law prohibiting the issuance of injunctions in labor disputes.^ Injunc- tions helped to break the miners' strike in 1921 and the railroad shop crafts' strike in 1922. The strikes were animated by economic discon- tent, not political, but revolutionary thunder was in the air. In the four years 1919-22 there were 7,575 strikes involving 8,335,211 workers — an extraordinary expression of labor militancy. The Seattle six-day general strike in 1919 had many revolutionary implications — the strike council practically governed the city and labor guards maintained order in the streets. The most repressive measures were used against the left wing of the labor movement, the Communist Party and the Industrial Workers of the World; in many states mere membership in these organizations was made a crime punishable with severe im- prisonment. Measures to prohibit strikes were discussed in Congress and state legislatures. An intangible but real factor was the proletarian revolution in Russia; the revolutionary overtones inspired militant workers to more aggressive action and affected the employers: revolu- tions do start with strikes.
As a result of labor's resistance, of its immediate and potential power, money wages were not cut as much as the employers desired or as much as they might have been. In 1923, hourly money earnings even increased, although still 11% below 1920. Money wages were cut, but prices declined still more and real wages rose (the rise was more than offset by an increase in the efficiency and intensity of labor, result- ing in a higher yield of surplus value). Practically the whole of the rise in real wages in ig2i—2g too\ place in ig2i—2^.
The capitalist attitude toward higher wages was clearly revealed in the speeches and writings of Samuel M. Vauclain, president of the Baldwin Locomotive Works (an affiliate of the House of Morgan),
The Policy of High Wages 79
and one of the most conspicuous mouthpieces of the poUcy of high wages:
In 1919, Vauclain had not a word to say about high wages; pros- perity, he said, depends upon foreign trade.
In 1921, Vauclain urged unrelenting struggle against "high wages" and trade unions; industry is menaced "by extravagant demands of labor both as to rates and shortening hours." One of the "requirements for prosperity" was "the adjustment of labor." He thundered: "A gen- eral strike is threatened. Let the strike come. Pray for it. Pray for deliverance from outrageous regulations and wage schedules."
In 1922, Vauclain again urged wage cuts, and condemned the strikes for higher wages of the miners and railroad workers. "They are talk- ing," he said, "about wages instead of work. Wages do not have to be lowered everywhere, but in many places they must be lowered to get going."
In 1923, after higher real wages had been forced upon the employ- ers, Vauclain said: "There is nothing in low wages; higher wages are an essential part of prosperity." And one year later he proclaimed unctuously : "Higher wages have been a great blessing." ^
Real wages rose against the employers' resistance; and in 1923—28, when high wages were proclaimed "the avowed policy and practical program" of American capitalism, real wages were practically sta- tionary (Table III). In 1920—22 real wages scored an increase of 12%, because of lower prices, as hourly, weekly, and yearly earnings all declined. After 1923, the upward movement practically ceased: money earnings remained below 1920 and real earnings rose only slightly because there was no considerable fall in prices. Hourly money earn- ings were 3.6^ higher in 1927-28 than in 1923, but full-time weekly earnings were constant, due to a moderate shortening of the hours of labor and to a probable decrease in wage rates, as changing processes or products made it possible to make concealed reductions. by tight- ening the rates on new jobs, workers maintaining their customary earnings by working harder. Average yearly money earnings of all workers rose only $55 or 5%; the index of real wages was stationary in 1924-25 and then rose slightly. In manufactures, average yearly earnings in 1928 were lower than in 1923. Wages fell considerably in many groups, particularly in the industries depressed by the com- petition of newer products. Real hourly and weekly earnings in 1928 were 1% lower than in 1923 in cotton manufacturing, and 3% lower in men's clothing; weekly money earnings in cotton manufacturing decreased from $21.24 in 1923 to $19.71 in 1928, in heavy equipment
HOURLY
FULL-TIME
EARNINGS
WEEKLY EARNINGS
*
$28.78
*
.607
32.57
*
.525
27.62
*
.495
27.64
*
.541
27.58
27.67
.562
27.51
27.48
.561
27.45
27.75
.568
. 27.03
27.66
.576
27.09
27.74
.579
*
*
INDEX
YEARLY
OF REAL
EARNINGS
WAGES
$1029
100
1273
102
983
104
1021
108
II50
115
"34
"5
1 176
115
1217
119
1205
*
#
«
80 The Decline of American Capitalism
TABLE III
The Movement of Earnings and Real Wages, igig-28
YEAR I919 1920 I92I 1922 1923 1924 1925 C926 1927 1928
* Not available.
Source: Hourly earnings, 24 manufacturing industries — National Industrial Con- ference Board, Wages in the United States, p. 47; weekly earnings, first column 12 industries, second column 42 industries, covering 2,856,160 and 5,832,302 workers respectively out of over 8,000,000 employed in manufactures — National Bureau of Economic Research, Recent Economic Changes, v. II, p. 433; yearly earnings, all work- ers— W. I. King, The National Income and Its Purchasing Power, p. 146; index of real wages — ^Paul H. Douglas, Real Wages in the United States, p. 392.
from $33.02 to $31.32, in wool manufacturing from $23.97 ^o $21 -yS- Wages were slashed among the coal miners and textile workers. The real earnings of railroad workers other than trainmen fell 1%. Al- though there were fewer strikes in this period, many workers struck against wage cuts or for higher wages, particularly in mining and textiles. The conclusion is inescapable: real wages rose in 1920-23, but thereafter were practically stationary. (In 1929 there was a no- ticeable rise in real wages and total wages, but it was wiped out by the depression; in fact the rise was bound up, antagonistically, with the spurt in production which marked the final aggravation o£ the forces of cyclical breakdown.) There was no policy of increasingly higher wages, an impossibility under the exploiting relations of capitalist production.* From another angle this appears in the fact that for 1924-28, industrial wages (manufactures, mining, oil wells,
* Still less was there any policy of high wages in the industries of the Southern states. The use of the newest, most efficient machinery, cheap raw materials and power, and a labor force the wages qf which were regulated by the standards of living of a region comparatively undeveloped industrially, gave the southern employers an opportunity to realize extra profits.
'-~~
1
r" 6v% ^
' PROFITS AND 1
i
OVERHEAD COSTS \
130
1
^
1
^36'^^P
IZS
1
m<^T0iRiiTiOM oe
^ VALUE'AobE6i'l9i9 M
i
i
X
V
li
y
\xo
V
1
..♦•'
X X X
ITEARLY EARNINGS ■ 1
h
1
1 1
/
•
V
115
C
1 1
b
/
• • • • •
s
r
Hrealwa&es
1
»
/
JT
1
•
V
1
•
/
V
1
•
1
V
1
•
1
Jr
1
• 1
i
y
no
I
1
• IN^
/ r
if
• f
• f
\
JURPLU5 VALUP
-1
I
t 1
1 ki 1^
_
r
1
•
^•*
■
/
• •
J
.L^^
1
1
•
j^
1
1
«
Ar
1
I
•
X
105
1
•
V
1
1
>
ilW
J
,•
Jir
jV
1
•
Jk'
#
'V
}f
/
\
1
r
#
\
•
:
'
#
1
•
j^
#
^
•
>
/
V,
too
.•
i
.^
/
>
*-^,
^vl
/
^ V
i
V
i
r-llNOUSTR\AL WA&E
^h
^>r
>/
\
/
i 1 1
/"
^^v,
r\
/
<?5
f
\r
w
n \Hio H2I \ux mz \^m ms mh mi his h
w
u
III. THE SHARE OF LABOR IN PROSPERITY— 1919-29.
82 The Decline of American Capitalism
quarries, construction and transportation) fluctuated around the 1923 level.
But there was a policy of increasingly higher profits. While wages were practically stationary, labor costs in 1929 were 9.5% lower than in 1923 and overhead costs and profits 10.6% higher, the one scoring an average yearly decrease of 1.3%, the other an increase of 1.7%.^ Again the facts refute the theory that productivity rises before wages and wages necessarily rise as productivity rises. Real wages in manu- factures began to rise in 1921 before any considerable increase in the productivity of labor, which forced employers to improve efficiency to safeguard profits. In 1921-23, labor shared in the gains of rising productivity. (A part of the increase in real wages came neither from higher productivity nor the lower prices of manufactured goods, but from the sharp drop in the prices of foodstuffs, which was ruinous for the farmers.* Raw materials, moreover, were cheapened: their costs were $2,500 million less in 1923 than in 1919, while money wages rose only $500 million and "value added by manufacturing" rose $1,000 million; nearly one-half of the raw materials consumed in manufac- tures are agricultural products.^ But rising productivity in 1924-29 was not accompanied by any corresponding rise in real wages; produc- tivity rose 22% ^° but real wages were practically stationary. In the ten years 1919-29 the productivity of labor in manufactures rose 43%, and there were similar increases in mining, transportation, and the power industry; real wages rose not more than 20% (partly offset by increasing unemployment). In final analysis, higher wages depend upon higher productivity, but productivity always increases more than wages, in all stages of capitalism, whether "unfettered" or under "control."
While real wages were practically stationary in 1924-29, relative wages fell sharply as profits rose, plainly revealing the antagonism between profits and wages. Relative wages, the share of the workers in the product of industry, fall continuously. The fall is usually greatest when the productivity of labor rises most rapidly, even if real wages increase, as profits rise more and the worker is cheapened by more productive labor. This appears clearly in the diminishing proportion
*In England during the "Hungry Forties," when the productivity of labor and profits were steadily rising, the workers were starving. The situation was "relieved" by repeal of the Corn Laws, lowering food prices; real wages rose at the expense of agriculture, not of capitalist profits. Capitalist production completely ruined British agriculture. There is no danger of such complete ruin in the United States, but the tendency is in that direction.
The Policy of High Wages 83
wages constitute of "value added by manufacturing." The propor- tion fell from 51.1% in 1849 to 40.2% in 1909, rose to 42.7% in 1923, and fell to 36% in 1929, when the proportion of wages to "value added by manufacturing" was 30% lower than in 1849/^ There was, nat- urally, a great increase in labor's yield of surplus value (Table IV).
TABLE IV
Growth of Surplus Value, Manufactures, igi^-^i
VARIABLE
CONSTANT CAPITAL
CAPITAL
RAW
VALUE
SURPLUS
RATE OF
INDEX
YEAR
WAGES
MATERIALS DEPRECIATION OUTPUT
VALUE
SURPLUS
OF
(millions)
(millions)
(millions)
(millions)
(millions)
VALUE
RATE
I914
$4,068
$6,500
$500*
$16,200
$5,132
I26.I
lOO.O
I919
10,462
14,500
1,016
39,250
13,272
126.8
100.5
1923
11,009
13,200
1,424
39,050
13,417
121.9
96.7
1925
10,730
13,600
1,506
40,400
14,564
135.7
107.6
1927
10,849
13,450
1,819
41,000
14,882
137.2
108.8
1929
11,621
15,450
2,018
47,100
18,011
155.0
122.9
I93I
7,225
8,400
2,100
27,950
10,225
I4I.5
II2.2
* Estimated.
Surplus value, or unpaid labor, equals the value of output less the value of wages, raw materials, and depreciation on fixed capital; the rate of surplus value is the ratio of surplus value to wages. The surplus value realized in the form of commercial profit is not included.
Source: Wages, materials and output — Department of Commerce, Statistical Abstract, 1931, pp. 483, 813, and preliminary report of the 1931 Census of Manufactures; depre- ciation (including depletion) — Bureau of Internal Revenue, Statistics of Income for the respective years.
The rate of surplus value, of unpaid labor, was 22.9% higher in 1929 than in 1914 and 27.1% higher than in 1923. It fell temporarily in 1923 because of the fall in prices and the rise in real wages of the two preceding years, with which the employers had not yet caught up. But they did catch up in 1925, when the rate of surplus value moved sharply upward. The rate fell again temporarily, and slighdy, in 1931, but the rate moved up sharply in 1932-34 because of another great increase in the productivity of labor. Thus, in 1929, relative wages fell to the lowest point in American history in the midst of an extraor- dinary rise in the productivity of labor, surplus value, and profits.*
* Falling relative wages are characteristic of capitalist production. The share of the German workers in the social product (1927 as 100) was 117 in 1913 and 94 in 1929. J. Kuczynski, "Der Anteil des Deutschen Industriearbeiters am Sozialprodukt," Kolner Sozialpolitische Vierteljahresschrift, January, 1931, pp. 85-95.
84 The Decline of American Capitalism
While real wages in general were practically stationary after 1923, the wages of union workers (except miners) kept on rising, 25% to 50% and more. In the building trades, hourly wage rates rose 33% in 1923-29; in eight union trades, rates rose 30% and weekly earnings 22%. No such upward movement occurred in the rates and earnings of the workers as a whole. In 1922-29 the average yearly rise in a composite index of real earnings (factory workers, unskilled labor, clerks) was 1.9%; in the union index it was 37%.^^ The rise of union wages, in most cases, bore little relation to the rise of productivity in the particular occupations; it was determined primarily by the power and strategic position of union labor in the sheltered trades. Wages were often stationary or fell among masses of unorganized workers where productivity gains were exceptionally large. There was only a small upward movement in the salaries of clerical workers, whose work was being intensively mechanized during this period. The unusually large rise in union wages was used to "prove" that all wages were rising rapidly. It was responsible for the conservatism of union workers and particularly of the union bureaucracy, which accepted the mythology of prosperity and believed that wages would rise everlastingly in this best of all possible worlds. But unskilled, unorganized workers, who make up from 25% to over 50% of the labor force, made hardly any gains; their real earnings in 1923-29 were not much higher than in 1919. An index of the real earnings of unskilled workers in manufac- tures, building trades, agriculture, and on the railroads (1914 as 100) rose to 116 in 1919, fell to 108 in 1920 and 97 in 1921, and rose to 102 in 1922, 113 in 1923 and 116 in 1926. Unskilled earnings rose slightly in the next three years. During the World War unskilled labor scored considerable gains, because of the scarcity of workers, narrowing the differential between the wages of skilled and unskilled; then the dif- ferential widened again.* One investigator concluded: "Apparently the increase in productivity that has taken place has not contributed its share toward the increase of the wages of unskilled labor." ^^
How high, moreover, were "high wages" in the "Golden Age" of American capitalism, before the great depression ? While among union workers, the aristocracy of labor, earnings ranged as high as $40 to $75 and more weekly, among other workers they were as low as $10 weekly. Average weekly earnings among unskilled workers were below $20. Nearly 2,000,000 workers in manufactures earned less
* The differential in the wages of skilled and unskilled workers also narrowed in Europe during the war, but by 1930 it had again widened considerably. A. G. B. Fisher, "Education and Relative Wages," International Labour Review, June, 1932, p. 745.
The Policy of High Wages 85
than $1,000 yearly. Railroad workers were among the best paid, yet section hands earned an average of $17 weekly; 500,000 workers, one- third of all railroad workers, earned less than $25 weekly. Average weekly earnings were below $20 in lumber mills, cotton, tobacco, candy, and canned goods. Women workers usually earned from $9 to $14 weekly. The average weekly salary of all employees in one chain store organization in 1929 was $22.71. In chain stores of the 5^ and 10^ variety, in spite of the phenomenal rise in sales and profits, average weekly earnings were $12, with 25% of the girls earning less than $10 — earnings "not sufficient to procure the necessities of life."^* Among the workers as a class (excluding farm laborers), earnings were probably distributed as follows: 2,000,000 workers earning over $2,000 yearly; 14,000,000 workers earning from $1,250 to $2,000; 12,- 000,000 workers earning below $1,250. (Unemployed workers in 1923- 29 averaged nearly 2,000,000 yearly.) The average yearly family income was not much larger than the individual average of $1,250. An investi- gation in Chicago in 1924-26 established that the family income of semi-skilled and unskilled workers ranged from $800 to $2,400 yearly; the average was $1,500, with the father, mother and one or more chil- dren working in 42.8% of the families.^^ The average yearly family income among workers as a class was probably $1,700; family budgets based on "minimum requirements of health and decency" (excluding savings) were estimated as follows: New York City $1,875, Philadel- phia $1,926, Detroit $2,032.^^ Accordingly:
High wages were low wages in terms of adequacy to provide minimum requirements of living; grinding poverty prevailed, more- over, among millions of workers.
High wages were low wages in terms of the increase in the pro- ductivity of labor and in production, which greatly outstripped the increase in wages: productivity rose from 15% to over 200%, the aver- age 43%.
High wages were low wages in terms of the possibility of still higher wages; all through 1923-29 (and this is characteristic of capi- talism in all stages, "unfettered" or under "control"), wages could have been considerably higher if labor had shared in the gains of ris- ing productivity and if the unused capacity of industry (25% to 75% in many cases, in the peak years 1928-29!) had been utilized to produce goods instead of standing idle because of the exploiting relations and contradictions of capitalist production.
To indicate the enormous progress implied in the policy of high wages, one of the myth-makers of prosperity ^^ conjured up four stages
86 The Decline of American Capitalism
in the determination of wages. The stages are fantastic, revealing an astonishing flight from reality; the reality shows the actual mechanism of wage determination under capitalism:
1. Prior to 1900: Barbarism; wages were decided by force; employers considered labor a commodity, the workers had no theory of wages to offer in arbitration proceedings. But real wages scored their greatest increase in American history.
2. From 1900 to 1916: Progress; organized labor insisted that wages should be adjusted to cost of living; reformers developed theories of "living" wages and "minimum subsistence" wages; the Clayton Act, which "declared" that labor is not a commodity, was hailed as a great achievement. But real u/ages were practically stationary.
3. From 1917 to 1922: Reversion to barbarism; employers and work- ers again resorted to force, "threw off all restraints" and a "deplorable condition" of "industrial conflict" decided wages. But real wages rose over i^%.
4. From 1923 to 1929: Magnificent progress; employers "recognized" that "advancing wages" are the basis of prosperity; "old wages, theo- ries and standards were scrapped along with obsolete machinery and methods." But real wages were practically stationary.
Two more stages may be added to complete the story:
1. From 1929 to 1933: Final exposure of the policy of high wages; employers cut wages drastically while the productivity of labor rose sharply; wages decreased more than in previous depressions.
2. From 1933 on: More progress, and the ballyhoo of Niraism; state intervention to "raise" wages and "spread" prosperity; lower real wages, total wages decrease while the productivity of labor and unem- ployment increase, profits rise, another major depression looms.
The depression destroyed the myth of the policy of high wages. Lip-service was paid to it at a conference of 400 "key" businessmen, called by President Hoover in December, 1929, which formed a per- manent organization to "stabilize business" and to prevent the depres- sion from developing any further. A solemn pledge was given that employers would not cut wages. The high officials of the American Federation of Labor solemnly accepted the pledge, and agreed to maintain industrial peace. One year later. Secretary of Commerce Lamont said: "It is a noteworthy fact that practically no cuts in wages have been made by the employers. This stands in marked contrast with the practice in previous similar recessions. It marks the wide- spread conviction that permanent progress in prosperity is dependent on liberal wages and consequent large buying on the part of the
The Policy of High Wages 87
masses of the people, and that recovery from any temporary setback will be promoted by the same policy." But the pledge not to cut wages was almost immediately violated. By April, 1930, William Green, President of the American Federation of Labor, was forced to "act" against the cutting of wages. "I propose," he said, heroically, "to join the movement in the next Congress to reduce the tariff protection" of employers who cut wages. And six months after his statement about "no cuts in wages" and "prosperity is dependent on liberal wages," Secretary Lamont said: "As the period of depression length- ens, many corporations are faced with the prospect of closing down altogether and thus creating more unemployment, or, alternatively, seeking temporary wage reductions." ^®
All through 1930, wages were cut drastically by employers, includ- ing those who had given the "pledge" not to do so. They were cut 10% to 15% in manufactures. The cuts in the bituminous coal, textile, and boot and shoe industries were so bad that William Green classed the employers as "public enemies." ... By 1931, the policy of high wages was forgotten even in words, and leading representatives of cap- ital were repeating the sentiments of 1920-22: Liquidate labor and high wages! The Journal of Commerce insisted that wage cuts "are among the various aids to business recovery." A convention of the American Investment Bankers Association demanded a cut in the wages of railroad workers, which were cut severely, to protect investors (including, of course, widows and orphans). The National City Bank: "Wage cuts are one of the encouraging features of the situa- tion." Albert H. Wiggin, chairman of the Chase National Bank, who all these years speculated in the stock of his own bank: "It is not true that high wages make prosperity. When wages are kept higher than the market situation justifies, employment and the buying power of labor fall off. Many industries may reasonably ask labor to accept a moderate reduction of wages." ... All through 1931, wage cuts beat upon the workers with increasing severity. From a high of 133 cuts in any one month of 1930 they rose to 335 in March, 1931; cuts averaged 10% in manufactures and 25% in bituminous mining. In 1931, according to Census figures, total wages in manufactures were 37.8% lower than in 1929 and average yearly earnings 15.6% lower. . . . One of the meaner aspects was sweating women and children in homework. In Pennsylvania, violations of the child labor law rose from 10% in 1930 to 18.8% in 1931, and violations of the woman's law from 3.8% to 17.8%. Earnings were as low as 12^ an hour. In New York City clothing factories, women workers were paid from
88 The Decline of American Capitalism
$1.75 to I2.75 for a week's work. . . . The fall in prices was not enough to oflFset wage cuts, and real wages fell. Real earnings in manu- factures in 1931 were 8% below 1929. In twenty-five manufacturing industries average weekly earnings decreased from $28.54 i^ ^9^9 ^^ $17.10 in 1932, or 40%, and hourly earnings from 58.9^ to 49.7^, or 16%. In 1931, the hourly rate for unskilled workers in manufactures was 8% below 1901. The wages of hired farm labor were at the lowest level since 1916. . . . Clerical workers suffered more than in previous depressions; their work is now so thoroughly mechanized that they are practically wage-workers. The salaries of women clerical workers in New York City fell 25% to 40%. This is one of many similar adver- tisements which appeared in the newspapers of New York City early in 1933: "Wanted, Stenographer-Bookkeeper: This position in small office requires capability, experience, and industry, easily worth $30 a week and more. Now offering $12-15 ^ week. No beginners." The average earnings of clerical women workers were $11.39 weekly; em- ployers deliberately depended upon "charity taking the place of an adequate wage." One lawyer offered $8 weekly for an expert typist with a knowledge of German; another cut the salary of his secretary, a college graduate, to $6. . . . Workers in professional occupations had their wages cut and work hours increased. Dentists offered assist- ants weekly salaries of $10 and less. College graduates, after preparing for professional service, of which there is a tremendous need, were offered this (advertisement in the New York Times and World-Tele- gram) : "Graduates of Harvard, Yale, or Princeton to learn restaurant business starting as bus boys in famous Times Square restaurant; weekly salary begins at $15; splendid opportunity."^^ Never was a myth as thoroughly exploded as the myth of the policy of high wages. As a result of unemployment, wage cuts, and part-time work, wages fell to levels unprecedented in any other depression. Wages disbursed by corporations, probably 75% of the total, fell 21% in the worst year of the 1920—22 depression; in the worst year of this depression they fell 65% (Table V). The aggregate of wages, in the two years 1931- 32, were not much higher than in the single year 1921, when the depression was at its worst. Total wages in 1932 were not only 65% below 1929 and half as much as in 1921-22, but were lower than in any year since 1910. In neither depression, however, did dividends and interest follow the fall in wages. They even rose slightly in 1921-22, while wages moved downward. In 1930, dividends and interest fell 1.8%, but were 7.7% higher than in 1928. As the depression became worse wages tumbled disastrously. Even dividends and interest, con-
The Policy of High Wages
89
TABLE V
Dividends, Interest, Salaries, and
Wages in
Depression
DIVIDENDS-INTERESTf
officers' i
salaries
CORPORATE WAGES
YEAR
AMOUNT INDEX
AMOUNT
INDEX
AMOUNT INDEX
(millions)
(millions)
(millions)
1920
$5,570 lOO.O
$2,437
lOO.O
$22,155 lOO.O
I92I
5,617 100.8
2,258
92.7
17,525 79.1
1922
5,702 102,4
2,409
98.8
18,410 83.1
1929
10,686 loo.o
3.336
1 00.0
24,675 lOO.O
1930
10,492 98.2
3,138
94.1
18,506 75.0
I93I
8,674 8l.2
2,698
80.9
13,151 53-3
1932
7,1361 66.7
*
*
8,636 35.0
* Not available.
t Dividends for 1920-22 include only the amounts received by income-taxpayers; other years include all dividends disbursed less intercorporate dividends.
X Estimated.
Source and methods of computation: Dividends, interest, and officers' salaries — Statis- tics of Income. Wages for 1920-22 are the estimates of W. I. King, The National Income and Its Purchasing Power, p. 132, of which 75% is assumed to be disbursed by corpora- tions. For later years wages have been estimated as follows: According to the United States Bureau of Labor Statistics, wages in manufactures in 1929 were the same as in 1926; applying this ratio to King's estimate of total wages in 1926 and allowing for the fact that the Census reports of wages in manufactures constituted 35.3% of total wages in 1923, 1925, and 1927, yields the figure of total wages for 1929. The Census for 1 93 1 reports wages in manufactures of $7,225 million, 62.2% below 1929; but as unemployment was greater in other industries, it is assumed that manufacturing wages constituted 50%, instead of 44%, of total wages. The Bureau of Labor Statistics esti- mates that wages in manufactures were 80% of 1929 in 1930 and 38% in 1932; applica- tion of these ratios to total wages for 1929 and an allowance for greater unemployment and wage cuts in non-manufacturing industries yields the figures for total wages for 1929 and an allowance for greater unemployment in non-manufacturing industries yields the figures for total wages in 1930 and 1932.
trary to the former experience, were affected by the unusual severity of the depression.* They were, however, fairly generously maintained. In the three years ig^o-^2, aggregate interest and dividend payments were ^4-9% higher than in 1^21—22, while wages were 2^.2% lower. This is progress, undoubtedly, in the protection of the income of the owning class, but not in preventing depression, mass unemployment, and mass starvation. And the policy of high wages.? In ig^o-^2 wages averaged only ^4.6% of the ig2g level, dividends and interest 82.4%^
* Except interest on federal, state, and municipal bonds; this rose steadily until it exceeded $1,560 million in 1932. New York Times, January 29, 1934.
90 The Decline of American Capitalism
Generosity in the payment of dividends and interest undermines pros- perity and prolongs depression.
Beating down wages was the primary method of maintaining divi- dend and interest payments. Sometimes this assumed peculiarly revolt- ing forms. The railroad managements, for example, secured a wage "deduction" on the plea that the saving would be used to stabilize employment, but it was actually used to pay dividends. A minor method consisted of downright swindle. In 1931-32 four of the largest New York guarantee mortgage and title companies paid dividends of $13,150,000, at rates ranging from 4.5% to 25%, after invoking the clause which permitted them to defer (that is, default) payments of interest and principal on mortgages. Holding companies plundered subsidiaries to maintain their own dividends. But interest and divi- dend payments were maintained also by dipping into surplus, for net income decreased severely and deficits mounted. Corporations retain a considerable part of their earnings; one part is reinvested, another part is put into cash reserves, salable property outside the business, and government securities. This practice represents an accumulation of "rainy-day funds," according to one authority, "as an insurance that dividends will be maintained." Out of these "insurance" reserves corporations pay dividends when earnings fall or deficits arise, both in prosperity and depression. In 1930, surplus amounted to $54,898 million; of this $10,000 million was invested in tax-exempt govern- ment securities, yielding an income of $536 million. Corporate surplus was "dipped into" to the extent of $10,760 million in 1930-31.^^ The corporation executives who practice dividend insurance sternly reject compulsory unemployment insurance as a menace to "our sturdy American individualism." So do those rugged individualists, the stock- holders, who do not consider it demoralizing to accept the "dole" of dividend payments which are not earned.
The officers of corporations not only take care of the stockholders (and of themselves as stockholders), but also take care of themselves as officers. In the depression of 1921-22, officers' salaries were fairly well maintained, while net earnings fell and wages were slashed. In 1930-32, the fall in wages compared with salaries was even greater than in the previous depression. Salaries were higher than in 1921-22, wages lower. What fall there was did not affect the "big" captains of industry and finance. Many even managed to increase their com- pensation considerably. From 1929 to 1933, while the bank of which he was chairman was losing millions, Albert H. Wiggin "earned" $1,500,000 in salary and bonuses. He made more millions speculating
100
60
40
DIVIDENDS- INTEREST
OFFICERS'
WAGES'
xo
_ H 19^0-^2 h
too
iszi
8o
60
40
50
iqzi
^-
/DIVIDENOS- / INTERtST
OFFICERS'^^^^Vi*,^ SALARIES ^*
■
WAGES ^
1- 1929^32
1-1
1
['\2°i
W30
1931
IS3X
Wages: down 25% Dividends-interest: up 55%
WAGES
dividends- interest
IV. CAPITAL AND LABOR IN DEPRESSION.
92 The Decline of American Capitalism
in the bank's stock. Upon retiring as chairman, Wiggin was voted a life salary of $100,000. The assets of the four largest life insurance companies shrank "alarmingly," yet officers' salaries rose from $970,000 in 1929 to $1,180,000 in 1932. These are all mutual companies, run solely, according to their masters, in the interest of policyholders, par- ticularly the widows and orphans. While wages were cut severely on the railroads, presidential salaries of $80,000 to $120,000 yearly were increased or maintained. The officers of public utility corporations, which did not cut rates although wages and prices fell, were very keen on taking care of themselves. Officers' salaries in five electric companies in New York City were from 17% to 77% higher in 1932 than in 1927. One company, in 1933, simultaneously raised its officers' salaries and cut the payroll 8%. Another raised administrative salaries from $149,700 to $230,000 and cut the payroll $1,500,000. The salary of the president of an aircraft company was raised from $100,000 in 1929 to $192,500 in 1932. One tobacco company in 1932 paid its president $2,627,000 in salary and bonuses.^^ The large corporations of to-day, where ownership is separated from management and control, resem- ble a feudal barony. They are run primarily in the interest of the of- ficers and their financial capitalist masters. Then come the stockhold- ers, who are plundered in many ways. Labor is a poor third.
Clearly there is a fundamental antagonism between profits and wages. It is irreconcilable. Wages are not determined under the "ideal'* conditions assumed by bourgeois economists, whose wage theories accept the permanence of capitaHsm and justify the exploitation of labor. Within the Hmits of the value of labor power (itself an historical category), competitive conditions in the labor market, and the expan- sion of capitalist production, wages are determined by class power and class action. The movement of wages is, however, limited by conditions which perpetuate and increase capitalist exploitation. Even when wages rise, they fall relative to profits, which rise still more. Profits and wages move inversely: the one rises as the other falls. Profits may rise because wages fall or wages may fall because profits rise; but the tendency is for wages always to fall relatively to profits. This augments the mass of capital and its power to exploit the work- ers. But it simultaneously sets in motion the forces which create eco- nomic disproportions and cyclical breakdown, and cumulatively devel- ops the elements of the decline of capitalism. The antagonism between profits and wages becomes stronger in the epoch of capitalist decline, when production tends to move downward because of the exhaustion of the long-time factors of economic expansion. Competitive condi-
The Policy of High Wages 93
tions in the labor market are aggravated by the increasing mass of unemployed workers. The capitalist class beats down wages and stand- ards of living to compensate for the fall in production and profits.
CHAPTER VI
Profits and Wages: State Capitalism
T
HE prophets of the pre-1929 "new capitalism" assumed that the "pohcy of high wages" had ended the antagonism between wages and profits. EnHghtened employers, they insisted, recognized that pros- perity depends upon the workers receiving a "balanced" and "propor- tional" share in production and productivity gains in the shape of increasingly higher wages. As that assumption was shattered by the depression, the prophets of Niraism assume that state intervention will "balance" wages and profits. But state capitaHsm aggravates, it does not abolish, this most fundamental antagonism of capitalist produc- tion.
It is assumed that the real purpose of Niraism, and of the state capitalism of which it is an expression, is to "balance" wages and prof- its and production and consumption, and thus "safeguard" prosperity. But this would mean control of all economic activity. It would mean control of production, prices, and consumption, of wages, profits, and income, of the output of capital goods and consumption goods, of capital accumulation and investment, of industry and agriculture. All of these elements, under capitalism, affect the antagonism between wages and profits, and are affected by it. Complete control of economic activity means the planned economy of socialism: it is impossible under the antagonistic, profit-making relations of capitalism. Incom- plete control by the capitalist state, as in Italy and Germany, in France and Britain, and its American beginnings in Niraism, is an expression and aggravation of the decline of capitalism. "Controls" repress instead of liberate economic forces. The attempts to "ease" one disproportion create or intensify other disproportions. Thus "easing" the farmers' burdens by inflation raised the prices of the goods they buy more than the prices of the goods they sell, and decreased purchasing power among the workers by lowering the real value of wages. The scope and objectives are limited by the desire to "save" capitaUsm. Under state capitalism all the essential relations of capitalist production are retained. Within modifications, limitations, and "controls," economic activity moves in the same con-
94
Profits and Wages 95
tradictory and antagonistic fashion as under "unfettered" capitalism, and the movement decrees that wages must lag behind profits.
Wages always lag behind profits. A general rise in wages may mean more consumption and production, but a general rise is rare, depending upon falling prices and labor's militancy. The rise ends, moreover, in the fall of wages relatively to profits as employers in- crease the productivity of labor and profits. Wage increases are volun- tarily granted only in exceptional cases: to "key" workers and on piece rates (afterward cut) to raise the productivity of labor, resulting in an absolute or relative decrease in total wages and a displacement of workers. Lx)w wages may not necessarily mean low costs, but low wages and an increasing productivity of labor mean lower costs and higher profits.
The fatal flaw in the "policy of high wages" was this : Higher wages might mean more consumption, production, and profits, but as em- ployers were free to raise or not to raise wages, the employers who did not raise wages would gain more than the employers who did, because in terms of a particular enterprise higher wages mean rela- tively lower profits.
The fatal flaw in the proposals of Niraism, of state capitalism in general, is this: If the "fixing" of minimum wages raises labor costs (although minimum tends to become maximum), profits must fall, and efforts to increase the productivity of labor to lower costs and raise profits must be intensified, resulting in an absolute or rela- tive decrease in total wages and employment.
Profits are not made by paying the workers higher wages. They are made by forcing down wages relatively to profits, by appropriating more surplus value, more unpaid labor. If $1,000 million are added to wages it would increase consumption and production; the capitalists would make only a very small profit, however, on the additional out- put and sales. If the capitalists retain the fi,ooo million as profits, their wealth is correspondingly augmented and its investment creates new claims upon labor, production, and income. It is not that part of labor's product (wages) consumed by the workers as means of subsistence which enriches the capitalists, but that part of labor's product (profits) converted into capital goods. Capitalist production means accumulation of capital, an increasing output and absorption of capital goods, thereby converting profits into capital and permitting an increasing exploitation of labor. Profits and wages must necessarily clash and profits beat down wages, whether capitalism is "unfettered"
96 The Decline of American Capitalism
or under "controls." The antagonism is revealed by the movement of cyclical revival:
In the four months of cyclical revival in April-July 1933, industrial production rose 50%, total wages 20% and employment 10%. (These percentages are approximations, but they accurately indicate the trend.)
In the first four months of cyclical revival in 1921 industrial pro- duction rose 10%, total wages 8% and employment 6%.^
Ip both revivals, employment and wages lagged behind production (and profits). It was the same after the minor depressions of 1924 and 1927. According to the Wall Street Journal: "It is a natural develop- ment for profits and production to forge ahead of employment and wages in recovery,"^ But there was one significant difference: the unequal rise of production and of employment and wages was much greater in /pjj than in ig2i. Not only was the inequality not over- come, it was aggravated.
Part of the greater lag of employment and wages behind output (and profits) was a result of the sharper cyclical decline of produc- tion in 1929-33. The minimum labor force maintained was capable of a larger increase in output than in 1921, without any large increase in employment and wages. But there were two more important fac- tors. One was the higher productivity of labor, which, according to the National Bureau of Economic Research, rose 12% in 1929-32 com- pared with only 7% in 1927-29;^ it rose again sharply in 1933. The other factor was the strong drive to "earn" profits to resume or increase dividends and strengthen depleted financial reserves. Profits shot up almost magically. In the first quarter of 1933, 205 large corporations in manufactures, mining, and services, with a "net worth" $7,443 million, had a deficit of $14,831,000; they made profits of $86,878,000 in the second quarter and of $129,576,000 in the third quarter. In the first nine months of 1933 their profits rose to $200,367,000 compared with $30,266,000 in the previous year. The net income of 125 corpora- tions rose from $57 million in 1932 to $246 million in 1933, an increase of 331%. In the case of General Motors, profits rose from $165,000 to $83,214,000.* The rise in profits soared beyond the small rise in pro- duction and the smaller rise in employment, and wages. And in part of the third and all of the fourth quarter, higher profits were ac- companied by decreasing production, employment, and wages.
The NRA was not in action in April-June, when employment and wages lagged behind the inflationary rise in production and profits. But the same condition prevailed in July and after, when the NRA was in action. The NRA, moreover, shared direct responsibility for
Profits and Wages 97
the lag of wages behind production and profits. Its wage policy, in spite of the pretentious claims, was in accord with the employers' interests. It set terribly low minimums, restrained workers on strike for higher wages, and cut real wages by the inflationary rise in prices.
The policy of fixing minimum wages was belated reformism. Al- ways limited and largely illusory, it might have had some value during prosperity, in the epoch of the upswing of capitalism. In depression and decline, the policy merely "fixes" wages at prevailing low levels. Only a small part of the workers were affected by the minimum wages. Their practically permissive character, moreover, allowed em- ployers to evade paying the minimums. Evasions involved all sorts of contemptible expedients and merciless pressure upon the most help- less workers, particularly Negro and "alien" workers. As bad as the evasions was the character of the minimums. In no case were they even an approach to a decent standard of living. In all cases the minimums were based on depression wage levels. In many cases they were below prevailing average wages.
There was some increase in some wage rates, mainly among the most exploited workers and only in comparison with the low depres- sion levels; but that was offset by the lesser number of hours worked and the rise in the cost of living. In 312 New England companies, 90% operating under NRA codes, weekly hours worked fell 16% from June to October, 1933; average weekly earnings rose only 6%. Accord- ing to the NRA Administrator in New York City, employment rose 20% from August i to November i, payrolls only 13%. By November, hourly wage rates in sixteen producing and distributing industries had risen 5V2C and average weekly earnings 3% over 1932. The low level of wages in many cases is demonstrated by one 'of the major reasons for the Civil Works Administration's liquidation of its make-work ac- tivities which began in January, 1934; it was, according to the New York Post, "bowing to the demands of employers, particularly in the South, who say workers are quitting them to get on the government payroll at better wages." ^ The CWA paid average wages of $9 to $14 weekly to the great majority of its workers!
The minimum wages tended, moreover, to become the maximum, a complaint made again and again by labor leaders, who did little about it. This affected all categories of workers. Among "white collar" workers, according to the New York University Employment Bureau, the NRA drove down wages: "The $20 to $22 job is now about a $15 job, because employers tend to keep their wages around the NRA minimum."^ Because of their unorganized condition, the technicians
98 The Decline of American Capitalism
were hit hard. In one code qualified chemists got $14 weekly; in another, technical employees got 35^ to 45^^ an hour. "The technicians now find themselves in many cases receiving about half the wages o£ skilled labor under the NRA codes. No provisions have been made for them in the codes of many industries, the technicians being con- veniently regarded as 'superintendents' or 'executives.' In many cases the men are receiving only the minimum wage provided for unskilled labor.'"^ The result of the minimum wage "fixing" was a tendency to break down the differentials between skilled and unskilled and semi- skilled workers. It is desirable to decrease the differentials: they are largely artificial, altogether too great, and they create antagonisms between different groups of workers. But the NRA breaks down dif- ferentials not by raising the wages of the poorer-paid workers but by lowering the wages of the better-paid — a development characteristic of the decline of capitalism.
Real wages fell considerably because of the inflationary rise in prices and the cost of living. Food prices in December, 1933, were 7% higher than one year earlier. On December i, 1933 the retail price index was 26.8 higher than in May; 10% less units were sold in 1933 than in the previous year.^ Yet production was 10% higher, mainly because of increases in inventory stocks in anticipation of more inflation.
After nearly four years of depression the workers began to act. There was an upsurge of strikes for union recognition and of strikes for higher wages. But the NRA acted as a brake upon the efforts of the workers to raise wages. A favorite answer of employers to workers striking for higher wages was: "The demands are far beyond limits fixed by the code." ® Thus strikers were put in the position of fighting the government, as limits in the code were fixed by the government apparatus of the NRA. The codes were framed by representatives of capitalist government and capitalist industry; in most cases organized labor did not even get the meaningless courtesy of "advisory" partici- pation. Employers appealed to the NRA against strikes, and its pres- sure was used to drive the workers back to work. Strikes were not made illegal, but the apparatus of the NRA was mobilized to dis- courage, prevent, and "settle" strikes. This included a National Labor Board to mediate, that is, suppress strikes. It was made clear that strikes were an "interference" with the recovery program. The discouragement of strikes and the driving of strikers back to work was assisted by the reactionary labor leaders, who considered the National Industrial
Profits and Wages 99
Recovery Act a "charter of labor" — the same leaders who in 1923-29 extolled the "policy of high wages" and the "new capitalism."
Labor leaders and liberals declared that Niraism's "recognition" o£ trade unions and collective bargaining was a great victory for the workers. But "recognition" was tied up with the NRA, an expression of state capitalism. It represents the imposition of state controls over independent unionism and the lowering of wages in the epoch of the decline of capitaUsm.
One of the motives of "recognition" was to prevent labor revolts and an upsurge of radical forces. The NRA program was beset with dangers. Revival was slow and incomplete, wages small and prices rising. Labor might revolt. It had to be cajoled and shackled. Direct repression was dangerous under the prevailing conditions: labor revolts might mean disaster. Hence the resort to cajolery and shackles. Mil- lions spent on relief and "make work" schemes might make workers forget the billions handed out to corporations. "Recognition" of trade unions and collective bargaining would satisfy and intrench the union bureaucracy, which would act — and did — as a bulwark against an upsurge of labor militancy. At the beginning, moreover, state capitalism clings to formal democracy, decks itself in the older ideology, attempts to rule by "balancing" class interests.
Another motive of "recognidon" was to secure mass support for the NRA and force it upon employers resisting its "controls." Not all employers accept new developments, even when they are in their own interest, particularly if disadvantages are imposed upon some groups of employers. (The NRA increases the differentials in favor of the larger employers and corporations over the smaller.) State capitalism may use compulsion over certain capitalists or groups of capitalists. The struggle is not, however, one of government and labor against the capitalists. It is between capitalists who cling to old ideas and those who see the necessity of changes, with the government emphasizing the new conditions and new needs in the interest of the capitalists as a class. To accomplish its ends, government may use labor and liberal sentiment — temporarily, within limits, and under safeguards. Thus strikes, in which workers' blood was shed, and threats of strikes were a factor in the operators' acceptance of the bituminous coal code.
There was danger, however, in mass support secured by union "recognition" and in promises, accepted seriously by the workers, of higher wages. The NRA acted accordingly.
Recognition was virtually limited to existing unions. The closed
100 The Decline of American Capitalism
shop was rejected, because, according to General Hugh Johnson, NRA Administrator, it "would amount to employer coercion which is con- trary to law . . . especially if the union did not have ioo% member- ship." This was driven home by H. I. Harriman, president of the Chamber of Commerce of the United States: "The closed shop is prohibited by the Recovery Act." Under the NRA, there was, accord- ing to the National Industrial Conference Board, an increase of i8o% in the number of company unions of one form or another; of 3,314 manufacturing and mining concerns employing 2,585,740 workers, 653 concerns, employing 1,163,575 workers had company unions, and only 416 concerns employing 240,394 workers recognized trade unions.^°
The NRA developed an apparatus to control labor, prevent strikes, and restrict independent unionism. This appears in the mediation functions of the National Labor Board. It appears more clearly in the labor provisions of the Code of Fair Competition for the Bituminous Coal Industry .^^ In the preliminary hearings to frame the code, sugges- tions to give labor "adequate representation" were brushed aside by the operators' objections. The code set up six divisional code authori- ties, all of whose members (except one, with no vote, appointed by the President of the United States) are representatives of the coal operators. No provision was made for a labor representative, nor for labor representatives on the governing body of the industry, the National Bituminous Industrial Board. Six labor boards, of three members each, were set up, all the members appointed by the Presi- dent, one from nominations by "organizations of employees," one from nominations of the divisional code authorities (on which only the employers and the government are represented), and one "a wholly impartial and disinterested representative of the President." The code grants the operators measurable self-government in the form of what are virtually cartels, with powers to "prevent destructive price-cutting," the government reserving, in state-capitalist fashion, the right to inter- vene. But labor is subordinated to the employers and the state: even labor's one-third representation on the labor boards is under control of the President. The President can always find an amenable "labor leader." This was demonstrated during one of the coal strikes involv- ing 75,000 workers. At one o'clock in the morning President Roosevelt telephoned to Philip Murray, vice-president of the United Mine Work- ers of America. This was the conversation:
Roosevelt: Philip, I want you to get these men back to work.
Profits and Wages loi
Murray: If there's anything in God's world I can do for you, I will be glad to try.
In reporting the conversation to the strikers, Murray added:
"Any union or union officials who refuse to obey the President's command will not live very long." ^^
A formal protest was made by William Green, president of the American Federation of Labor, and John L. Lewis, president of the United Mine Workers of America, who declared that "the labor boards are meaningless and unsatisfactory to labor." ^^ The protest was unavailing. And the boards are not meaningless, they are an employer-state apparatus for the control of labor. The labor leaders then characteristically shifted their objective to a compromise, empty in itself but capable of being called a victory. They asked, and secured after much shilly-shallying, representation on the National Bituminous Coal Board in the person of John L. Lewis.* But of the board's mem- bers nine are direct representatives of the employers; five are appointed by the President, one for each divisional code authority on which employers alone are represented; and two are Presidential appointees at large.^* Thus labor has one out of sixteen members on the National Coal Board, he is appointed by the President, and the appointment is not compulsory. It was a famous victory!
As strikes multiplied and the NRA felt more sure of itself, it moved toward the outlawry of strikes. This policy and its threat were ex- pressed belligerently by General Johnson at the convention of the American Federation of Labor:
"The very foundations of organized labor are at test here and now. . . . Labor does not need to strike under the Roosevelt plan. . . . The plain, stark truth is that you cannot tolerate the strike. ... In the codes you are given complete and highly effective protection of your rights." ^^
These developments are wholly in accord with the state-capitalist nature of Niraism. The NRA may change its forms or be replaced by another apparatus, but the labor-capital slant of state capitalism will remain the same.
The controls imposed upon capital are in the interest of capital.
* A few days after the coal code was adopted, Lewis signed a "collective bargain- ing" agreement with the non-union operators, which grants employers the exclusive right to hire and fire, prohibits strikes, and adds: "Under no circumstances shall the operators discuss the matter under dispute with the mine committees or any representa- tives of the United Mine Workers of America during a suspension of work in violation of this agreement." New York Times, September 22, 1933.
102 The Decline of American Capitalism
They release capital from restrictions, particularly the anti-trust laws, and implement its powers over industry and labor.
The controls imposed upon labor are not in the interest o£ labor. They institutionalize labor's subordination to capital, progressively deprive unionism of its independence, and tend to outlaw strikes, labor's most effective means o£ struggle for higher wages.
There is no contradiction in the NRA "recognizing" trade unions and collective bargaining while imposing safeguards and controls which limit labor's independence and action. For state capitalism is, in one aspect, an attempt to "balance" class interests, since it still oper- ates within the confines of bourgeois democracy. It must make con- cessions— if only in words — to the different classes. Thus unions and collective bargaining are recognized, labor is given representation, if only advisory, on arbitration and other tribunals, labor laws are adopted, and labor code authorities are set up. In pre-fascist Germany, where state capitalism was highly developed, a whole labor juris- prudence arose, a "constitutional labor order," considered by the social-democrats a "step toward" socialism (it ended, however, in fascism). But the whole process proceeds within the limits o£ capital- ism and on the basis of the state, and is consequently dominated by the economic and political weight of the capitalist class. The process, moreover, is an expression of the decline of capitalism, when conces- sions— if only relief — are a burden upon capital. As state capitalism attempts to reconcile economic and class antagonisms, they become constantly more acute. Hence the "recognition" of labor is accompanied by laws and acts for an increasing coercion of labor. The role of the state as strikebreaker becomes more necessary and is strengthened. In the epoch of the decline of capitalism, both employment and wages fall. The workers resist. Resistance tends to become revolutionary, as the burdens of decline are thrust upon the workers. The state inter- venes more ruthlessly to deprive labor of the possibility of independent action and revolutionary initiative. This policy of suppression assumes its most complete and brutal forms under fascism. . . .
The upward movement of real wages in 1921—22 was conditioned by the militant struggles of labor against wage cuts. In 1933-34, although there was an upsurge of labor miHtancy, strikes were broken and the results limited by the NRA apparatus for the suppression of labor. (Later, distrustful of the NRA, labor was more successful.)
The upward movement of real wages in 1921-22 was conditioned by the fall in prices, which increased the purchasing power of wages. In 1933-34, real wages fell because of the desperate resort to inflation and
Profits and Wages 103
the tendency of the NRA to maintain money wages at low, fixed levels.
The upward movement of real wages in 1921-22 was conditioned by the expansion of production; this transformed cyclical revival into a comparatively high level of prosperity. Revival seized upon the pro- duction of capital goods, the sustaining force in prosperity, because of the working of long-time factors of expansion. In 1933-34, revival was speculative and incomplete, it was not forced upward by an increasing production of capital goods, which lagged behind even the small in- crease in production. This was a result of exhaustion of the long-time factors of expansion, of the decline of American capitalism.
Niraism insists that its objective is to decrease unemployment and increase purchasing power. But the objective and the means are limited by the nature of capitalist production, and limited still more by the conditions of capitalist decline. In previous cycUcal revivals, employment and purchasing power rose because of the onward sweep of recovery. The incomplete character of recovery forces Niraism more and more to expedients. Unemployment is "decreased" by "spread- ing" work and "making" work, measures with very definite limits. Purchasing power is "increased" by slightly raising total wages and lowering average wages: a peculiar way of increasing purchasing power, but profitable to the capitalists. "It is," says a bourgeois econ- omist, who urges drastic wage cuts, "the amount of the total wage bill and not the height of the average wage which affects the aggregate volume of spending. Indeed, two laborers each receiving $3 per day would be more certain to spend at once nearly all their income than would one wage-earner receiving $6 per day, for their wants would be more urgent." ^'^ The smaller the wage the larger the proportion spent on immediate consumption; the "higher" the wage the larger the proportion saved, and labor's savings are of course unnecessary where there is an abundance of idle capital or of unused capital equip- ment. Consumption is to be "increased" by depriving employed work- ers of that part of their wages which they might save and pay it to newly employed workers, forcing all wage income to be spent. Thus standards of living are lowered under the conditions of the decline of capitalism. Wages are being cut in all capitalist nations. The fascist government of Italy orders another cut in wages and salaries, after the cut in 1930 of 10% to 12%, in order that Italian capitalists may compete more effectively in the world market, where they are being "under- sold." Compensation is offered in the form of a simultaneous and equal cut in the prices of food, rent, and transportation, but this in
104 The Decline of American Capitalism
practice never equals the cut in wages. In 1932, the German employers were permitted to pay newly employed workers about one-half of the prevailing wages. This policy of the von Papen government took the form, in the policy of its fascist successor, of permitting employers to cut the wages of employed workers if the "saving" was used to hire additional workers; the Hitler government justified the cuts as a means of "increasing" employment and "maintaining" payroUs.^^ These are the desperate resorts of capitalism tormented by decline and trying to save itself by thrusting the burdens of decline upon the workers.
Wages and employment lagged behind production and profits in the revival of 1921-22, in the prosperity of 1923-29, and in the "revival" of 1933-34. Nor was the lag a result of the NRA in its early stages depending more upon "persuasion" than "force," placing faith in the voluntary action of "enlightened" employers, much in the manner of the "Golden Age" of pre-1929 prosperity. As Niraism becomes full- fledged state capitalism and "controls" are stiffened, the clash between wages and profits is sharpened. State intervention to "fix" wages and prices, and the general tendency of profits to fall under the conditions of decline, results in a greater drive to improve technological efficiency and raise the productivity of labor, which are not under control. Con- sidering the problem from the angle of price-fixing, a bourgeois econ- omist concludes: "Prices construed as 'fair' . . . will put a premium on efforts to lower the cost of production for the sake of much higher profits. This will be done by investing more capital in order to increase the productivity of labor." ^^ That is assuming that prices are fixed downward. They may be fixed upward, and thereby directly increase profits and indirectly decrease wages. But as state capitaUsm operates in the orbit of the decline of capitalism, the tendency will be for profits to decrease. This sharpens the clash between profits and wages and multiplies capitalist efforts to lower wages in favor of profits. The government intervenes directly to cut wages, as in Germany and Italy.
Wages always lag behind profits. The lag assumes three major forms:
In the epoch of the industrial revolution and for some time after- ward, wages fell but profits rose greatly.
In the epoch of the upswing of capitalism, wages tended to rise but profits rose still higher.
In the epoch of the decHne of capitalism profits tend to fall, but
Profits and Wages 105
wages fall still more; profits move up relatively as v^ages move down- ward.
In the epoch of the upswing of capitalism there was a relative fall in the workers' standards of living. In the epoch of decline there is an absolute fall in the workers' standards of living. This means a return to the state of "increasing misery" characteristic of early capi- talism, aggravated by all the burdens of imperiaUst wars. . . .
The conditions of capitaHst decline, of which Niraism is an expres- sion, limit the expansion of industry and the opportunities for profitable investment of capital. Profits tend to fall. The fall is all the greater because of the burdens of taxation imposed upon industry. These burdens result from the state pouring public money into in- dustry, measures to safeguard profits, relief for the constantly growing masses of the needy unemployed, an increasing bureaucracy, and multiplication of the costs of armaments and war. The efforts to save capitalism are of a strangulating nature. Above all, they strangle the workers. All pretense of a policy of high wages is abandoned. The pack begins to bay in one swelling chorus: "Cut wages!" In the name of theory the economists of France, Germany, and Italy insist that wages must fall. W. A. Beveridge, A. C. Pigou, Henry Clay, and other English economists insist that wages must fall. In the United States, Prof. W. I. King * and others insist that wages must fall. True, these American economists are now overwhelmed by the pretentious "high wage" chorus, but they will come into their own. And the economists base their arguments upon what is essentially the theory of laissez-faire economics, which was never very real and is almost wholly unreal in the age of monopoly capitalism and imperialism. State capitalism justifying wage cuts in the name of laissez-faire! The economists will generously admit that high wages are good, that they are a human and cultural necessity. But they must fall because of inexorable economic necessity. If wages fall employment will rise. Thus the economists abandon the hope of progress, and offer only the pros- pect of lower standards of living. And they forget that lower wages and lower costs are not necessarily translated into lower prices and higher demand, particularly in the epoch of the decline of capitalism.
* King is an "objective" economist whose objectivity completely accepts and justifies capitalism. He considers economics a "science," but a science which refuses to go beyond the relations and needs of capitalist production. It is an interesting phenomenon that the more "objective" the economist, the more he is an apologist of capitalism. Thus King urges, on what he insists are wholly scientific and objective grounds, that wage cuts are necessary to revive prosperity.
io6 The Decline of American Capitalism
The economists insist that lower wages and lower costs are necessary to increase foreign trade; but they forget that all capitalist nations are lowering wages and costs and raising tariff barriers. Wages must be cut to increase profits and stimulate the production of capital goods; but capitalist industry is now capable of absorbing only a decreasing output of capital goods. The arguments of the economists are mere apologetics.
As profits fall or tend to fall, in the epoch of the decline of capital- ism, wages are driven down to maintain profits. Wages can rise only when there is an unusual expansion of industry. As expansion becomes limited, wages must fall, absolutely and relatively. Increasingly larger numbers of workers become permanently unemployed. Their pressure tends to lower the wages of the employed workers and is used by the employers to beat down wages. Total and average wages fall. Low standards of living are lowered still more. The capitalist state imposes upon the workers as much as it can of the burdens of higher taxation. Relief and the social services are cut, and the bourgeois economists manufacture theories to justify the cut. The conditions of decline tor- ment not only the workers, but constantly greater circles of "white collar" workers, professional workers, small businessmen, farmers. Out of these developments arise sharpened class antagonisms, the struggles of capitalism, fascism, communism: an era of social explosions and change.
Summary
Jl HE prosperity which flourished in 1923-29 was the result of an unusual combination of the long-time factors of expansion. In the revival of 1922, building construction, in which the war had created a great shortage, led the upward movement. It was invigorated by the development of electric power and the automobile and of new or comparatively new industries such as radio, moving pictures, and chemicals. The old stimulus of the undeveloped inner continental areas was partly replaced by the export of capital and imperialism, an ex- ploitation of the international long-time factors of expansion.
These developments produced increasingly higher profits and their conversion into capital by means of an increasing output and absorp- tion of capital goods, the basis of prosperity. Both the investment of capital and the growth of industry's capital equipment proceeded on an immense scale.
As is usual in prosperity (it is a very condition of its being), the profit-makers scored the largest gains. The farmers were wholly ex- cluded, and their exclusion was itself an element of capitalist pros- perity. While the workers' real wages rose in 1921-23, because of falling prices, they were practically stationary thereafter. Wages fell relatively to profits. Yet the productivity of labor and surplus value rose more than in any other recent period in American history.
There was, thus, no "policy of increasingly higher wages" in the pre-1929 prosperity. It was a policy of higher profits. And the pretense was completely exposed by the depression, when wages were slashed mercilessly. But the policy reappears in a slightly different form in the ballyhoo of Niraism: the government is to "fix" wages, to "balance" profits and wages in the interest of an everlasting prosperity. The practice of state capitalism is everywhere, however, one of protecting profits, not wages. And under the reign of Niraism wages are falling. Wages must fall in the epoch of the decline of capitalism because the making of profits and their conversion into capital is restricted, as exhaustion of the long-time factors of expansion tends to lower pro- duction and profits. This tendency may be interrupted by short-lived spurts of prosperity, by the "black magic" of imperialism and war.
107
io8 The Decline of American Capitalism
The interruptions will be temporary and eventually disastrous, in- tensifying the decUne of capitalism.
Whether "unfettered" or under "controls" capitalist production im- poses definite limits upon the rise of wages. The limits move down- ward in the epoch of decline. Underlying the limits, both in prosperity and depression, in upswing and decline, is the accumulation of capital and its contradictions, which constitute the dynamics of capitalist production.
PART THREE
Contradictionsfof Accumulation
Introductory
Jl ROFiTS and wages clash, and profits beat down wages, because the accumulation of capital is the primary aim and driving force of cap- italist production. In its origins, development, and decline, capitalism is inseparably identified with accumulation.
The accumulation of capital means the conversion of profits into capital. Profits are realized surplus value, the surplus product of the workers which the capitalists appropriate through ownership of the means of production. As surplus value and profit are unpaid labor, wages and profits move in inverse ratio: the lower the one, the higher the other. The capitalists consume only a part of the surplus product they appropriate; if they consumed it all, there would be no ac- cumulation and no expansion of industry, and, consequently, no new profits yielded by new capital. A part of the surplus product must be transformed into capital, which takes the form of capital goods to produce more profits. Thus accumulation depends upon the capacity of industry to make profits and to transform them into capital by means of an increasing output and absorption of capital goods. Capital goods, the growth of capital plant, multiply and secure capitalist wealth and its claims upon labor, production, and income.
Accumulation is accompanied by the expansion of production and an increase in its scale of operation. Where the handicraft worker dominated his tools and simple machines, working up limited amounts of raw material, the worker in capitalist industry is dominated by the massed mechanical equipment of production, working up almost un- limited amounts of raw material. The increase in the scale of pro- duction means larger and more efficient equipment in giant plants, lower labor costs, greater output, lower prices, and higher profits. Large-scale production augments the accumulation of capital, which in turn reacts upon and augments the scale of production, capital investment, and accumulation.
One result of accumulation and its transformation of industry is the relative decline of older agricultural products as industrial raw materials in favor of newer products, particularly minerals. The change involves, in its economic and political implications, the subjugation
III
112 The Decline of American Capitalism
of agriculture by capitalist industry, and the exploitation of agrarian classes and regions by capital.
Another result of accumulation and its transformation of industry is the shift from muscular to mechanical power and a constantly greater dependence upon machines and apparatus. Modern industry is highly mechanized, requiring tremendous masses of equipment and materials. This involves a change in the composition of capital, that is, in the proportional amounts of labor, equipment, and mate- rials used in industry. Small-scale industry w^as characterized by a low composition of capital, the preponderance of variable capital (wages, labor) over constant capital (equipment, materials). Large scale industry is characterized by a higher composition of capital, the preponderance of constant over variable capital. The use of increasingly larger masses of equipment and materials multiplies the productivity of labor and the output of industry. The higher the composition of capital, the more labor is displaced relatively to the other factors of production. Wages fall and profits rise. But both cause and eifect assume antagonistic forms and provoke disturbances of the most seri- ous nature. For the change in the composition of capital underlies all the contradictions of accumulation, and these contradictions create the inescapable instability and limited character of capitalist produc- tion and prosperity.
CHAPTER VII
Accumulation and the Composition of Capital
vLfiAPiTALisT industry is unceasingly driven to force up profits by re- ducing labor costs and enlarging the scale of production. The resulting increase in constant capital and relative decrease in variable — the higher composition of capital — are most fully apparent in the struc- ture of American industry (the most highly developed expression of capitalism) .*
In American manufactures, wages rose from $237 million in 1849 to $2,320 million in 1899, or 866%; raw materials (including auxiliary materials and power) from $555 million to $7,343 miUion, or 1,223%; capital, including the investment in machinery, apparatus, and build- mgs, from $533 million to $9,835 million, or 1,758%. In 19 14, capital investment was 154% higher than in 1899, raw materials 118% higher, and wages 103% higher.^ The capital figures are crude, but they indicate the upward trend more than the rise in wages and raw materials. From 1849 to 1919, the fixed capital per worker rose from $560 to $5,000, a ninefold increase compared with only a fourfold increase in the average worker's money (not real) earnings. After seventy years of change in the composition of capital the worker in manufactures set in motion probably seven times as much capital equipment and five times as much raw material. While there was a decrease in the ratio of wages to constant capital and output, there was also a decrease in the ratio of output to fixed capital. This was again the case, naturally, in 1923-29 (Table I): constant capital, particularly the fixed portion, increased more than wages and output.
* Precisely because it is the most highly developed, American industry offers the fullest confirmation of the analysis Karl Marx made of the laws of capitalist produc- tion. It is one of the tasks of this book, using the American statistical material, the most abundant in the world, to make a quantitative, as well as qualitative, demonstration of the Marxist conception of the fundamental aspects of capitalism — and this despite the tendency, on the part of bourgeois economists, to sneer at "Das Kapital" as an "outworn economic text-book." Marx, in fundamental theory and analysis, is more contemporary than contemporary bourgeois economists.
114
The Decline of American Capitalism
TABLE I
Changes in the Composition of Capital, Manufactures, igi^-ig
Constant Capital
Variable Capital
FIXED
RAW
VALUE
YEAR
CAPITAL*
(millions)
INDEX
MATERIALSf
(millions)
INDEX
WAGES
(millions)
INDEX
OUTPUTt
(millions)
INDEX
1923
$21,910
100. 0
$13,200
lOO.O
$11,009
lOO.O
$39,050
lOO.O
1925
25.457
116.6
13,600
103.0
10,730
97.4
40,400
103.6
1927
26,007
II 8.7
13.450
IOI.9
10,849
98.4
41,000
IO5.I
1929
28,235
128.9
15.450
I 17.0
11,621
105.7
47,100
120.8
•Real estate, buildings, and equipment; the fixed capital for 1923 is estimated on the basis of the 1924 figure of $22,410 million.
tLess duplications.
Source: Fixed capital — Bureau of Internal Revenue, Statistics of Income for the respec- tive years; wages, materials, and output — Department of Commerce, Census of Manufac- tures, 1929, V. I, p. 15, and Statistical Abstract of the United States, 1931, p. 483.
In 1923-29, constant capital in manufactures rose over four times as much as variable capital: 24.4% compared w^ith 5.7%. Fixed capital rose five times as much as v^ages, 70% more than materials and 40% more than output. This w^as a considerably greater change in the composition of capital than in 1899-1914, w^hen the increase in fixed capital ranged only up to 40% more than in the other factors. The average w^orker in 1929, w^hile receiving practically the same wages as in 1923, set in motion nearly one-third more fixed capital and one- sixth more materials and produced one-fifth more output. The pro- portion of wages to fixed capital fell from 51.4% to 41.2%, of wages to output from 28.2% to 24.5%, and of wages to "value added by manufacturing" from 42.7% to 36%. Wages and labor costs fell, profits rose.*
Wages must decrease as the composition of capital becomes higher: larger capital investment requires larger profits, and more capital is invested in the constant than in the variable form. Wages may fall relatively. They may also fall absolutely (as in 1925 and 1927) if an unusually rapid improvement in technological efficiency is not com- pensated by a sufficient increase in industrial expansion and employ- ment. As wages are the price of labor power, of the worker's skill and muscle and nerves, the fall in wages involves displacement of
* Labor costs in 1929 were 9.5% lower than in 1923, overhead costs and profits 10.6% higher. The elements of cost as decimal fractions of value output became: materials .663, overhead costs and profits .189, labor costs .148. Frederick C. Mills, Economic Tendencies in the United States (1932), p. 409.
WAGES
CAPITAL
95-
1<\XZ
na5
WZT
\U<\
V. CHANGES IN THE COMPOSITION OF CAPITAL.
ii6 The Decline of American Capitalism
labor and unemployment. Where displaced workers are absorbed by the expansion of industry the displacement is relative. But it tends to become absolute: in every year except 1929 the number of workers in manufactures was lower than in 1923, and in all years lower than in 1919. Nor were lower total wages and employment in manu- factures offset by larger wages and employment in other industries, which are also affected by changes in the composition of capital. In mining, wages fell from $1,161 million in 1919 to $1,066 million in 1929, or 8.2%, and workers from 888,355 ^o 788,357, or 11.3%; installed power, a rough measure of fixed capital, rose 42%, while output rose from $2,225 million to $2,392 million, or 2.4%. On the railroads, wages and salaries fell from $3,004 million in 1923 to $2,896 million in 1929, or 3.6% (the fall in wages alone was much greater) and employees from 1,857,674 to 1,660,850, or 10.6%; capital invest- ment rose from $21,372 million to $25,465 million, or 19.1%, and net operating income from $974 million to $1,262 million, or 29.6%.^ In the oil industry and in electric light and power, capital investment and profits rose more than wages and employment. While there was some increase in the wages of the workers as a whole, it was smaller than the increase in profits and property income in general. It was, moreover, accompanied by the absolute displacement of 1,000,000 workers, the average yearly number of unemployed workers in 1923-29 approaching 2,000,000.
Thus the higher composition of capital is the objective expression of the inner urge of capitalist production to displace labor and the wages of labor. In the epoch of the upswing of capitalism, the dis- placement was relative; it becomes absolute in the epoch of decline. The most characteristic expression of the decline of capitalism is the misery of an increasing "surplus population" of unemployed and unemployable workers (including professionals), who barely exist on the "rations" of reluctant charity, meager unemployment insurance, or poor relief. . . .
The higher composition of capital means an increase in the pro- ductivity of labor. More of the work of production is performed, and more efficiently, by mechanical equipment, which lessens labor and permits the transformation of larger amounts of raw material into goods. The higher composition of capital is, therefore, an ex- pression of economic progress, the basis of potential plenty and leisure for all. But under capitalism it is identified with the urge to displace labor, lower wages, and raise profits. Because of this the higher com- position of capital simultaneously and antagonistically:
The Composition of Capital 117
1. Imposes limitations upon the purchasing power and consumption of the workers. Wages always lag behind profits, and wages always fall relatively to output and profits. This measurably restricts the growth of markets, creates disproportions in the output of means of production and means of consumption, and sets in motion the forces of cyclical crisis and breakdown.
2. Imposes limitations upon the production and realization of sur- plus value. The decrease of variable capital (wages) in favor of con- stant capital (equipment and materials) limits the production of surplus value in proportion to the total invested capital; while the increase in the output of goods and the restriction of mass purchasing power and consumption saturate markets and lower prices to un- profitable levels, thereby limiting the realization of surplus value in the form of profits. The mass of profits rises, but the rate of profit on the total invested capital tends to fall.
Thus the higher composition of capital is the basic objective factor in the contradictions of accumulation and of capitalist production and prosperity.
CHAPTER VIII
The Fall in the Rate of Profit
Jl HE fall in the rate of profit manifests itself as a tendency and not in absolute form. For capitalist production struggles incessantly to prevent the rate from falling and to raise it. Both the falling tendency and the struggle against it condition the most fundamental aspects of capitalist development.
The tendency of the rate of profit to fall is determined by changes in the composition of capital, the increase in the productivity of labor, and the conditions under which surplus value and profit are produced and realized. A fall in the rate of profit may result from causes w^hich do not involve changes in the composition of capital, such as a rise in the prices of raw materials not offset by a general price rise, excessive competition (the old composition being unchanged) forc- ing prices down to unprofitable levels, or a restriction of markets and sales due to changes in consumer habits and demands. But these are temporary and limited in scope. The primary cause of the tendency of the rate of profit to fall is the change in the composition of capital and the forces thereby set in motion.
Capitalist enterprise continually strives to raise profits by increas- ing the productivity of labor. This is done by enlarging the scale of production and displacing labor with more efficient equipment working up larger amounts of raw materials, thus lowering the proportion of variable to constant capital. The capitalists, who, in their calculations, convert values into prices of production, i.e., into costs, imagine that constant capital itself produces profit because they in- clude a profit on its consumed portions in figuring costs and selling prices. But as only its own used-up value is incorporated in com- modities, constant capital produces no new value and no surplus value; labor, living labor alone produces surplus value, of which profit is the realized form. If the rate and mass of surplus value remain the same after an increase in constant capital, a fall ensues in the rate of profit because the surplus value is now a smaller ratio of a larger total of invested capital, on which the rate of profit is calculated. It can be otherwise only if the elements of constant capital are considerably cheapened; in this case the old or even a higher
ii8
The Fall in the Rate of Profit 119
rate of profit may be secured. The higher composition of capital, however, increases the rate of surplus value: while the living labor incorporated in a commodity falls, the unpaid portion, represent- ing the surplus value, rises. But this rising tendency of surplus value is accompanied by antagonisms which set in motion its opposite, the tendency of the rate of profit to fall. The rise in surplus value produced by the higher productivity of labor can result in a rising rate of profit only under certain definite conditions: // the rise in the value of labor's surplus product is greater than the rise in the value of constant capital, // all -the new fixed capital is set in motion by labor, // prices and profits are not lowered by competition, // markets absorb the enlarged output of commodities and permit complete reahzation of surplus value and profit.* It is the fact that these con- ditions are rarely, if ever, present simultaneously which activates the tendency of the rate of profit to fall.
Underlying the falling tendency of the rate of profit is an increase in the productivity of labor and in the scale of production, which result in a larger mass of commodities and profit. But capital in- vestment tends to increase more than output, more than the reahza- tion of surplus value and profit. If the rate on the larger mass of profits, calculated on a still larger mass of capital, falls, there follows an accelerated investment of capital to overcome the fall in the rate, by an increase in the mass of profits. Again there are changes in the composition of capital, greater productive capacity and output, aggravating the contradiction between the absolute development of production and the limited conditions of consumption. This con- tradiction exerts a downward pressure on the rate of profit in two ways:
Prices and profits are lowered by the intensified competition result-
* "Production of surplus value is but the first act of the capitalist process of produc- tion, it merely terminates the act of direct production. . . . Now comes the second act of the process. The entire mass of commodities, the total product, which contains a portion which is to reproduce the constant and variable capital as well as a portion representing surplus value, must be sold. If this is not done, or only partly accomplished, or only at prices which are below the prices of production, the laborer has been none the less exploited, but his exploitation does not realize as much for the capitalist. It may yield no surplus value at all for him, pr only realize a portion of the produced surplus value, or it may even mean a partial or complete loss of his capital. . . . Too many commodities are produced to permit of a realization of the value and surplus value contained in them under the conditions of distribution and consumption peculiar to capitalist production." Karl Marx, Capital, v. Ill, pp. 286, 303.
120 The Decline of American Capitalism
ing from an output of commodities beyond the limited conditions of consumption of existing markets.
An excess capacity of production arises, whose costs are a burden upon realized profits.
Excess capacity is peculiar to capitalist production, which tends to develop the power to produce beyond the power to consume. (This also affects excess capacity in the industries producing capital goods, as in final analysis the demand for these goods depends upon the ability of the industries producing consumption goods to dispose of an increasing output.) It is not a probjem in itself, but the con- crete expression of the factors underlying the tendency of the rate of profit to fall. An excess capacity of production appears in two forms: in a capacity used to produce goods which saturate markets and depress prices and profits, and in an unused capacity, an idle equipment which is unused because demand is insufficient. The two forms interpenetrate, flow one into the other, are combined in the same enterprise: both tend to lower the rate of profit.
The more intensively, completely, continuously the means of produc- tion are used by labor, the greater is the yield of surplus value and profit, assuming that the necessary market conditions exist;* the yield decreases in proportion to diminishing utilization of the means of production. Labor can produce surplus value only if it sets in motion fixed capital and raw materials, and these can be made to yield profit only if set in motion by labor. If an enterprise operates below its capacity, no surplus value is produced by the labor which might be employed and no profit yielded by the capital incorporated
* "The development of industry fixes a constantly increasing portion of the capital in a form in which, on the one hand, its value is capable of continual self-expansion, and in which, on the other hand, it loses both use-value and exchange-value whenever it loses contact with living labor. . . . The same instruments of labor, and thus the same fixed capital, may be more effectively used by a prolongation of their daily use and by the greater intensity of employment ... a more rapid turnover of the fixed capital. . . . The entire capital cannot be employed all at once in production, a portion of the capital is always lying fallow . . . hence the capital active in the production and appropriation of surplus value is curtailed to that extent. The shorter the period of turnover, the smaller is the fallow portion of capital as compared with the whole, and the larger will be the appropriated surplus value. . . . The mass of the produced surplus value is augmented by the reduction of the period of turnover. Any such reduction increases the rate of profit, since this rate expresses the mass of surplus value produced in proportion to the total capital employed." Marx, Capital, v. I, p. 431; v. II, p. 409; v. Ill, p. 85. If a more intensive use of fixed capital increases surplus value and the rate of profit, a lessened intensity of use, an unused capacity, necessarily decreases surplus value and the rate of profit.
The Fall in the Rate of Profit » 121
in the unused capacity, whose costs eat into the produced and realized surplus value and profits and reduce the rate of profit on the total invested capital.*
Thus a downward pressure is exerted on the rate of profit by unused capacity, a destructive yet inescapable aspect of capitalist production and expansion. The unused capacity may be relative or absolute, but it becomes continuously larger as variable capital decreases in favor of constant capital, particularly the fixed portion. Another contra- diction arises: labor costs are variable, they can be lowered as output falls; the costs of capital equipment are fixed, they must be met regardless of output. The problem is aggravated by some variable costs becoming semi-fixed. Fixed and semi-fixed costs (interest, de- preciation, insurance, taxes, management, merchandising costs, some costs of labor and raw material) do not vary or vary only partly with variations in output.f The costs are no problem, are compatible with a rising rate of profit, if production is continuous and up to or near capacity; they become a burden on reaHzed profits as pro- duction falls below capacity. For the fixed and semi-fixed costs must be met, whether they are earned or not; but as no surplus value is produced by the unused capacity, the mass and rate of profit are lowered.
The greater the scale of production, and the higher the composition of capital and the productivity of labor, the greater is the pressure of unused capacity on the rate of profit. Operating below capacity in small-scale industry, with its lower composition of capital, is not necessarily fatal because variable labor costs are greater than fixed or semi-fixed costs: as output falls the workers who are fired are not a cost of variable capital and involve no direct loss, while losses on the costs o£ unused capacity are not great. Operating below capacity in large-scale industry, with its higher composition of capital, is fatal because fixed and semi-fixed costs are greater than the variable costs of labor: as output falls the workers who are fired still involve no direct loss on variable capital, but this is now relatively unimportant in comparison with the great losses on the costs of unused capacity.
* "The larger the fixed capital and the slower its circulation, the larger will be the share of capital lying immobile, and the smaller will be the capitalist's rate of profit." I. Lapidus and K. Ostrovityanov, An Outline of Political Economy (1930), p. 142.
t "Taxes, fire insurance, wages of various permanent employees, depreciation of ma- chinery and various other expenses of a factory run on just the same, whether the working time is long or short. To the extent that production decreases, these expenses rise as compared to the profit." Marx, Capital, v. Ill, p. 94.
122 The Decline of American Capitalism
In small-scale industry, where low fixed and semi-fixed costs absorb a small part of the output, 25% operation might mean breaking even and 50% operation mean substantial profits. In large-scale industry, where high fixed and semi-fixed costs absorb a large part of the output, 25% operation might mean disastrous losses, with operation of 50% or more necessary to break even. But after the point at which fixed and semi-fixed costs are earned, the rate of profit in large-scale industry tends to rise sharply because of its higher scale of operations and the productivity of its labor.
Because of the conditions identified with unused capacity, the larger mass of profits "earned" in large-scale industry may coincide with a fall in the rate of profit. This perpetually tempts an enterprise to use all of its capacity. But operating 100% of capacity does not neces- sarily avert a fall in the rate of profit. For where markets are limited, the use of excess capacity may mean an output of commodities which the markets cannot absorb. Competition is sharpened. Prices may drop to unprofitable levels. Or if they do not, prices may become indi- rectly unprofitable through an increase in advertising and other mer- chandising costs. In either case the rate of profit falls. As the upward movement of prosperity reaches its climax it creates more intensive efforts to raise the productivity of labor, which augments excess ca- pacity, and more use of excess capacity to capture markets, in order to overcome the tendency of the rate of profit to fall. But markets are limited, they shrink relatively, as capitalism develops the forces of production more than the forces of consumption. Efforts to raise the rate of profit may succeed, but only temporarily, because the rise augments excess capacity and competition, and hastens overpro- duction, cyclical breakdown, and a disastrous fall in the rate of profit. Thus the rate of profit falls because of an excess capacity used under market conditions which do not permit complete realization of surplus value and profit.
That the rate of profit tends to fall is an observable and acknowl- edged fact.* An indirect proof is the constantly larger capital invest- ment necessary to produce a unit of product. In American manu-
* Why, then, do small concerns fail more easily in depressions, when unused capacity mounts? Because the larger concerns have more control over markets and prices, possess larger financial resources, including surplus, and are favored by the banks. They use, moreover, the opportunity of depression to drive their smaller competitors out of busi- ness. And in many cases the small concern, if it is small enough and if most of its capital is variable, is only an apparent casualty: it closes down or retires completely, but resumes business when prosperity returns.
The Fall in the Rate of Profit 123
factures, fixed capital rose 1,758% from 1849 to 1889, output only 1,170%/ The ratio of output to fixed capital was 2 to i in 1889 and 1.4 in 1929; on a different statistical basis the ratio was 1.8 in 1923 and 1.6 in 1929, a fall o£ 11% in six years. The direct proof is the rate of profit itself (Table II). In 1924-29, the mass of profits rose, with two interruptions during minor cyclical depressions, but the
TABLE II
The Rate of Profit, Manufactures, 192^-31
INDEX, RATE ON INDEX, RATE OF
NET
FIXED
FIXED
TOTAL
RATE OF
RATE OF
SURPLUS
YEAR
PROFITS*
CAPITALf
CAPITAL
CAPITALt
PROFIT
PROFIT
VALUE
(millions)
(millions)
(millions)
1923
$3,174
$21,910
14.5
$34,491
9.2
lOO.O
lOO.O
1924
2,418
22,410
10.7
36,491
6.1
66.3
—
1925
3>245
25.457
12.7
42,366
7.7
83.7
III.3
1926
3'2I3
26,618
I2.I
45,273
7-1
77.2
—
1927
2,662
26,007
10.2
48,049
5.5
59.8
II2.5
1928
3.461
27,025
12.8
50,017
6.9
75.0
—
1929
3.951
28,235
13-9
52,694
7.5
81.5
I27.I
1930
878
28,987
30
52,121
1.7
18.5
—
I93I
Deficit^
27,000
Minus
48,500
Minus
Minus
II6.I
* Net profits — profits (exclusive of intercorporate dividends and taxes) of corporations reporting net income less the deficits of corporations reporting no net income. The profits of corporations which reported net income were $3,872 million in 1923 and $4,760 million in 1929.
t Fixed capital — real estate, buildings, and equipment; total capital — common and preferred stock and surplus. Capital for 1923 and 1931 is estimated.
J In 1 93 1 one group of corporations reported net income of $1,169 million, the other deficit of $1,984 million, making for corporations as a whole a deficit of $815 million.
The rate of profit is somewhat distorted by dependence of the statistics on corporate methods of accounting, which tend to underestimate profits and "mark up" capital values, and by the inclusion in surplus of outside stock ownership, whose income is not included in profits. The distortions, however, do not affect the movement in the rate of profit.
Source: net profits and capital — Bureau of Internal Revenue, Statistics of Income for the respective years; index of rate of surplus value — see Table IV, chapter V.
rate of profit fell. In every year the rate on both fixed and total capital was below 1923; and on total capital the rate of profit was below 1925 in every subsequent year. The mass of profits rose in 1928-29 (a rise interlocked with the approaching cyclical break- down), but even in these peak years the rate on fixed capital was below 1923, and the rate of profit (total capital) was below both
124 The Decline of American Capitalism
1923 and 1925. Clearly capitalist production is a perpetual struggle against a falling rate of profit. The rate falls and rises and falls in prosperity. It falls precipitously in minor depression: a fall of 33.7% in 1924 over 1923 and of 22.5% in 1927 over 1926. And it falls dis- astrously in major depression: a fall of 77.3% in 1930 over 1929 and of 81.5% over 1923; a fall below zero in 1931. (In the first quarter of 1933, 205 large corporations with a "net worth" of $7,443 million had a deficit of $14,831,000; in the second quarter, marked by a speculative revival of industry, they had net profits of $86,878,000,^ or a rate of profit of 1.1%.)^ Exclude depressions, minor and major, and the tendency is still definitely downward. Average yearly profits rose from $3,209 million in 1923 and 1925 to $3,542 million in 1926, 1928 and 1929, but the rate on fixed capital fell from 13.5 to 12.9 and the rate of profit (total capital) from 8.3 to 7.2 — a fall of 4.4% and 13.2% respectively. While the rate of profit was jailing, the rate of surplus value rose uninterruptedly and was 2^.1% higher in ig2g than in 192]. The rate of profit in ig^i fell below zero, but the rate of surplus value fell only 8.6% and was still /6./% higher than in 192^. Capital investment increased more than the realization of sur- plus value and profit, hence the fall in the rate of profit, which forced the investment of more capital (including profits retained as surplus) in an effort to overcome the fall.*
As the law of the falling rate of profit is not absolute, but a tendency, it may be checked temporarily: the rate may even rise. It is signifi- cant, accordingly, that the rate of profit fell in 1924-29.! It fell in
•The ratio of net income to capital investment fell from a yearly average of 16.2 in 1909-13 to 1 1.3 in 1923-29. It v^^as 14. i in 1919, 5.8 in the depression year 1921, 10.8 in 1922, 1 1.9 in 1923, and 11.2 in 1929. The ratio of net income to gross sales was 15.2 in 1909, 1 1.5 in 1919, and 10.5 in 1929. Robert R. Doane, The Measurement of American Wealth (1933), p. 149. The methods of calculation are different from those in Table II, but the same thing is proven — the tendency of the rate of profit to fall.
t The fall in the general rate of profit is not merely a result of the deficits of corpo- rations making no profits, or of the small earnings or losses of smaller enterprises. These arc important factors, and they are intertwined with all the contradictory forces set in motion by changes in the composition of capital. Moreover, capitalist production must be considered as a whole. The fall in the rate affects enterprises with enviable records of earnings. Thus the rate of profit on the invested capital of the United States Steel Cor- poration fell from approximately 8% in 1902 to 4.5% in 1927-29 (the rate rose sharply during the war years of 1916-17). R. Weidenhammer, "Causes and Repercussions of Faulty Investment of Corporate Savings," American Economic Revietv, March, 1933, pp. 39-40. United States Steel has paid constantly larger dividends, but this has required a still larger reinvestment of earnings. The corporation's surplus rose from $25,000,000 in 1902 to $700,000,000 in 1929, while its assets increased more than threefold.
150
»• •
.•'■
•••..
••
140
CAPITAL L INVESTMENT |
I
..••
■J .'
1 30
•
••
SURPLUS L VALUl? M
IXO
1 •
•
_^
Us^
\
J
V
• •
•
y
o*
\
MO
ri VALUE OUTPUT h 1
lOO
^
y^
,--
,.--
^"
\
\
^^--
V
\
90
jjwA2^
<
x"
'«,
\
\ \
80
_ RATE OF _, 1 PROFIT 1
X
X
J X X K X
^^
/
It
X X X
\-
70
.^
Ao
1
A
A
X X
7.
X X
\
50
i
X
X
-I X
-qo
J RATE OP PROFIT 1 US ST66U CORP.
1-
—lO 8
A ■
_ V
A
X
30
\
1*.
A
\
X
;^o
V
i%
. ./ \
J
X X
V
' V
^^
/ ^
'V /^
uW
)
<
X
•*
V
lO
1 _
/9
Oi /yo/" /y/O /f/J" /fZO IfiS /J30
1 1 1 1 1
X X
3
1923 ISZ4 19Z5 R;L& 197.7 1928 1929 1930 1931
VI. THE FALL IN THE RATE OF PROFIT.
126 The Decline of American Capitalism
spite of the unusual upsurge of prosperity; of the great expansion in old and new industries, which yielded exceptional profits; of the sharp rise in the productivity of labor and in the rate of surplus value; of the fall in the prices of capital goods and raw materials, and its tendency to increase profits; of relatively constant prices and decreasing costs; of the export of capital, which "immobilized" billions of surplus capital and eased the downward pressure on the rate of profit.
Underlying the general rate of profit are the rates in separate in- dustries and enterprises. While the fall in the general rate of profit may be checked or it may even rise, some of the underlying rates always fall. In separate industries and enterprises the rate of profit may rise, fall, stand still, or disappear. In 1923-27, among 381 indus- trial corporations and 129 public utilities, the average yearly increase in profits ranged from 0.4% in iron and steel to 22.5% in automobiles, and decreases ranged from 1% in automobile accessories to 10.5% in clothing and textiles and 48.6% in coal mining; in nine groups the average yearly increase in profits exceeded 10%, in four groups it was below 10%, and in six groups the decrease in profits produced deficits.^ This uneven working of the falling tendency of the rate of profit is one of its most important manifestations. For it creates and aggravates disproportions and disturbances even if the general rate is rising. A higher rate in one group of enterprises may be the result of losses in another group. Competition is intensified. Capitalists redouble their efforts to plunder one another. Exploitation of the workers becomes greater. Capital flows into industries with a higher rate of profit, where it increases excess capacity. Speculation is encour- aged. The instability of capitalist production and prosperity becomes more acute. As some of the underlying rates of profit are always falling, the tendency of the rate of profit to fall always exerts its pressure; and always, consequently, there are efforts to overcome the tendency, particularly as a small fall in the general rate may coincide with a large fall in some of the underlying rates. If a fall in the rate of profit is accompanied by a rise in the mass of profits, it neither lessens the lag of wages behind profits nor overcomes the contradictions of accumulation: the fall is itself one of the con- tradictions. (The fall in the rate of profit is independent of the ficti- tious fall often produced by the over capitalization of monopolist combinations, by "marking up" capital values to hide profits, beat down wages, or cheat investors, and thus swell the incomes of preda- tory financial capitalists. Where a fall in the rate of profit is pro-
The Fall in the Rate of Profit 127
duced by overcapitalization, the results are not, however, fictitious, for it forces management to strive for higher profits, and thereby intensifies competition and the drive toward overproduction.)
The higher composition of capital and the tendency of the rate of profit to fall involve the general problem of "overhead costs" — those "costs of production" which, whether necessary or unnecessary, do not fall correspondingly with a fall in output. As industry becomes increasingly large-scale, all sorts of unforeseen costs arise and eat into profits; many of the costs puzzle the capitalist and are described as "hidden." (Among the "hidden costs" recently discovered are older employees over forty who are ruthlessly thrown upon the scrap- heap.) There are limits to an increasing scale of profitable opera- tion, technical limits in productive efficiency and economic limits in markets; although the limits are flexible they often result in effi- ciency losses and in a lower rate of profit among the larger and most heavily capitalized enterprises. Displacement of labor, particularly by automatic machinery and apparatus, produces an increase in the tech- nical, managerial, and supervisory staffs, whose functions are being increasingly mechanized; their costs are not as variable as the costs of labor. The costs of merchandising and advertising increase enor- mously under pressure of excess capacity, relatively limited markets, and aggravated competition. The necessity of efficient and continuous production, because of the burden of fixed and semi-fixed costs, re- sults in growing expenditures on management engineering and per- sonnel and "welfare" work, including espionage, to insure efficiency, crush unionism, and prevent strikes — particularly to prevent strikes which might interfere with continuous operation. Costs formerly almost wholly variable now develop many aspects of fixed costs, an antagonistic result of the efforts to lower the variable costs of labor. An increasingly larger minimum labor force is required where a plant operates below capacity or shuts down. Losses accumulate on stocks of raw materials when output or prices fall. The rapidity of technical change quickens the rate of obsolescence of mechanical equipment, resulting in large losses and the necessity of larger depre- ciation allowances. (Scrapping "obsolescent" equipment is often sheer waste, justified competitively, not socially.) Debts and interest charges pile up, as a result of the pressure for more capital to enlarge produc- tion and check the tendency of the rate of profit to fall, introducing rigid and unwieldy elements in the financial structure, which intensify the instability of prosperity and prolong depression. All of these over-
128 The Decline of American Capitalism
head costs are involved, in one aspect or another, with excess capacity,* the result of changes in the composition of capital and the increasing productivity of labor— the devils who spoil the best of all possible worlds by exerting downward pressure on the rate of profit.
These problems arise out of contradictions in large-scale production. The economy of large-scale production involves increasing the pro- ductivity of labor, and reducing the amount of paid labor (wages) incorporated in a commodity. Thus, while the prices of commodities fall, more surplus value and profit may be realized on the production and sale of a larger mass of cheapened commodities. An enterprise using more productive methods, which are its exclusive possession, can sell below the market price but above its prices, or costs, of production, and thus "earn" a higher rate of profit. But the more productive methods cease being an exclusive possession, or still more productive methods are introduced. Competition beats down prices; excess capacity develops or becomes greater. The rate of profit begins to fall.
Essentially the contradiction is this: The economy of large-scale production depends upon measurably full operation and profitable sale of the output. But capitalist industry is incapable of continuous and planned utilization of all the available means of production, be- cause it is incapable of commensurately developing the conditions of consumption. Industry is tormented by unused capacity and forced to operate below capacity. In large-scale industry the margin of profit rises greatly beyond a certain point, but profits fall greatly when output falls below that point. Where formerly small changes in output meant small changes in profits, small changes in output now mean large changes in profits, and large changes in output mean disastrous losses which must be met out of reserves and working capital, because of the high proportion of fixed and semi-fixed costs which do not fall or fall only slightly as output falls, and if the capacity of an enterprise is fully utilized, it may result in so saturating markets that prices fall and cancel (in terms of profit) the economy of large- scale production.
Aside from depression, there is always an excess capacity in industry which tends to offset gains from the increasing productivity of labor and the economy of large-scale production. In the peak years 1928-29, American industry was capable of producing at least 20% more goods, many industries from 25% to 75% more. This excess capacity, vary-
• "Overhead cost is practically coextensive with unused capacity." J. M. Clark, Studies in the Economics of Overhead Costs (1923), p. 483.
The Fall in the Rate of Profit 129
ing in space and time but always tending to increase, is a result of the fundamental contradiction: capitalist production tends toward an absolute exploitation of labor, an absolute production of surplus value and profit, but their realization is limited by limitation o£ consumption among the mass of the people. Wages lag behind profits, investment income increases more than consumption income, production and consumption are not balanced, all because of the institutional greed for accumulation. In one of its aspects, excess capacity, which is a portion of capitalized surplus value, represents possible consumption of which the workers have been deprived.
Excess capacity and its downward pressure on the rate of profit increasingly torment large-scale industry. Why, then, large-scale in- dustry? Being itself capitalist production, small-scale industry also was afflicted by excess capacity and the falling tendency of the rate of profit, although not in the severer forms of to-day. The struggle against the fall led to a higher composition of capital. Often, not always, small-scale industry, particularly in the luxury trades, may still yield a higher rate of profit. But its field is limited, as manu- facture of the characteristic products of modern industry requires large amounts of machinery and apparatus, of fixed capital, and, consequently, of raw materials. Competition, moreover, forces a lower- ing of costs, which is accomplished by raising the productivity of labor and enlarging the scale of production. By increasing its constant capital, a small-scale enterprise secures at the start competitive advan- tages and "earns" a rising rate of profit. This dooms small-scale industry, which is destroyed by the "free" competition it depends upon. Other enterprises enlarge the scale of their operations and change the composition of their capitals, and eventually competition, restricted markets, and excess capacity reverse the rise in the rate of profit. The tendency of the rate of profit to fall is thus strengthened, and is never, save under certain rare conditions and then only tem- porarily, overcome.
CHAPTER IX
Multiplying Contradictions and Capitalist Decline
pposiNG forces are always at work to check the tendency of the rate of profit to fall: capitalist production is an unceasing struggle against the tendency. The struggle and the forces it sets in motion are determining factors in capitalist expansion, cyclical breakdown, and decline.
Capitalist production strives to check the fall in the rate of profit by raising the productivity of labor. This may take the form of greater intensity of labor, and develops some of the most barbarous aspects of capitalist exploitation. It includes speeding-up the workers by making them attend more machines ("stretch-out" system), in- creasing the speed of machines, or "standardizing" work motions on a basis which strains human resources, an important element of "scientific management." A greater intensity of labor tends to raise the rate of profit by increasing surplus value without an increase in the value of fixed capital. This may be achieved also by depressing wages below the value of labor power — so that workers are able to buy less of the customary necessaries of life — either through direct reduction of wages or rising prices. But all these efforts mean a decrease in relative wages, a greater lag of wages behind profits, and tends to upset the balance between production and consumption. Similar results follow a rise in the productivity of labor through the use of more efficient equipment. For this leads to an increase of constant capital, particularly the fixed portion, more excess capacity, and a stronger tendency of the rate of profit to fall. The efforts to overcome contradictions aggravate them and the forces of cyclical breakdown.
Increasing the productivity of labor is an aspect of rationalization, whose primary aim is to check the fall in the rate of profit. Rational- ization means the more economical, intensive, and scientific utilization of constant capital. It involves more efficient use of existing equip- ment; development of new processes, particularly chemical, which may increase productivity with little if any new expenditure on fixed capital; introduction of more efficient equipment at the old or lower
130
Multiplying Contradictions and Decline 131
prices, accomplished on a large scale by the electrification of industry; and the more economical use of raw materials, including the utiliza- tion of their wastes in the form of by-products. But the result is an eventual aggravation of contradictions. The output of by-products increases the pressure on the markets of commodities with which they compete. Pressure on all markets is increased by the general rise in the productivity of labor, tending toward overproduction and unprofit- able prices. In the long run all these efforts to enlarge the mass of profits and check the fall in the rate increase the proportion of constant to variable capital, and the rate of profit begins to fall again. More- over, the more intense and economical use of constant capital depends upon measurably complete and continuous operation, and this is thwarted by an excess capacity become all the greater because of ra- tionalization.
Destruction of capital and depreciation of capital values constitute another check upon the fall in the rate of profit. Bankruptcy, by de- stroying capital and moderating competition, eliminates a factor drag- ging down the rate of profit and tends to raise the rate on the surviv- ing capitals; reorganization of an enterprise, by scaling down capital values (and the claims of investors), raises the rate of profit. The process of destruction and depreciation of capital proceeds most dras- tically in depressions, developing the conditions of revival and of a higher rate of profit. This check upon the falling rate of profit means serious losses to individual capitals, which the capitalists strive to un- load upon each other and primarily upon small investors. But the losses are a condition of the accumulation of capital and its concen- tration, and of the prevention of a disastrous fall in the rate of profit. Social waste on a large scale is involved. Waste is one of the necessary conditions of capitalist production, prosperity, and accumulation — waste that, antagonistically, is accompanied by its scientific elim- ination in production itself.
Among the most important means of checking the tendency of the rate of profit to fall is cheapening the value of constant capital, of equipment and raw materials, whose quantity and productivity tend to increase more than their price.
The industries producing machinery and apparatus continuously increase the efficiency and decrease the price of their goods, usually more than the average in capitalist production as a whole. This was particularly marked in 1922—29 because of the very rapid progress in technology: the price of equipment moved downward while its effi- ciency rose substantially. But while cheapening the elements of fixed
132 The Decline of American Capitalism
capital may check the fall in the rate of profit of industries producing consumption goods, it may result in a lower rate of profit in the in- dustries producing capital goods. Moreover, this check of the fall in the rate of profit involves, in terms of values, a relatively lower out- put of capital goods, the major sustaining force in prosperity, and eventually aggravates the problems of excess capacity and overpro- duction.
Lower prices of raw materials contributed greatly to the profits of industrial capital in 1923-29. But this means of checking the fa 1 in the rate of profit develops some of the most serious contradictions and antagonisms of capitalist production. Prices of raw materials are cheapened by more efficient production and an increase in supply, in- cluding the use of "scrap" and development of synthetic substitutes. There may ensue a fall in the rate of profit of raw material industries. Synthetic substitutes intensify competitive pressure on markets. The pressure is twofold where a substitute is both raw material and fin- ished product: rayon seriously affected the prices and profits of the older textiles, raw and finished. Overproduction and disastrous price decHnes are stimulated, even among raw materials whose output and prices are under control of agreements or monopolist combinations, strengthening the tendency of the rate of profit to fall and the forces of cyclical breakdown.
Cheapening the prices of raw materials is, moreover, identified wth the exploitation, by highly developed capitalist nations, of colonial and other agrarian peoples, who are forced to maintain an unbalanced economy and are ruined by disastrous price declines. This is in general an expression of the capitalist exploitation and the economic decline of agriculture; for it is economically and politically dependent upon capitalist production and supplies nearly half of industry's raw materials. Capitalist production extorts ruinous profits from agricul- ture in several ways: opening up new agricultural regions, as in the United States in 1865-90 or in the Argentine, yields profits on the construction of railroads and on the subsequent traffic; increasing the efficiency of agriculture yields profits on the sales of machinery and implements; and there are direct profits on cheaper raw materials and indirect profits on the cheaper foodstuffs which increase real wages. Increasing the supply and decreasing the price of agricultural raw materials is profitable to capitalist industry but tends to ruin the farmers. As long as American agriculture was expanding, in area and sales, and farmers might capitalize prospective earnings, capitalist ex- ploitation was partly offset by increasingly larger markets and higher
Multiplying Contradictions and Decline 133
land values. Now, however, agriculture is doomed to permanent crisis and decay by the impossibility o£ new expansion, declining markets, depressed land values, continued capitalist exploitation, and the ac- cumulated burdens of previous exploitation. (Agriculture is afflicted also by the large fixed costs o£ investment in land and equipment, among whose burdens are a fall in the rate of profit and a rise in mortgage interest and tenancy. Agricultural equipment is costly and not used most economically on small farms; while it may at first in- crease the rate of profit, more efficient equipment tends to lower prices and profits when it comes into general use; because of fixed costs and competition there is a drive to produce and sell regardless of price, some income being better than none. Farmers, particularly in the epoch of capitalist decline, are inexorably transformed into peasants.) The exploitation of agriculture simultaneously weakens capitalism, however, by arousing class and political antagonisms, national and international, and by creating the objective basis for the socialization of agriculture and its union with socialist industry.
The most important means of checking a fall in the rate of profit is to increase the mass of profits faster than the rate tends to fall. This may be done by trickery, the seizure of extra profits wherever possible and the plunder of capitalist by capitalist;* but essentially an increase in the mass of profits involves more fixed capital (and materials), larger output, and a larger share of the market : an enlargement of the scale of production. In enlarging capacity, however, an enterprise is seldom free to adjust the technical and the economic factors. The ex- pansion program and the conditions of the market may require an increase of 25% in capacity, but technical requirements may impose an increase of 50% or 100%. The new equipment may be justified from the technical standpoint of efficiency and unjustified from the economic standpoint of realizing on all the output, of sales and profits. On the other hand, an increase in consumer demand usually results in new capacity much greater than the new demand. Thus, enlarging the scale of production tends to increase excess capacity; this, as the
• "The rate of profit within the process of production itself does not depend merely on the surplus value, but also on many other circumstances: on the purchase prices of the means of production, on methods more productive than the average, on economies in constant capital, etc. And aside from the price of production, it depends on special con- stellations of the market, and in every business transaction on the greater or lesser smart- ness and thrift of the individual capitalists, whether, and to what extent, a man will buy or sell above or below the price of production and thus appropriate in the process of circulation a greater or smaller portion of the total surplus value," Marx, Capital, V. Ill, p. 439.
134 The Decline of American Capitalism
variable costs of labor decrease in favor of the fixed and semi-fixed costs of constant capital, may result simultaneously in a rise in the mass of profits and only a temporary, if any, check in the falling rate of profit. Moreover, the tendency toward an absolute increase in the scale of production, regardless of market conditions and the proportional relations of one industry to another, conditions the whole movement of recurrent cyclical crisis and breakdown.
Monopoly arises out of changes in the composition of capital and their results. Monopolist combinations are only partly a result of the technical aspects of the enlarged scale of production, they are also a result of the desire to seize any available profits and control out- put, markets, and prices to increase profits. Vertical combinations spread upward and downward to secure profits in the production of raw materials (and assure a steady supply) and profits in various stages of manufacture up to the final product. Horizontal combina- tions spread outward to control the output and markets of a particular product, and secure more profits by manufacture of allied products and general diversification of output. Some combinations may do both. These efforts to increase the mass of profits include combinations striving to secure a higher rate of profit in one activity to offset a fall- ing rate in another activity. The process, which leads to monopoly, results in intensified competition because of larger output, the increase in the scale of production, and the persistent torments of fixed and semi-fixed costs and excess capacity.
Under the conditions of large-scale production, competition is not necessarily accompanied by a decrease in production or shutdown if prices fall or by the migration of capital to a more profitable industry if profits are low. That possibility was always more theory than real- ity : it was severely restricted by fixed capital, habit, and lack of knowl- edge of a new industry. It was, nevertheless, easier than to-day to de- crease production or shut down or migrate to a new industry because of the large proportion of easily transferable variable capital. This becomes increasingly difficult in large-scale industry because of the greater investment in fixed capital and the greater specialization of machinery and output. To-day, large-scale enterprises, in manufac- tures, mining, petroleum, keep on producing regardless of unfavorable market conditions : to decrease production or shut down usually means heavier losses than selling below the price of production, means a dis- astrous depreciation of capital. Competition is intensified. Intensified competition, unprofitable prices, and large losses no longer necessarily
Multiplying Contradictions and Decline 135
result in decreased production. This aggravates the contradictions driv- ing toward overproduction and cyclical breakdown.
Efforts to create monopoly are invigorated. Monopolist combinations succeed (an indication of capitalist decline) mainly by limiting output and raising prices, by control of markets and prices more than by gains in productive efficiency, and frequently in spite of real losses in effi- ciency. These combinations seize some of the profits of trade by ex- torting monopoly prices or by opening their own retail outlets, and they seize some of the profits of "independent" small producers by extort- ing higher prices for materials or by forcing them to accept low prices for parts of a product which they manufacture. Thus, monopolist com- binations may check a fall in their rate of profit by imposing lower rates upon other groups of capitalists. But monopoly is rarely complete or enduring. Monopolist combinations or controls break down. New forms of monopolist competition arise. Monopolist combinations may clash with each other over prices of raw materials or by invading each other's markets. Independents, using the newest and most efficient equipment and much more likely to operate at 100% of capacity, may earn a higher rate of profit than the larger companies — as was the case in the steel industry in 1923-29. If monopolist combinations succeed in suppressing competition in their own fields, competition in other fields is aggravated. This may result either from the greater pressure of capital seeking investment or from monopolist combinations invad- ing non-monopolist markets to secure a larger "slice" of the consumer's dollar. The "organization" of capitalist production provokes new dis- organization. And in spite of all its efforts, monopoly capitalism is still tormented by the tendency of the rate of profit to fall.
The increasingly higher composition of capital, the absolute develop- ment of production and the relative development of consumption, the fall in the rate of profit, and the contradictions of accumulation in general are inseparably bound up with the development of the world market, the emergence of imperialism, and the international extension of the inner antagonisms of capitalist production.
Enlarging the scale of production makes more imperative the de- mand for foreign markets to supply raw materials and absorb finished manufactures.* Foreign trade tends to increase surplus value and its
* American imports of raw materials rose from a yearly average of $91,000,000 in 1876-80 to $1,484 million in 1926-30, exports of finished manufactures from $98,000,- 000 to $2,126 million. Imports of raw materials rose three times as much as exports; exports of finished manufactures rose four times as much as imports. Department of Commerce, Statistical Abstract, 1931, pp. 494-95. Foreign trade also supplies raw materials otherwise unavailable or nearing exhaustion.
136 The Decline of American Capitalism
realization and check the fall in the rate of profit by providing cheaper raw materials and foodstuffs and by reducing excess capacity through selling abroad goods which are unabsorbable in the domestic markets.
The efforts of monopolist combinations to increase the mass of prof- its and the rate result in their operations becoming international, particularly in economically undeveloped regions. They attempt to monopolize sources of raw materials and markets for finished manu- factures, both capital goods and consumption goods. Frequently mo- nopolist combinations establish branch plants where cheap raw mate- rials and cheaper labor yield higher profits.
The international operations of monopolist combinations require an export of capital: nearly one-half of American capital in foreign coun- tries consists of direct investments in branch plants, natural resources, communications, and distribution. This direct export of capital is aug- mented by the export of capital in the form of loans. In spite of the great demand for capital in the highly industrial nations, strengthened by changes in the composition of capital, there is always a surplus capital seeking investment anywhere, anyhow. The export of this sur- plus capital permits it to "earn" a higher rate of profit and eases the downward pressure on the rate of profit of capital invested in domes- tic industry.
In the epoch of monopoly capitalism foreign trade becomes en- tangled with imperialism: the export of capital, the international oper- ations of monopolist combinations, the struggle to control economically backward regions capable of supplying raw materials and absorbing surplus goods and capital. But imperialism, an endeavor to escape the contradictions of accumulation and capitalist decline, creates new con- tradictions. The export of capital tends to become an export of in- terest paid on previously exported capital, which does not involve the export of goods; the check in the fall of the rate of profit is only temporary, as imperialism develops its own downward pressure on the rate because of surplus capital, intensified competition, and the development of large-scale industry on a world basis; the industriali- zation of economically backward regions and the constantly greater rivalry of imperialist nations weakens the economic base of imperial- ism and strengthens capitalist decline. Imperialist antagonisms become more violent, and explode into war and the threat of new wars, while exploited colonial and semi-colonial peoples rise in revolt against im- perialism.
If the rate of profit falls it sets in motion all the contradictory and
Multiplying Contradictions and Decline 137
antagonistic efforts to check the fall. If the fall is checked or if the general rate rises there ensues an accelerated accumulation of capital and creation of more surplus capital: the situation becomes worse. Surplus capital desperately seeks profitable investment, forcing down the rate of profit. It flows into industry, producing more excess ca- pacity; invades the domains of monopoly with old, new, or substitute products, producing more excess capacity; sharpens competition, in- flames the passions of speculation, and strengthens the material and ideological bases of imperialism. The result is an intensification of economic disproportions, an increase in the instability of capitalist production, and the aggravation of cyclical breakdown and depression.
Capitalist production is held tightly, inexorably, as in a vise, in the contradictions of accumulation. What J. M. Clark, a liberal econ- omist, says of overhead costs is true of all the contradictions of accum- ulation, of which overhead costs are an aspect:
"They [overhead costs] make regular operation peculiarly desirable and peculiarly profitable, so that business feels a definite loss whenever output falls below normal capacity, and yet it is largely due to this very fact of large fixed capital that business breeds calamities for it- self, out of the laws of its own being. . . . There is something about the commercial-industrial system which bewitches business so that it does just the thing it is trying to avoid, and is held back from doing just the thing it yearns to do — maintain steady operation. . . . We may end our study with a curious wonder at the intricacies of the financial- economic machinery which man has built. Man did not design them; they are rather the unintended by-products of the inventions which he did design to serve his supposed needs. These unintended by- products he does not even understand. They appear with all the force of living things with purposes foreign to those of mankind, because they act in ways which man does not understand and did not plan. No man has yet comprehended them completely. Yet we do know enough to offer some prospect of controlling them, though we must well-nigh remake ourselves and our industrial organization in the process. And so we may look forward, not without hope, to the task of taming the New Leviathan. The stakes are heavy, for if we do not tame him, he may devour us." ^
The monster must "devour us." For in its efforts to ease the burden of overhead costs and excess capacity, to avert a fall in the rate of profit, capitalist production lowers wages, multiplies unemployment, engen- ders crises and depressions, and throws the world into the bloody struggles of imperialism. And the monster must "devour us" even
138 The Decline of American Capitalism
under the institutional arrangements of state capitalism urged by the liberal economists. How does Clark propose to "tame" the monster? By means of the "co-operation" of business "for certain purposes while competing for other purposes"; of a price and wage policy intended to "increase output" and "minimize" unemployment (which is con- tradictory); of the "partnership" of capital, labor, and the consumers; of national planning. These suggestions, made in 1924, are now part of the "philosophy" of Niraism: and they are not working. Nor are they working in the European nations where state capitalism is more highly developed. While Clark, whose study is original, comprehen- sive, and suggestive, measurably recognizes the determining relations of production, he overemphasizes the relations of exchange. This over- emphasis, which accepts capitalist production as eternal, necessarily leads to proposals of superficial and unworkable reforms in the realm of exchange. It is with exchange that state capitalism tinkers, for it cannot tinker with the foundations of production. But the problem is one of the underlying antagonisms of capitalist production: the ex- ploitation of labor, the composition of capital, the drive to beat down wages in favor of profits, the tendency to develop the forces of pro- duction beyond the forces of consumption, and the resulting excess capacity and "unearned" overhead costs. It is a problem of the con- tradictions of accumulation. The disastrous results of the contradic- tions and antagonisms appear in the realm of exchange, but they originate in the realm of production. It is, moreover, a problem of the social relations of capitalist production, of their fundamental exploit- ing character. For, under socialism, the higher composition of capital would mean more output or leisure or both; and there could be no excess capacity because the aim of production becomes social consump- tion and not private profit. There is no excess capacity in the Soviet Union: no unemployment, no overproduction, no cyclical crises and breakdowns. ...
The monster of capitalist accumulation cannot be tamed: it is the law of his being to devour not only "us" but capitalism itself. For the contradictions of accumulation are always undermining capitalism, preparing its decline. But the undermining is relative in the epoch of the upswing of capitalism: the contradictions are solved dialectically, by the movement of crisis, depression, and recovery, while the long- time factors of expansion permit of accumulation on an enlarged scale. The mechanization of old and the development of new indus- tries, the exploitation of the world's economically backward regions (railways, public works and other construction, natural resources,
Multiplying Contradictions and Decline 139
new markets), particularly important in the United States because of its own continental areas and resources — all these long-time factors of expansion provided abundant demand for capital goods, the crea- tion and absorption of new capital. There was an ebb and flow, crises and breakdowns and destruction of capital, but the long-time factors of expansion provided the conditions for enlarged accumulation, for an accelerated production and realization of surplus value. When ex- pansion is exhausted or approaching exhaustion, and the decline of capitalism becomes the dominating fact of economics and politics, the contradictions of accumulation begin to undermine capitalism in an absolute sense because of the limitations imposed upon the production of capital goods, upon the creation and absorption of new capital.
The prosperity of 1923-29 marked the practical exhaustion of the inner long-time factors of expansion, which now depends upon the dangerous expedients of imperialism and its exploitation of interna- tional long-time factors of expansion. That upsurge of prosperity was the "Golden Age" of American capitalism precisely because it can never appear again: golden ages are always in the past. The unusually great accumulation of capital in 1923-29 completed a cycle of expan- sion and measurably exhausted the future possibilities of any consid- erable growth in old and new industries. This development is em- phasized by the tendency of the population to become stationary. Under these conditions of decline, of exhaustion of the long-time fac- tors of expansion, national and international, the contradictions of accumulation are no longer overcome by the stimulating growth of industry. Production of capital goods tends to become mere replace- ment. Accumulation proceeds on a lower level, the extortion of sur- plus value are limited. Capital becomes relatively more abundant (although it may experience an absolute decrease) because of dimin- ishing investment opportunities. The contradictions of accumulation become more violent and explosive because the accumulation of capi- tal, dependent upon the increasing production and absorption of capi- tal goods, is limited, repressed. On a lower level, crises and break- downs still act as a temporary solution of contradictions, but they are no longer overcome by accumulation on an enlarged scale; depressions become more grinding and recovery is limited because expansion no longer stimulates an upsurge of prosperity. Capitalist decline is ac- companied by the desperate resort to imperialism and state capitalism — imperialism, to escape contradictions; state capitalism, to "lessen" and "solve" by state action the multiplying contradictions of accumu- lation.
140 The Decline of American Capitalism
State capitalism originates in the increasing contradiction between the older relations o£ competitive capitalism and the newer relations of monopoly capitalism, in the inability of monopoly capitalism to function without some form of state intervention in industry — itself an indication of approaching capitalist decline. When the decline be- comes definite and threatening, state capitalism becomes definite and inclusive. The institutional arrangements of Niraism must operate within the limits of the exhaustion of the forces of expansion, i.e., of the decline of capitalism, which is still, moreover, tormented by the contradictions of accumulation on a lower level. Niraism cannot alter the composition of capital, or destroy large-scale industry, or over- come the tendency of the rate of profit to fall and the results of ef- forts to check it,* or prevent wages lagging behind profits, or any of the other fundamental contradictions and antagonisms of capitalist production: these persist and more actively undermine the crumbUng foundations of capitalism.
Where the "controls" of Niraism and state capitalism may modify any one contradiction, they create and aggravate other contradictions. State capitalism tends (primarily as a result of capitalist decline, not of state "controls") to decrease the absolute mass of profits. While this may be accompanied by alternating scarcity and abundance of capital, the relative mass of profits and capital tends to increase, how- ever, because of diminishing opportunities for profitable investment, in- tensifying the downward pressure on the rate of profit. That means a drive to raise profits by improving technological efficiency, displacing labor, and lowering production costs, thus aggravating the problem of excess capacity and the falling rate of profit by increasing constant capital and restricting markets. As a way out, an engineer^ suggests that the NRA impose "an indirect tax which would tend to drive idle machinery out of existence and make further investment in unnecessary plants and equipment unattractive to capital." As simple as all that! Almost as simple as the belief of some management engineers that the costs of excess capacity are a problem in the arrangement of ma- chines and the more intensive exploitation of labor. As simple as the
* The downward pressure on the rate of profit becomes stronger under the conditions of capitalist decline. "Until the world again enters upon a period of great industrial expansion, requiring large expenditures of new capital, the rate of interest obtainable from the highest type of security is likely to be low, very low — lower at all events than any yet seen." Thomas F. Woodlock, "Money's Hire," Wall Street Journal, June 20, 1933. Woodlock speaks the jargon of the investment broker and confuses profit and interest, but his point is clear.
Multiplying Contradictions and Decline 141
idea of progressives that income and inheritance taxes would break up the concentration of wealth (which has greatly increased since the taxes were imposed).
The proposal to tax unused capacity ignores the conditions which produce "idle machinery" and "unnecessary plants" — the change in the composition of capital, the tendency of the rate of profit to fall, and the surplus capital pressing for investment. Would not the tax intensify the fall in the rate of profit by adding the costs of the tax to the costs of unused capacity? And would it not encourage full use of capacity, sharpening the threat of overproduction and cycHcal break- down ? Is there to be no more surplus capital ? What of wages neces- sarily lagging behind profits, of investment income increasing more than consumption income? Is surplus capital to be taxed out of ex- istence? What of the efforts to increase the mass of profits to check the fall in the rate, thereby enlarging the scale of production and ex- cess capacity? And what of the unpreventable efforts to increase profits by increasing the productivity of labor, which usually cannot be done without creating more excess capacity? If Niraism "fixes" wages and prices and "restricts" output, would that not tend toward more excess capacity? This is admitted by a bourgeois economist: "A premium will be put on efforts to lower the cost of production for the sake of much higher profits. This will be done by investing more capi- tal in order to increase the productivity of labor and may very well result in new and revolutionary technical developments . . . and can only lead to further overdevelopment of industries." ^ Is a tax on un- used capacity to overcome the antagonisms between the output of capi- tal goods and consumption goods, between one industry and another, between production and consumption — antagonisms resulting from the exploiting relations of capitalist industry?
The tax proposal, moreover, ignores the fact that excess or unused capacity is not absolute, except in rare cases: it is relative. It is an ex- cess only in relation to existing deficiencies in mass purchasing power and markets, not in relation to social needs, for these are clearly abun- dant and pressing. The tax proposal amounts to a restriction, instead of liberation, of production, and is thus wholly in line with the tend- ency to repress economic progress, which is characteristic of state capitalism and Niraism and of the decline of capitalism. What is necessary is not the capitalist abolition of excess capacity, used or un- used, but its socialist utilization to fill social needs.
These problems constitute a whole chain of causes and effects, one problem linked to another with links of steel. The problems involve
142 The Decline of American Capitalism
the fundamental, inescapable contradictions of accumulation, of capi- talist production; these, in the epoch of the decline of capitalism must doom Niraism and devour capitalism, particularly when the contradictions explode in imperialist war. And final contradiction and synthesis: in large-scale industry, capitalism has prepared the objec- tive basis of socialism and has set in motion the dynamic forces of class struggle by means of which the working class, organized by the mechanism of capitalist production itself, mobilizes for the overthrow of capitalism.
Summary
Jl HE accumulation of capital, the production of profits and their con- version into capital, means both life and death to capitalism. For ac- cumulation is beset with contradictions. It simultaneously promotes production and sets in motion forces antagonistic to production and accumulation.
Accumulation depends upon an increasing production and realiza- tion of surplus value and its conversion into capital by means of an increasing output and absorption of capital goods. The consequent enlargement of the scale of production results in a higher composi- tion of capital : the proportion of variable capital (wages) falls in favor of constant capital (equipment and materials). A given quantity of labor sets in motion a larger quantity of equipment and materials. But this higher composition of capital limits the production and real- ization of surplus value. It means a fall in wages and a rise in out- put and profits. Mass purchasing power and consumption are restricted. The forces of production are developed more highly than the forces of consumption. An excess capacity arises, a capacity to produce beyond the power to consume of existing markets. If the excess capacity is un- used it produces no surplus value and profit, while its fixed and semi- fixed costs eat into the realized surplus value and profit. If the excess capacity is used, it throws a mass of goods upon the market which can- not be sold at profitable prices. Competition is intensified. Profits are lowered. The rate of profit falls. In its efforts to check the fall, capi- talist enterprise raises the productivity of labor and enlarges the scale of production, resulting in a still higher composition of capital, more excess capacity and competition, more limitation of the production and realization of surplus value, more downward pressure on the rate of profit. Among the efforts to check the fall is the resort to monopoly and to the export of capital and imperialism.
The fall in the rate of profit and the efforts to check it are funda- mental factors in the instability of capitalist production and prosperity. Both are interlocked with cyclical crises and depressions. These break- downs temporarily solve the contradictions of accumulation by de-
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144 The Decline of American Capitalism
stroying and depreciating capital, which permits of a rising rate of profit on the surviving capitals.
In the epoch of the upswing of capitalism, the accumulation of capi- tal is renewed, after a depression, on an enlarged scale. There is an upward movement in production and prosperity because the long- time factors of economic expansion make possible an increasing out- put and absorption of capital goods. The rate of profit falls, but the fall is compensated by an increase in the mass of profits.
In the epoch of the decline of capitalism, the accumulation of capital is not renewed, after a depression, on an enlarged scale. There is no upward movement of production and prosperity because exhaustion of the long-time factors of economic expansion now measurably pre- vent an increasing output and absorption of capital goods. The rate of profit falls, but the fall is no longer compensated by an increase in the mass of profits. The contradictions of accumulation are aggravated. Greater disproportions and disturbances are created, and there is more resort to monopoly and the export of capital and imperialism.
Excess capacity, a result of the higher composition of capital and the forces it sets in motion, is merely a relative excess capacity. It is not the peculiarity of a particular enterprise. Nor is it the result of mis- judging demand or of defects in the realm of exchange. Excess capacity is an inescapable result of accumulation under the social relations of capitalist production. Excess capacity — while millions of wants arc unsatisfied! Unused capacity — while milHons are unemployed! The condition represents a restriction of consumption among the masses of workers, farmers, and professionals. For accumulation grows by increasing that part of the output of industry which is not consumed but is transformed into capital goods. Consumption is thus restricted. Yet consumption is necessary to production; new capital goods can yield profit only if they produce and sell their output at profitable prices. But production is developed more highly than consumption. Hence excess capacity, the falling tendency of the rate of profit, and the recurrence of cyclical crises and depressions. The contradictions of accumulation are entangled with the antagonism between production and consumption.
PART FOUR
The Antagonism Between Production and Consumption
Introductory
JIt seems true to say : man produces to consume. But that is true only o£ benighted savages and enlightened communists. Capitalist produc- tion aims to make profits. Consumption is subordinate to production, and consumption grows incidentally, as a mere by-product of the ac- cumulation of capital. The worker works to consume, but capitalist production permits him to work and consume only if profits are there- by realized to enrich the owners of industry. Capitalist enrichment results from accumulation, not from consumption, which is a neces- sary evil. But the drive for the production of surplus value, for an increasing and absolute production, expansion, and accumulation of capital, necessarily restricts the consuming power of society {cf. the decline of wages relatively to profits). Production and consumption, instead of being complementary, are in fundamental antagonism.
Most of the early bourgeois economists practically ignored consump- tion, considering it merely an aspect of exchange. With the enormous increase in the productive forces of society and the multiplication of goods, economists began to consider the problem of consumption. But they did so in terms of distribution within the limits of existing eco- nomic relations, completely ignoring 'the fact that the problem was created by capitalist production itself. The problem was considered solved by the pre-1929 "new capitalism." But, aggravated by multi- plying contraditions, the antagonism between production and con- sumption flared up in the most disastrous of cyclical depressions.
Now Niraism (and state capitalism in general) proposes to solve the antagonism between production and consumption, which involves the antagonism between profits and wages. President Franklin D. Roosevelt says: "We can make possible by democratic self-discipline in industry general increases in wages and shortening of hours suffi- cient to enable industry to pay its own workers enough to let those workers buy and use the things that their labor produces." . . . Gen- eral Hugh Johnson, Administrator of the NRA: "Of course we arc concerned with profits. The idea is to restore equilibrium, to establish and maintain purchasing power. You cannot have business without the investment of capital, and you cannot have that without profits.
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148 The Decline of American Capitalism
During the intense drive for recovery the first emphasis should be put on purchasing pow^er rather than profits because we think that is the quickest w^ay to regain profits." ... A. J. Morris, banker: "The sum total of all the revolutionary legislative and administrative policies upon which we have embarked embodies the single objective — 'stimu- lation and stabilization of purchasing power.' "... Prof. Rexford Guy Tugwell, economist and rationalizer of Niraism: "Unless the agricultural, the laboring and the office worker groups in America, who comprise in all America the great body of consumers, are pro- vided with buying power, our whole economic structure falls into idleness and ruin. Only if it [Big Business] is definitely governed [can it] assure a general well-being making possible a continuous mass consumption." . . . E. A. Filene, businessman, who prophesies (again!) the aboUtion of poverty: "It is not only possible to abolish poverty, but to raise the masses into a state of well-being." ^
The pre-1929 prophets of prosperity (among them, damningly enough, Tugwell and Filene) used the same words: production de- pends upon consumption: as the workers are the largest consumers, prosperity depends upon and is necessarily accompanied by increasing consumption among the workers.* . . . An economic historian, in 1928: "Gradually, consuming power was recognized to be not only the ba- rometer of good times but also their determining element. Hence the cultivation of consuming power became the direct concern of manu- facturers." . . . The president of the National Industrial Conference Board, in October, 1929, while the cyclical breakdown was develop- ing and several weeks before the stock market crash: "A definite phi- losophy has arisen — the trend of American business policy is toward creation of widespread consumer purchasing power by providing high wages. There is being established a 'benevolent circle' in place of the vicious circle, extending from high wages to high consumer purchas- ing power, to increased demand for manufactured goods and services, and to still greater industrial production." . . . And a European econ- omist, in 1929: "The disastrous business slump of 1920-21 made a deep impression upon the minds of American businessmen. It was
* Among the ballyhoo-makers of prosperity who glorified Niraism was the adver- tising promotion staff of True Story, using the old words and tune: "Within the past ten years America has been making social and economic changes on the face of the earth. . . . The purpose of [Niraism] is to provide this great mass market [the workers] with still greater [I] buying power. If you have the mass production you must have mass consumption. . . . This method of securing national recovery is already working; it had begun to work long before the president's proclamation." Advertisement, New York Times, September 12, 1933.
Introductory 149
realized as never before, that industrial prosperity depends not only upon the ability to produce but also upon consumption keeping pace with production."^
This great "principle" was no discovery. ... In 1889 David A. Wells, an American economist, said: "We produce to consume, and we consume to produce, and the one will not go on independently of the other. An increase in the production of all useful and desirable commodities and services follows every increase in the ability of the masses to consume." . . . Twelve years earlier another American, frightened by the great strikes of 1877, which he condemned as "in- surrectionary" and "communist," urged, in "the best interests of so- ciety, the interests of the capitalists themselves," raising the purchas- ing power and consumption of the workers: "The number of laborers who can buy must be large, or many of those who produce to sell will have little or nothing to do. Buyers are as important, in order to have prosperity, as sellers." . . . And Ira Steward, an early American labor leader, who believed the workers would eventually "consume" the capitalists out of private ownership: "Wealth cannot be consumed sparingly by the masses and produced rapidly. If the worker obtains less he spends less." ^
The "principle" was neither new nor American in its origin. Jacob Vanderlint, an English merchant-economist, enunciated it in 1734, when capitalism was in its revolutionary youth :
"The labouring People in general are but half the Consumers they ought to be. . . . By making the Poor fare harder, or consume less than their reasonable Wants in that Station require, they being the bulk of Mankind, would affect the consumption of Things in general so mightily, that there would be a want of Trade and Business amongst the other part of the People. ... If the labourers become much greater consumers this would certainly make abundance of Trade and Busi- ness. . . . Increase the power of labourers to buy half as many more necessaries for their support and comfort, and there would be almost half as much more Trade and Business. . . . Raise the wages of the labouring People and augment the profits of the trading part." *
The "principle," in spite of its apparent economic logic (applicable only under non-capitalist conditions), contradicts the basis of capitalist production. An increase in consumption is profitable regardless of who the consumers are and only if it represents an increase in the output of capital goods. That is the tribute of the profit economy. As long as the output of capital goods rises consumption may increase, because consumer purchasing power is created (wages, part of salaries and
150 The Decline of American Capitalism
profits), and is spent wholly on the output of the consumption goods industries, not on the output of the industries producing capital goods. These were the conditions in the epoch of the upswing of capi- talism, when the mechanization of older industries, the development of new industries, and the industrialization of new regions resulted in an increasing output and absorption of capital goods. Even then, how- ever, the antagonism between production and consumption flared up in recurrent cyclical crises and breakdowns. The antagonism creates a permanent crisis in the epoch of the decline of capitalism because production and consumption are no longer stimulated by a constantly greater output of capital goods.
CHAPTER X
Economic and Class Contradictions
JtiiVEN after the coming of depression the belief prevailed that the pre-1929 prosperity was based upon consumption. It was thus expressed by M. J. Bonn, a German bourgeois economist:
"American prosperity was based on the prosperity of the ultimate consumer, and not, like the German boom, on the prosperity of industries producing capital goods which furnished employment for each other.^
But American prosperity, as much as the German, was not "based on the prosperity of the ultimate consumer." A high level of consump- tion may accompany prosperity, but it is never the primary cause. If German prosperity (in the cyclical sense!) was accompanied by a low level of consumption, it was not because prosperity was based upon the output of capital goods but because the output was limited by the conditions of economic decline, and consumption fell. If Ameri- can prosperity was accompanied by a comparatively high level of consumption, it was not because prosperity was based on "the ulti- mate consumer" but because American industry, merely approaching decline, was able to produce and absorb a constantly greater output of capital goods. Under the conditions of the upswing of capitalism the fall in consumption is relative; under the conditions of decline the fall is absolute. Both in Germany and the United States, more- over, the output of capital goods increased more than consumption goods, hence the cyclical breakdown. . . .
That consumption was not the basic factor in American prosperity was observed by a business journal early in 1929:
"There is certainly nothing in the statistics to indicate the existence of that rapidly expanding consumptive capacity of the masses about which so much is heard to-day." ^
Consumption in 1922-23 moved sharply upward, scoring an aver- age yearly increase of 6.5%. One cause was cyclical recovery, another the considerable rise in wages. But the rate of increase fell abruptly. "In 1924 consumption was rather sharply below that of the year preceding; and the same was true of 1925, despite an appreciable recovery. In 1926 there was a short-lived spurt, the per capita volume
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for that year being rather more than ^% above 1923. The per capita consumption for 1927 was about 2% below that of the year before, though still perhaps 4% above the figure for 1923. . . . There has ceased to be a noteworthy upward trend in the quantity of tangible goods consumed per capita by the people of the United States." ^
Production in 1922-23 moved sharply upward, scoring more than the usual cyclical gains, but the rate of increase was not maintained.* In spite of the great expansion in new and old industries, the rate of increase in production was downward. This seems to contradict the fact that there was an average yearly increase in production of 3.8% compared with 3.1% in 1901-13.* But the comparison is mis- leading. There was a major depression in the earlier period, none in the later. If the major depression years of 1907-08 are eliminated, the two periods become more comparable, particularly as each had two minor depressions. On this basis production scored an average yearly increase of 6.3% in 1901-13 and only 3.8% in 1922-29. Still more significant, the average yearly increase in production was smaller in igo^i^ than in igo2-o6 and smaller in ig22-2g than in igog-i^, the rates of growth being 7.6%, 4.6% and 3.8%. The upward move- ment in production began to flatten in 1909-13, continued to flatten in 1923-29, and is still flattening. This is a serious threat to capitalist production, for it depends upon an increasing rate of expansion and of capital investment.
A relative or absolute decrease in consumption is not incompatible with capitalist prosperity. But if the rate of increase in production was smaller than pre-war, why the flourishing capitalist prosperity of 1923-29? The answer is in the accumulation of capital and the output of capital goods. In spite of a flattening in the upward move- ment of production, there was an unusually large increase in the output of capital goods and consequendy in dividend and interest payments (Table I). Even in 1923, when consumption made a much larger gain than in the following years, the rate of increase in the output of capital goods was more than twice the rate in consumption goods. The statistical picture of the disproportions in the major eco- nomic factors clearly reveals the causes both of capitalist prosperity and of cyclical b/eakdown. At the basis of the disproportions is the tendency for the output of capital goods to rise more than consump-
* The output of manufactures rose from $39,050 million in 1923 to $40,400 million in 1925 and $41,000 million in 1927— not a startling increase. Output rose to $47,100 million in 1929, a sharp and disproportionate rise definitely bound up with the cyclical crisis. Department of Commerce, Statistical Abstract of the United States, 1931, p. 483.
Economic and Class Contradictions 153
TABLE
I
A
ntagonistic Factors
in Production and Consumption,
1923-29
CAPITAL CONSUMPTION
DIVIDENDS
TOTAL
YEAR
PRODUCTION
GOODS
GOODS
-INTEREST
WAGES
1923
lOO.O
lOO.O
lOO.O
lOO.O
lOO.O
1924
*
89.6
99.1
103.8
IOI.3
1925
103.5
105.6
IO8.I
II7.5
107.2
1926
*
II7.6
II2.6
132.6
II3.7
1927
IIO.I
II4.6
III.7
I44.I
114. 6
1928
*
II 6.0
II7.I
150.8
112.4
1929
120.6
136.0
II8.0
177.2
*
* Not available.
Source: Production — Census of Manufactures, 1929, v. I, p. 16; capital goods and consumption goods — F. C. Mills, Economic Tendencies in the United States, p. 280; dividends and interest, all corporations (exclusive of interests paid by banks) — ^Bureau of Internal Revenue, Statistics of Income for the respective years; wages (all wage-workers) — W. I. King, The National Income and Its Purchasing, p. 132. The index of dividends only was 200 in 1929. Interest rose 31%, dividends 100%.
tion goods and the enormous lag o£ wages behind dividends and interest.
While the rise in the output of capital goods always exceeds that in consumption goods, this was particularly marked in 1923-29. Where there was an average 5% rise in capital equipment in the years be- fore the World War, the post-war average was 6.4%. "The index shows an appreciably more rapid growth of those products of economic activity which may be called procreative, than of end-products in the form of consumption goods. The equipment for producing goods for ultimate consumption was being augmented year by year at an exceptionally rapid rate. An increasing proportion of our total annual output of goods took the form of equipment designed to further the processes of roundabout production." ^ Machinery, the most "pro- creative" of capital goods, scored the largest gains. Consumption scored much smaller gains, and these were dependent upon larger gains in capital goods : when the output of capital goods slowed down, prosperity crashed into depression and consumption fell seriously. The growth in capital goods and in dividends and interest react upon one another : an increasing output of capital goods permits the realiza- tion of larger profits, which in turn permit an increasing investment and output of capital goods. Disproportions were sharpened, resulting in the minor depressions of 1924 and 1927, warning of the coming catastrophe. The depressions were temporarily overcome by the
154 The Decline of American Capitalism
demand for capital equipment in the newer industries and for more efficient equipment in the older industries to raise the productivity of labor. At the same time exports of manufactured goods rose from 7% of the total in 1923 to 8% in 1929; these exports increased an average of 9.3% yearly compared vv^ith an average of 7.6% in 1901-13.^ The increase w^as largely due to the American export of capital, which financed foreign purchases. Thus for a time, and in spite of minor interruptions, there was a constantly greater output and absorption of capital goods, the basis of prosperity.
The relative increase in the output of capital goods was even greater than appears in Table I, whose index of consumption goods over- estimates the rise in consumption. It includes residential construction, which is, particularly in the case of apartment houses, more in the nature of capital goods, and which, since it experienced an unusually great rise, inflates the index of consumption. Moreover, the index represents the physical volume of consumption goods produced, and gives no indication of the fact that sales were below output and often below values. Thus in 1923-29, while the yearly average of production (all goods) was 5.9% above "normal," consumption (retail sales) was only 1.3% above "normal."^ This reveals more clearly the tendency of capitalist enterprise toward an unconditional develop- ment of production, creating the antagonism between the capacity of industry to produce and the consuming power of a society based on class divisions.
The great increase in dividends and interest — nearly four times the increase in production and five times that in wages — arose logically. It arose because of the enlargement of the scale of production and the consequent change in the composition of capital. As constant capital (particularly the fixed portion) rises more than variable capital, more must go to capital than to labor, in spite and because of the tendency of the rate of profit to fall. Wages in manufactures rose 6%, capital investment and profits much more.* It is argued by the apologists of capitalism that a rise in other wages compensates for the relative fall of wages in manufactures. It does not. The wages of all workers rose not much over 12%, dividends and interest 77%. The major part of dividends and interest is not consumed, it is
*In the twenty-year period 1909-29 the average yearly rate of increase in interest was 9.3%, in dividends 7.1%, and in wages and salaries 6.5%. Robert R. Doane, The Measurement of American Wealth (1933), p. 48. The increase in wages was less than t>.5%, because that percentage is enlarged by the inclusion of salaries, which rose much more than wages.
[^^
CONSUMPTION^ GOODS J)
m3 +ISiif
nz^
isi6
nZT
r;^ iqx<^
V
VII. CONTRADICTIONS IN PRODUCTION AND CONSUMPTION.
156 The Decline of American Capitalism
re-invested; the major part of wages is consumed, it is spent on con- sumption goods (and services). Because o£ these developments a deficiency in consumption is eventually created, an expression o£ the antagonism between production and consumption, of the contradic- tion between the unconditional increase in production and the con- ditional increase in consumption.
The economic contradictions in the movement of production and consumption are necessarily expressed in class antagonisms:
Struggle between the workers and employers over wages: while wages may rise absolutely, they always fall relatively to profits.
Unequal class distribution of the national income: while the work- ers' absolute share may rise, their relative share falls.
Unequal class distribution of consumption: while the workers' ab- solute share may rise, their relative share falls, and proletarian con- sumption always tends toward a minimum.
Considering the small increase in general consumption, there was not much, if any, increase in consumption among the workers. Most of the rise in total wages was concentrated among the better-paid workers, who are apt to save more of an increase than they spend (workers' savings rose in this period). Moreover, there was a fall in consumption among workers in the depressed industries and among the 1,000,000 workers who in this period were added to the reserve army of the unemployed. At the same time there was a substantial rise in consumption among the other classes {not the farmers). It rose considerably in the circles of the lower and intermediate bour- geoisie, among whom the automobile, modernistic furniture, and Mexican handicrafts became symbols of "cultural" standards of living. And there was a sharp upward spurt in conspicuous competitive consumption in the circles of the upper bourgeoisie, particularly among the speculators who "cleaned up." The class distribution of consump- tion (Table II) became more unequal. CapitaUst production, in the epoch of its upswing, increases consumption, but mainly among non- workers: economically regardless of who the consumers are, its whole class-political arrangements insure a concentration of consump- tion gains among the non-workers.
The prophets of prosperity (and now of Niraism) not only assumed that the workers were "enormously" increasing their share in con- sumption but that already they were the largest consumers. "The worker," said one of them, "is our greatest and most profitable cus- tomer. Our prosperity is 86% derived from our working population, for the millions of wage-earners constitute just that proportion of
Economic and Class Contradictions
157
TABLE II
Class Distribution
of Consumption,
7925
NUMBER
PER-
PER-
CLASS*
IN CLASS
CENT
AMOUNT
CENT
AVERAGE
Working Class:
(millions)
'
Wage-Workers
27,750,000
58.5
$18,250
39.7
$660
Clerical
4,750,000
1 0.0
3.500
7.6
735
Farmers
7,400,000
15.6
4,500
9.8
610
Bourgeoisie:
Lower
4,300,000
9.0
6,000
13-0
1.395
Intermediate
2,880,000
6.1
7.250
15.8
2,515
Upper
382,241
.8
6,500
14.1
17,000
Total
47,462,241
$46,000
$970
•Wage-workers include 2,300,000 hired farm laborers; farmers include 1,200,000 farm laborers working on home farms; bourgeoisie — capitalists, rentiers, merchants, etc., and managerial, supervisory and technical employees — is grouped according to income: lower, incomes below $3000 yearly; intermediate, incomes of $3000 to $10,000; upper, incomes of $10,000 and over. Number in class includes only the gainfully occupied.
Source and methods of computation: Consumption means retail sales of tangible con- sumers goods plus food produced and consumed on farms. The Census Bureau estimates retail sales in 1929 at $49,000 million (United States, Fifteenth Census, 1930, Distribu- tion, V. L Retail Distribution (1930), pp. 47-53). It is assumed that retail sales were $1,000 million less in 1928, or $48,000 million. From that is deducted $4,400 million for goods which are essentially capital goods or supplies (motor trucks, farm implements, office, school, and store supplies, but not automobiles and household appliances), to which is added $2,400 million for food produced and consumed on farms, making a final total of $46,000 million. The workers' budget is made up of 31% spent on food, 13% on clothing, 5% on furniture and house furnishings, and 8% miscellaneous goods such as radios, refrigerators, etc., or 57% of the workers' income spent on consumption goods; balance, 24% for rent, light and fuel and 19% for illness, amusements and sav- ings. (These estimates represent a revision of data in the cost of living in the United States, U. S. Bureau of Labor Statistics, Bulletin 357.) Of the farmers' income (see Chapter VI), $2,100 million spent on consumption goods, to which is added the figure for food produced and consumed on farms. Clerical employees are assumed to spend 55% of their income on consumption. If dwellings were included the share of workers and clerical employees in consumption would be materially lowered. "Average" in the case of farmers and intermediate and upper bourgeoisie means family share; in the case of workers, clerical employees and lower bourgeoisie, the family share in consumption is somewhat larger than the "average" in this table, as these families often have more than one person working.
our buying public."® But what Jacob Vanderlint said in 1734 was sdll relatively true: "The labouring People in general are but half the Consumers they ought to be." Although nearly three-fifths of the gainfully occupied, the wage-workers consumed only two-fifths of
158 The Decline of American Capitalism
the goods produced; including clerical employees, the share in con- sumption of the working class was only 47.3%, although this class was 68.5% of the gainfully occupied.* The combined share in con- sumption of the bourgeoisie was 42.9%, although this class includes only 15.9% of the gainfully occupied. In the circles of the upper bour- geoisie, the enormous total consumption of $6,500 million and average consumption of $17,000 measures the conspicuous competitive expend- itures in that class and contrasts sharply with the miserably small share of the producers: the one depends upon the other. If the value of food produced and consumed on farms is deducted from the farm- ers' total, their share becomes much smaller, below 5%. Most of the farmers' income is spent on the payment of interest and taxes and in the purchase of equipment and supplies, which are inescapable expenses. Their purchases of both consumption and capital goods did not account for more than 7% of the total. The farmer, whose share in consumption decreased sharply, is no longer necessary to capitahst prosperity.f Standards of living among wage-workers, cler- ical employees, and farmers (except the prosperous small upper layer) were roughly:
Below subsistence levels, 10,000,000.
Subsistence levels, 20,000,000.
Comfort levels, 6,500,000.
Thus there were, including dependents, at least 85,000,000 persons living on or below subsistence levels — in the "Golden Age" of American capitalism! That was during an upswing of capitalism; conditions must become worse in the epoch of decline.
Not only was the pre- 1929 prosperity not based upon consumption, it was least of all based upon consumption by the workers. Consump-
* Robert R. Doane, The Measurement of American Wealth (1933), p. 75, estimates that, in 1929, the workers' share in all expenditures, including services and finances, was 31%; the agricultural share was 10%.
t That the farmers are no longer necessary to capitalist prosperity is brutally admitted by the New York Trust Company in its publication, The Index (January, 1932, pp. 16-17): "Another view widely held but not so frequently expressed is that, relatively, agriculture no longer constitutes a major factor in our highly industrialized economy. . . . While [the farmers' expenditures] are important and probably, as in the case of exports, represents a margin on which a good proportion of profits are based, they are not large enough to warrant the assertion that the national welfare depends to an over- whelming extent upon agricultural prosperity, or that recovery from depression can be brought about by restoring farm prices to their previous levels. ... In recent years American industry has not been affected substantially by changes in farm purchasing power."
Economic and Class Contradictions 159
tion is necessary to production, but capitalism is incapable o£ system- atically developing the conditions of consumption. It was (and is) assumed that new purchasing power was (and can be) distributed proportionally among all groups of the people and in a manner to balance consumption and production. But there is no such balanced distribution under capitalism. The workers' share in new purchasing power is always smaller than the share of all other classes, and investment income always rises more than consumption income. Hence the unstable equilibrium of capitalist prosperity is undermined by the action of economic forces which involve a class antagonism: cap- italist production and accumulation constantly limit the purchasing power and consumption of precisely that c