From

the collection of the

m
Jjibrary
p

Prejinger
V
t

San Francisco, California 2006

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 REPRODUCED 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.

MANUFACTURED

ERNST REICHL THE UNITED STATES OF AMERICA BY H. WOLFF, NEW YORK

DESIGN
:

IN

TO
Esther

WHOSE FAITH

IS PART OF THIS BOOK

Digitized by the Internet Archive

in

2006

with funding from

IVIicrosoft

Corporation

http://www.archive.org/details/declineofamericaOOcorerich

Contents

PART one:
Introductory
I.

the AMERICAN
Capitalism

CRISIS
ii

II.

III.

Ballyhoo: The New The Meaning o Prosperity The Decline o Capitalism: General Survey

14

24
41

PART TWO
IV.
Profits

PROSPERITY, PROFITS,

AND WAGES
63 76

and Prosperity

V.
VI.

The

Policy of

Profits

High Wages and Wages: State Capitalism

94

PART THREE

CONTRADICTIONS OF ACCUMULATION
VII.
VIII.

IX.

Accumulation and the Composition of Capital The Fall in the Rate of Profit Multiplying Contradictions and Capitalist Decline

113
118

130

PART four: the ANTAGONISM BETWEEN PRODUCTION AND CONSUMPTION

X.
XI.
XII.
XIII.

Economic and Class Contradictions Excess Capacity, Competition, and Speculation The Onset of Crisis and Depression Production and Consumption: Capitalist Decline

151

160 180
193

PART FIVE

UNEMPLOYMENT, TECHNOLOGY, AND CAPITALISM

XIV.
Prosperity and

Unemployment

225
241

XV. Disemployment and Surplus Population XVI. The Economics of Technology

260

viii

Contents

PART SIX

CONCENTRATION OF INCOME AND WEALTH

XVII.
XVIII.
Class Distribution of

Income
Wealth

305

The

Multiplication o Stockholders

322
341

XIX.

Class Distribution of

PART SEVEN

MONOPOLY CAPITALISM AND IMPERIALISM

XX.
XXI.
XXII.
Trusts: Concentration and Combination

373 395 416

Monopoly and Finance Capital The Dynamics of Imperialism

PART eight:
XXIII.

the struggle for power

460 489
515
541

Prosperity and Capitalist Decline

State Capitalism, Planning,
Crisis of the

XXIV.

and Fascism

XXV. The
Notes: 577

American Dream

XXVI. The American

Revolution
Bibliography: 597

Index: 607

Graphs

I.

Major Economic Trends

Prosperity in Action

II.

III.

The

1896-1919 192329 Share of Labor in Prosperity 1919-29

in the

35 69
81

IV.

Capital and Labor in Depression

91

V.
VI.
VII.
VIII.

Changes

Composition of Capital

115
125

The

Fall in the Rate of Profit

Contradictions in Production and Consumption

IX.

X.
XI.
XII.
XIII.

The Stakes of Speculation 1923-29 The Basic Factors in Capitalist Production The Creation of Disemployment The Upward Trend of Unemployment 1900-33

155
175 201

231

245

Production, Wages, and Capital Claims

Class Distribution of

289
311

XIV.

Class Distribution of Stock Class Distribution of

Income 1920-29 Ownership

1928

331

XV.
XVI.
XVII.
XVIII.

Wealth 1928

Concentration and Centralization

1923-29

349
385

XIX.

The Dynamics of Finance Capital American Imperialism in Action American Class Divisions 1 870-1929

413
441

563

PART ONE
The American
Crisis

Introductory

JyL MERicAN
resort to

life

moves and changes

swiftly.

new and

desperate measures. Traditions break

Government and industry down. Ac-

cepted truths are challenged or repudiated.

future uncertain and threatening. There
of underlying ferments
is

The

present

is

dark, the

an accumulating pressure

forces which create social explosions. 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 everlasting 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 substantial scale. The future is one of incomplete recovery: of economic decline, mass disemployment (including millions in clerical and professional occupations), lower standards of living, and war. Every depression 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 intervention of government in industry is, of course, nothing new: the development 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 government action to "regulate" the developing relations of trustified capitalism. But to-day government intervention is on an unprecedented 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-

and

Classes mobilize: ideas clash.

II

12

The

Decline of American Capitalism

real

talist enterprise.

The

need

is

for increasing use of

state

government

to

manipulate economic
industry
is

forces,

for

capitalism,

because capitalist
of state capitalism

unable to junction as of old.

The forms

may

change, but the need remains, with fascism looming ahead.

As

capitalism declines, the state

must intervene more

It is

drastically to aid

industry and suppress labor.

birth of the

the death of the old world, not the

new.
dis-

The

depression which set in after 1929 was the worst economic

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,
of 1920-22 the

not even in the great depressions of 1873 and 1893. In the depression downward movement of production continued ten
prosperity.

to renewed and professional workers, 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" prosperity in June; as production and profits outstripped wages and consumption, "prosperity" broke down in July, accompanied by a crash in the stock market; recession and depression again, and an intensifica-

months, and two years completed the swing from recession

Unemployment, including

clerical

tion of the

crisis.

These recurrent breakdowns of prosperity are

spectacle of capitalist civilization.

a typical,

damnable

Men, women, and children starve or agonizingly approach starvation while wheat and corn rot, vegetables 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 oppressive scale, although all the means exist to satisfy the wants. (Depresflourishing prosperity,

most unemployed; their wants and many wants even of employed workers are unsatisfied.) This monstrous state of affairs was unknown to the people of presion magnifies the condition prevailing even in periods of the

when

there are also millions

capitalist civilizations:

ural calamity, or war,

Capitalist civilization

knew want as the result of scarcity, natand the torment of labor lay in its severity. introduced a new form of want, want in the
they

Introductory
midst o abundance; a
deprived of
objectives of

13

new torment o labor, the torment of workers work while there is an abundance of the means and working. Our ancestors would have considered the situaconsidered idiotic to-day by the non-capitalist, develop-

tion idiotic;

it is

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
one-half years of prosperity.^ Cyclical crises

and

and breakdowns

are inher-

ent in capitalist production

depression

is

as characteristic as prosperity

and nearly But

factors
is

as frequent.

this depression is

duration, severity,

more than the usual cyclical breakdown. Its and specific character are determined by non-cyclical of economic decline. It is not simply that another depression

inevitable after another short period of prosperity

is

although

that

in itself

calamities

enough to condemn capitalism, which must repeat the of economic breakdown, mass unemployment, and mass

starvation. Capitalism has survived

fact,

been the starting points of

of

crisis

American capitalism
importance:

many depressions: they have, in new upswings of prosperity. This involves two new developments of major

historical

In previous depressions economic forces were always strong enough

and complete a recovery, but recovery now seems almost Government intervenes to hasten the recovery, which is nursed and coddled and kept alive with all sorts of stimulants, 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
to start
indefinitely postponed.

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
let
it

and the government

of industry

finance,
act!

some

say,

have proven their incapacity:

is

But the incapacity

an old story: in the past

did not prevent the revival of prosperity, because capitalism was on

government must 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.
act

the upswing, a progressive economic force. If the

CHAPTER

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."

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:
and
into the
:

"A new

era;

high

level of prosperity."

The New York World-Telegram: "A

wage system
power
age."
.

revolution to bring order

fit

to industry

security to the masses, to redistribute wealth, to

.

the

liberal of the old school

Oswald Garrison Villard, "The revolution which has taken place in so

.
. .

William Green, presiAmerican Federation of Labor: "Planning for national welfare; sound fundamental philosophy of the relationship between government and industry; serves the welfare of investors of capital and producing workers." American Federation of Labor, Current
short a time; taint taken off socialism."
dent,
. . .
.

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
"To

Capitalism

15

ant Secretary o Agriculture:

ited greed,

save our institutions

and

to turn the results of

general benefits: enlarged

incomes for

common efforts common people, greater

from unlimtoward more

leisure,

Leonard Rogers, an interpreter of current security "The American compromise w^ith communism."^ events: 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

from

risk."

prepared for the ideological subjugation of the masses. At its basis is the conception of a "new capitalism." This conception is recurrent.

Any new
upon by

stage or twist in the

apologists,

development of capitaHsm

is is

seized

who

proclaim that the economic order

being
of

transformed.

The

conception of the

"new

capitalism"
clerical

is

form

struggle against the workers

and farmers, the

and

professional

workers.

After the depression of 1873-79, marked in its later stages by aggressive labor struggles, a considerable ballyhoo arose about profit-shar-

ing and the "partnership"

of

labor

and

capital.

One

economist,
distribu-

echoing others, spoke of "a

tion," of

new

regime of production

and

and continuous upward movement of wages, 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
an
irresistible

mass consumption, and standards of

were

practically stationary.

The immediate
prosperity

parentage of the

NRA

ballyhoo was the ballyhoo of

in the

which

flourished in 1923-29,
It
is

and ended

most

disas-

trous of all depressions.

important to

recall this fact,

not only

because that prosperity

its

is

now mocked by
"new

depression, but because all

essential claims reappear in the

capitalism" of the

NRA.

The
Age"

pre-1929 ballyhoo of prosperity, which expressed the "Golden

had as its basic claim the old concept of "a new regime of production and consumption," thus restated by
of
capitalism,

American

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

industry ... a

new
*

industrial revolution

program of American which is the marvel of the

consumption

civilized world."

Another economist

said:

"A new

principle works:

i6

The Decline

of

American Capitalism
is

finances production.

The more wealth

to

consumed, the more

it

will
is

increase. In this country the demonstration o that idea occurred. It

the

American contribution

economic experience."*

American

capitalism, the prophets insisted, accepted the fact that

prosperity depends

increasingly higher wages. It

capitahsts;

upon mass consumption, and, consequently, upon was heady wine, this flattery of the they began to believe in the ballyhoo and millionaires
.
.
.

gravely prophesied the end of poverty.

dent. National City

Charles E. Mitchell, presiin industry has

Bank
is

of

New

York "A revolution

:

been taking place that

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."
porated:

James H. Rand, president, Remington-Rand, Incorrevolution of the 1920's will appear as vital

"The economic

as the industrial revolution in

England and
.

it

will likewise

mark

the

beginnings of a
herself to the

new

era."

Andrew W.

Mellon, Secretary of the

Treasury and a powerful financial capitaHst: "America has adjusted

economic laws of the new industrial

but because

era,

and she has

not only
dif-

evolved an industrial organization which can maintain

because
it is

itself

efficient,

it

is

bringing about a greater

.
. .

fusion of prosperity

among

all classes."

Melvin A. Traylor,

presi-

dent, Continental National

ers Association:

Bank

of Chicago

and the American Bank-

"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

minor
.
.

cyclical depression

warned

of the greater disaster to come.)

E. A. Filene, president,

the socialists

W. Filene and Sons Company: "What dreamed of the new capitalism has made a reality, but
The
ever-present

not by their methods.

profits will lead to the

adoption of the

human desire for greater total Haley new principles."

.

Fiske, president. Metropolitan Life Insurance

Company: "Here

is

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:
they also expressed,
i

The New

Capitalism

17

partly unconsciously, the defensive, self-justify-

ing ideology of predatory capitalism.*

The

prosperity ballyhoo reached

Everybody Rich Industry's New Goal, published a few months before the breakdown of prosperity in 1929. It is a curiosity of economic literature. 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 economic necessity who discovered the fact
.

its

crescendo in a book,

Ma\e

of high wages.

Not merely

will prosperity be stabilized, but the

rule of class will for the first time in

human

history utterly disappear."

its

Within a few months industry changed

"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
a

era" were also profitable.

of

Among

other successful

exploiters

was True Story,

magazine

highly sexy stories deodorized with moral

first

platitudes

and reached a circulation of over 2,000,000. At

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,
first

and that the income of wage-earners had

increased enormously. "For the

time in history," True Story informed advertisers,

"the wage-earner

is

a prospect for advertised goods.

He

is

the

New

Market that may

the campaign
of

make

or break to-morrow's merchandising leaders."

a series of full-page advertisements in the

in the issues of

The climax of New York Times (some

and December
9,

May

21, June 25, October 14,

was them appeared 1929). Here are a few

gems:

"The economic

history of the past ten years has been startling.

bigger pay and shorter hours, in order that labor might have the
the leisure to enjoy the things that
it

The volunteering of money to buy and

years.

helped to make, has virtually ended a capitalfor

labor

war which has been going on now

upward

of three

hundred

And
it

the

opportunity

now

offered to labor to

own an

interest in the concerns in

which

works

has opened up an experiment in equality that has never been

history of civilization.

known

before in the

"In making labor co-partner in your efforts and your enterprise, sharing your profits

and your dreams with so

ever

little

to be

gained on your part and so

iri

have probably taken the greatest forward step

much human conduct that

of the things
it

to be lost,

you

the world has

known.
is

"To-day labor

buying over

65%

in dollar

volume

helps to make.

...
It

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."

profits.

worked: True Story made millions in

statistics,

But in

spite of the

imposing array of

"economic" arguments and

the

campaign was based on

True

Story's readers

were not wage-earners;

wage-earners, and they did not buy "over

86% 65%"

of America

Most of was not composed of

distortions.

of consumption goods;

the rise in

wage-earner income was grossly exaggerated.

i8

The Decline
Javits,

of

American Capitalism

A.

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

a part of the electric power oligarchy under control of the

Morgan, insisted that "As a result of a gradual economic revolution we are beginning to see that every worker is a potential capitalist. Wealth is not only increasing 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."
^

York Edison Company, House of wage- workers were becoming capitalists:

New

These ideas were widely spread and believed and were echoed at 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 ownership." 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 Carver, professor of economics and major prophet of prosperity. His book. The Present Economic Revolution in the United States, originated all
the 1925 convention of the
. .
.

the assumptions of the pre-1929

osity of
statistics,

"new

capitalism." It

is

another curirationalized

economic

literature,

a fantastic combination of misleading

apologetic economics, slipshod sociology,

and

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 "The great war produced a number

history:

of political revolutions in Eu-

Ballyhoo:

The New Capitalism

19

rope. It has not yet produced an

economic revolution. The only economic revolution now under w^ay is going on in the United States.
It is

a revolution that
capitalists

is

to v^ipe

out the distinction betv^^een laborers

and

by making laborers their

own

capitalists

and by com-

pelling

most
This

capitalists to

become

laborers o one kind or another,

capital.

of them will be able to live on the returns from ^^ 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

because not

many
is

greeted the

New

Economic Policy

in Russia as a "reversion to capi-

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
talism," the final proof of the

the Soviet

Union unloosed another

offensive against capitalism

and

began building the economic basis of socialism. Carver's American "revolution" led to the most appalling of cyclical breakdowns and economic decline, the Russian revolution leads to economic
systematically

advance and socialism

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,

Instead of low wages for the

we

are

now
still

witnessing
repeated.
.

its
. .

diffusion; but the old tirades against plutocracy are

manual
.

trades,

we

are

now

having high

wages; and yet the old phraseology, including such terms as wage
slavery,
still

has a certain vogue.

is

Instead of the laborer being in

rapidly attaining a position of
capitalists.

a position of dependence, he

now

independence.

Laborers are becoming

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.

so-called capitalist system will not

The

full

development of the

be reached until practically every-

one has become a

capitalist, that

is,

an owner or part owner of some

is

of the instruments of production. ... It

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 now measurably under control. There were to be no more alternations of prosperity and depression, no
theory that cyclical fluctuations were

more hard timesprosperity 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 unpredictable, 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 contact has been established between the factors of production and consumption 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:

mainly since the war period which can be termed largely American. First, increased use of power per worker; second, the receptivity 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 Rexford Guy Tugwell, professor of economics at Columbia University, who later became a major prophet of Niraism:

"There have developed in

this nation

basic factors of a long-time nature

. .

"Depressions continue to recur.

extent.
.
.

They seem, however,

to lessen in

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

the ballyhoo of prosperity
people,

itself in

unlimited speculation.
intellectuals

Much

of

was created by

and professional

speculation.

who were inflamed by their share of One day before the stock market
little
if

the "easy

money"

of

crashed in 1929, Prof.

fact."

Irving Fisher said: "Current predictions of heavy reaction affecting

the general level of securities find

any foundation in

The market
weeks

will "return eventually to further steady increases,"

and
five

"gains are continuing into the future"

after the

sentiments

he repeated

market crash, when he said there would be "no permanent 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:

is

"The
whirl

scene

at

genuinely stimulating.
itself

once ludicrous, arresting, inspiring, and always There is just a chance that America might
.
.

into the
. . .

yet to record.

most breath-taking civiUzation which history has But to date the chief exhibit is activity." ^^
but the content positive: American capitalism
order.

The form is negative may create a new social

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"

and "progressives" felt that American capitaHsm was difand 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 progressthe continuous fulfillment of the historic idea ... an invulnerable faith in democracy ... a faith in
liberals

ferent, exceptional,

22

The Decline

of

American Capitalism
modern

the efficacy of that

new and

mysterious instrument of the

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
all pat-

not the capacity of the Power that had

terns of the past
destiny.
"If so,
it is

summoned

into being

and

present, living

and dead,

to fulfill its endless

^

the dawn, not the dusk, of the gods."

disastrous

Within a few years the "dawn of the gods" appeared in the most 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 capDr. Beard himself, are invoking another

italism, including

dawn

of the

gods.

Dr. Beard was, moreover, contradicted even by the pre-depression

reality.

Prosperity

was unequally
that:

distributed, only

meagrely shared
terrible
its

by the workers and farmers. There was grinding poverty and

insecurity.

Not only
it

even

if

prosperity

had been
far

as great as

ballyhoo,

was

still

woefully incomplete,

still

behind prevailing
leisure po-

technical-economic resources. For capitalism always restricts production

and consumption, the

possibilities of

abundance and

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-

on a large scale. The deepening agricultural crisis made peasants newer and larger groups of American farmers. The lightning of the Sacco-Vanzetti tragedy revealed the yawning gulfs of rulingclass savagery. But the mythology of prosperity, and particularly of rising speculative profits, cast a glow over the unpleasant aspects
vailed

of

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
It

exists a deceptive millennial con-

ception of capitalism.

profit-sharing, flourished
try,

accompanied the growth (and decay) of on the basis of the war-time controls of indusin 1923-29. It appeared again in

and acquired magnificent scope

Ballyhoo:
the "new ment and

The New Capitalism

23

capitalism" of Niraism, with only slight revisions in argustyle.

The

pre-1929 myth-makers of prosperity did their job well.

The
As

ideology they created lingered, as a cultural hangover, after the break-

down
sion,

of prosperity

and helped

to prevent

any considerable

revolt.

the ideology began to crumble under the impact of prolonged depres-

was revived and reinforced by the ballyhoo of the National 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 politit

Industrial Recovery Act.

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

is

itself

as

a crisis of

prosperity.
it is

What

prosperity?
its

It

has three important characteristics:

it

always limited in

mass

scope,

periodically breaks

down, and

it

cumulatively develops the elements of the decline of capitalism.

is

This
of

clearly revealed

by a survey of the movement and character

which necessarily becomes a survey of the 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. Industry was not highly developed, and it was small-scale industry. Many industrial products were still imported; while foreign trade rose fivefold 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 important 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 produced by free or slave labor, and it accepted the Southern demand for free trade because that permitted buying goods where they were
prosperity,

American major aspects

of

cheapest. Industrial capitalism could not tolerate the slave South's control

of the government, as

it

was concerned

essentially
its

with the
it

production of goods and free trade threatened

tional

markets, while

depended, moreover, upon mobile free wage-labor and needed a na-

banking system and transcontinental

its

railroads,

which the South

the

opposed. Slavery not only

interfered with

repressed capitalism

in

South,

but

expansion in the North and West.

The
As

conflict

was

the irrepressible one of

relations of slave

two

social systems involving the antag-

onistic

labor

and
24

free

wage

labor.

territorial

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 workNorth 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 capitalism subordinated agriculture to industry, and the costs of industrialism 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 dominant, was the mightiest in the world. Prosperity was now overwhelmingly determined by the movement and the interests of capitalist
ers) of the

industrialism.

flourished during the Civil War. Business 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, exploiting the government's war needs, and speculating in the commodity 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

Prosperity in the

North

failures

and

liabilities

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 manufacturing 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 consumption, by mass impoverishment instead of improved mass well-being.

26
But
profits

The Decline

of

American Capitalism

great.

were high and the accumulation of capital correspondingly 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. Depreciation 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 prevailed 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 construction 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.
of

The war's direct destruction was immense. While there was an accumulation money capital in the form of government bonds, their value was destroyed by the
breaking of
its

Confederacy's downfall. Reconstruction involved an economic plundering of the South,

as well as the
political

power. After Reconstruction, semi-servile Negro

capitalists,

labor

was reintroduced, with the permissive consent of the Northern

all

who

shamelessly forgot

about the Negro. Industrialization in the South did not really

its

begin until the 1890's, because the South was economically prostrate and

industrial

development unimportant,

as yet, to the capitalism of the

North, except for railroads.

The Meaning
in prices also raised

of Prosperity

27
capital

the real value of

money

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 mechanization 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

goods

to

and railroads, for new capital make any demands on consumer purchasing power. But
is

the production of capital goods creates consumer purchasing

(wages, part of salaries and profits), which

spent mainly

power on the
is

output of consumption goods industries. Thus an equilibrium

achieved which sustains prosperity. But the equiUbrium
is

unstable

and temporary. For wages lagged behind profits and production behind consumption. Eventually the new capital goods threw an augmented mass of products upon the markets, and available consumer purchasing power was insufficient to absorb them. The output of
capital

goods began to
to fall
it

fall.

Construction and railroads, which had

been seriously overbuilt, led the downward movement. As production

began

engendered a

crisis

and revealed the rotten conditions

in finance.
ties, set

The

collapse of speculation, particularly in railroad securi-

the panic in motion: the failure of the great banking house

to its

of Jay

Cooke and Company was mainly due

enormous holdings

of Northern Pacific Railroad paper. Financial crisis arose out of the

underlying economic
times,

crisis. Prosperity crashed into depression: hard 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, 188385, 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 increasingly larger markets for goods and capital, and insured, until temporarily 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 output 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, particularly 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

1887.

much

higher than in i860, although nearly stationary since

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 immigrant workers were forced to accept the lowest of low wages; unemployment, moreover, both cyclical and technological, offset much of
Gains in
the

wage rise. Consumption

also rose

more than

in

any other period in American

history.

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

The

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

real

due

to higher

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 buccaneers), 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
real

of millionaires rose

from

probably 500 in i860 to over 4,000 in 1892.

tivity the

Nor was

higher produc-

primary cause of higher

wages; they rose because of

The Meaning
steadily falling prices,

of Prosperity

29

and

in spite of employers repeatedly cutting

cuts and cyclical and which frequently assumed 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 Haymarket 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 purchasing power of wages, and lower prices and higher wages compelled

money wages,
technological

particularly in depressions.

Wage

unemployment provoked

strikes

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

are usually

and higher productivity

were
strikes

accompanied by stationary or
the capitalists by
state

falling real wages. Labor's

gains (always subsidiary to capitalist exploitation and profit)

wrung from
against

means
its

of the blood

which the

mobilized

and agony of 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 numbers increased, the farmers' share of the national

Tenancy
tions

rose

from 25.6%

in 1880 to

35.3% in

1900.^^

income decreased. These condi-

produced the agrarian uprisings of the i87o's-9o's.*

prosperity also

The developments which produced

and

necessarily

produced disastrous depressions: they are the inseparables of capitalism. Industrialization proceeded haphazardly, competitively, socially unplanned and unregulated. The expansion of industry and accumulation of capital exceeded balanced requirements.
*

As new
and

industries
American

"For nearly the whole

thirty years of the seventies, eighties

its

nineties,

agriculture,

though

it

extended

horizons almost boundlessly, was in reality being

all.

operated at a small profit or none at

The only

thing that sustained the individual

. . .

farmer was the constant appreciation of land values.

permitted

The high

value of his land

him

to convert

his

floating

debts into mortgages with the result that the

year.

mortgage indebtedness was becoming heavier every

share of the farmer's crops
of his land)

... A

larger

and larger

(because of his indebtedness and the increased valuation

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
purchasing power. But eventually

(including railroads) developed they stimulated prosperity by absorb-

ing capital goods and creating

lessened their

new

they got out of balance with each other and with other industries,

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 accumulation and overproduction, sharpening the disparity between production and consumption, upset the always unstable equilibrium

which

is

capitalist prosperity. Prosperity

turned into one depression

profits,

after another.

Depression lowered or wiped out

destroyed or

depreciated large amounts of capital and thus prepared recovery and

had other effects. Manufacwere 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 concentraa renewal of accumulation. Depression
turers

tion of industry, a result of increasing large-scale industrialization,

was strengthened by
of capital.

depression, a mighty lever of the centralization

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 efficiency, larger plants, the investment of more capital, and the consolidation 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 production and, consequently, of capital equipment. As industry became larger it resorted more and more to the corporate form of organization, facilitating the consolidation and combination of industrial enterprises. 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 separation of ownership and management. Management became the function of corporate employees. Control was usurped by financial capitalists, 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

or transformed into a

small-scale industry)
financial capitalist,

was being beaten down

is

who

deprived o

all

constructive industrial func-

tions

and prefers speculation

to production.

higher

profits, increasing the disparity

Monopoly, by extorting between production and con-

sumption, and waging war upon small-scale industry, aggravated

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. Industrialization 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,
instability

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,
raised their real

which 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,

capital

whose

de-

velopment provided markets for both

goods and consump-

tion goods, invigorated the long-time factors of

economic expansion.
of pros-

These

factors not only stimulated the

upward movement
. .

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 prosperity.)

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
it

its

domination and prepared new conquests;

industry, scooped in enormous profits, and relahampered the growth of productive forces. Imperialism began 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

"recapitalized"

tively

develop

new

markets,

establish

branch plants,
profits.

control

sources

of

raw

materials,

and secure

larger

Exports of manufactured

goods increased rapidly; exports of crude foodstuffs decreased. Monopolist 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

against the old plan of

.

man Hke Mr. Morgan at the head of a great industry, as many diverse interests in it, production will
. .

and panics become a thing of the past." ^^ become more regular 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

33 unemployment: a "depressed" 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 definitely imperialist. Backed by the diplomacy of the Taft Administration, American imperialism issued its challenge to the European imperialist powers, demanding the "right" to share in Chinese loans and
1909 to 1914, accompanied by unusually large
concessions.

The Meaning

of Prosperity

The

elements of decline appear clearly in the fact that

the average yearly increase in production

years igogi^

was only ^.6%

in the five

compared with

"j.^^/o

was a

flattening in the rate of

There growth of production, which continued

in the jive years 1^0206.^^

after the

World War.
become constantly more
severe; but their severity
is

Crises tend to

expressed not only in the spread of the swings from prosperity to

depression, but also in the level of prosperity after recovery. In post-

whole 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 capiperiod, both in prosperity

war Europe

the cyclical swings were not great, yet during the

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

factures rose

much

lower than in the preceding period. Manu-

65.6% and output per wage-worker 19.9%;^^ the inmining 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
creases in

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

and railroad corporations yielded, income of $8,661 plus an increase of 36% in capital value.^ The rise was much greater in the prices of stocks of monopolist combinations, because of monopoly prices. Recapitalized comstocks of 93 industrial, public utility,
1913, cash

by

34

The

Decline of American Capitalism

United States Steel Corporation, squeezed the

binations, such as the

"water" out of their stock by reinvestment of part of their great earnings. While the real income of all wage-workers increased an average

and that of workers in manufactures decreased income of stockholders increased 1.2%.^^ Thus prosperity, although limited by the elements of economic decline, was accompanied by increasingly higher production, productivity, 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 income, 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
of only
yearly
o.i/o, the real

04%

decreasing proportion of the gainfully occupied, they increased their

share of the national income
gains,
rise

14%

per capita.

Not

all

farmers

made

however: prosperity was concentrated in the upper layers; the in capital costs exceeded the rise in prices; and tenancy rose from

richest

35.3% in 1900 to 37% in 1910.^^ The largest gains were scored by the 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

%m
2.1

XQO

'|HPR0DU0T(ONh]

H CONSUMPTJON GrOODS

'

PRODUCTIVITY
OF
L

A&OR

^ n

^^r-jR^ALWAG^
<J0

Vi^

H03

l*?OT

nil

HIS

WW

I.

MAJOR ECONOMIC TRENDS 1896-19 19.

36
tion

The Decline
was stimulated more by
5%, the
latter

of

American Capitalism
by the

the output of capital goods than

output of consumption goods: where the former

yearly gain of

made

a gain of only

made an average 2.6%^ Accumula-

more than production; and prosperity was based primarily on the production of capital goods and of consumption 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)
tion of capital increased
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

facts,

in fact."

Another liberal economist, stressing the same oped a class conception of prosperity:

almost devel-

"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
if
it

the distribution of economic

one or more groups within the society is declining. Moreover, power within a society is very unequal, may happen that the group, the standard of which is declining,
constitute a very large proportion, even a majority, of the total
^
is

may

population."
Prosperity

not simply an economic category;

its

its

decisive aspects

are class-political,

distribution determined by class

power and the

class struggle in general

A new many and

war on

domination in particular. upflare of labor militancy marked these years. Strikes were
capitalist

and by

bitterly fought.

Manufacturers' associations waged ruthless

moved toward more militant and action. Economic decline, the unequal distribution of policies 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 government 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 systrade unions, while the unions

The Meaning
and

of Prosperity

37
capital-

monopoly tern of industrial of the small producers and farmers ended ism;* the revolt
financial centralization, of

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 contradictions 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 capitalism; according to an outstanding spokesman of the National Recovery 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 accumulate 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, particularly under conditions of economic decline, determine the repetition 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 prevented another major depression and temporarily overcame the tendency to economic decline.

War

markets were almost inexhaustible.

total

Production, profits, and the accumulation of capital surged upward.

Manufacturing output averaged 31.7% higher than in 1913 and production 23.5% higher.^^ Profits were extraordinarily high in
an

1916,

Roosevelt, in relation to the trusts, spoke big but carried a small stick; he practiced
essentially Fascist technique of using middle-class discontent to strengthen the

forces against

which the discontent was

at

directed.

His program was opposed by the

J.

more

stupidly reactionary captains

of industry

and finance.

Pierpont

Morgan was

Roosevelt's great antagonist;

a Gridiron Club dinner to bring them together, the

President, after outlining the action necessary to

meet the

revolt against Big Business,

if

shook
those

his fist in the financier's face

and shouted: "And

you don't
See

let

us do this, Wister,

who

will

come

after

us will rise and bring you to ruinl"

Owen

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 government 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 augmented or improved their productive equipment. Retail trade was prosperous. The accumulation of money capital, in the form of government 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 American capitalism by forcing the maturity of three fundamental develop-

ments: the control of industry by monopolist combinations, the export

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
of capital,

dropped considerably, especially in some union trades bound by longterm agreements.

of consumption was downward; in 1910-20 it an average of 0.8% yearly, mainly during the war years.^* The considerable increase in production was absorbed by luxury consumption and war needs, by exports to the Allies (paid for by loans, the export of capital), and by capital goods. Labor was excluded.
fell
.

The movement

* sharply rising prices and profits discouraged any substantial increase in productivity,

which

in 191 9

was ony 2.6% higher than

p.

in 1914. Frederick C. Mills,

Economic

Tendencies in the United States (1932),

192.

The Meaning
One
thing
is

of Prosperity

39

clear: increasingly higher

tion are not inseparable

wages and mass consumpaccompaniments of prosperity. Of the seven

real

periods of prosperity in the years i860 to 191 8, only three periods

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
totaling fifteen years

were marked by increasing

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
stationary or falling real wages, labor consumption,
profits,

but

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.

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

The

productivity of labor rises in

or individuals) did not share in the

in 1861-96, although the expansion of agriculture

in prosperity.

the

They shared in the World War, mainly because of

upward movement of prosperity was a basic factor gains thereafter up to and during
rising prices.

But the farmers were

definitely excluded in the post-war period: prosperity flourished while

depression prevailed in agriculture.

is an economic condition which yields 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. Consumption may increase among classes other than the workers. Goods

Prosperity under capitalism

profits

high

40

The

Decline of American Capitalism

may

meretricious construction, and other forms of waste, which

be absorbed by conspicuous competitive consumption, useless and 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

arts, is

possibilities of the prevail-

ing state of the industrial

desirable

determined by the economic-class

what is socially most 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, not by any standards of 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 conis

version into capital

restricted;

the accumulation of capital lags,

and therefore millions are thrown out of work and mass starvation
prevails.

Thus,
ahead
is

at the best,

on the

basis of previous experience, the prospect

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
of a prosperity 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-

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 accumulalated
tion.

Because of exhaustion of the long-time factors of expansion,

prosperity
its, still

must now be on

a definitely lower basis, with lower prof-

lower wages, and greater unemployment.

The

prospect, then,

is

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 exhausof a "depressed"
tion of the long-time factors of expansion,
is

inseparably interlocked

with the decline of capitalism.


CHAPTER
III

The Decline of

Capitalism: General Survey

HE decline of capitalism was evident in Europe even before the 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 economists, 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
Jl
crisis

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

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
eternal,

was aggravated by the new cyclical breakdown, the sentiment was 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
general that "capitalism
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 industrious

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

their apologists

political issue in

Europe. "Look," said the

capitalists

and

(including leaders of the British Labor Party), "look at American

prosperity: universal, increasing, everlasting! It

shows what can be done by organized,

an aftermath of
sang the

enlightened capitalism. American prosperity realizes the spirit and promise of capitalism;
the European economic crisis
is

the result of non-capitalist factors,

war.

Why
song!

go communist?

Why

npt go American.?" This song

is

no longer sung. But

later

some

of the apologists

(including leaders of the British Labor Party)

NRA

Hope

springs eternal in the breasts of reformers.

41

42
wards?
.
.

The
.

Decline of American Capitalism

economic policy may
easily

The

crisis of
^

become

a crisis

of the economic system."

Underlying
a
crisis,

the feeling that

much of the American comment on new and imponderable forces are

decline, or at least
its

the depression
at

was

an economic

work involving possibility. Some of the

and speculative

despair disappeared with the

revival.
crisis.

coming

of manipulated

But the

NRA

was

itself

an expression and recognition of the

the feeling of despair reappeared after the breakdown of For the decline of American (and world) capitalism conditions 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 continues, but on a lower level, within the restricting circle of economic decline. This means a "depressed" prosperity, with increasing insecurity, 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

And

the revival.

will

merely intensify the decline.

decline of capitalism
It
is

The

the outcome neither of the depression

fact of decline

nor of the World War.

its specific

was the

which gave the war

react-

historical character

decline

producing war and war

is

ing upon decline.

capitalist

The

decline of capitalism

the

outcome of general

development and of the movement of social change. In longis 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
time perspective, the decline of capitalism
of the agrarian-Junker reactionary, Oswald 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 expansion. 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

wish-fulfillments

Spengler,

The Decline
talist

of Capitalism: General Survey

its

43

Profits are the heart of capitalism, markets

circulating system; capi-

enterprise consequently required the transformation of produc-

and increasingly larger markets. 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
tion for use into production for profit
Capitalist production also

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 capitalist industry undermined both agriculture and the nobiUty. Feudal "collectivism" imposed restrictions upon capitalist enterprise; the ideological 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 competition, of laissez-faire, individualism, and democracy: the revolutionary 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 hampered by the political power of the feudal nobiUty; the upper bourgeoisie faltered and compromised, but action was forced by the pressure 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 technical-economic

changes of the industrial

revolution.

This

revoluin

tion, alongside the brutal exploitation of

men, women, and children

its

the

new

factory system, stripped production of

technical fetters

world economically,

fetters). Capitalism remade the 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

(although capitalism imposed

new

politically,

44
of feudalism.

The Decline
The

of

American Capitalism

older relations lingered on in agriculture, while the

nobility, frequently enriched

by the industrial utilization of minerals and exploiting the parvenu spirit and political ineptitude of the bourgeoisie, clung to a considerable measure of power. Democracy was limited to bourgeois democracy. While developing
in their estates,
as a condition favoring the social relations of capitalist production,

democracy had
it

also

been an ideal and practice remaking the world;

was now
it

limited,

an ideology insuring

capitalist

domination, with

labor forced to fight for democratic rights. Capitalism developed un-

evenly;

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 agriculture.

soil

(New

expropriations, direct or indirect, of peasants

supplied the

human raw

material of industrialism. Large

from the numbers

of expropriated peasants were forced by uneven and restricted industrialization to

migrate to the

new

world, particularly the United States

its

thus American capitalism also played

role in the expropriation of the

peasantry

in Europe.) The class which had flamed forth in revolution

coming decline. and antagonistic conditions of capiBut talist development. There was economic expansion in spite of recurused
its

heritage in a fashion indicative of

these are the contradictory

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

labor^ developing

amounts of

capital

and

an inner corporate planning which contrasted

sharply with the outer social anarchy of production. Capitalist industrialism 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.
nature of capitalist production, however, makes
its

The
ment
I.

developdecline,

a perpetual struggle between the forces of expansion

and

because of three fundamental factors:

Capitalist production

depends upon

profit,

upon
its

the accumula-

tion of capital

and increasing opportunities

for

profitable invest-

ment. But accumulation tends to outstrip

itself

and

limit the

means

The Decline
tion of capital goods.

of Capitalism: General Survey

45
overproduc-

of profitably investing capital,

which

results in a periodical

depends upon increasingly larger marconsumption goods, a necessary condition for an increasing absorption of capital goods. But capitalism tends to develop the forces of production beyond the forces of consumption; it cannot systematically and planfuUy balance produc2.

The

realization of profit

kets to absorb the rising output of

tion

and consumption, which results in a periodical overproduction of consumption goods. Thus the accumulation of capital and the resulting prosperity themselves

become

fetters

on

the

further
is

movement
is

of

expansion,

accumulation, and prosperity. This

the fundamental cause of cyclical

breakdowns. In these breakdowns there

industry, they express a definite,
progress,
if

an element of decUne;
all

they indicate the incapacity of capitalism to develop

the forces of

temporary, exhaustion of economic

upsets of prosperity.
third factor:
3.

and they tend to become constantly more destructive in their But the real element of decline appears in the

Capitalist production tends to exhaust the long-time factors of

limit, at first relatively,

expansion and to
sibilities

then absolutely, the pos-

of economic advance. Capitalist production

must

yield profits

must be converted into capital by means of an increasing output and absorption of capital goods. This is the accumulation of capital. In its early stages, capitalist production seizes upon the
and
these profits

most highly developed handicrafts, already producing for comparatively large markets, and destroys them by mechanizing their productive 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 incompletely) create new and greater demands for capital goods. The working of these long-time factors of expansion results in an enlargement

and in an increasing accumulation of capBut 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.
of the scale of production
ital.

Capitalist

monopoly

arises

out of the concentration of industry,

capital in large enterprises,

which

is

accompanied by the massing of

46

The Decline

of

American Capitalism
possibility

overdevelopment of productive capacity, limitation of the

of any considerable new^ expansion,

and the intensification of competition. 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,
is

as

it

emphasizes the incapacity to develop

fully all the forces of production

and consumption. Another element

of decline

monopoly's introduction of factors of rigidity (control of

prices, limitation of competition, resistance to liquida-

markets and

tion in depression) into the structure of capitalism,

whose

basic re-

quirement

is

the flexibility involved in the free play of economic forces.

is

Monopoly

identified with another aspect of capitalist decline:

the export of capital

and imperialism, the struggle

to control foreign
capital.

markets capable of absorbing surplus goods and surplus

This

surplus of capitalist industry becomes constantly greater

and more

menacing as the inner long-time factors of expansion approach exhausbecomes necessary to "industrialize" economically backward regions to absorb capital and goods (particularly the former) which are unabsorbable in the home market. Thus capitalism comes increasingly to depend upon exploitation of outer, the international, longtime 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 faction. It

tors of expansion, the final result, particularly

when

the export of

became primarily an export of interest "earned" on previously exported capital, was to slow down the rate of inner economic growth.
capital

Imperialism, moreover, tends quickly to exhaust the international

long-time factors of expansion, and strengthens the tendency of capitalism 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-

which formerly met with imports their needs for manufactured capital. The situation was aggravated by the intensification of competition in the world's markets. While economically backward
tries

goods and

The Decline
now many more

of Capitalism: General Survey

47
were

countries increased their

demands

for

goods and

capital, there

industrial countries and a larger mass of surplus capand 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 increased, 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 expresital

sion of the lusty youth of capitalism, breaking

barriers

and preparing an economic upswing.

down surviving feudal The World War ex-

Never did a war have more and a more reactionary character. As a result of the struggle for imperialist power, the war weakened all the European nations and intensified the decline of capitalism: its legacy was the post-war chronic economic crisis. The war's progressive pretensions ("End war!" "Make the world safe for democracy!") were
pressed the decadent old age of capitalism.
progressive pretensions

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
struggles in

The

Decline of American Capitalism

Europe and among colonial peoples an indication of 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
capitalist decline

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 different, yet the same; the peculiarities of American capitalism have merely (but this is important!) affected the scope and tempo of its

growth and American

talism.
set in

decline.
civilization arose out of the revolutionary

youth of capiwere thrust forth by the mass migrations motion by the transformation of feudalism; they were overseas

The

colonial settlers

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

of Cromwell's revolutionary vigor.)

Not

whose blood was the iron only were the colonies a

its

product of revolution, they secured their independence through revolution,

and the capitaHsm of the new nation consolidated

essentially

power

in

the

revolutionary

struggle

of

the

Civil

War and
fettered

Reconstruction.

American
landed

capitalism, unlike

the European,

was not

by

feudal hangovers or compromise with the nobility.

estates,

The

great colonial

which attempted

to introduce feudal relations,

were

undermined

dependent upon, the commercial revolution; they could not survive in the new world of unrestricted freedom of
by, because

where Negro slavery altered the situawere allowed to linger after northern industrial capitalism consolidated its political power in the Civil War and Reconstruction). Bourgeois individualism and democracy 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 ideological, measurably restricted capitalist development in Europe; even in England, where the aristocracy, more than elsewhere, merged into
enterprise (except in the South,
tion

and where

pre-capitalist conditions

the

new

ruling

class.

strike at their capitalist rivals; certain aspects of industrialism

Feudal elements favored "reforms" in order to were

condemned and

regulated,

and ideas of the

it

absolutist state interfered

with freedom of enterprise. (The

earlier absolutist state,

later

however, had

aided the development of capitalism, and

did so again in Ger-


The Decline

of Capitalism: General Survey

49

many and Japan.) American capitalism suffered from no such restrictions. 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

and class interests and class struggles; was important, but only in the peculiar forms it gave to the complex 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
of the underlying economic
this

opportunities
it

free

land, the rise of petty industrial enterprise after

began

to lag in the older regions, the

impulse given to rising. While

and ideology, 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)
direct influence in shaping classes
its its

the frontier had

some

major significance lay in

influence

products of the frontier; and, incidentally, opportunities for farmers*

sons to
rise in the swiftly
its

In one of

growing urban centers. most important aspects the frontier meant the expan-

sion of agriculture.

The

exploitation
it

of agriculture

is

inseparably

associated with capitalist growth:

provided a labor supply, cheap

it

food and raw materials, and markets, and

costs of industrialization

bore the brunt of the

and accumulation in their earlier stages. In the industrial nations of Europe (particularly England), the possibilities 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 continuously 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

tremendous factor in the upswing of American industry

50 and

The Decline

of

American Capitalism

prosperity. In 1879 the large exports of wheat, the result of a

Europe which created an increased demand 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.
serious grain shortage in

and higher

prices for

They

created

new markets

for

manufactured consumption goods.

And

they provided the bulk of the exports to pay for the imports of

capital

industrialism.

and goods which stimulated the rapid expansion of American The fact that capitalist industry gained more from the expansion of agriculture than did the farmers was the cause of the
Another aspect of the renewal of the
scale.

agrarian revolts in the 1870's90's.

frontier

and the

resulting ex-

pansion of agriculture was the construction of railroads on a large

This was a most important factor in the movement of producaccumulation, and prosperity. Railroad mileage rose from 35,085
177,746 in

tion,

in

1865 to

1895; capitalization rose to $10,347 million.^

to construction of the transcontinental

Most
tural

of the increase

was due

railroads,

which depended mainly upon the transportation of agricul(and mining) products. Railroads absorb large amounts of

capital goods.

The
is

construction of railroads in economically unde-

one of the main objectives of the export of 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 equipment, and other capital goods, and provided new markets, enormously 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
veloped countries
capital

because of the industrialization of

frontier

new

regions.

The expansion

of the

depended upon the development of agriculture (and mining), which in turn depended upon the markets of the industrial Eastern states and of Europe. And the frontier came to an end when industrialization was measurably complete. But while it existed, the frontier was one of the major peculiarities

The Decline
of

of Capitalism: General Survey

51

American

capitalism. Its conditions of life

It

renewed economic oppossibilities for

portunity and progress.

industrialization

provided almost unlimited

and the accumulation of capital and created constantly 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 production and an increasing realization of profit and accumulation of capital. Industries sprang up in the new regions, both local enterprises and branch plants of Eastern enterprises, which meant more absorption 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 development. 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
science)
2.
;

(of

which the

original expression

was freedom of con-

tolerance as a

way

of

life.

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

4.

civilization.
all

to the good things of life, mass of the people to share, and share increasingly, in the conquests of industry and civilization the aboHtion

Mass well-being: The

right of

particularly the right of the

of poverty.
5.

Opportunity:

cal opportunity,

origins; in its

The right to an equal share in economic and politiwhose perpetual rebirth was assumed, unrestricted by more subtle forms, an aspiration after higher things.

52
6.

The Decline
Education:

of

American Capitalism

and faith in education as 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 uniright to an education

The

means

for personal

versal peace.
10.

Progress:
all

The

right

and

possibility of unlimited progress, the

synthesis of

the preceding ideals; a steady, inevitable

finer fulfillments.

upward move-

ment

to

new and

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

tion

frontier.

True, the realiza-

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.
pressed
It

could not have arisen in a slave or feudal society.

real

It ex-

many

achievements and,
ideology

still

more, the

possibilities of

social progress.

The

was

real

and agrarian

revolts of the i87o's-9o's.

But

enough to dominate the labor it must be remembered that,

is

in one decisive aspect, the development of capitalism

a perpetual

struggle against

its

early revolutionary ideals, as they are a

tempo-

and not always an inseparable accompaniment of capitalism. Thus the development of American capitalism was a perpetual struggle against and increasing limitation and degradation of the ideals of the American dream. This appeared clearly after the Civil War and
rary
still

more

clearly in 1900-1914.

its

peculiarities,

For in spite of its great expansion and which invigorated the American dream, American

capitalism

and

decline.

frontier

was not immune to the general laws of capitalist growth Around 1900, capitalist monopoly became ascendant, the 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 corresponding 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 privileged 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
it

this

prosperity not only produced the usual cyclical depression,

simul-

taneously intensified, while temporarily overcoming, the elements of

the decline of capitalism.
of the

But the decline now

creates a

major

crisis

American dream. At the moment when the high development of makes possible a fuller realization of the traditional ideals of the American dream, a condition arises which means
the productive forces

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
the economic order, of the decline of capitalism. In one of
diate aspects, the decline appears clearly in the

crisis of

its

imme-

ernment

to

spend over $10,000 million to

program of the govovercome the crisis and revive

$4,000 million to the

prosperity!

The Hoover Administration added

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
it

"made

work" projects. Most of it directly, and prop up the sagging foundations of the
to

all

of

indirectly,

is

spent to

capitalist

economy:

to restrict

agricultural production, to sustain tottering banks, to permit railroads

buy equipment,

to aid industrial

and

utility corporations, to protect

capital investment
* This subject
is

and

profits, to

allow payment of interest and other

Chapter

discussed

more

fully in

XXV, "The

Crisis of the

American

Dream."

54
lic

The

Decline of American Capitalism

an American crisis! The expenditures of pubmoney, 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 heartbreaking, 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
fixed charges.* Is there
:

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.

It

This
is

is

definite

evidence of the decline of American capitalism.

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 difficulties

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.^

public-works program

is

the

backbone of

"recovery" efforts in Italy

and Germany;
it

to a lesser extent in France

and England, where, however,

building
is

is

increasingly

urged.

Highway-

stressed,

although

new

roads are largely unnecessary and

include construction of "luxury" automobile super-highways. "In Ger-

many
traffic.

the present roads might be able to carry ten times the present

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
scheme."
^

of Capitalism: General Survey

55

that sufficient traffic will develop to liquidate the present cost of the

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 capitalism in Europe. And this decline only a few years ago was considered 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 considerable scale. It

mocks

the pre-depression claims of prosperity everlasting.

is

In

its

larger aspects the crisis

an outcome of the decline of capitalism.

Prosperity under capitalism depends

upon

the

making

of profits

and

their conversion into

capital.
is

The

higher the profits and the

lower the wages, the greater

of wages behind profits,

the accumulation of capital. This lag

resulting lag of

and the

mass consumption
it

behind production,

is

a condition of accumulation. But

eventually
creates

upsets the balance between production

and consumption, and

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

development of new
industries,

mechanization

of old industries, of

industrialization

new

regions

permitted an increasing production and absorption of capital goods,

the basis of capitalist prosperity

and accumulation. As, however,

able to produce

all

the long-time factors of expansion approach exhaustion, capitalism

begins to decline because

it is

no longer
crisis

and absorb
is

an increasing output of
one
social

capital goods.

The
in
its

decline of capitalism
historical

an expression of old age, of a

development:
a form,

system grows into another.

new

social order is in the

making. But Niraism, and the

does not represent the

state capitalism of
its

which

it is

new

order;

objective

is

to save the tottering

old order of capitalist exploitation.

As

prosperity depends

upon
or

the

making

of profits
its

and

their conver-

sion into capital, labor

may

may

not share in

gains.

When

labor

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
did share,
it

56

Summary
fall,

57
rise in pro-

where

in the past the fall

profits.

was only relative to the

is

duction and

The
which

decline of

American capitalism

conditioned by the exhaus-

tion of the inner long-time factors of expansion. This exhaustion,

and wholly capitalist, was brought to a head by the prosperity of the "Golden Age" of American capitalism. It assumed 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 fundais

relative

mentals of
is

capitalist production.

And

the starting point of the analysis

the

movement

of profits

and wages, which conditions both the

capitalism.

upswing and the decline of

PART TWO
Prosperity, Profits,

and Wages

Introductory

JIn the claims o Niraism, of

state capitalism, reappear, in slightly dif-

mythology of prosperity. "new capitalism" wages necessarily secured large gains from increasing production and productivity; 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 volunferent form, the basic claims of the pre-1929

The

older prophets insisted that under the

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 reorganization of our moribund economic system. Its central feature was an application of the old Hoover-Ford doctrine of high wages, exercised 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 insisted on the "unfettered" economic action of capitalism; the apologists 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 practice 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

is

prophets of Niraism from their predecessors,

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

state capitalism:
all

order. This
else is

is

the real

purpose of Niraism and

mere ballyhoo.

For intervention and "control" are by the capitalist state; they proceed, 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
state.

industry and must control intervention by the capitalist

state capitalism of the imperialist nations of

The

Europe has

not limited profits in general or raised wages.

To

understand why,

American experience, it is necesand 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.
similar

and why there must be a

sary to analyse the relation of profits

CHAPTER

IV

Profits

and Prosperity

Jl

HE ending

of the

World War

in 191 8

sion,

followed by an upward movement.

produced an economic recesA heavy export of capital

by

and goods was the

decisive factor in post-war prosperity. Stricken

war's destruction, intervening in Soviet Russia, and threatened by

the revolutionary action of
its

own

workers, capitalist Europe mort-

gaged
large

itself,

kept on borrowing in the United States and imported

amounts of goods. American exports in 191920 were the $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 191920 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 prolargest in history:

duction

fell,

an overproduction of goods developed in particular

lines
all

because of excessive output resulting from competition and in

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

it

of liquidation of prices, wages, accumulated consumption goods and,

primarily, of capital

and

capital claims (precisely as in 1929-34)

resembles the blood-letting of medieval medicine.

aspect of liquidation

The most important

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

tion,

is

restored,

on a lower

level,

and produc-

consumption, and capital accumulation begin to revive.

An

in-

crease in the production of

of accumulated stocks,
*

may
volume

consumption goods, because of depletion be a minor cause of revival. The major

of production in

The index

of physical

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
is

Decline of American Capitalism

a renewed

cause of revival

demand

for capital equipment, either

for replacements or

new

industries or both.

New

power
lessly.

is

created. Industry begins to

move upward,

consumer purchasing slowly and plan-

The speed of revival and the scope of recovery and prosperity depend 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 development of new industries and unusual expansion of old industries. In the United States after the Civil War, accumulation was invigorated 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 produced 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 machinery 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 productivity of labor, which rose substantially. There were, apparently, fewer of the "postponable" expenditures on capital goods which agThe demand for machinery was strengthened gravate depression. 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 stationary in 1 914-16, and in the following four years averaged 28% below 1913. In 1921 construction, which had decreased one-half the previous 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
.
.

output of capital goods.

and commercial structures, essentially an Railroads, whose ordinary requirements

.

had been neglected during the period of Federal

their capital expenditures to $1,059 million in 1923

control, increased

and $3,996 million

in the five years 1922-26.*

The

depression drop in the output

Profits of automobiles
in 1923,

and Prosperity

65
$3,164 million a twofold in-

was small; output rose in 1922 and was nearly $1,000 million more than in 1919 and
. .

crease considering the fall in prices.^

The

a product of the increasing output of capital

was essentially goods, but it was strengthrevival

ened by an unusual development: a substantial rise in real wages, which increased mass purchasing power and consumption. Consumption

was 6.5% higher

in 1923 than in 1920,

an unparalleled
real

increase,

more important, goods. After 1923 the upward movement in consumption slackened and came practically
stimulating production and,
total

the output of capital

wages and mass

standstill:

to a

while

production in 1922-29 increased an average of 4.1% yearly,

capital

Accumulation,
Prosperity

goods increased 6.4% and consumption goods only 3.7%.^ as usual, outstripped consumption.

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

1929 than in 1922, scoring an average yearly increase of 6.1%; total construction was $48,859 million, an average of $6,100 million
in
yearly.

Automobile output (wholesale value) averaged over $3,000

million yearly in 1923-28, rising to $3,719 million in 1929; a considerregistrations of motor and buses increased more than private cars, while the wholesale value of motor trucks alone rose from $317 million in 1923

able part of the output consisted of capital goods

trucks, taxicabs,

to $595

million in 1929.^

The

lessened capital expenditures of the

rise in capital

railroads

was

partly offset

by the

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

from 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 apparatus rose from $1,293 million in 1923 to $2,273 million in 1929.^^
increasing electrification of industry, the extent of which rose
in 1919

56%

Expansion in new or comparatively new industries absorbed large

*

The average
and

yearly increase in apartments

family houses 5.1%, in commercial and industrial structures

tively,
trial

and hotels was 3.7%, in one and two8.1% and 9.3% respec-

in public

works and

utilities

11.4%. In 1927-29 the construction of indus-

50%. Frederick C, Mills, Economic Tendencies in the United States (1932), pp. 264-66. The upward movement in construction was sustained primarily by the demand for structural capital goods. The lack of this demand has
buildings increased

forced adoption of the government's public works program in an effort to

fill

in the gap.

66
aviation,

The Decline
capital

of

American Capitalism
picture, radio, rayon, chemical,

amounts of new

the

moving

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
tions;
it

structures,

"movie

palaces,"

and garages and

service sta-

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)

It

is

the decisive factor in capitalist prosperity.

lation of capital

provides for the accumu-

and multiplies the capitalist claims upon labor, proand 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 reduction,
strict.
is

The

stimulus to prosperity in the production of capital goods

it

employment, wages, and profits (mainly 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 threefold the output of capital goods may represent excessive accumulation
twofold:
increases
profits)

and

creates

of capital,

it

may

be concentrated in particularly profitable industries

whose expansion becomes disproportionate in relation to other industries, 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 international economic relations in favor of the United States.

The
tion

sharp

fall in

agricultural prices, a result of the post-war defla-

which threw most of the burdens of

contributed greatly to capitalist prosperity

deflation
^by

upon the farmers,

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 million 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
perity,
it

and Prosperity

67

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 exports (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 192329. The increase in exports was bound up with a growing export of capital; American foreign investments increased
$6,293 million in

1923-29/^ Imperialism,

surplus capital and goods, created

profits

new foreign markets for new means for the making of

and
sus-

and

their conversion into capital, for accumulation,

tained prosperity for a time by lessening the

demands upon
its

the

home market

to

absorb goods and capital. Increasingly the world

frontier

market took the place of the

repeated by the other.

and of

long-time factors
is

of economic expansion; but the experience of one

bound

to

be

Rising investment, production, and accumulation were accompanied

by a rising mass of
starting point of

profits. Profits in

manufactures are the natural

In 1929 profits 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

an analysis of the movement of profits (Table I). were 22.9% higher than in 1923, total wages only 6.1%

which should be considered profit, rose were 16.4% higher than in 1923. The increasing 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
steadily until in 1929 they

surplus value rose considerably, yet profits apparently failed to rise

as

welter

much. The contradiction dissolves upon analysis and reveals the of contradictions and antagonisms inherent in capitalist
all

production.

Corporate profits are usually understated. There are

sorts of

68

The Decline

of

American Capitalism
I

TABLE
Profits, Salaries,

and Wages, Manufactures, jg2^-2g

officers'

CORPORATE
YEAR
1923

TOTAL
INDEX

NET PROFITS
(millions)

INDEX

SALARIES
(millions)

WAGES
(millions)

INDEX
lOO.O
95.4
97.5
IO4.I

$3,872
3,166

lOO.O
81.8

$960
970

*

lOO.O
lOI.O
*

$11,009
10,502 10,730

1924
1925

3,877
3,910
3,431

100.2 lOI.O
88.1

1926

11,466
10,849
10,366

1927
1928 1929
*

98.5
94.2
I06.I

4,330

111.8

1,107
1,117

II5.3
II 6.4

4,760
available.

122.9

11,684

Not

Source:

Net
and

profits
officers'

(corporations
salaries

reporting

profits,

less

taxes

and

intercorporate

dividends)

(including bonuses and other compensation)

of Internal Revenue, Statistics of Income; w^ages

1923,
are
for

Bureau

1925, 1927 and 1929, Departp.

ment

of

Commerce,

Statistical Abstract of the

Its

United States, 1931,

813, other years,

W.

I.

King, The National Income and

Purchasing Power, p. 132, King's estimates are

slightly higher than

the Census figures.

Wages

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
tion o profits

and production, are capitalized surplus value.* Another porwas 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
to

equipment do not appear in

1929.

surplus,

which rose from

Revenue,

$13,060 million in 1923,

Statistics

$19,465 million in

Bureau of Internal

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

PR0Fin:i2%
mOES'.
aao

0S%

rr fiiVERAQE yeARLY RAre OF //VCRASE

200

dSI
ISO

STOCKHOLDERS' CASH INCOME

L>J-

.'

pijjEW CAPITAL 'SSUESf-^

160

/ /

H CORPORATE

PROFlTSh

INDUSTRIAL

rj
\<\ll

+4.>*JW

5
iqiS"

19ZG

l<12.7

WZ

MM

II.

PROSPERITY IN ACTION 1923-29.

70
habits,

The Decline
and of the resulting

of

American Capitalism

intensified competition.

laments about "profitless prosperity."

industry increased
its profits

Some

industries

There were many were severely

depressed while others were exceptionally prosperous.

The automobile 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,

Profits

whose

were unevenly

distributed,

were frequently disastrous.* moreover, as between smaller and

losses

larger corporations.

The movement

of increasing technological

effi-

ciency, production, and competition, resulted, as always, in greater

industrial concentration

1923 the largest 1,240

all

and centralization of corporate control: in manufacturing corporations received 64.9% of

corporate net income, while in 1929 the largest 1,289 corporations

received 75.6%.^^

An

increasing

number
in
1919,

of corporations, mainly the

smaller, reported deficits

1929.^^

These

deficits,

condition of capitalist
of other corporations.

41% in 1923, and 47% in which depressed the mass of profits, are a production and prosperity and of the profits

34%

characteristic of capitalist production is that its drive for larger

profits creates a series of

profits.

antagonisms which limit the realization of

Output

increases

more than

profits,

because capitalist producforces regard-

tion tends toward an absolute

less

growth of the productive and

of the capacity of markets and of the development of consuming

is

power. Competition

intensified

prices fall to levels

which

yield

small profits or no profits

labor,

one which simultaneously increases surplus value and

result of the higher productivity of

sets in

motion

forces
sified

which prevent its complete realization. As competition is intenby 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
of "value

surplus value and cut into profits: in 1923-29 that part

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)

all

increased in 1922-29 an average of

profits

7.4%

yearly for

manufacturing corporations,

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 consequent 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
are

not produce or increase surplus value, but they distribute and apportion
it.

All sorts of queer things

now happen which

none

normal

under capitalism. Not only

may

the industrial capitalist realize as

at all, if prices

profits only a small portion of surplus value or

are unfavorable, but a struggle occurs over the division of the surplus

value extorted from labor, and an increasing part of

the profits of the non-industrial capitalist.

it

may become
by the
trickery,

The

profits realized

individual capitalist or corporation depend considerably

the chances of the market,

upon

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 financial

and speculative
II).

capitalists are enriched.

ingly appears only in their final realization

The mass of profits accordand distribution as a whole The

profits of all

(Table
as

Total profits rose and rose substantially.

realized surplus value

corporations are understated, as in manufactures. In addition, interest,

much

as profit,

is

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


The

72

Decline of American Capitalism

TABLE
The Movement
CORPORATE

II

of Profit s, Salaries,

and Wages, 19^3-^9

ALL WAGES
(millions)

INDUSofficers'

YEAR

TRIAL

PROFITS
(millions)

INDEX

SALARIES
(millions)

INDEX

WAGES
(millions)

INDEX

INDEX

1923 1924
1925

$7,721
6,705
8,413

lOO.O
86.9

$2,575
2,635
*

lOO.O
102.3 *
* #

$18,105
17,200 18,083

lOO.O
95.0 99-9
105-3

$28,691
29,051

lOO.O
IOI.3

109.0

30,762
32,604

107.2 II3-7 114.6 112.4

#

1926 1927
1928

8,444
7,851 9,921

109.4 IOI.7
128.5
141.

19,068 18,524

102.3

32,884
32,235
*

3,199

124.2

18,050
*

99-7
*

1929
*

10,892
available.

3,336

129.7

Not

Corporate profits

net profits of corporations reporting profits, less taxes and inter(corporations)

corporate dividends. Officers' salaries

pensation.

includes bonuses and

to

other com-

Wages

all

wages includes wages paid

to corporate wages, are

farm

laborers,

servants,

and

workers in non-corporate industrial, commercial and service enterprises; industrial wages,

more. nearly equivalent

factures,

the wages paid to workers in

manu-

mines,

quarries

and

oil

wells,

construction,

and transportation
light

(railroads,

express,

transportation by water, street railways,

electric

and power, telephones

and telegraphs).
Source: Profits and
officers' salaries

for the respective years;

wages

Bureau
I.

of Internal Revenue, Statistics of

Its

Income

^W.

King, The National Income and

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

higher than in 1923; but this
relation to corporate profits, for
is
it

all

wages

for 1924-28

was

not the true measure of wages in

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.

truer

ing, construction
trial

measure are industrial wages (manufactures, minand transportation) for 1^2^-28 the average of indus;

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:

received 47.9% of

In 1923, the largest 1,026 corporations, 0.26% of all corporations, all corporate net income, an already dominant

concentration.

In 1929, the largest 1,349 corporations, again 0.26% of

all

corpora-

Profits
tions, received

and Prosperity

73

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

of a system of centralization of financial control

means

dominated by the
the financial

great banks. Industry depends

oligarchy,

more and more upon

of the surplus value extorted in 1923-29:

which consequently absorbs an increasingly larger share from labor. This v^as particularly marked from
$4,948 million

The

profits of non-financial corporations rose

14%, the profits of financial corporations (including banks, investment banks, finance and holding
companies) from $870,000,000 to $2,438 million, or 177%, a phenomenal
increase.

in 1923, to $5,645 million in 1929, or

The

profits of non-financial corporations in 1924-29

averaged

2%

lower than in 1923, the profits of financial corporations

69%

higher."

A
was

considerable portion of financial profits, particularly in 192829,

a result of frenzied stock-market speculation, the gains of

represent both previously appropriated surplus value and claims

which upon

new

surplus value. Finance capital, interested

more

in the speculative

production of profits than in the production of goods, dominates industry; 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
industrial

to $88,000 million.

While the average

yearly increase in

wages was only

0.5/0, the increase in stockholders'

income

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
was
16.4%.^^ Part of the
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!" Manufacturers and merchants shouted: "Spend and make prosperity!") The enormous accumulation of capital exerted tremendous pressure on the

74

investment market.

The Decline of American Capitalism Many issues were made out of whole
new

cloth,

and

investment bankers often forced corporations to issue

securities.

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 overproduction. The flood of new securities was swollen by the issues of investment trusts (guilefully offering security and large profits!), trading companies, and holding companies, an important source of the phenomenal 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-

Abundant

lion in 1929, a four-fold increase; total corporate issues in the seven

years

amounted

to $30,523 million.

New
in 1927

foreign issues rose from $892,000,000 in 1923 to $1,572 million

and slumped

to $762,000,000 in 1929, the total for the seven

years being $7,805 million;

ment

where domestic issues (excluding investand trading and holding companies) increased an average of 7.7% yearly, foreign issues increased 10.1% an indication of the
trusts

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 customarily reinvest up to one third or more of their profits; surplus rose

from $33,596 million in 1923

of the great crash, in
1929,

to $50,725 million in 1929. In the year

capital

expenditures of

all

sorts

(in-

cluding pubUc works) probably totalled $15,000 million. Total corporate capital rose
1929.^^

from $191,000 million

in 1923 to $233,000 million in

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 sustaining the upward movement of prosperity was the development of

75 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 replacement 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
old and

Profits

and Prosperity

new

industries, particularly building construction, iron

imperiaUst exploitation of similar international factors.

But the maintenance of prosperity requires a proportional distribuand consuming income, a sustained balance between the output of capital goods and consumption goods, between production and consumption. There was no such distribution or balance; and the basic reason for its absence was the antagonism between profits and wages, resulting in the lag of wages behind profits. This antagonism is fundamental in capitalist production.
tion of investment

CHAPTER V

The

Policy of

High Wages

JIn

spite of the

available facts, there was, in

1923-29, an almost
"policy of

universal belief that

American employers had accepted the

high wages" as the basis of prosperity.

standards,

An

economist wrote: "Increas-

ing productivity of labor and industry, advancing wages, higher Uving

and greater consuming or purchasing power, is now the and practical program of American industry." An historian: "The cultivation of consuming power became the economic

avowed

policy

direct concern of manufacturers,

with

results that

profoundly affected

wages and price adjustments [recognizing]

reduce prices was the

that to raise

wages and
.
.

way

to

promote and safeguard prosperity."

The
of

President's

industrial

Committee on Recent Economic Changes: "Leaders 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 employers 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 economic 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

high wages:

basic assumptions in the

dogma

of the policy of

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,
an "unfet-

to increase consumption, production,

and

prosperity.

But wages are not determined

in this fashion, neither in

76

The

Policy of

High Wages
upon which
are

77
imposed the

tered" capitalism nor in a capitalism "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 increasingly 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 prosperity: "The burden of all business discussions, as well as political debates bearing upon financial and industrial problems, was the constantly 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
In

of embat-

tled struggle, labor forced

up money wages, which

an
all-time

in 1920 reached

an

exceptionally

high

level,

high.

192122,

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

to

employers'

organizations

proposed

"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 civilization. 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 prosperity."

storm of wage cuts beat upon the workers: hourly

money

earnings in manufactures were cut

1922; there

15%

in 1921

and another

5%

in

non-manufacturing industries, while the strongly unionized building trades workers had their hourly rates cut nearly 6%.^
in

were similar cuts

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-

upon the reluctant union bureaucracy; "outlaw" strikes disregarded the bureaucracy and agreements with the employers. Capitalism
tion

78
resorted to
strikes.
its

The Decline

of

American Capitalism
strikes led

usual methods of legal and physical force to crush the

During the war, although

by the Industrial Work-

ers of the

World were

brutally suppressed, the

government maintained
after the

a velvet-glove policy toward "patriotic" labor, under pressure of political necessity.

But the iron

fist

was revealed immediately

war. In 1919, President

strike as a
legally,

Woodrow Wilson denounced

attack,

the coal miners'

which is wrong both morally and 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 workers; 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.^ Injunctions helped to break the miners' strike in 1921 and the railroad shop crafts' strike in 1922. The strikes were animated by economic discontent, 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 imprisonment. Measures to prohibit strikes were discussed in Congress and state legislatures. An intangible but real factor was the proletarian
"fundamental

upon

the rights of society

revolution in Russia; the revolutionary overtones inspired militant

workers to more aggressive action and affected the employers: revolutions do start with strikes.

As
or as

a result of labor's resistance, of

its

power, money wages were not cut as

much

immediate and potential as the employers desired

might have been. In 1923, hourly money earnings 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, resulting in a higher yield of surplus value). Practically the whole of the rise in real wages in ig2i2g too\ place in ig2i2^. 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),

much

as they

even increased, although

79 and one of the most conspicuous mouthpieces of the poUcy of high

wages:
perity,

The

Policy of

High Wages

In 1919, Vauclain had not a word to say about high wages; proshe 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 general 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 talking," 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."

ers,

In 1923, after higher real wages had been forced upon the employVauclain said: "There is nothing in low wages; higher wages are
essential part of prosperity."
:

And one year later he proclaimed "Higher wages have been a great blessing." ^ Real wages rose against the employers' resistance; and in 192328, when high wages were proclaimed "the avowed policy and practical program" of American capitalism, real wages were practically stationary (Table III). In 192022 real wages scored an increase of 12%, because of lower prices, as hourly, weekly, and yearly earnings all
an
unctuously
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 earnwere 3.6^ higher in 1927-28 than in 1923, but full-time weekly ings 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

ening the rates on

new

jobs,

make concealed reductions. by tightworkers maintaining their customary

money
earnings of
all

earnings by working harder. Average yearly

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-

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
petition of

80

The Decline

of

American Capitalism
III

TABLE
The Movement
HOURLY
YEAR
I919 1920
I92I

of Earnings

and Real Wages, igig-28

INDEX

FULL-TIME

YEARLY
EARNINGS
*

OF REAL

EARNINGS
*

WEEKLY EARNINGS
$28.78
32.57 27.62 27.64 27.58
27.51
* * *

WAGES
100

$1029
1273

.607
.525 .495
.541

102 104
108 115

1922
1923

983 1021

27.67
27.48

II50

1924

.562
.561

"34
1

"5
115

1925 C926

27.45
.

27.75

176

.568 .576
.579
available.

27.03

27.66
27.74
*

1217
1205
#

119
*

1927
1928
*

27.09
*

Not

Source:

Hourly earnings,

24

manufacturing

industries

National

Industrial

Con-

ference Board,
industries,

Wages in the United States, p. 47; weekly earnings, first column 12 second column 42 industries, covering 2,856,160 and 5,832,302 workers
out of over

respectively

8,000,000

employed

in

manufactures

National

Bureau

of

Economic Research, Recent Economic Changes,

ers

wages

W.

I.

King,

The National Income and

Its

433; yearly earnings, all workPurchasing Power, p. 146; index of real

v. II, p.

^Paul

H. Douglas, Real Wages

in the United States, p. 392.

from

wool manufacturing from $23.97 ^o $21 -ySthe coal miners and textile workers. The real earnings of railroad workers other than trainmen fell 1%. Although 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 noticeable 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
$33.02 to $31.32, in

Wages were

slashed

among

capitalist production.*

From

another angle this appears in the fact

that for 1924-28, industrial

* Still
states.
less

wages (manufactures, mining,

in

oil

wells,

was there any policy of high wages

the industries of

the

Southern

The

use of the newest, most efficient machinery, cheap

raw

materials and power,

living of

and a labor force the wages qf which were regulated by the standards of
a

region

comparatively

undeveloped

industrially,

gave

the

southern

employers

an

opportunity to realize extra profits.

'-~~

'
i

r" 6v%AND PROFITS

^

^
1
\

OVERHEAD COSTS

130

^36'^^P
m<^T0iRiiTiOM oe VALUE'AobE6i'l9i9

IZS

^
li

M
1

\xo
1
1

y V
ITEARLY
1
1

X V

EARNINGS
1

h
/

..' X

X X

1
1

V
r
s

115
1

C
1 1

Hrealwa&es

b
/

/
i
IN^

/
.L^^

JT

1 1 1

1 1

V
Jr

no
/
1 1

I
1

y
if

f 1

/
1

r JURPLU5 VALUP

-1

ki
J
j^ Ar

1^

1 1 I

^*

105

1
1

>
Jir Jk'

J
1

}f

r
'
:

too

.
i

>
.^

j^

*-^,

jV # / 'V # \ \ # 1 # ^ / V,
ilW

>
WA&E
1

^vl ^>r

/ >/
f

/" ^^v, r\/

<?5

V / i \
\r
\^m

r-llNOUSTR\AL
i 1

^h

wn

\Hio

H2I

\ux

mz

ms mh mi

his

hw

u
III.

THE SHARE OF LABOR

IN PROSPERITY 1919-29.

82

The Decline
and

of

American Capitalism

quarries, construction
level.

transportation) fluctuated around the 1923

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 manufactures 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

which was ruinous 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-

from the sharp drop

for the farmers.*

in the prices of foodstuffs,

Raw

materials, moreover,

But rising productivity in 1924-29 was not accompanied by any corresponding rise in real wages; productivity rose 22% ^ but real wages were practically stationary. In the ten
tures are agricultural products.^

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
"control."

all

stages of capitalism,

whether "unfettered" or under

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
if real

when

the productivity of labor rises most rapidly, even

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
profits

Forties,"

when

the

productivity of

labor

and

were

steadily rising, the

workers were starving. The situation was "relieved"

prices;
real

by repeal of the Corn Laws, lowering food

agriculture.

wages rose

at the

expense

of agriculture, not of capitalist profits. Capitalist production completely ruined British

There

is

no danger of such complete ruin

in

the United States, but the

tendency

is

in that direction.

The
tion fell

Policy of

High Wages
The

83
propor-

wages constitute of "value added by manufacturing."

40.2% in 1909, rose to 42.7% in 1923, in 1929, when the proportion of wages to "value added and fell to 36% by manufacturing" was 30% lower than in 1849/^ There was, natin 1849 to
urally, a great increase in labor's yield of surplus value

from 51.1%

(Table IV).

TABLE
Growth
VARIABLE
CAPITAL

IV

of Surplus Value, Manufactures, igi^-^i

CONSTANT CAPITAL

RAW
(millions) (millions)

VALUE
(millions)

SURPLUS

RATE OF
SURPLUS

INDEX

YEAR
I914 I919
1923

WAGES
(millions)

MATERIALS DEPRECIATION OUTPUT

$6,500
14,500
13,200

VALUE
(millions)

OF

VALUE
I26.I

RATE
lOO.O 100.5

$4,068
10,462 11,009
10,730 10,849
11,621

$500*
1,016
1,424

$16,200
39,250 39,050
40,400

$5,132
13,272

126.8

13,417
14,564
14,882
18,011

121.9
135.7 137.2 155.0
I4I.5

96.7

1925

13,600 13,450 15,450

8,400

1,506
1,819

107.6
108.8 122.9 II2.2

1927
1929
I93I

41,000 47,100 27,950

2,018
2,100

7,225

10,225

* Estimated.

Surplus value, or unpaid labor, equals the value of output

less

the value of wages,

is

raw
is

materials,

and depreciation on fixed

capital;

the rate of surplus value

the ratio

of surplus value to wages.

The

surplus value realized in the form of commercial profit

not included.
Source: Wages, materials and output

Department
of

of

Commerce,

Statistical Abstract,

1931, pp. 483, 813, and preliminary report of the 1931 Census of Manufactures; depreciation

(including depletion)

Bureau

Internal

Revenue,

Statistics

of

Income

for

the respective years.

The

rate of surplus value, of

unpaid

labor,

was 22.9% higher

It
fell

than in 1914 and 27.1% higher than in 1923. 1923 because of the fall in prices and the rise in

in 1929 temporarily 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.

but the rate

The rate fell again moved up sharply in

American

temporarily, and slighdy, in 1931,

1932-34 because of another great

increase in the productivity of labor. Thus, in 1929, relative

to the lowest point in

history in the midst of

wages fell an extraorprofits.*

share of the
in 1929.

dinary

rise in

the productivity of labor, surplus value,

wages are

and

* Falling relative

characteristic of capitalist production.

The

German workers
J.

in the social product (1927 as 100)

was 117

in 1913

and 94

Kuczynski, "Der Anteil des Deutschen Industriearbeiters

am

Sozialprodukt," Kolner

Sozialpolitische Vierteljahresschrift, January, 1931, pp. 85-95.

84

The Decline

of

American Capitalism

the

While real wages in general were practically stationary after 1923, 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

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 manufactures, 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 differential widened again.* One investigator concluded: "Apparently

the particular occupations;

the increase in productivity that has taken place has not contributed
its

share toward the increase of the wages of unskilled labor."

high, moreover, were "high wages" in the "Golden
capitalism, before the great depression ?

^^

How

American

Age" of 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

below

$20.

among unskilled workers were 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
section

Policy of

High Wages
among

85
the best paid, yet

than $1,000 yearly. Railroad workers were

hands earned an average of $17 weekly; 500,000 workers, onethird 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
variety, in spite of the

was $22.71. In chain stores of the 5^ and 10^ phenomenal rise in sales and profits, average
with

weekly earnings were

$10

$12,

earnings

25%

of the girls earning less than

life."^*

"not sufficient to procure the necessities of

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 192329 averaged nearly 2,000,000 yearly.)

The

average yearly family income

was not much

semi-skilled

larger than the individual average of $1,250.

An

investi-

gation in Chicago in 1924-26 established that the family income of

and unskilled workers ranged from $800 to $2,400 yearly; was $1,500, with the father, mother and one or more children 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, Philadelthe average

phia $1,926, Detroit $2,032.^^ Accordingly:

High wages were low wages

in

terms of adequacy to provide

minimum requirements over, among millions of

ductivity of labor

of living; grinding poverty prevailed, more-

workers.
in terms of the increase in the pro-

High wages were low wages

increase in

and in production, which wages: productivity rose from 15%

greatly outstripped the

to over

200%, the aver-

age 43%.

High wages were low wages

higher wages;
talism in
all all

in terms of the possibility of still through 1923-29 (and this is characteristic of capistages, "unfettered" or under "control"), wages could
if

have been considerably higher

ing productivity and
in
if

labor

had shared in the gains of

ris-

the unused capacity of industry

(25%
to

to

75%

many

cases, in the

peak years 1928-29!) had been utilized

idle

produce

goods instead of standing

because of the exploiting relations and

in the policy of high

contradictions of capitalist production.

To

indicate the

enormous progress implied

^^

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

of

mechanism

wage determination under

1.

capitalism:

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
2.

American

history.

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" achievement. But

3.

that labor

is

not a commodity, was hailed as a great

practically stationary.

real u/ages

were

From

1917 to 1922: Reversion to barbarism; employers

all restraints"

ers again resorted to force, "threw off

condition" of "industrial conflict"

and workand a "deplorable decided wages. But real wages rose

over i^%.
4.

From

1923 to 1929: Magnificent progress; employers "recognized"

wages" are the basis of prosperity; "old wages, theories 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;
that "advancing

employers cut wages drastically while the productivity of labor rose

wages decreased more than in previous depressions. 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 unemployment increase, profits rise, another major depression looms.
sharply;
2.

From

Lip-service

myth of the policy of high wages. was paid to it at a conference of 400 "key" businessmen, called by President Hoover in December, 1929, which formed a permanent organization to "stabilize business" and to prevent the depression 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
depression destroyed the

The

maintain industrial peace.

One

year later. Secretary of

fact that practically

Commerce
in

Lamont

said: "It

is

noteworthy

no cuts

wages

have been made by the employers. This stands in marked contrast

with the practice in previous similar recessions.
It

marks the wideis

spread conviction that permanent progress in prosperity

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 President of the American Federation

the

April,

1930,

William Green,
to "act"

of Labor,

was forced

against the cutting of wages. "I propose," he said, heroically, "to join

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 lengthens,

many

corporations are faced with the prospect of closing

down

altogether

and thus creating more unemployment,

or,

alternatively,

seeking temporary

wage

reductions."

ing those

All through 1930, wages were cut drastically by employers, includwho had given the "pledge" not to do so. They were cut
to

and boot and shoe

The cuts in the bituminous coal, textile, 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 capital were repeating the sentiments of 1920-22: Liquidate labor and
10%
15%
in manufactures.

industries

high wages!

The

Journal of

Commerce

insisted that

wage

cuts "are

among

the various aids to business recovery."

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 situation." Albert H. Wiggin, chairman of the Chase National Bank, who

own bank: "It is not 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
all

these years speculated in the stock of his

true that high

88
$1.75
to

The Decline
to oflFset

of

American Capitalism
. .

The fall in prices was not and real wages fell. Real earnings in manufactures 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
I2.75 for a week's work.
.

enough

wage

cuts,

level since 1916.

Clerical
is

depressions; their

work
fell

now
to

workers suffered more than in previous so thoroughly mechanized that they

women clerical workers one of many similar advertisements 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; employers 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 assistants 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-Telegram) "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
are practically wage-workers. in

The

salaries of
is

New York

City

25%

40%. This

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
fell

75%

of the total,

fell

21%

in the worst year

of the 192022 depression; in the worst year of this depression they

65% (Table V). The aggregate of wages, in the two years 1931were 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
32,

interest follow the fall in wages.

They even

rose slightly in 1921-22,

while wages

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-

moved downward.

The

Policy of

High Wages
V

89

TABLE

Dividends, Interest, Salaries, and

DIVIDENDS-INTERESTf
i

Wages
INDEX

in Depression
CORPORATE WAGES

officers' salaries

YEAR

AMOUNT
(millions)

INDEX

AMOUNT
(millions)

AMOUNT
(millions)

INDEX

1920
I92I

$5,570
5,617
5,702

lOO.O 100.8 102,4

$2,437
2,258 2,409

lOO.O
92.7 98.8

$22,155
17,525 18,410

lOO.O
79.1
83.1

1922

1929
1930
I93I

10,686
10,492
8,674

loo.o
98.2
8l.2

3.336

00.0
94.1

24,675
18,506
13,151

lOO.O

3,138
2,698
*

75.0
53-3

80.9
*

1932
*

7,1361
available.

66.7

8,636

35.0

Not

t Dividends for 1920-22 include only the amounts received by income-taxpayers;

other years include
X Estimated.
all

dividends disbursed

less

intercorporate dividends.

Source and methods of computation: Dividends,

tics

interest,

and

officers' salaries

Statis-

of Income.
Its

Wages

for

1920-22 are the estimates of

W.

I.

King, The National Income

to be disbursed

and

Purchasing Power, p. 132, of which

later years

75%

is

assumed

by corpora-

tions.

For

wages have been estimated

Statistics,

as follows:

According to the United

States

Bureau of Labor

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
in 1923,
1

1925, and 1927, yields the figure of total wages for 1929.

35.3% of total wages The Census for

93 1

reports

unemployment was greater

constituted

wages in manufactures of $7,225 million, 62.2% below 1929; but as in other industries, it is assumed that manufacturing wages
instead of

50%,

44%,

of total wages.

The Bureau

of Labor Statistics esti-

mates that wages in manufactures were

tion of these ratios to total

80%

of 1929 in 1930

and

38%

in 1932; applica-

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 1^2122, 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

level,

averaged only ^4.6% of the ig2g

* Except interest

dividends and interest 82.4%^

this

on

federal,

state,

and municipal bonds;

rose

steadily

until

it

exceeded $1,560 million in 1932.

New

York Times, January

29, 1934.

90
perity

The Decline

of

American Capitalism

Generosity in the payment of dividends and interest undermines pros-

and prolongs depression.

Beating

down wages was

interest

the primary

method

of maintaining divirevolt-

dend and

payments. Sometimes

this

assumed peculiarly

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 dividend 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,

securities.

and government

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

fall

corporations pay dividends

in prosperity

when

earnings

or deficits arise, both

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 was "dipped into" to the extent of

corporation executives

of $536 million. Corporate surplus

$10,760 million in 1930-31.^^

The

who

practice dividend insurance sternly reject

to

compulsory unemployment insurance as a menace

"our sturdy

American individualism." So do those rugged individualists, the stockholders, 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

were fairly 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 compensation 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
as officers. In the depression of 1921-22, officers' salaries
fell

well maintained, while net earnings

100

DIVIDENDS- INTEREST

OFFICERS'

WAGES'

60

40

xo

_ H 19^0-^2 h
iszi

iqzi

too

8o

60

^OFFICERS'^^^^Vi*,^

/DIVIDENOS-

INTERtST

SALARIES

^*

40

WAGES
50

^
IS3X

1- 1929^321-1

['\2i

W30

1931

Wages

down 25%

Dividends-interest: up

55%

WAGES

dividendsinterest

IV.

CAPITAL

AND LABOR

IN DEPRESSION.

92
in the bank's
life salary

The Decline of American Capitalism stock. Upon retiring as chairman, Wiggin was
The

voted a

of $100,000.

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, resemble a feudal barony. They are run primarily in the interest of the officers and their financial capitalist masters. Then come the stockholders, 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 expansion 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 workers. But it simultaneously sets in motion the forces which create economic disproportions and cyclical breakdown, and cumulatively develops 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
tions in the labor

Policy of

High Wages
down wages and

93
stand-

market are aggravated by the increasing mass of

capitalist class beats

unemployed workers. The

ards of living to compensate for the fall in production and profits.

CHAPTER

VI

Profits

and Wages: State Capitalism

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-

increasingly higher wages.

and productivity gains in the shape of 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 productional" share in production

As

tion.

real purpose of Niraism, and of the state which it is an expression, is to "balance" wages and profits and production and consumption, and thus "safeguard" prosperity. But this would mean control of all economic activity. It would mean
It is

assumed that the

capitalism of

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
activity

profits,

and are

affected

by

it.

Complete control of economic

of socialism:
it

means

the planned

economy

is

impossible

under the antagonistic, profit-making relations of capitalism. Incomplete control by

the capitalist state, as in Italy

its

and Germany, in
in Niraism, is

France and Britain, and

American beginnings
forces.

an

expression and aggravation of the decline of capitalism. "Controls"

repress instead of liberate

economic

The

attempts to "ease"

one disproportion create or

intensify

other

disproportions.

Thus
and

"easing" the farmers' burdens by inflation raised the prices of the

goods they buy more than the prices of the goods they
decreased purchasing power
real value of wages.

sell,

among
Under

the workers

by lowering the

The

scope and objectives are limited by the

state capitalism
all

desire to "save" capitaUsm.

the essential

relations of capitalist production are retained.

limitations,

and

"controls,"

economic

activity

Within modifications, moves in the same con-

94

Profits
tradictory

and Wages

95

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 increase the productivity of labor and profits. Wage increases are voluntarily 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.

high wages" was this Higher wages might mean more consumption, production, and profits, but as employers 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 relafatal flaw in the "policy of
:

The

tively

lower

profits.

The

fatal flaw in the proposals of

is

Niraism, of

state capitalism in

general,

this: If the "fixing" of

minimum wages
become

raises labor costs

(although
fall,

minimum

tends

to

maximum),

profits

must

and

efforts to increase the productivity of labor to

lower costs

and

raise profits

tive decrease in total

must be intensified, resulting wages and employment.

in an absolute or rela-

Profits are not

made by

forcing

made by paying the workers higher wages. They are 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 output 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
necessarily

an increasing exploitation of
clash

labor. Profits

and wages must

is

and

profits beat

down

wages, whether capitalism

"unfettered"

96

The Decline

of

American Capitalism
is

or under "controls."
cyclical revival:

The antagonism

revealed by the

movement

of

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-

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 development 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 overcome, 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 production 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 factors. One was the higher productivity of labor, which, according to the National Bureau of Economic Research, rose 12% in 1929-32 comduction rose 10%, total wages

8%

pared with only

other factor

7%

in 1927-29;^

it

rose again sharply in 1933.

The
up

was the strong drive to "earn" profits to resume or dividends and strengthen depleted financial reserves. Profits
almost magically. In the
million,
first

increase

shot

quarter of 1933, 205 large corporations in manufactures, mining, and services, with a "net worth" $7,443

had a

deficit of $14,831,000; they

made

profits of $86,878,000

in the second quarter

first

and of $129,576,000

in the third quarter. In the

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 corporations 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
soared beyond the small rise in proemployment, and wages. And in part of the third and all of the fourth quarter, higher profits were accompanied by decreasing production, employment, and wages.
$83,214,000.*
rise in profits
rise in

The

duction and the smaller

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

and profits. Its wage policy, in 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. Always 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 employers to evade paying the minimums. Evasions involved all sorts of contemptible expedients and merciless pressure upon the most helpless workers, particularly Negro and "alien" workers. As bad as the evasions was the character of the minimums. In no case were they
the lag of wages behind production
spite of the

pretentious claims,

even an approach to a decent standard of living. In

all

cases the
cases they

minimums were

based on depression wage

levels.

In

many

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 depression 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%. According to the

NRA

Administrator in
i

New
i,

York

City,

employment

rose

20% from August

risen 5V2C

to

November

payrolls only

13%. By November,

hourly wage rates in sixteen producing and distributing industries had

wages
the

and average weekly earnings 3% over 1932. The low level of many cases is demonstrated by one 'of the major reasons for Civil Works Administration's liquidation of its make-work acin

which began in January, 1934; it was, according to the New "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 paid average wages of $9 to $14
tivities

York

Post,

CWA
its

weekly to the great majority of

a

workers!

The minimum wages tended, moreover, to become the maximum, complaint made again and again by labor leaders, who did little
it.

about
the
job,

This affected

all

categories of workers.

Among

"white collar"

workers, according to the

NRA

York University Employment Bureau, drove down wages: "The $20 to $22 job is now about a $15

New

because employers tend to keep their wages around the

NRA

minimum."^ Because

of their unorganized condition, the technicians

98

The Decline
hit hard. In

of

American Capitalism

were

another, technical employees got 35^ to

one code qualified chemists got $14 weekly; in 45^^ an hour. "The technicians

now
for

find themselves in

many

cases receiving about half the

wages o

skilled labor

under the

NRA

codes.

No

provisions have been

made

them

in the codes of

many

industries, the technicians being con-

veniently regarded as 'superintendents' or 'executives.' In

the

men

are receiving only the

labor.'"^

to break

The result of the down the differentials between

many cases minimum wage provided for unskilled minimum wage "fixing" was a tendency
skilled

and unskilled and semicreate antagonisms

skilled workers. It is desirable to decrease the differentials: they are

largely artificial, altogether too great,

and they

between different groups of workers. But the

ferentials not

NRA

breaks

down

dif-

by raising the wages of the poorer-paid workers but by

lowering the wages of the better-paid

of the decline of capitalism.

development

characteristic

Real wages

fell

considerably because of the inflationary rise in prices

and the

cost of living.
earlier.

Food

prices in

December,
i,

1933,

were

7%

higher

than one year

26.8 higher

On December

1933 the retail price index

was

than in May; 10%

previous year.^

were sold in 1933 than in the Yet production was 10% higher, mainly because of
less units

increases in inventory stocks in anticipation of

more

inflation.
act.

After nearly four years of depression the workers began to

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.

striking for higher

fixed by the code."

A favorite answer of employers to workers wages was: "The demands are far beyond limits
Thus
strikers

were put in the position of fighting

the government, as limits in the code were fixed by the

government

apparatus of the
capitalist

NRA. The

codes were framed by representatives of

government and

capitalist industry; in

most

cases organized

labor did not even get the meaningless courtesy of "advisory" participation.

Employers appealed

to the

NRA

against strikes, and

its

pres-

sure

was used
illegal,

to drive the workers back to

work. Strikes were not

made

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
leaders

Recovery Act a "charter of labor"

extolled the "policy of high

the

same

who

in 1923-29

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. Millions 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,

to rule

state capitalism

clings to formal democracy, decks itself in the older ideology, attempts

by "balancing" class interests. Another motive of "recognidon" was

to secure
its

mass support
"controls."

for the

NRA

and force

it

upon employers

resisting

Not

all

employers accept

new

developments, even

when

they are in their

own

interest, particularly if

disadvantages are imposed upon some groups

in favor of the
State capitalism

of employers.
larger

(The NRA increases the differentials employers and corporations over the smaller.)
is

may The

use compulsion over certain capitalists or groups of capitalists.

struggle
not,

however, one of government and labor against the

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
capitalists. It is

between

sentiment
strikes, in

temporarily,

within limits, and under safeguards. Thus 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
it
.

of

American Capitalism

shop was rejected, because, according to General

Administrator,
.

Hugh

Johnson,

NRA

employer coercion which is contrary to law especially if the union did not have ioo% membership." This was driven home by H. I. Harriman, president of the Chamber of Commerce of the United States: "The closed shop is
to
.

"would amount

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
and

NRA

developed an apparatus to control labor, prevent

strikes,

restrict

independent unionism. This appears in the mediation

It

functions of the National Labor Board.

labor provisions of the

appears more clearly in the

Code

of Fair Competition for the Bituminous

Coal Industry .^^ In the preliminary hearings to frame the code, suggestions to give labor "adequate representation"

were brushed aside by

the operators' objections.

ties, all

of

The code set up six divisional code authoriwhose members (except one, with no vote, appointed by
are representatives of the coal

the President of the United States)

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
dent, one

each, were set up, all the members appointed by the Presifrom 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
what

grants the operators measurable self-government in the form of

are virtually cartels, with powers to "prevent destructive price-cutting," the

government

reserving, in state-capitalist fashion, the right to interis

vene.

But labor

subordinated to the employers and the state: even

labor's one-third representation

on the labor boards

is

under control
strikes involv-

of the President.
leader."

The

President can always find an amenable "labor

This was demonstrated during one of the coal

ing 75,000 workers. At one o'clock in the morning President Roosevelt

telephoned to Philip Murray, vice-president of the United

ers of

Mine Work-

America. This was the conversation:

I

Roosevelt: Philip,

want you

to get these

men

back to work.

Profits

and Wages
I

loi

Murray:

If there's

anything in God's world

strikers,

can do for you,

will be glad to try.

In reporting the conversation to the

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.
after

They asked, and secured on the National Bituminous Coal Board in the person of John L. Lewis.* But of the board's mem-

much

shilly-shallying, representation

bers nine are direct representatives of the employers; five are appointed

by the President, one

at large.^*

for each divisional code authority

on which

employers alone are represented; and two are Presidential appointees

Thus

labor has one out of sixteen

is

members on

the National
is

Coal Board, he
not compulsory.

appointed by the President, and the appointment

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 exIt

was

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."
^^

nature of Niraism.

These developments are wholly in accord with the state-capitalist 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.

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

tives of the
this

United Mine Workers of

mine committees or any representaAmerica during a suspension of work in violation of

agreement."

New York

Times, September 22, 1933.

102

The Decline
release capital
its

of

American Capitalism

They

and implement

from restrictions, particularly the anti-trust laws, powers over industry and labor. The controls imposed upon labor are not in the interest o labor.
institutionalize
labor's
its

They
labor's

subordination to capital, progressively

strikes,

deprive unionism of

independence, and tend to outlaw

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 operates within the confines of bourgeois democracy. It must make concessions 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

Germany, whole labor jurisprudence 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 capitalism 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 concessions 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 interadopted, and labor code authorities are
set

up. In pre-fascist
a

where

state

capitalism

was highly developed,

venes more ruthlessly to deprive labor of the possibility of independent

its

and revolutionary initiative. This policy of suppression assumes most complete and brutal forms under fascism. The upward movement of real wages in 192122 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
action
.
.

Profits
the tendency of the
levels.

and Wages

103
at low, fixed

NRA

to

maintain money wages

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

working of long-time factors of expansion. In 1933-34, revival was and incomplete, it was not forced upward by an increasing production of capital goods, which lagged behind even the small increase 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
the
speculative

by the conditions of
of recovery.

capitalist decline.

In previous cycUcal revivals,

employment and purchasing power

rose because of the

onward sweep

The

incomplete character of recovery forces Niraism more

to expedients. Unemployment is "decreased" by "spreadwork 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

and more

ing"

power, but profitable to the

omist,
bill

capitalists. "It is," says a

bourgeois econ-

who

urges drastic

wage

cuts, "the

amount

of the total

wage

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
is

idle capital or of

unused

capital equip-

ment. Consumption

to be "increased"

ers of that part of their

by depriving employed workwages which they might save and pay it to

all

newly employed workers, forcing

capitalism.

wage income
all

to

be spent. Thus

standards of living are lowered under the conditions of the decline of

Wages
10%

are being cut in

capitalist nations.

The

fascist

government

of Italy orders another cut in

to

wages and

salaries, after the

cut in 1930 of

more
sold."

effectively in the

12%, in order that Italian capitalists may compete world market, where they are being "underis

Compensation

offered in the

form of

a simultaneous

and

equal cut in the prices of food, rent, and transportation, but this in

104

The Decline
to

of

American Capitalism

practice never equals the cut in wages. In 1932, the

German employers

were permitted

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

if

cut the wages of employed workers

the "saving"

was used

to hire

additional workers; the Hitler government justified the cuts as a

means These

of

"increasing"

employment and "maintaining"

payroUs.^^

are the desperate resorts of capitalism tormented by decline

itself

and

trying to save

by thrusting the burdens of decline upon the

profits in

workers.

Wages and employment lagged behind production and

of 1933-34.

the revival of 1921-22, in the prosperity of 1923-29, and in the "revival"

Nor was

the lag a result of the

NRA

in

its

early stages

depending more upon "persuasion" than

the "Golden

"force," placing faith in the

voluntary action of "enlightened" employers,

Age" of

pre-1929 prosperity.

much in the manner of 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. Considering the problem

from the angle of

price-fixing, a bourgeois econ'fair'

. . .

omist concludes: "Prices construed as

will put a

premium
higher

on

efforts to

lower the cost of production for the sake of

^^

much

profits.

This will be done by investing more

capital in order to increase

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
the productivity of labor."
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
forms:

lag behind profits.

The

lag assumes three major

In the epoch of the industrial revolution and for some time

after-

ward, wages

fell

but profits rose greatly.

rise

In the epoch of the upswing of capitalism, wages tended to

profits rose
still

but

higher.
fall,

In the epoch of the decHne of capitalism profits tend to

but

Profits

and Wages
relatively as v^ages

105

wages
ward.

fall still

more;

profits

move up

move downfall

In the epoch of the upswing of capitalism there was a relative

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 capitalism, aggravated

by

all

the burdens of imperiaUst wars.

The
sion,

conditions of capitaHst decline, of which Niraism

the

is

an expresfor

limit

expansion of

industry

and the opportunities

fall.

profitable investment of capital. Profits tend to

The

fall is all

the

greater because of the burdens of taxation imposed

upon

industry.
in-

These burdens

result

from the

state

pouring public money into

growing masses of the needy unemployed, an increasing bureaucracy, and multiplication of the costs of armaments and war. The efforts to save
dustry, measures to safeguard profits, relief for the constantly

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

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,

wages must

fall.

W.

these

American economists

are

now overwhelmed by

the pretentious

"high wage" chorus, but they will come into their own.
economists base their arguments upon what
of laissez-faire economics, which
is essentially

And
is

the

the theory

was never very

real

and

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

But they must fall because of fall employment will rise. Thus the economists abandon the hope of progress, and offer only the prosare a
cultural necessity.

human and

inexorable economic necessity. If wages

pect of lower standards of living.

And

they forget that lower wages

prices

and lower costs are not necessarily translated into lower higher demand, particularly in the epoch of the decline of
*

and

capitalism.
justifies

King

is

an "objective" economist whose objectivity completely accepts and

capitalism.

He

considers

economics a "science," but a science which refuses to go

relations and needs of capitalist production. It is an interesting phenomenon 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.

beyond the

that the

io6

The Decline
economists
insist that

of

American Capitalism

The

lower wages and lower costs are necessary

to increase foreign trade; but they forget that all capitalist nations

are lowering

wages and
is

costs

and

raising tariff barriers.

Wages must

be cut to increase profits and stimulate the production of capital goods;

but capitalist industry

apologetics.

now

capable of absorbing only a decreasing

of the economists are

output of capital goods.

The arguments
fall,

mere

As
ism,

profits fall or

tend to

in the epoch of the decline of capital-

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
and

of these developments arise sharpened class antagonisms, the struggles

of capitalism, fascism,

communism: an

era of social explosions

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

which the war had created 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
revival of 1922, building construction, in

a great shortage, led the

chemicals.

The

old stimulus of the undeveloped inner continental areas

was

partly replaced by the export of capital

and imperialism, an
profits

ex-

ploitation of the international long-time factors of expansion.

These developments produced increasingly higher

tion of capital goods, the basis of prosperity.
capital

and

their

conversion into capital by means of an increasing output and absorp-

and the growth of industry's

scale.
(it is

capital

Both the investment of equipment proceeded on

its

an immense

As

is

usual in prosperity

a very condition of

being), the

profit-makers scored the largest gains.

cluded,

The

farmers were wholly ex-

and their exclusion was itself an element of capitalist prosperity. 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 production 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 imupon the rise of wages. The limits move downward 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
poses definite limits

production.

PART THREE
Contradictionsfof Accumulation

Introductory

Jl ROFiTS

and wages

clash,
is

and

profits beat

down

wages, because the

accumulation of capital
italist
is

the primary

production. In

its

origins,

aim and driving force of capdevelopment, and decline, capitalism

the conversion of profits into

inseparably identified with accumulation.

The accumulation
workers which the

of capital

means

capital. Profits are realized surplus value, the surplus

product of the

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
capitalists appropriate

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

raw material, the worker in capitalist industry is dominated by the massed mechanical equipment of production, working up almost unlimited amounts of raw material. The increase in the scale of proof

duction means larger and more

efficient

equipment

in giant plants,

lower labor

costs, greater

output, lower prices, and higher profits.

augments the accumulation of capital, which 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
Large-scale production
in turn reacts

III

112

The Decline

of

American Capitalism

and the exploitation of agrarian 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 materials 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
of agriculture by capitalist industry,
classes

preponderance of constant over variable

larger masses of

capital.

The

use of increasingly

equipment and materials multiplies the productivity

relatively to the other factors of

of labor

and the output of industry. The higher the composition of

capital, the

rise. But both cause and eifect assume antagonistic forms and provoke disturbances of the most serious 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 production and prosperity.

production.

more labor is displaced Wages fall and profits

CHAPTER

VII

Accumulation and the Composition

of Capital

vLfiAPiTALisT industry

is

unceasingly driven to force

up

profits

by

re-

ducing labor
increase in

costs

and enlarging the

scale of production.

The

resulting

constant capital and relative decrease in variable

the

higher composition of capital

ture of

are

most

fully apparent in the struc-

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 from $555 million to $7,343 miUion, or 1,223%; materials and power) capital, including the investment in machinery, apparatus, and buildmgs, 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 upward trend more than the rise in wages and raw materials. From 1849 to 1919, the fixed capital per worker rose from
indicate the

$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

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
equipment and
five times as

much raw

material.

again the case, naturally, in

1923-29

(Table I): constant

capital,

particularly the fixed portion, increased

* Precisely
fullest

more than wages and

output.

because

it

is

the most

highly developed, American

industry offers the

confirmation of the analysis Karl

Marx made

of the laws of capitalist producstatistical material,

tion. It is

one of the tasks of

in the world, to

this

book, using the American

the most

abundant

make

a quantitative, as well as qualitative, demonstration

aspects of capitalism
to

of the Marxist conception of the fundamental

and

this

despite
as

the tendency,

on the part of bourgeois economists,

in

sneer at "Das Kapital"

analysis,
is

an

"outworn economic text-book." Marx,

fundamental theory and

more

contemporary than contemporary bourgeois economists.

114

The Decline

of

American Capitalism
I

TABLE
Changes
FIXED

in the

Composition of Capital, Manufactures, igi^-ig

Variable Capital

Constant Capital

RAW
INDEX MATERIALSf
(millions)
100.

YEAR

CAPITAL*
(millions)

INDEX

WAGES
(millions)

INDEX

VALUE OUTPUTt
(millions)

INDEX

1923

$21,910
25.457

$13,200
13,600 13.450

lOO.O
103.0

$11,009
10,730 10,849
11,621

lOO.O

$39,050
40,400
41,000 47,100
is

lOO.O

1925

116.6
II 8.7

97.4
98.4

103.6
IO5.I

1927 1929

26,007
28,235

IOI.9
I

128.9

15.450

17.0

105.7

120.8

Real

estate, buildings,

and equipment; the fixed

capital for

1923

estimated on the

basis of the

1924 figure of $22,410 million.

tLess duplications.
Source: Fixed capital

Bureau
and

of Internal Revenue, Statistics of

tive years; wages, materials,

tures, 1929, V.
I,

and output

Department

of

Income for the respecCommerce, Census of Manufacp. 483.

p.

15,

Statistical Abstract of the

United States, 1931,

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-

more output. The profrom 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
sixth

more

materials and produced one-fifth

fell

portion of wages to fixed capital

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.

relatively.

Wages may
and 1927)
is
if

fall

They may

also fall absolutely (as in 1925

an

unusually rapid improvement in technological efficiency

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

951<\XZ

na5

WZT

\U<\

V.

CHANGES IN THE COMPOSITION OF CAPITAL.

ii6

The Decline

of

American Capitalism
displaced workers are absorbed by
is

labor and unemployment.

Where

the expansion of industry the displacement

to

relative.

But

it

tends

become
1919.

absolute: in every year except 1929 the

number

of workers

and in all years lower than wages and employment in manufactures 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 investment 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
in manufactures in in 1923,

was lower than

Nor were lower

total

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
relative;

epoch of the upswing of capitalism, the

it

dis-

placement was

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 comantagonistically:

position of capital simultaneously

and

The Composition
1.

of Capital

117

of the workers.
fall

Imposes limitations upon the purchasing power and consumption Wages always lag behind profits, and wages always 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 surplus value.
stant

The

decrease of variable capital (wages) in favor of conlimits

capital

(equipment and materials)

the production of

surplus value in proportion to the total invested capital; while the

increase in the output of goods

and the

restriction of

power and consumption

profitable levels, in the

saturate markets

mass purchasing and lower prices to unof

thereby limiting the realization

surplus value

form of

profits.

The mass

of profits rises, but the rate of profit

on the

total invested capital tends to fall.

Thus
and

the higher composition of capital

is

the basic objective factor

capitalist

in the contradictions of accumulation

prosperity.

and of

production

CHAPTER

VIII

The

Fall in the Rate of Profit

itself as a tendency and not 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

Jl

HE

fall in

the rate of profit manifests

in absolute form.

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) forcing prices

and

down to unprofitable levels, or a restriction of markets 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.
sales

Capitalist enterprise continually strives to raise profits

by increas-

ing the productivity of labor. This

is

of production and displacing labor with

done by enlarging the scale more efficient equipment

thus

working up

larger

amounts of raw

materials,

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

clude a profit on
prices.
its

capital itself produces profit because they in-

consumed portions

in figuring costs
is

and

selling

But

as only its

own

used-up value

incorporated in com-

modities, constant capital produces

value; labor, living labor alone produces

profit is the realized

form.

If

no new value and no surplus surplus value, of which the rate and mass of surplus value
capital, a fall

remain the same

after

an increase in constant

ensues

in the rate of profit because the surplus value is

now

a smaller ratio

of a larger total of invested capital,

calculated. It can be otherwise only
if

on which the

rate of profit is

the elements of constant capital

are considerably cheapened; in this case the old or even a higher

ii8

The
rate of profit

Fall in the Rate of Profit

119

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, representing the surplus value,
value
is

rises.

But

this

rising

tendency of surplus

accompanied by antagonisms which

fall.

set in

motion

its

opposite,

The the tendency of the rate of profit to 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
rise in

surplus value

of constant capital,
labor, // prices

// all

-the

new

fixed capital

is

set in

motion by
//

and

profits are not

lowered by competition,

markets

absorb the enlarged output of commodities and permit complete

reahzation of surplus value and profit.*
ditions
It is

the fact that these con-

are rarely,

if

ever,

present simultaneously
fall.

which

activates

the tendency of the rate of profit to

Underlying the falling tendency of the

in the productivity of labor
result in a larger

rate of profit is

an increase

and in the

scale of production,
profit.

which
in-

mass of commodities and

But

capital

vestment tends to increase more than output, more than the reahzation of surplus value
profits, calculated

and
still

profit. If the rate

on the larger mass of

fall

on a

larger

mass of

capital, falls, there follows

an accelerated investment of capital to overcome the by an increase in the mass of

aggravating
of production
profits.

in the rate,

Again
the

there are changes in

the composition of capital, greater productive capacity

the

and output,
development

contradiction

between
pressure

absolute

and the limited conditions of consumption. This con-

tradiction exerts a

downward

on the

rate of profit in

two

ways:
Prices

and

profits are

lowered by the intensified competition

is

result-

* "Production of surplus value

tion, it

but the

first act

of the capitalist process of produc.

merely terminates the act of direct production.

Now

comes the second

as well as

act

of the process.

The
is

entire

mass of commodities, the

total

product, which contains a

a portion

portion which

to reproduce the constant

and variable
is

capital

representing surplus value,

must be

sold. If this

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
yield

much

for the capitalist. It

may

no surplus value
it

at all for

him, pr only realize a portion of the produced surplus

. .
.

value, or

may even mean

to

a partial or complete loss of his capital.

Too many

commodities are produced

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
upon

excess capacity of production arises,

realized profits.
is

whose

costs are a

burden

Excess capacity

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

ability

demand
It is

for these goods depends

upon
to

the

of the industries producing consumption

goods
itself,

dispose

of

an increasing output.)
fall.

not a probjem in

but the con-

crete expression of the factors underlying the tendency of the rate

of profit to

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 production 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

on the other hand,
with living labor.
it
.

fixes a constantly increasing portion of the capital in

its

a form in which, on the one hand,

in which,

value

is

capable of continual self-expansion, and

it

loses
.
.

both use-value and exchange-value whenever

loses contact

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

. .

The
is

entire capital cannot be

.

capital

employment ... a more rapid turnover of the fixed capital. employed all at once in production, a portion of the hence the capital active in the production and always lying fallow
.
.

appropriation of surplus value

turnover, the smaller
is

is

curtailed

to that extent.

The

shorter the period of

the fallow portion of capital as

. . .

compared with the whole, and

of the produced surplus

the larger will be the appropriated surplus value.

The mass

value

is

augmented by the reduction

of the period of turnover.

Any
431;

such reduction

increases the rate of profit, since this rate expresses the

in proportion to the total capital employed."
v. Ill, p. 85. If a

mass of surplus value produced

v.
I,

Marx, Capital,

p.

v. II, p.

409;
rate

more

intensive use of fixed capital increases surplus value

and the

of profit, a lessened intensity of use, an unused capacity, necessarily decreases surplus

value and the rate of profit.

The
in the

Fall in the Rate of Profit

121

unused

capacity,

surplus value

and

profits

whose costs eat into the produced and realized and reduce the rate of profit on the total
is

invested capital.*

Thus

downward

pressure

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 contradiction 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.
costs

The problem

is

aggravated by some variable

preciation, insurance, taxes,

and semi-fixed costs (interest, demanagement, 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 production 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
becoming
semi-fixed. Fixed

lowered.

The

greater the scale of production,

and the higher the composition

Operating below capacity
capital, is

of capital

and the productivity of

labor, the greater is the pressure

of unused capacity

on the

rate of profit.
its

in small-scale industry,

with

lower composition of

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

its

great.

Operating below capacity

is fatal

in large-scale industry, with

higher composition of capital,

because fixed and semi-fixed costs are greater than the variable costs
of labor: as output falls the workers
direct loss

on variable

capital,

but this

who are fired still involve no is now relatively unimportant

costs of

in comparison with the great losses

*

on the
its

unused capacity.

"The

larger the fixed capital

and the slower

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,

t "Taxes,
fire

An

Outline of Political

Economy (1930),

p. 142.

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
rise as

is

long or short.
to the profit."

To

the extent that production decreases, these expenses

v. Ill, p. 94.

compared

Marx, Capital,

122

The Decline

of

American Capitalism

In small-scale industry, where low fixed and semi-fixed costs absorb

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
a small part of the output,

industry tends to rise sharply because of

its

higher scale of operations

and the productivity of

mass of
use
all

its

labor.

Because of the conditions identified with unused capacity, the larger

profits

"earned" in large-scale industry

may

coincide with

a fall in the rate of profit. This perpetually tempts an enterprise to

sarily avert a fall in the rate of profit.

But operating 100% of capacity does not necesFor 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 indirectly unprofitable through an increase in advertising and other merof
its

capacity.

chandising

costs.

In either case the rate of profit

its

falls.

movement
pacity,

of prosperity reaches

climax

it

creates

As the upward more intensive

efforts to raise the productivity of labor,

to

which augments excess caand more use of excess capacity to capture markets, in order 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

rise

may

succeed, but only temporarily, because the

augments excess capacity and competition, and hastens overprothe rate of profit falls because of an excess capacity used under

duction, cyclical breakdown, and a disastrous fall in the rate of profit.

Thus

market conditions which do not permit complete realization of surplus

value and profit.

That the
edged
fact.*

rate of profit tends to fall

is

an observable and acknowl-

An

indirect proof

is

the constantly larger capital invest-

ment
*

necessary to produce a unit of product. In

then,

American manu-

Why,

do small concerns

mounts? Because the

larger concerns have

larger financial resources,

more easily in depressions, when unused capacity more control over markets and prices, possess including surplus, and are favored by the banks. They use,
fail
if it
it is

moreover, the opportunity of depression to drive their smaller competitors out of business.

And
is

in

many
is

cases the small concern,

small enough and

if

most of

its

capital

variable,

only an apparent casualty:

prosperity returns.

closes

down

or retires completely, but

resumes business

when

The
factures, fixed

Fall in the Rate of Profit

123

1,758% from 1849 to 1889, output only The ratio of output to fixed capital was 2 to i in 1889 and 1,170%/ 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
capital rose

TABLE
The Rate

II

of Profit, Manufactures, 192^-31

INDEX,

RATE ON

INDEX,

RATE OF
SURPLUS

NET
YEAR
PROFITS*
(millions)

FIXED

FIXED

TOTAL
CAPITALt
(millions)

RATE OF
PROFIT

RATE OF
PROFIT

CAPITALf
(millions)

CAPITAL

VALUE

1923

$3,174
2,418

$21,910
22,410

14.5

$34,491
36,491

9.2
6.1

lOO.O
66.3

lOO.O

1924 1925

10.7

3>245
3'2I3

25.457
26,618 26,007
27,025

12.7
I2.I

42,366
45,273

7.7
7-1

83.7

III.3

1926 1927
1928

77.2
59.8
75.0
81.5
18.5

2,662
3.461

10.2
12.8 13-9

48,049
50,017

5.5
6.9

1929 1930
I93I
*

3.951

28,235

52,694
52,121

7.5
1.7

878
Deficit^
profits

28,987 27,000

30
Minus

II2.5
I27.I

48,500

Minus

Minus

II6.I

Net

profits (exclusive of intercorporate dividends

and taxes) of corporations

reporting net income less the deficits of corporations reporting no net income.
profits of corporations

The

which reported net income were $3,872 million in 1923 and

estate,

$4,760 million in 1929.

t Fixed capital
J In

real

buildings,

and equipment;
is

total

capital

common

and

preferred stock and surplus. Capital for 1923 and 1931

1

estimated.

93 1 one group of corporations reported net income of $1,169 million, the other $1,984 million, making for corporations as a whole a
is

deficit of

deficit of

$815 million.

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

The

rate of profit

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
capital

fell.

In every year the rate on both fixed and total

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 breakdown), but even in these peak years the rate on fixed capital was below 1923, and the rate of profit (total capital) was below both

was below

124

The Decline

of

American Capitalism
is

1923 and 1925. Clearly capitalist production

against a falling rate of profit.

a perpetual
rises

struggle
falls in

The

rate falls

and

and

prosperity. It falls precipitously in

minor depression:

a fall of 33.7%

and of 22.5% in 1927 over 1926. And it falls dismajor 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
in 1924 over 1923
astrously in

192^. Capital investment increased

more than

the realization of sur-

plus value and profit, hence the

the investment of
in

fall

in the rate of profit,

which forced

more

capital (including profits retained as surplus)

fall.*
is

an

effort to

overcome the

As
it

the law of the falling rate of profit

not absolute, but a tendency,

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
1909-13
in 1922,

ratio of net

income

to capital investment fell

It v^^as

from a yearly average of 16.2

income
to gross sales

in

to
1

1.3 in

1923-29.

14. i in 1919, 5.8 in the depression year 1921, 10.8

1.9 in
1

1923, and 11.2 in 1929.

The

ratio of net

was

and 10.5 in 1929. Robert R. Doane, The Measurement of American Wealth (1933), p. 149. The methods of calculation are different from those the tendency of the rate of profit to fall. in Table II, but the same thing is proven
15.2 in 1909,
1.5 in 1919,

t The
rations

fall in

the general rate of profit

profits, or of the

is

not merely a result of the deficits of corpo-

making no

small earnings or losses of smaller enterprises. These

all

arc important factors,

and they are intertwined with

capital.

the contradictory forces set in

capitalist

motion by changes in the composition of

considered as a whole.
earnings.

Moreover,

production must be

The

fall

in the rate affects enterprises with enviable records of

Thus
fell

the rate of profit on the invested capital of the United States Steel Cor-

poration

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
still

this has

required a

larger reinvestment of earnings.

The

corporation's surplus rose

from $25,000,000
threefold.

in 1902 to $700,000,000 in 1929, while

its assets

increased

more than

150

.'
..

140
I
1

CAPITAL

L
|

INVESTMENT

..

J .'

30

SURPLUS L

Us^

VALUl?

IXO

MO
lOO

y
,-- ,.-jjwA2^
^"
_

\
\ \

M
J

_^

\
h
1

o*

ri

VALUE OUTPUT

^
< X X
1

y^
^^--

90 80
70
Ao
x" ',

V
\
_,
1

\ \

J X X

^^

RATE OF PROFIT

.^

It

X
X
7.

\\

X X

50
J
-qo
1

i
RATE OP PROFIT US ST66U CORP.

1-

-I

X X
V X
1*.

30 lO
8

A
V' V

;^o

i% V
/yo/"

\
\
.

^^ /

./

'V

/^

J uW
1

X
X
)

lO
/9Oi

<
X * X

/y/O

/f/J"

/fZO

IfiS

/J30

X
3

1923

ISZ4

19Z5

R;L&

197.7

1928

1929

1930

1931

VI.

THE FALL

IN

THE RATE OF

PROFIT.

126
spite of the

The Decline
new
industries,

of

American Capitalism

unusual upsurge of prosperity; of the great expansion in

in the productivity of labor

which yielded exceptional profits; of the 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
old and

sharp

rise

profit.

Underlying the general rate of profit are the rates in separate inand enterprises. While the fall in the general rate of profit may be checked or it may even rise, some of the underlying rates
dustries

always

fall.

In separate industries and enterprises the rate of profit

stand
still,

may
trial

rise, fall,

or disappear. In 1923-27,
utilities,

among

381 indus-

corporations and 129 public

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
it

the average yearly increase in profits exceeded 10%, in four groups

was below 10%, and in six groups the decrease in profits produced 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
deficits.^

result of losses in another group.

Competition

is

intensified. Capitalists

plunder one another. Exploitation of the Capital flows into industries with a higher workers becomes greater.
redouble their
efforts to

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

fall

falling, the

tendency of the rate of profit to

there
fall

always exerts
to

its

pressure;

and always, consequently,

fall

are

efforts

overcome

the tendency, particularly as a small

in the general rate

may

coincide with a large

the rate of profit
it

neither lessens

some of the underlying rates. If a fall in is accompanied by a rise in the mass of profits, the lag of wages behind profits nor overcomes
in
fall is
is

the contradictions of accumulation: the

tradictions.

itself

one of the conficti-

(The

fall

in the rate of profit

independent of the

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 predatious fall often

tory financial capitalists.

Where

fall

in the rate of profit is pro-


The
for
it

Fall in the Rate of Profit

results are not,

127
fictitious,

duced by overcapitalization, the

forces

however,

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
in output.

costs"

those "costs of production" which, whether necessary or unnecessary,

do not

fall

correspondingly with a
all

fall

As

industry becomes

increasingly large-scale,
into profits;
as

sorts of

unforeseen costs arise and eat

"hidden."

older

many of the costs puzzle the capitalist and are described (Among the "hidden costs" recently discovered are employees over forty who are ruthlessly thrown upon the scraptechnical
limits

heap.) There are limits to an increasing scale of profitable operation,

in

productive efficiency

and economic

limits
effi-

in markets; although the limits are flexible they often result in

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 technical,

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 enormously 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, results in

growing expenditures on management engineering and per-

sonnel and "welfare" work, including espionage, to insure efficiency,

crush unionism, and prevent strikes

particularly
many

to prevent strikes

which might

interfere

with continuous operation. Costs formerly

almost wholly variable

now

develop

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

stocks of
technical

on

raw

materials

when output
rate
losses

or prices

fall.

The

rapidity of

change quickens the

of obsolescence of mechanical
necessity of larger depre-

equipment, resulting in large

and the

ciation allowances. (Scrapping "obsolescent"

equipment

is

often sheer

waste, justified competitively, not socially.) Debts

pile up, as a result of the pressure for

and

interest charges

more

capital to enlarge producfall,

tion and check the tendency of the rate of profit to

rigid

introducing
intensify

and unwieldy elements

in the financial structure,

which

the instability of prosperity and prolong depression. All of these over-

128

The

Decline of American Capitalism

one aspect or another, with excess capacity,* and the increasing

head

costs are involved, in

the result of changes in the composition of capital

productivity of labor the devils

who

spoil the best of all possible

worlds by exerting

downward
arise

pressure

on the

rate of profit.

These problems The economy of

out of contradictions in large-scale production.

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,

and profit may be realized on the production 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

more

surplus value

and

sale of a larger

to fall.

Essentially the contradiction

is

this:

The economy
full
is

of large-scale

production depends upon measurably

sale of the output.

operation

and

profitable

But

capitalist industry

incapable of continuous

and planned
cause
it

utilization of all the available

means of production,

be-

is

incapable of commensurately developing the conditions

is tormented by unused capacity and forced 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-

of consumption. Industry
to operate

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

is

129
a result of

ing in space and time but always tending to increase,

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

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
the
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

rate

was

afflicted

by excess capacity and the falling tendency of the

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,

still

may

yield a higher rate of profit.

But

its field

is

limited, as

manu-

facture of the characteristic products of

large

modern

industry requires

amounts of machinery and apparatus, of fixed capital, and, consequently, of raw materials. Competition, moreover, forces a lowering 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-

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
tages

of profit.

The tendency
overcome.

of the rate of profit to

fall is

thus strengthened,

and

is

never, save under certain rare conditions

and then only tem-

porarily,

CHAPTER

IX

Multiplying Contradictions and

Capitalist Decline

pposiNG forces are always at

work

to check the tendency of the

is

rate of profit to fall: capitalist production

against the tendency.

The

struggle

and the

forces

an unceasing struggle 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), increasing 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

all

life

either

through direct

reduction of wages or rising prices. But

in relative wages, a greater lag of
to upset the balance

these efforts

mean

a decrease

wages behind

profits,

and tends

between production and consumption. Similar

through the use of

results follow a rise in the productivity of labor

more

efficient

equipment. For this leads to an increase of constant

the fixed portion,

capital, particularly

more
fall.

excess capacity,

and a

stronger tendency of the rate of profit to

contradictions aggravate

The

efforts to

overcome

them and

the forces of cyclical breakdown.

is an aspect of rationalization, whose primary aim is to check the fall in the rate of profit. Rationalization means the more economical, intensive, and scientific utilization of constant capital. It involves more efficient use of existing equipment; development of new processes, particularly chemical, which

Increasing the productivity of labor

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

prices,

131

accomplished on a large scale by the electrification of industry; and the more economical use of raw materials, including the utilization of their wastes in the form of by-products. But the result is an

eventual aggravation of contradictions.

increases the pressure

The output

of by-products

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 unprofitable 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. Moreover, 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 rationalization.

Destruction of capital and depreciation of capital values constitute

another check upon the

fall in

the rate of profit. Bankruptcy,

by desurvivcapital

stroying capital and moderating competition, eliminates a factor drag-

ging

down

the rate of profit and tends to raise the rate

on the

ing capitals; reorganization of an enterprise, by scaling

process of destruction

down

values (and the claims of investors), raises the rate of profit.

The

most drastically 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 unload upon each other and primarily upon small investors. But the losses are a condition of the accumulation of capital and its concentration, 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 elimcapital proceeds

and depreciation of

ination in production

itself.

Among

the most important

is

rate of profit to fall

means of checking the tendency of the cheapening the value of constant capital, of
whose quantity and productivity tend

equipment and raw

to increase

materials,

more than

their price.

machinery and apparatus continuously and decrease the price of their goods, usually more than the average in capitalist production as a whole. This was
increase the efficiency
particularly

The

industries producing

marked

in 192229 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
capital

The
may

Decline of American Capitalism

fall in the rate of profit of industries producing consumption goods, it may result in a lower rate of profit in the industries producing capital goods. Moreover, this check of the fall in the rate of profit involves, in terms of values, a relatively lower output of capital goods, the major sustaining force in prosperity, and eventually aggravates the problems of excess capacity and overpro-

check the

duction.

Lower

prices of

raw

materials contributed greatly to the profits of

industrial capital in 1923-29.

But

this

means
Prices

of checking the fa

in

the rate of profit develops

some of

the most serious contradictions and

of

antagonisms of

capitalist

production.

raw

materials

are
in-

cheapened by more

efficient

production and an increase in supply,

cluding the use of "scrap" and development of synthetic substitutes.

There may ensue a

pressure
is

fall in

the rate of profit of

raw material

industries.

Synthetic substitutes intensify competitive pressure on markets.

The
fin-

twofold where a substitute

is

ished product: rayon seriously affected

older textiles,

both raw material and the prices and profits of

materials

the

raw and

finished.

Overproduction and disastrous price

decHnes are stimulated, even

prices are

among raw

whose output and

fall

under control of agreements or monopolist combinations,

strengthening the tendency of the rate of profit to

of cyclical breakdown.

and the

forces

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 economy and are ruined by disastrous price

an unbalanced 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
to maintain
declines.

materials. Capitalist production extorts ruinous profits

from

agriculas in

ture in several ways:

opening up

new

agricultural regions,

the United States in 1865-90 or in the Argentine, yields profits on the

on the subsequent traffic; increasing the 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 exploitation was partly offset by increasingly larger markets and higher
construction of railroads and
efficiency of agriculture yields profits

Multiplying Contradictions and Decline

land values.

133
crisis

Now,

however, agriculture

is

doomed

to

permanent

and decay by the impossibility o new expansion, declining markets, depressed land values, continued capitalist exploitation, and the accumulated burdens of previous exploitation. (Agriculture is afflicted
also

by the large fixed costs o investment in land and equipment,

interest

are a fall in the rate of profit and a rise in and tenancy. Agricultural equipment is costly and not used most economically on small farms; while it may at first increase 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

among whose burdens

mortgage

epoch of

capitalist decline, are inexorably

transformed into peasants.)

The

exploitation of agriculture simultaneously

class

weakens

capitalism,

however, by arousing
international,

and

political

antagonisms, national and

socialization

of agriculture

and by creating the objective basis for the and its union with socialist industry.
of checking a
fall in

The most important means

is

the rate of profit

fall.

to increase the

mass

of profits faster

than the rate tends to

This

may be done 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
by trickery, the seizure of extra profits wherever possible
:

scale of production. In enlarging capacity,

however, an enterprise
factors.

is

seldom free to adjust the technical and the economic

pansion program and the conditions of the market
increase of

an increase 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

The may require an 25% in capacity, but technical requirements may impose of 50% or 100%. The new equipment may be justified

ex-

of production tends to increase excess capacity;

itself

this,

as

the

"The rate of profit within the process of production

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 constellations 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

costs of constant capital,

may

result simultaneously in a rise in the

if

and semi-fixed mass

of profits and only a temporary,

profit.

any, check in the falling rate of

Moreover, the tendency toward an absolute increase in the scale

of production, regardless of market conditions

relations of

one industry
arises

to another, conditions the

and the proportional whole movement

of recurrent cyclical crisis

and breakdown.
combinations
are

Monopoly
their
results.

out of changes in the composition of capital and

Monopolist

only

partly

result

of the technical aspects of the enlarged scale of production, they are

put, markets,

any available profits and control outand 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 combinations 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
also a result of the desire to seize

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
not
if

semi-fixed costs

and

excess capacity.
is

Under

the conditions of large-scale production, competition

necessarily

accompanied by a decrease in production or shutdown

by the migration of
capital to a

prices fall or

more profitable industry if profits are low. That possibility was always more theory than reality 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
in

machinery and output. To-day,

tures,

large-scale enterprises,

manufac-

mining, petroleum, keep on producing regardless of unfavorable

:

market conditions

to decrease production or shut

down

usually

means
a dis-

heavier losses than selling below the price of production,

astrous depreciation of capital. Competition
is

means

intensified. Intensified

competition, unprofitable prices, and large losses no longer necessarily

Multiplying Contradictions and Decline

result in decreased production.

135

This aggravates the contradictions driving toward overproduction and cyclical breakdown. Efforts to create monopoly are invigorated. Monopolist combinations
succeed (an indication of capitalist decline) mainly by limiting output
in productive efficiency,

and prices more than by gains and frequently in spite of real losses in efficiency. These combinations seize some of the profits of trade by extorting monopoly prices or by opening their own retail outlets, and they seize some of the profits of "independent" small producers by extorting higher prices for materials or by forcing them to accept low prices for parts of a product which they manufacture. Thus, monopolist combinations 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

and

raising prices, by control of markets

in the steel industry in 1923-29. If monopolist combinations succeed

in suppressing competition in their
fields is

own

fields,

competition in other

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

disis

organization.
still

And

in spite of all its efforts,

monopoly capitalism

tormented by the tendency of the rate of profit to fall. The increasingly higher composition of capital, the absolute developof production
in the rate of profit,

fall

and the relative development of consumption, the 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

ment

of the inner antagonisms of capitalist production.

mand

Enlarging the scale of production makes more imperative the defor foreign markets to supply raw materials and absorb finished
its

manufactures.* Foreign trade tends to increase surplus value and

* American imports of

raw

materials rose from a yearly average of $91,000,000 in

1876-80
000
to

to $1,484 million in

1926-30, exports of finished manufactures from $98,000,-

$2,126 million. Imports of raw materials rose three times as

much
also

as exports;

exports of finished manufactures rose four times as

much

as

imports. Department of
supplies

Commerce,

Statistical

Abstract,

1931,

pp.

494-95.

Foreign trade

raw

materials otherwise unavailable or nearing exhaustion.

136
realization

The
materials

Decline of American Capitalism

raw

selling

and check the fall in the rate of profit by providing cheaper and foodstuffs and by reducing excess capacity through abroad goods which are unabsorbable in the domestic markets.
monopolist combinations to increase the mass of profin
their operations

The
its

efforts of

and the

rate result

becoming

international,
to

particularly in economically

undeveloped regions. They attempt

monopolize sources of raw materials and markets for finished manufactures,

both capital goods and consumption goods. Frequently mo-

nopolist combinations establish branch plants

rials

where cheap raw mate-

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 countries consists of direct

investments in branch plants, natural resources,

is

communications, and distribution. This direct export of capital

aug-

mented by the export

great

of capital in the

form of

loans. In spite of the

demand

for capital in the highly industrial nations, strengthened

capital, there is

by changes in the composition of

capital seeking investment

always a surplus
export of this sur-

anywhere, anyhow.

The

plus capital permits

it

to "earn" a higher rate of profit

and

eases the

downward
tic

pressure

on

the rate of profit of capital invested in

domes-

industry.

In the epoch of monopoly capitalism foreign trade becomes entangled with imperialism: the export of capital, the international operations 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 contradictions. The export of capital tends to become an export of interest paid on previously exported capital, which does not involve
the export of goods; the check in the
fall
its

of the rate of profit

is

only temporary, as imperialism develops

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-

backward regions and the constantly greater weakens the economic base of imperialism 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 imzation of economically
rivalry of imperialist nations

perialism.
If the rate of profit falls it sets in

motion

all

the contradictory

and

Multiplying Contradictions and Decline

antagonistic efforts to check the
fall.

137
if

If the fall is

checked or

the

general rate rises there ensues an accelerated accumulation of capital

and creation of more surplus

the rate of profit.
pacity; invades the
It

capital:

the situation

becomes worse.

Surplus capital desperately seeks profitable investment, forcing

flows into industry, producing
old,

down

more

excess ca-

domains of monopoly with

new, or substitute

products, producing

more

excess capacity; sharpens competition, in-

flames the passions of speculation, and strengthens the material and

The result is an intensification of economic disproportions, an increase in the instability of capitalist production, and the aggravation of cyclical breakdown and depression.
ideological bases of imperialism.
Capitalist production is held tightly, inexorably, as in a vise, in the

contradictions of accumulation.
omist, says of overhead costs
ulation, of
is

What

J.

M.

Clark, a liberal econ-

true of

all

the contradictions of accum-

which overhead costs are an aspect: "They [overhead costs] make regular operation
yet
it

peculiarly desirable

and peculiarly profitable, so that business output falls below normal capacity, and
self,

feels a definite loss

is

largely

whenever due to this

it-

very fact of large fixed capital that business breeds calamities for
out of the laws of
its

own

being.

There

is

something about

the commercial-industrial system

does just the thing

just the thing

it

is

trying to avoid, and

which bewitches business so that it is held back from doing

. . .

maintain steady operation. it yearns to do We may end our study with a curious wonder at the intricacies of the financialeconomic 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 byproducts 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

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, engenders crises and depressions, and throws the world into the bloody struggles of imperialism. And the monster must "devour us" even
of taming the

New

Leviathan.

138

The

Decline of American Capitalism

arrangements of
state capitalism

under the

institutional

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 contradictory); of the "partnership" of capital, labor, and the consumers;

These suggestions, made in 1924, are now part 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, comprehensive, and suggestive, measurably recognizes the determining relations of production, he overemphasizes the relations of exchange. This overemphasis, 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 exof national planning.

of the "philosophy" of Niraism:

ploitation of labor, the composition of capital, the drive to beat

down

wages in favor of profits, the tendency to develop the forces of production beyond the forces of consumption, and the resulting excess capacity and "unearned" overhead costs. It is a problem of the contradictions of accumulation.
tions

The

disastrous results of the contradic-

and antagonisms appear

in the realm of exchange, but they

is,

originate in the realm of production. It

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 consumption and not private profit. There is no excess capacity in the Soviet Union: no unemployment, no overproduction, no cyclical crises and breakdowns. ...

The monster
law of
his

of capitalist accumulation cannot be tamed:

itself.

it

is

the

being to devour not only "us" but capitalism

decline.

For the
epoch of

contradictions of accumulation are always

undermining
is

capitalism,

preparing

its

But the undermining

crisis,

relative in the

the upswing of capitalism: the contradictions are solved dialectically,

by the movement of

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 industries,

the exploitation of the world's economically

(railways, public

backward regions works and other construction, natural resources,

Multiplying Contradictions and Decline

139

new
of
its

markets), particularly important in the United States because

own

continental areas and resources

all

these long-time factors

abundant demand for capital goods, the creation 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 of expansion provided the conditions for enlarged accumulation, for

an accelerated production and realization of surplus value.

pansion
is

When

ex-

exhausted or approaching exhaustion, and the decline of

capitalism becomes the dominating fact of economics

contradictions of accumulation begin to

absolute sense because of the limitations

of capital goods,

and politics, the undermine capitalism in an imposed upon the production

and absorption of new capital. 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 international long-time factors of expansion. That upsurge of prosperity was the "Golden Age" of American capitalism precisely because it can

upon the

creation

The

prosperity of 1923-29

never appear again: golden ages are always in the past.

sion

The

unusually

great accumulation of capital in 1923-29 completed a cycle of expan-

and measurably exhausted the future possibilities of any considgrowth in old and new industries. This development is emphasized by the tendency of the population to become stationary.
erable

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

plus value are limited. Capital

level, the extortion

of sur-

becomes

relatively

more abundant

(although

it

may

experience an absolute decrease) because of dimin-

ishing investment opportunities.

The

contradictions of accumulation

become more
tal,

tal

and explosive because the accumulation of capidependent upon the increasing production and absorption of capigoods, is limited, repressed. On a lower level, crises and breakviolent

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,
and "solve" by
lation.

to escape contradictions;
state action the

state capitalism, to "lessen"

multiplying contradictions of accumu-

140

The Decline

of

American Capitalism
between and the newer relations monopoly capitalism to

State capitalism originates in the increasing contradiction

the older relations o competitive capitalism

of

monopoly

capitalism, in the inability of

function without some form of state intervention in industry

itself

an indication of approaching capitalist decline. When the decline becomes 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,
the decline of capitalism,
i.e.,

of

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")
this

to decrease the absolute

mass of

profits.

While

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

drive to raise profits

labor,

on the rate of by improving technological

pressure
costs,

profit.

That means a

efficiency, displacing

and lowering production

thus aggravating the problem

of excess capacity
capital

and the

falling rate of profit

by increasing constant an engineer^ suggests

to drive idle

and

restricting markets.

As

way

out,

that the

NRA

impose "an indirect tax which would tend

machinery out of existence and make further investment in unnecessary

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 machines and the more intensive exploitation of labor. As simple as the
plants
*

The downward

pressure

on the

rate of profit

becomes stronger under the conditions

the rate of interest obtainable

of capitalist decline.

"Until the world again enters upon a period of great industrial

expansion, requiring large expenditures of

new

capital,

from the highest type of

1933.

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,

Woodlock speaks
but his point
is

the jargon of the investment broker

clear.

and confuses

profit

and

interest,

Multiplying Contradictions and Decline

idea of progressives that income and inheritance taxes

141

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
it

costs of the tax to

full use of

the costs of unused capacity?

And would

not encourage

and cycHcal breakdown ? Is there to be no more surplus capital ? What of wages necessarily lagging behind profits, of investment income increasing more than consumption income? Is surplus capital to be taxed out of existence? What of the efforts to increase the mass of profits to check the fall in the rate, thereby enlarging the scale of production and excess 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 capital 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 unused capacity to overcome the antagonisms between the output of capital goods and consumption goods, between one industry and another, between production and consumption antagonisms resulting from
capacity, sharpening the threat of overproduction
.
.

the exploiting relations of capitalist industry?

The

tax proposal, moreover, ignores the fact that excess or

is

capacity

not absolute, except in rare cases:

it is

cess only in relation to existing deficiencies in

unused an exmass purchasing power

relative. It is

and markets, not

in relation to social needs, for these are clearly abun-

dant and pressing.

The

tax proposal

amounts
is

to a restriction, instead

of liberation, of production,

and

is

thus wholly in line with the tendcharacteristic

ency to repress economic progress, which

capitalism and Niraism

of state

and of the decline of

fill

capitalism.

What

is

necessary
used, but

is

not the capitalist abolition of excess capacity, used or unutilization to

social needs.

its socialist

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 capitalist

production; these, in the epoch of the decline of capitalism

capitalism, particularly

must doom Niraism and devour

when

the

contradictions explode in imperialist war.

And

final contradiction

and

synthesis: in large-scale industry, capitalism has prepared the objective basis of socialism
class struggle

and has set in motion the dynamic forces of by means of which the working class, organized by the
capitalist

mechanism of
of capitalism.

production

itself,

mobilizes for the overthrow

Summary

Jl

HE accumulation
is

of capital, the production of profits

and

their con-

version into capital,

means both

life

and death

to capitalism.

For

ac-

cumulation

beset with contradictions. It simultaneously promotes

sets in

production and
accumulation.

motion forces antagonistic to production and

Accumulation depends upon an increasing production and realization 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 composition of capital the proportion of variable capital (wages) falls in favor
:

and materials). A given quantity of equipment and materials. But this higher composition of capital limits the production and realization of surplus value. It means a fall in wages and a rise in output 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
of constant capital (equipment

labor sets in motion a larger quantity of

the

power
it

to

consume of

existing markets. If the excess capacity

profit,

is

un-

used

produces no surplus value and

while

its

fixed

and semi-

fixed costs eat into the realized surplus value

and
is

profit. If the excess

capacity

is

used,

it

throws a mass of goods upon the market which canintensified. Profits are

not be sold at profitable prices. Competition

lowered.
talist

The

rate of profit falls. In

its

efforts to

check the

fall,

capi-

enterprise raises the productivity of labor

and enlarges the scale

of production, resulting in a
excess capacity

still higher composition of capital, more 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

fall in

The

the rate of profit

and imperialism. 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 breakdowns temporarily solve the contradictions of accumulation by de143

144
stroying

The

Decline of American Capitalism

profit

and depreciating capital, which permits of a rising rate of on the surviving capitals. In the epoch of the upswing of capitalism, the accumulation of capital is renewed, after a depression, on an enlarged scale. There is an upward movement in production and prosperity because the longtime factors of economic expansion make possible an increasing output 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

not renewed, after a depression, on an enlarged scale. There is no upward movement of production and prosperity because exhaustion
is

of the long-time factors of economic expansion

now

measurably pre-

vent an increasing output and absorption of capital goods.

of profit
falls,

The

rate

but the

fall is

no longer compensated by an

increase in

the mass of profits.

The

contradictions of accumulation are aggravated.

is

Greater disproportions and disturbances are created, and there

resort to

more

monopoly and the export

sets in

of capital

and imperialism.
It is

Excess capacity, a result of the higher composition of capital and the

forces
it

motion,

is

merely a relative excess capacity.

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

unsatisfied!

Unused

capacity

while

while

millions of wants arc

milHons are unemployed! The

condition represents a restriction of consumption

among
is

the masses

of workers, farmers, and professionals. For accumulation grows by

increasing that part of the output of industry which

not consumed
thus restricted.

but

is

transformed into capital goods. Consumption

is

is

Yet consumption
yield profit only
prices.

necessary to production;

new

capital

goods can

if

they produce and

is

sell

their

output

at profitable

But production

developed more highly than consumption.

Hence

and and depressions. The contradictions of accumulation are entangled with the antagonism between production and consumption.
excess capacity, the falling tendency of the rate of profit,

the recurrence of cyclical crises

PART FOUR
The Antagonism Between Production
and Consumption

Introductory

man produces to consume. But that is true only and enlightened communists. Capitalist production aims to make profits. Consumption is subordinate to production, and consumption grows incidentally, as a mere by-product of the accumulation of capital. The worker works to consume, but capitalist production permits him to work and consume only if profits are thereby realized to enrich the owners of industry. Capitalist enrichment results from accumulation, not from consumption, which is a necessary 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,
JIt seems true to say
:

o benighted savages

instead of being complementary, are in fundamental antagonism.

Most

of the early bourgeois economists practically ignored consumpit

tion, considering

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
capitalist

ignoring 'the fact that the problem was

itself.

created by

production

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.

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 sufficient to enable industry to pay its own workers enough to let those Genworkers buy and use the things that their labor produces."
.
.
.

Now

eral

Hugh

Johnson, Administrator of the

profits.

NRA:

"Of course we

arc

concerned with

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.
147

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 'stimulation 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 provided 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 depends upon consumption: as the workers are the largest consumers,
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 barometer of good times but also their determining element. Hence the cultivation of consuming power became the direct concern of manufacturers." The president of the National Industrial Conference Board, in October, 1929, while the cyclical breakdown was developprosperity depends
. . . .

ing and several weeks before the stock market crash:

losophy has arisen

"A

definite phi-

the

creation of widespread

is toward consumer purchasing power by providing high

trend of American business policy

wages. There

is

being established a 'benevolent

circle' in

place of the

consumer purchasing power, to increased demand for manufactured goods and services, and to still greater industrial production." And a European economist, in 1929: "The disastrous business slump of 1920-21 made a deep impression upon the minds of American businessmen. It was
vicious circle, extending

from high wages

to high

Among

the ballyhoo-makers of prosperity

staff of

who

glorified

Niraism was the adver-

tising

promotion

True

Story, using the old

social
is

words and tune: "Within the past ten

earth.

years
. .
.

America has been making

and economic changes on the face of the

The purpose
greater [I]
. . .

of [Niraism]

to provide this great

mass market [the workers] with

already working;

still

buying power.

If

you have the mass production you must have mass

is

consumption.

This method of securing national recovery

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."^
Wells, an American economist, said:

This great "principle" was no discovery. ... In 1889 David A. "We produce to consume, and
to produce,

we consume
the other.

and the one

will not

An

increase in the production of

all

go on independently of useful and desirable

commodities and services follows every increase in the ability of the Twelve years earlier another American, masses to consume." strikes of 1877, which he condemned as "infrightened by the great
.
.

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
sell

who
have

can buy must be large, or

little

many

of those

who

produce to

will

or nothing to do. Buyers are as important, in order to have

. .

prosperity, as sellers."
leader,

And

Ira Steward,

an early American labor

who

believed the workers

would

eventually "consume" the

capitalists

out of private ownership: "Wealth cannot be consumed

sparingly by the masses

less

and produced

rapidly. If the

worker obtains
its

he spends

less."

The

"principle"

was

neither

new

nor American in

origin. Jacob
it

Vanderlint, an English merchant-economist, enunciated

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
.

consumption of Things in general 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 BusiIncrease the power of labourers to buy half as many more ness. necessaries for their support and comfort, and there would be almost Raise the wages of the half as much more Trade and Business. * labouring People and augment the profits of the trading part."
bulk of Mankind, would
so mightily, that there
affect the

would be

The

"principle," in spite of

its

apparent economic logic (applicable

profitable regardless of

only under non-capitalist conditions), contradicts the basis of capitalist

production.

An

increase in consumption
if it

is

who

the consumers are of capital

and only goods. That is the

represents an increase in the output

tribute of the profit

economy. As long as
increase, because

the output of capital goods rises consumption

may

consumer purchasing power

is

created (wages, part of salaries

and

150
profits),

The Decline
and
is

of

American Capitalism

spent wholly on the output of the consumption goods

industries,

not on the output of the industries producing capital

the mechanization of older industries, the development

goods. These were the conditions in the epoch of the upswing of capitalism,

when

of

new

industries,

and the

industrialization of

new

regions resulted in

an increasing output and absorption of capital goods. Even then, however, 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

pre-1929 prosperity

coming of depression the belief prevailed that the was based upon consumption. It was thus expressed

economist: J. Bonn, a German bourgeois "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

by M.

each other.^

But American prosperity, as much as the German, was not "based on the prosperity of the ultimate consumer." A high level of consumption 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 American 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, moreover, 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 Consumption

is

heard to-day." ^

in 1922-23

age yearly increase of 6.5%.

moved sharply upward, scoring an averOne cause was cyclical recovery, another
fell

the considerable rise in wages. But the rate of increase

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

151

152

The Decline

of American, Capitalism
1923.

for that year being rather

more than ^% above

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

of increase in production
the fact that there

new and

old industries, the rate

was downward. This seems to contradict was an average yearly increase in production of 3.8% compared with 3.1% in 1901-13.* But the comparison is misleading. 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 movement 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
with

relative or absolute decrease in

capitalist prosperity.

consumption

is

not incompatible

But
is

if

the rate of increase in production

flourishing capitalist prosperity

was smaller than pre-war, why the

of 1923-29?

The answer

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 consumpin 1923 to $40,400 million

The output

of manufactures rose

from $39,050 million

in 1925

and $41,000 million in

1927not

a startling increase. Output rose to $47,100

million in 1929, a sharp and disproportionate rise definitely

crisis.

bound up with

the cyclical

Department of Commerce,

Statistical Abstract of the

United

States, 1931, p. 483.

Economic and Class Contradictions

153

TABLE

A ntagonistic
YEAR
1923

Factors in Production and Consumption, 1923-29

CAPITAL

CONSUMPTION
GOODS
lOO.O
99.1

DIVIDENDS

TOTAL

PRODUCTION
lOO.O
*

GOODS
lOO.O
89.6

-INTEREST
lOO.O
103.8 II7.5

WAGES
lOO.O
IOI.3

1924 1925

103.5
*

105.6
II7.6

IO8.I

107.2 II3.7
114.

1926
1927 1928

II2.6 III.7
II7.I

132.6
I44.I

IIO.I
*

II4.6
II 6.0

150.8
177.2

112.4
*

1929
*

120.6
available.

136.0

II8.0

Not

Source: Production

consumption goods

Census of Manufactures, 1929,

F.

v.

I,

p.

16; capital goods

and

C. Mills,

Economic Tendencies

in

the United States, p. 280;

dividends and interest,

all

corporations (exclusive of interests paid by banks)

^Bureau of

W.
tion

Internal Revenue, Statistics of

I.

Income

for the respective years;

Its

wages

(all

wage-workers)
of dividends

King, The National Income and

Purchasing, p. 132.

The index

only was 200 in 1929. Interest rose

31%,

dividends

100%.

goods and the enormous lag o wages behind dividends and

the rise in the output of capital goods always exceeds that

interest.

While
in

this was particularly marked in 1923-29. Where was an average 5% rise in capital equipment in the years before 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

consumption goods,

there

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."
creative"
^

Machinery, the most "progains.

of capital goods,

scored

the

largest

scored

much

smaller gains, and these were dependent

:

gains in capital goods

when

the output of capital

Consumption upon larger goods slowed down,

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 realization 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
prosperity crashed into depression
:

154

The Decline

of

American Capitalism

for capital equipment in the newer industries and for more 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
efficient

demand

absorption of capital goods, the basis of prosperity.

The

relative increase in the

I,

output of capital goods was even greater

of consumption goods overIt

than appears in Table

whose index

estimates the rise in consumption.

includes residential construction,

which
great

is,

particularly in the case of apartment houses,

it

more

in the

nature of capital goods, and which, since

rise,

experienced an unusually

inflates the

index of consumption. Moreover, the index

volume of consumption goods produced, and 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
represents the physical gives

the tendency of capitalist enterprise toward an unconditional develop-

ment
on

of production, creating the antagonism between the capacity

of industry to produce
class divisions.

and the consuming power

of a society based

The
It

great increase in dividends and interest

increase in production

and

five times that in

nearly four times the wagesarose

logically.

arose because of the enlargement of the scale of production

and

the consequent change in the composition of capital.

capital (particularly the fixed portion) rises

As

constant

more must go
6%,

to capital than to labor, in spite

fall.

more than variable capital, and because of the

tendency of the rate of profit to

capital investment

and

profits

Wages in manufactures rose much more.* It is argued by the

wages compensates
It

apologists of capitalism that a rise in other

for

the relative

fall

of wages in manufactures.

does not.

The wages
it

of

all

workers rose not

much

over 12%, dividends and interest 77%.

The major

part of dividends

and

interest

is

not consumed,

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<^

VII.

CONTRADICTIONS IN PRODUCTION AND CONSUMPTION.

156

The

Decline of American Capitalism

major part of wages is consumed, it is spent on consumption 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 contradiction between the unconditional increase in production and the conre-invested; the
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 workers'

absolute share

may

rise, their relative

share

falls.

Unequal
solute share

class distribution of

consumption: while the workers' ab-

may rise, their relative share falls, and proletarian consumption 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

fall

(workers' savings rose in this period). Moreover, there was a

in consumption

among workers

in the depressed industries

and among

the 1,000,000 workers

who

in this period

army
rise

of the unemployed.

At

the

were added to the reserve same time there was a substantial

classes

in

consumption among the other

{not the farmers).

It

and intermediate bourgeoisie, 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 consumption (Table II) became more unequal. CapitaUst production, in the
rose considerably in the circles of the lower

epoch of
workers:

its

upswing, increases consumption, but mainly

regardless

among nonare,
its

economically

of

who

the

consumers

whole

class-political

tion gains

among

arrangements insure a concentration of consumpthe non-workers.

now of Niraism) not only assumed were "enormously" increasing their share in consumption but that already they were the largest consumers. "The worker," said one of them, "is our greatest and most profitable customer. Our prosperity is 86% derived from our working population,
prophets of prosperity (and
that the workers
for the millions of wage-earners constitute just that proportion of

The

Economic and Class Contradictions

157

TABLE

II

Class Distribution of Consumption, 7925

NUMBER
CLASS*
IN CLASS

PER-

PER-

CENT

AMOUNT
(millions)

CENT
'
39.7
7.6
9.8

AVERAGE

Working Class: Wage-Workers

Clerical

27,750,000
4,750,000
7,400,000

58.5
1

$18,250
3.500 4,500

$660
735 610

0.0

Farmers
Bourgeoisie:

15.6

Lower
Intermediate

4,300,000

9.0
6.1
.8

6,000

13-0

1.395

2,880,000

7.250 6,500

15.8
14.1

2,515

Upper
Total

382,241

17,000

47,462,241
include 2,300,000 hired farm

$46,000
laborers;

$970
1,200,000

Wage-workers farm laborers working on home farms; bourgeoisie capitalists, rentiers, merchants, etc., and managerial, supervisory and technical employees is grouped according to income:
farmers include

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.

retail sales of tangible

Source and methods of computation: Consumption means

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, Distribution, V.

Retail Distribution
less in

(1930), pp. 47-53).

It

is

assumed that
that
is

retail

sales

were

$1,000 million
for goods
office,

1928, or $48,000 million.

From

deducted $4,400 million

which are
and

essentially capital

goods or supplies (motor trucks, farm implements,

school,
is

store

supplies,

but not automobiles and household appliances), to

which

final total of

added $2,400 million for food produced and consumed on farms, making a $46,000 million. The workers' budget is made up of 31% spent on food,

13% on

clothing,

5%

on furniture and house

etc.,

furnishings,

and

8%

miscellaneous goods

such as radios, refrigerators,

goods; balance,
ings.

or

57%
and

of the workers'

income spent on consumption

24%

for rent, light

fuel

and

19%

for illness,

amusements and

sav-

(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 and consumed on farms. Clerical employees are assumed to spend
of their
clerical

for food produced

55%
and

income on consumption.

If

dwellings were included the share of workers

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

was

68.5% of the gainfully occupied.*

sumption of

was only 47.3%, although this class The combined share in conthe bourgeoisie was 42.9%, although this class includes
class

only 15.9% of the gainfully occupied. In the circles of the upper bourgeoisie, the enormous total consumption of $6,500 million and average

consumption of $17,000 measures the conspicuous competitive expenditures 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 farmfarmers' income
smaller, below 5%. Most of 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
ers' total, their

share becomes
is

much

spent on the

capitahst prosperity.f Standards of living

ical

among wage-workers,

cler-

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
living

there were, including dependents, at least 85,000,000 persons

capitalism!

on or below subsistence levels in the "Golden Age" of American 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,
that, in 1929, the

The Measurement
all

of

American Wealth (1933),

p.

75, estimates

workers' share in

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

power."

affected substantially

by changes in farm purchasing

Economic and Class Contradictions

tion
is

159

necessary to production, but capitalism

is

incapable o system-

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: capitalist production and accumulation constantly limit the purchasing power and consumption of precisely that class, the workers (and poorer farmers), whose consumption is indispensable to maintain a balance between production and consumption. The temporary equilibrium of capitalist prosperity is shattered when the mounting forces of production are unable to overcome the mounting barriers of the limited conditions of consumption. Crisis and breakdown
atically

follow.

CHAPTER

XI

Excess Capacity, Competition,

and Speculation

Jl HE antagonism between production and consumption, the conflict between the absolute expansion of one and the conditional expansion of the other, was particularly sharp in the period 1923-29. The growth of new and old industries, the consequent increasing output and absorption of capital goods, and the rising productivity of labor greatly augmented the forces of production, which clashed with the limited conditions of consumption. These developments resulted in a higher composition of capital, an increase in excess capacity, the intensification of competition, more superabundant capital, and a stronger downward pressure on the rate of profit. The situation was already acute in 1926; and the danger was recognized by a financial journal: "Capital has become so abundant that it seeks to sell itself for use This country has in almost any sort of productive enterprise. an exceedingly ample equipment of manufacturing plant; its efficiency
.
. .

level,

in rising decidedly,

has for practical purposes increased the

it

proportions of our overequipment; and

is

enabled to continue for

which seeks incessantly which it may earn a reasonable return for its use. This is the general mechanism by which manufacturing competition has now been sharpened to unprecedented severity. The competition must go on, for failure to compete will mean the rapid destruction of
the present by the superabundance of capital

some place

in

capital; necessarily the failure to succeed will also capital;

mean

the loss of

and

loss of this character is certain to

is

occur on a pretty con-

siderable scale because our production

obviously greater than our

power

to absorb

it."

"Superabundance of
ation of surplus value.

capital"

because of low wages and high

profits,

of changes in the composition of capital

and the increasing appropri-

"Our production
it"

is

obviously greater than our power to absorb

because

capitalist

production and accumulation limit purchasing

of workers and farmers. was strengthened. Efforts

power and consumption among the masses

The

tendency of the rate of profit to

fall

160

Excess Capacity, Competition, and Speculation

to check the fall increased competition

i6i

and excess capacity and created more downward pressure on the rate of profit. The experience of one company organized in 1919 to manufacture household appliances, which within four years captured one-quarter of the market, was
typical:

"The income
became

of this

company
its

increased very rapidly until

its

market

satisfied

and

competitors caught up, and thereby limited

sales to a 'fair share' of a

market rapidly becoming saturated by the

fair share

efforts of this single

manufacturer. In seeking more than a

market its production facilities were expanded to a capacity sufficient to produce two-thirds of the annual requirements of the industry. This overcapacity is now a burden on the business, since the relative dollar volume of sales from its plant investment
of the available

has fallen off on an average of almost

10% annually
of sales.
.

since 1926.

Larger profits were secured in 1923 and 1924 than have been earned
in recent years

on a greater volume

More and more

markets are being saturated by our methods of mass production, and as many of these show signs of becoming limited markets, the tendency

toward declining income is broadening and wealthy corporations."^

to include

many well-known

The tendency
profits

of the rate of profit to

costs or increasing

fall

forced efforts to raise

by reducing

output to secure a larger share

While this always meant greater capacity, it did not always mean greater expenditures on capital equipment. More economical use of raw materials, utilization of waste, and standardization of products increased capacity and output. Or labor was exploited more intensively; one method was the "stretch-out" system, by which one worker tended more machines. In the case of cotton mills, although there was in 1924-29 a net shrinkage in machinery, hours worked per spindle rose from 2,353 to 3,073 by growing use of the double-shift.* As these methods increased capacity and output without the buying of new equipment, there was no corresponding development of purchasing power and conof markets, or by a combination of both methods.

sumption among the workers producing capital goods. The result was an aggravation of excess capacity and competition. Productive capacity was, however, augmented mainly by investment in new equipment. Capital was abundant, because of high profits. And credit was abundant, because it is the nature of capitalist production to inflate credit in the prosperity phase of the cycle. Invest-

ment
rapid

in

new capital equipment was stimulated by the unusually improvement in technological efficiency, increasing greatly

i62

The Decline

of

American Capitalism

the productivity of labor and the reduction of labor costs. But this meant a higher composition of capital: less variable capital (wages) and more constant capital (equipment and materials), limiting the workers' purchasing power and consumption. Productive efficiency and output were developed regardless of the relatively limited conditions of mass consumption. The result was an aggravation of excess capacity and competition. Excess capacity and competition were particularly marked in the newer industries. Their initially large profits and constantly growing markets led to an overexpansion o existing plants and the establishment of new, unnecessary plants by capital seeking profits anywhere, anyhow. "There is no better illustration than the pouring o new capital into the radio-receiving set industry in 1928 and 1929. Some of the pioneers made very large profits which they wasted by investing to increase their output. At the same time the cost of production was lowered a great deal by one maker. In the short space of 18 months the potential production of this industry was increased threefold, to an estimated 15,000,000 sets annually by the end of 1929. Even in that year the whole market absorbed only a little over 4,000,000 sets."* This was generally true of all the newer industries, where an initial high rate of profit was transformed into its opposite, a low, falling rate of profit. The newer industries' contribution to excess capacity was enlarged by their products competing with older products. The radio competed with the phonograph, rayon with the older textiles, rubber and substitutes with leather, celotex and 21 other products with wood. The result was an aggravation of excess capacity and competition.

The expansion of plant capacity beyond the needs of their own markets led many enterprises to "take up the slack with sidelines." That is, they added new products to their output. The General Electric Company and the Westinghouse Electric and Manufacturing Two automobile accessories comCompany began to make radios.
.

and one of them added hardware for good measure. ... A radio company began to manufacture electric refrigerators. So did the Savage Arms Company, and General Motors added electric it included washing machines. refrigerators, radios, dental apparatus, and other products unrelated to The American Car and Foundry Company became automobiles. manufacturers of motor buses, the Anaconda Copper Company of copper and brass products, the Aluminum Company of America of a
panies went in for the manufacture of radios,
. .
.

whole

series of

new

products.

The American

Ice

Company,

threat-

TfT"

Excess Capacity, Competition, and Speculation

163

ened by mechanical refrigeration, dipped into surplus and started a power laundry business. Another company, manufacturing billiard tables, added phonographs and radios to its output. This continued during the depression: General Motors began to manufac.
. . .

ture gas refrigerators; the Pennsylvania Railroad built a brass foundry,

the most efficient of

its

type.^

Where

these "sidelines"

meant the

use mainly of old equipment they tended to raise the rate of profit,

although lowering

it

for other enterprises;

where new equipment

was mainly used

raising
its

tended eventually to lower the rate of profit while mass. ... At the same time there was an increase of init

tegration, the combination in

one enterprise of different processes or

result of all these efforts to raise the

parts of manufacture.

The

and check the fall excess capacity and competition. Excess capacity was enormous. upward spurt in production, most of producing from 25% to 75%
mass of
profits

in the rate

was an aggravation

of

In 1928-29, in spite of the sharp

American industries were capable more goods than markets could

absorb.

The unused
ticularly

portion of excess capacity, ranging up to 75%, was pargreat in the newer industries: radio, automobiles, rayon,
. .

chemicals.
efficient

Because of the growing use of electric power, more combustion methods, and the higher productivity of labor,
. . .
.

coal mining was increasingly tormented by unused capacity. There was an unused capacity of 15% in paper manufacture, 20% in petroleum refining, 25% to 40?-^ in glassware, 45% in wheat flour, in textiles from 15% in cotton to 40% in silk, and in iron and steel from 5% in steel ingots to 45% in pig iron. ... In sugar refining the unused capacity was 100%. While capacity in the plants of the United States Steel Corporation rose 15%, operations fell from 89% of capacity in 1923 to 87% in 1929, with an average of 82% operation in 1924-29. Unused capacity was 28% in Portland Cement mills, 50% in boots and shoes, and 40% in clothing. ... In shipbuilding, output fell from 9,472,000 gross tons in 1919-21 to 631,000 gross tons in 1927-29, an indication of tremendous unused capacity. ... It amounted to 64.2% in central electric stations.^ Considerable excess capacity existed also in oil and metal production, on the railroads (partly because of bus and motor-truck competition), and in electrical
.

manufacturing.

Where
profits,

excess capacity

was unused,

its

fixed costs ate into realized

forced

to enlarge

was a perpetual invitation output regardless of the limited, saturated condition of

the rate of profit and

down

164
markets.

The
Where

Decline of American Capitalism

excess capacity

was

used,

it

meant an output of
(in terms of avail-

commodities beyond the existing

able purchasing power),
prices to unprofitable levels.

effective

demand

which aggravated competition and lowered

both as cause and
effect, to

Excess capacity
excess capacity in
relations

is

related,

the disproconsiderable

portions always prevailing in capitalist production.

Any

an industry creates disproportions in its own inner and in its outer relations with other industries. Differences in the rate of growth of industries, particularly when new industries develop, create new or intensify old disproportions. There is relative overdevelopment of some and underdevelopment of other industries. One result is instability: competition of industry against industry, more pressure on limited markets, a stronger drive toward overproduction.

The
tion.

disproportions are a result of the planlessness of capitalist produc-

But the planlessness

itself

and the disproportions

it

engenders

are an outgrowth of the antagonism between production

:

and con-

sumption of the greatest of all disproportions, that between the output of capital goods and consumption goods. Capitalist production is a "continual process of disproportionality." The disproportions change
continually; they are not destroyed but "overcome" by disproportions

creating

new

relations

and assuming new forms which permit an

upward movement
tained

of production. This process results in the temporary,

unstable equilibrium of prosperity, an equilibrium created and main-

by

perpetual

changes

within

itself,

temporarily

"easing"

contradictions.

But eventually the accumulating disproportions change in a manner which upsets the equilibrium, and prosperity collapses
into depression.

Where prices are not lowered to unprofitable levels by excess capacity and the aggravation of competition, the same result may be indirectly achieved by multiplication of the costs and wastes of distribution. This is a characteristic aspect of capitalist production. Changes in the composition of capital, which increase the productivity of labor, decrease the relative wages of the workers, and thus limit the conditions
of consumption.
it

The

capitalist

is

continually reducing labor costs;

never enters his

head to

raise

wages. But this develops an antagoas a larger

nism. Distribution costs

mount

mass of commodities are

is

thrown upon

relatively

smaller markets and competition

aggra-

vated. The part of consumer price represented by distribution costs rose from 30% in 1870 to 55% in 1930. Most of the increase was in selling costs. It cost more in 1922-28 to get a $25 order from a retail

grocer than

it

did in 1902 to get a $75 order. Traveling salesmen rose

Excess Capacity, Competition, and Speculation

165

from 179,320 in 1920 to 223,732 in 1930, or 25%/ Instalment selling added greatly to distribution costs. So did advertising. Its devotees justify advertising with all sorts of complex arguments. But they are
w^rong.

The

increase in advertising (nearly $2,000 million in 1929)

is

growing antagonism between production and consumption, of the clash between the expansion of production and the limitation of consumption, with which is involved the problems of excess capacity, mounting overhead costs, aggravated competition, and limited markets. Advertising does not lower prices, it tends to raise them: the purpose of an advertiser is "to Hft his product out of competition" and secure more sales and higher prices. In its methods advertising degrades truth, is cynical of mass intelligence, caters to the lowest instincts, and uses fraudulent economics and worse psychology.* That does not worry the capitalist, of course. But there is worry
a direct result of the in

the

fact

that

distribution

costs,

including

advertising,

tend

eventually to lower the rate of profit.

on labor and multiplies the productive But two contradictions arise which constantly torment capitalist enterprise. Saving on labor decreases relative wages and limits the conditions of consumption. This sets in motion the forces of excess capacity, sharpened competition, and mounting distribution costs. These costs absorb much, if not most, of the saving on labor, and
Capitalist production saves
forces.

eventually strengthen the

downward

pressure

on

the rate of profit.

The

efforts of capitalist enterprise to escape these

manifold contra-

dictions created

bedlam:

"American business has gone 'salesmanship mad' in the last ten due to increasing economic pressure and narrowing net profits, and has utterly overstressed high-pressure personal salesmanship.
years,
.

great horde of salesmen

is

overruning the country, 'pepped up' and

trained to the last notch of slick salesmanship.

selling has in the

The

cost of personal

meanwhile mounted, and the results per unit of effort have declined. Dealers and consumers alike have been pressed beyond the last degree of decency and good business. The number of commodities on the market and the number of salesmen representing
* "Every franchised.

human
. . .

being has a vote every time he makes a purchase.

is

No

one

is

dis-

Every day

election

day."

W.

T.

Foster and

Waddill Catchings,

Profits (1928), p.

133. This "democracy of the consumer" is as limited as bourgeois democracy in general. The consumer's freedom of choice is enormously limited by the

pressure of advertising,

whose job

it

is

to

ma\e

customers;

it

is

still

more

limited by

income. Only the rich enjoy this democracy, as only they really enjoy other forms of
bourgeois democracy.


i66

The

Decline of American Capitalism

.
.

The dealers, if they 'fell' for the salesmen, them is now enormous. would buy 500% to 1000% more goods than they could ever afford They merely pile up the cost of sellor should be askedto buy. The vast bedlam of salesmanship and ing and increase waste. salesmen, and the noise of their competitive shrieking, and the an. .
. . . . .

noyance of their unrelenting, almost desperate tracking

prospects,
is
.

down

of

And the amazing thing growing greater every year. is that with all this enormous effort we can sell only 6<^/q of the prod ucts that American factories can make." It was bedlam. "The amazing thing is that with all this enormous effort we can sell only 65% of the products that American factories can make" while the majority of the people were living at or below
. .

subsistence levels!

and

distribution wastes

Bedlam because industry retained in higher profits what should have gone into mass consuming

power. (One part of distribution wastes, it is true, represents wages, hence consuming power; but another part represents salaries and
profits

whose recipients tend to invest more than they consume.) Bedlam was styled the "new competition." One commodity began

compete with all other commodities. Industry competed with inan industry, otherwise ruthlessly competing within itself, combined for cooperative competition with other industries to secure
to

dustry;

"a larger

slice

of the consumer's dollar." Factors formerly cooperating

began
saler,

to compete;

where once there was the manufacturer, the whole-

and the

retailer,

now

chain stores abolished

many

wholesalers,

manufacturers opened their own stores, and chain stores opened their own manufacturing plants. The "new competition" was aggravated by more "monopoly competition," both activated by the tendency of the rate of profit to fall.

Monopolist combinations, the large aggregations of corporate capital, competed in the same markets or over the prices of materials (raw and
semi-finished) they bought

and

sold

among

themselves. Monopolist

combinations competed with small producers by capturing their markets or depressing the prices of the semi-finished materials or parts

bought from the small producers.

olist

It is

an

essential technique of
sell

monop-

combinations to raise the price of goods they

and depress

the price of goods they buy.

tion
as

Thus monopoly,

arising out of competiintensifies competition

at the

and striving to overcome it, simultaneously a means of increasing the mass of its profits
.

expense of non-

monopolist enterprise.

Forced to utilize its excess capacity, the petrowas bedlam. leum industry wastefully and unprofitably flooded the markets with
It
. .

Excess Capacity, Competition, and Speculation

oil.
.
. .

167

Excess capacity in refining led to the multiplication of gaso-

line retail outlets,

which rose

to 318,000 in 1929,

istered automobiles; the situation

one to every 83 was made worse by Shell Union

its

regOil,

waging war on
. .

all fronts,

starting

own

chain of gasoline stations.

Bitter competition

Natural gas competed with manufactured gas; the competition

. . .

of electric

power made coal a "sick" industry. among manufacturers of tires led to the sale of
and

tires

through company
.
. .

distributing chains, mail-order houses,

facturers of products

service stations.

Manu-

competing with wood spent $22,000,000 through their associations on promotion and selling campaigns against lumber, which retaliated with a campaign of its own. ... To meet the competition of rayon the older textiles spent "immense" sums on "conThe sumer advertising," $750,000 yearly by one company alone.
.

National
of style

Retail

Shoe

Dealers

Association

in

1927

appropriated

an advertising campaign to sell more shoes on the basis and color appeal; the industry was capable of producing three times more shoes than the market was absorbing. The fall in food consumption, accompanied by increasing productive capacity, led forty different food groups to mobilize and wage war on each other. Mayonnaise invaded the butter market; at a convention of the Mayonnaise Manufacturers Association a "butterless banquet" was served and a campaign was launched to "popularize mayonnaise The advertising of among consumers as a substitute for butter." a cigarette company, warning against the bad effects of sweets, led to organization of a Sugar Institute which spent millions advertising Appropriations of $300,000 were made by the merits of sugar. the United States Fisheries Congress, by the Ice Cream Manufacturers Association, and by the Allied Baking Industry to "educate" consumers to buy more of their products in preference to other products. The market was flooded with 402 brands of dentifrices, whose advertising involved millions of dollars and millions of lies. The "woman beautiful" had her choice of 2,500 perfumes and nearly as many face powders: one manufacturer advertised: "A face powder for every mood!" Automobiles and cigarette advertising reached new high levels in money and new lows in tone. Drug stores sold 100 more articles than a few years previously; candy was sold in clothing, dairy, dry goods, drug and grocery stores and in delicatessens, bakeries, auto accessory stores and gasoline stations. As if there were not enough products on the markets, chain stores increased the number of their "private" brands, sales of which rose Chain stores, considered a "rationalizato $762 million in 1929.
$4,000,000 for
.

i68

The

Decline of American Capitalism

tion" of distribution

and a measurable solution of

its

problems, ag-

gravated competition and excess capacity. Their pressure forced in-

dependents to organize "voluntary chains." Chain competed with

chain, forcing mergers

and combinations. The larger chain-store

sys-

tems demanded and secured price concessions from manufacturers;

some chains simply informed manufacturers at what price their goods would be bought. At the same time, chain stores increased their manufacturing activities and plant capacity, competing directly with manufacturers, who met the challenge with mergers and combinations.^ ... It was, and is, bedlam. One result was a great increase in instalment selling, and it added to the costs of distribution. In 1929, instalment sales amounted to |6,ooo million, or 12% of all retail sales; the amount of instalment debt outstanding at any given moment was from $2,225 million to
$2,500 million.^^

Large

profits

were made by the finance companies

artificial

dealing in instalment paper, in the creation of

purchasing

power. Instalment selling undoubtedly stimulated consumption and

production, as outstanding instalment credit represents sales which

would not have been made

power.

for the time being.

But instalment

selling

has obvious limitations as an offset to inadequate consumer purchasing

To

escape the effects of excess capacity and depressed mass

consumption, instalment selling must increase progressively and cover

industry as a whole.

The one

is

impossible because there are limits in

is

the incomes of instalment buyers, the other

impossible because in-

stalment credit

is

confined to five or six kinds of durable consumption

goods (clothing is an exception, but unimportant). The creation of artificial purchasing power was further limited by its concentration in

newer industries automobiles (one-half of all instalment sales), washing machines, mechanical refrigerators; only two of the older industries, furniture and sewing machines, were substantially represented. In these industries, sales and output were augmented by instalment selling; it quickened and enlarged the growth of new industries, an important factor in prosperity. But the result was overdevelopment, particularly in automobiles and radio. When instalment buying reached its limits, manufacturers were left with an enormous excess capacity. Moreover, instalment consumer credit, unlike producer
the
radios,
credit, is

not payable out of earnings increased by the credit but out

It

of a constant income.
eventually,

mortgages future income. This means that

sales

when
for

instalment

become

stationary

or

fall,

new

income
limits

is

used to pay for old goods previously produced and sold and

demand

new

goods. (During depression,

when new and

169

Excess Capacity, Competition, and Speculation

outstanding
instalment

demand

for current

payments lessen credit falls, instalment consumption goods and make the depression

worse.) Instalment selling increases the instability of capitalist pro-

duction by augmenting output and sales of optional or postponable

goods.
tive

The

industries using instalment selling

all

waged

ruthless competi-

war upon

other industries for a "larger

slice of

the consumer's

dollar." Capitalist production is

bedlam.

Bedlam reached
finance,
"If

its

climax in the theory of "progressive obsoles-

cence," seriously considered by the tormented

magnates of industry,

and advertising:
are to have increasingly large-scale production there
.

we

likewise be increasingly large-scale consumption.

To
.

get
.

money

into the consumers'

is,

hands with which

to

buy

is

must more mere

minor stopgap. There

lever available.
I

however, a far greater and more powerful

refer to a principle which, for

term,

name

progressive obsolescence. This

want of a simpler means simply the more

who now have buying surbuying more goods on the basis of obsolescence in efficiency, economy, style or taste. We must induce people who can afford it to buy a greater variety of goods on the same principle that they now buy automobiles, radios and clothes, namely, buying goods not to wear out, but to trade in or discard after a short
intensive spreading

among

those people
of

plus

of the belief in and practice

time when

more attractive goods or models come out. The one salvation of American industry, which has a capacity for producing 80% or 100% more goods than are now consumed, is to foster the progressive obsolescence principle, which means buying for up-to-dateness, efficiency and style, buying for change, whim, fancy. We must
or
.
.

new

either use the fruits of our marvelous factories in this highly efficient

'power' age, or slow

This

is

them down or shut them down." ^^ economic and cultural lunacy, but a lunacy wholly
social
sell

in accord

with the

relations

of capitalist production.

Capitalism must
it

produce and
difference

goods, but from the standpoint of profit

makes no

what goods or who buys them.

The

lunacy of "progressive obsolescence" was matched by the des-

peration of proposals to restrict production

state capitalism).

(now one

of the aims of

Said the president of the

Durham Duplex Razor

it

Company
"Manufacturing merchandise
faster

than

can be sold
. .

is

one of

the principal causes of the increase in competition.

We
.

are turn.

ing out more merchandise than can be sold profitably.

Business

170

The Decline

of

American Capitalism

health can only be preserved by maintaining an equilibrium between

production and consumer sales.""

Thus was rejected the "principle" that production and prosperity depend upon mass consumption: "Limit production," with 2,500,000 workers already unemployed! "Maintain an equilibrium between production and consumer sales" "induce those people who now have buying surplus ... to buy a not to wear out, but for style, change, greater variety of goods whim, fancy," while 85,000,000 workers and farmers were living on or below subsistence levels! In spite of the clamor about "mass consumption" and "mass markets," the equilibrium of capitalist production came to depend more and more on artificially stimulating the "wants" of small groups o people with an excess of purchasing power (an aspect of the unequal
. .

distribution of income).

Luxury or

variety production, representing

consumption of which the workers are deprived, acquired increasing importance. The trade in luxury goods was one o the great stimulat-

and capitalist production since has more than the necessaries of mass consumption. In 1923-29, the American output of luxury or variety goods rose substantially because of the great rise in dividends and interest, in speculative profits, and in the concentration of income. Conspicuous competitive consumption was never as great, while mass consumption was practically stationary. In its revolutionary youth the bourgeoisie, particularly the Puritans, condemned luxuries, which were hated reminders of feudal privilege and power. But the condemnation was withdrawn after the bourgeoisie became the ruling class. Luxury is a badge of class differentiation and distinction, a
ing forces in the
rise of capitalism,

increased the output of luxuries

ruling class necessity.

Luxury is also an economic necessity in the capitalist system, based upon class exploitation and antagonisms. As mass markets are saturated because of the limited conditions of mass consumption, an

comes to depend upon "those people who have buying surplus, who buy for style, change, whim, fancy," and whose incomes, particularly the speculative,
increase in production, other than capital goods,
rise steadily

during prosperity. Surplus capital to flow into luxury or

where low wages and the lower composition of (more variable than constant) yield an exceptionally high rate of profit. This eases the pressure of surplus capital on the rate of profit in other industries. But the high rate of profit in variety production eventually tends to fall, because of excess capacity and competition and
variety production,
capital

Excess Capacity, Competition, and Speculation

because

171

modern luxury production

arises: as

often requires large fixed capital.

Another contradiction

mass production grows, and simuldepends increasingly upon mass production. This contradiction

taneously limits mass consumption while augmenting surplus capital

and the higher incomes,

capitalist industry

variety production, the opposite of

becomes constantly more acute. Its "either or" aspect is thus described by Carl Brinkmann, a conservative German economist who is now a
fascist

"A new
less

tive either of clinging to the capitalist

epoch seems to put modern civilization before the alternasystem with higher although

equalized standards of living, or of embarking on a communist

^^

planned economy with a primarily equalized although possibly very

low standard."

Thus capitalism, in its decline, offers higher standards to the few and lower standards to the many! In Germany, where capitalist decline is most conspicuous, there is no marked decrease in the output of luxuries but a great decrease in the output of mass necessaries. (The reference to "possibly very low standards" in a communist society
is

plain special pleading.)

Variety wants, particularly

when

they are stimulated artificially by

high-pressure advertising and are dependent

intensify the instability of

upon

speculative profits,

production and prosperity. Another factor

of instability

was the

increase in the output of durable consumption

goods, whose buyers include workers and farmers, and which are of
the optional or postponable type.*

The

output of these goods

falls

immediately and severely as prosperity

sags, accelerating cyclical break-

down and

aggravating depression.
variety

Luxury or
precisely
to
is

buying was enormously stimulated by the

profits

of speculation. Speculative profits shot

upward

in 1925 (Table III),

when mount most

There

the output of luxury goods and durable goods began

rapidly.

Thus, in

spite of all the talk of "prosperity

in-

mass consumption," from 1925 on, consumption and prosperity

*
is

tries.

"The demand
of

culty

more highly industrial counmust increase the diffibalancing consumption and productive capacity. Instability of demand
a similar development in

England and

all

for goods satisfying secondary needs

through causes of
at

this
. .

kind
.

is

associated with rising incomes rather than w^ith incomes

possibility

a higher level.

But there seems no great

of a continuous rise in

income." G. C. Allen, British Industries and Their Organization (1933), pp. 288-89. These are the desperate economics of the decline of capitalism. Stationary mass incomes

and economic stagnation, lower mass standards of

of production!

living, are to "assure" the stability

172

The Decline

of

American Capitalism
III

TABLE
Growth
YEAR

of Speculative Profits, 1^2^2g

INDEX
INDEX
DIVIDENDS

SPECULATIVE PROFITS

INDEX

AMOUNT
(millions)

WAGES

-INTEREST
lOO.O
lOO.O 103.8
II7.5
1

1923

$1,172
1,513

00.0

1924 1925

129.2

IOI.3

2,932 2,378 2,894

250,6 203.2 247.4 410.8

400.3

107.2 II3.7
114.

1926

132.6
I44.I

1927
1928 1929
*

4,807
4,684
available.

150.8 177.2

112.4

Not

Source: Speculative profits

computed
years.

from Bureau of Internal Revenue,

Statistics of

Income
assets

for the respective years. Speculative profits are realized profits reported by income-

taxpayers from sale of stocks, bonds, and real estate, and capital net gains from sale of

held

more than two

Speculative profits of banks and other corporations,

which helped
realized

to swell dividends, are not included.

While

capital gains are not directly

speculative profits,

they mainly are indirectly,

as capital

gains

are

largest

and most

upon when values

are inflated by speculation.

creasingly

depended on the

artificial

purchasing power created by

instalment credit and speculative profits.

The

upflare of stock-market speculation

was preceded

in 1923-24

by speculation in real estate, particularly the Florida "boom," capitalizing urban growth and greatly inflating values. (Inflation o land values, which goes on continuously, is partly responsible for the miserable housing of the workers.) Stock speculation rose in 1925 and surged upward in 192829, when speculative profits were four times those of 1923. For the seven years 192329, speculative profits amounted to $20,380 million. They rose five times as much as dividend and interest payments and twenty times as much as wages. "Having no origin in the manufacture or sale of goods or services, having no immediate purpose to produce goods or services, speculative profits may
properly be designated as
artificial

increments to income. In the period

1927 to 1929 they served to keep consumer

tion.

demand ahead

of produc-

... A potential source of spendable income so vast as this would not need to be drawn upon to more than one-fourth of its maximum capacity to provide under stable price conditions an addition to consumer purchasing power unprecedented for so short a
period.
.
.

Speculators usually regarded profits as definitely so

their spendings accordingly.
.
.

'money made,' and governed

much The

Excess Capacity, Competition, and Speculation

inference
last
is

173

exceedingly strong that the major influence prolonging the

its final two years was the enormous stream power coming from the security markets." ^^ Security speculation was never so frenzied. Prices of industrial common stocks rose an average of 19.4% yearly in 192229 compared with 2.8?/^ in 1901-13; the "values" of stocks on the New York Stock Exchange rose from $38,500 milHon on January i, 1927 to $59,330 million on October i, 1928 and to $89,670 million on September i, 1929, a gain

prosperity through

of purchasing

of $40,000 million after deducting

new

issues.^^

Speculative profits

reported by income-taxpayers rose from $2,311 million in 1918-20 to

$12,385 million in 1927-29. If to brokers' loans

on the

New

York Ex-

change, which rose from $3,219 million on April 30, 1926 to $8,549 million on September 30, 1929, are added margins, the total tied up
in speculation at its

lion

if all

stock exchanges are included.

peak was over $11,500 million, and over $15,000 milThe commissions of brokers
in 1928

of the

New

York Exchange

amounted

to over $400 million, or

^^

an average of $365,000 for each of the 1,100 members

speculative profits of their

(in addition to

own). Speculation was a major industry. Banks and other financial interests tied up with the speculative fraternity easily beat down the mild efforts to "normalize" speculation. "The sky's the limit!" Leading stocks sold at from twenty-one to fourty-four
less

times their earnings.^^ Stocks sold at yields of

than

nothing

discounting

3%

or

1%

or

not only the future but eternity

itself.

The speculative fever was inflamed by manipulation, trickery, and downright swindle, by all the institutional arrangements of capitalism. Investment "analysts" advised: "There are laws governing investment and speculation just as there are laws governing the universe. Conform to these laws and you reap just rewards. Ignore them, either wilfully or through ignorance, and you lose." Halsey, Stuart and Company hired at $50 weekly a University of Chicago professor to act as Old Counselor in their radio hour, to broadcast material prepared by the brokerage firm}^ Executives of banks and other corporations formed pools in the stocks of their own concerns. . Corporations split up stocks to inflame the public's speculative hopes. ... A flood of wholly speculative security issues was unloosed.
.

Scores of "trading companies," disguised as investment trusts, were

organized to speculate in stocks. ...

whole

series of

mergers pronon-

moted

speculative purposes.

Investment

trusts,

practically

existent in 1925 but

whose resources by 1929 exceeded

$3,000 million,^

inflamed the speculative fever by their rapid expansion, their purchase of stocks and issuance of

new

securities, their

buying on "dips"

174

The Decline

of

American Capitalism

in the market, their absorption of

new
.
. .

speculative issues,

and

their

connection with brokerage houses.

profits

Speculation yielded

higher

than production; corporations whose surplus rose greatly,

. . .

much

European money flowed into American speculative markets; French speculators "cleaned up" $307,000,000 in fifteen months in 1928-29.^ Banks manufactured speculative credit with the abandon of bankrupt governments issuing paper money, while their security affiliates speculated on a large scale; speculation and credit are linked together, an inseparable part of capitalist accumulation. The speculative fever was inflamed by the Coolidge-Hoover administrations, and particularly by Secretary of the Treasury Andrew Mellon, with his reductions of the surtax on large incomes, his refunds of personal and corporate income-tax payments, and his influence on Federal Reserve policy. ... It was also inflamed by vulgar economists who spoke as if speculation and its jargon are the source of all values.* .One of them wrote a whole book denouncing efforts to "moderate" speculation; among other passages of cheap eloquence and worse economics was
of
it

in cash, placed billions in brokers' loans.

"With marked progress in individual industries, in an era of improvement in our economic life comparable to the industrial revolution, attended by singular good fortune in the expansion of foreign trade and achieving a dominant place in the firmament of international commerce and finance, with peace at home and abroad and with an administration in which the country has the greatest confidence, it is little wonder that those who buy stocks, who in terms
this:

radical

of the economist are paying a present

sum

for

an

infinite series of
^^

future incomes, should be inclined to pay a rather high price."

Irving Fisher, professor of economics, a day or

two before the market

crash in October, 1929, said prices were not high but low, "gains are

continuing into the future" and "predictions of heavy reaction find

little if
it
. .

any foundation in

had created
.

"false fear"

The "New

weeks after the crash he said and meant "no permanent ill effects."^* Era" prophets rejected economic laws; after the crash,
fact." Several

ruining the hopes of "an infinite series of future incomes,"

the

economist of the Guaranty Trust Company, a Morgan bank, admitted

* Speculators and financiers are

modern medicine-men, who make

a fetish of their

jargon and
it

endow
to

it

with magical powers. After two years of declining stock prices

was suggested,

end the depression, that the market vocabulary abolish such phrases and "technical
rally" as "tending to intensify

as "selling climaxes," "resistance point"

the bearish pessimism of the financial community." See

25, 1931.

New

York Times, November

380

1^ ^m ^B
p

79.r/.
iHcotAts Of
^lo.aootip

1
/

3fcO

340

3Z0

^^^i5/ INCOMES 0^^^ ^^^3000 - $10,000 ^^

300 aso

DISTRIBUTION OF SPECULATIVE PROFITS 1^^ "--.I

A(o

x^o

SPECULATIVE

xxo
xoo

so

/ ,/

\\ //
ri^
-]

PROFITS
J::^J

-j

1^-1

VIDENDS- INTEREST-,

160

/
/
1

^^

.^^^'

,.>^^'^*"*

140

xf-**

.^***
,...'
-^**
I

10.0

/
4*tr^ -;;:::
13
I'W't

[JWAGESil

100
1*1

my

Mib

HiT

WW

wM

VIII.

THE STAKES OF SPECULATION 1923-29.

176
sadly: "It
is

The Decline
^'

of

American Capitalism
svi^ay

evident that economic laws have resumed their

in

important particulars"!

The

fever seized

upon widening

circles

of speculators. This

was

magnified by the profiteers of prosperity,

who

insisted

"everybody"

was speculating bootblacks, clerks, and millionaires, poor man, rich man, beggar man, thief. But millions of shares are not millions of speculators. Two New York Stock Exchange firms, doing more than 10% of the Exchange's total business, had fewer than 12,000 active margin accounts.^* In 1928 (the most representative year, as there was no crash), 470,889 out of 4,070,851 income-taxpayers reported profits from the sale of stocks, bonds, and real-estate, another 27,704 reported capital net gains, and 72,829 reported speculative losses.^^ The total is 571,422 persons, not all of whom were necessarily active speculators,
offset

by others

who

did not report. In

all

probability the

number

of

was 750,000, and definitely not over 1,000,000. This in itself was an enormous increase over pre-war years. Speculation aroused get-rich-quick appetites, but the new speculators were mainly from the middle class, which was becoming larger and wealthier. The
speculators

limited class character of speculation

is

clearly indicated in the distribu-

tion of speculative profits (Table IV). Income-taxpayers with incomes

TABLE

IV

Distribution of Speculative Profits, i^i8-2g

INCOME GROUP
Below $3,000
$3,ooo-$io,ooo

AMOUNT
$1,387,000,000
4,920,000,000

PERCENT
4.6

16.2

Over $10,000
Total
Source:

24,064,000,000

79.2

$30,371,000,000
of Internal Revenue, Statistics of

loo.o

Computed from Bureau

Income

for the re-

spective years.

below $3,000
speculative

yearly,

mainly of the lower bourgeoisie, with a sprinkling

of better-paid skilled workers and farmers, received only 4.6% of

profits.

These petty

speculators

lost

more than they

gained: speculation, directly and indirectly, expropriates small savers

and
class

investors, redistributes wealth,

and

accelerates the concentration

of capital. Speculators of the intermediate bourgeoisie or upper middle

(incomes of $3,000

to

$10,000)

"earned" substantial profits:

real profits

$4,920 million, or 16.2% of the total.

But the

by the upper bourgeoisie: a

total of $24,064 million, of

were secured which $8,000

Excess Capacity, Competition, and Speculation

million was "earned" in the

177

two years 1928-29. As

in 1929 there

were

only 382,241 individuals reporting incomes o f 10,000 and over, not all of whom were active speculators, the gains of speculation were concentrated in a handful of people.

Incomes below $3,000 were barred from

making any substantial profits, except on a fluke, because they did not have money for large-scale speculation; and most of them were plucked. A few of them made enough profits to rise to the $5,000 class, many more rose from the $5,000 to the $10,000 class, while
profits

$10,000 and over secured the largest income classes, particularly the highest: the number of millionaires tripled, mainly as a result of accumulating
speculators with incomes of

and

rose to the higher

speculative profits.

Speculation depends, in final analysis, upon the exploitation of the

producers.

The wages

of the workers (and farmers' income) were

more unequal and concentration of income, whose distribution favored the investing and speculating classes, including the new middle class of supervisory, managerial, and merchandising employees in corporate industry. According to an apologetic economist: "The demand for
depressed relatively to profits. There was a decidedly
distribution

stocks varies directly with the surplus cash the people of the country
living and business expenses and the and improvements. The stock market has been high recently because the income of the people has been large." ^^ But what are the impUcations? "Surplus cash" was high not because "the income of the people" was large, but because of the unequal distribution and concentration of income; there was not much "surplus cash" among workers and farmers. If, and this is inconceivable under capitalism, the increase in the national income had gone to the lower-paid workers and poorer farmers for use in consumption, the larger incomes would have acquired no "surplus cash" with which to finance their speculative spree. Much of the money tiedup in speculation, moreover, was not new income but money secured from loans on stocks and other forms of property: an aspect of the concentration of wealth. Apologetic economists always insist on "analyzing" gross totals and general trends instead of class proportions and

have

after they

have paid

all

cost of ordinary construction

relatives.

Speculation capitalized

the

rising
It

productivity

of labor
all

and

its

higher yield of surplus value.

was bound up with

the results of
of capital

changes in the composition of

capital.

The superabundance
was
falling,

simultaneously increased excess capacity and inflamed

speculation.

Although the general

rate of profit

many

corporations

178

The
The

Decline of American Capitalism

experienced a rising rate; speculation in their stocks affected other

stocks.

falling rate of profit drove capital after the higher profits

of speculation. This included corporations with a large cash surplus;

were augmented by the high returns on brokers' loans, which was financed by corporations. Underlying all these forces was the antagonism between production and consumption, which depressing mass consumption and breeding a superabundance of capital. Superabundant capital became more and more aggressive and adventurous in its search for investment and profits, overflowing into risky enterprises and speculation. Speculation seized upon technical changes and new industries, which were introduced planlessly, regardless of the requirements of industry as a whole. Large profits were made by simple speculative manipulation. In one case a small group bought control of the stock of a railroad and sold it to the Pennroad Corporation, a holding company of the Pennsylvania Railroad, for $37,898,000: the profit was $12,807,000.^^ The fall in the rate of profit stimulated mergers and combinations, which grew unprecedentedly in 1923-29. Mergers and combinations tried to check the fall in the rate of profit by control of production and prices; but as they were enormously overcapitalized and increased excess capacity, the final result was to strengthen the tendency of the rate of profit to fall. Mergers and combination became the objects of speculation; they yielded huge promoter's profits and inflamed speculatheir profits

nearly one-third of

tive hopes.

Monopolist combinations interlock with the great banks; there

fusion of financial and industrial capital.

is

The

financial

oligarchy

strengthens

its

control over industry.

a mass of paper claims

Ownership increasingly becomes upon production and income, the means and

objects of speculation, creating the illusion that paper values are the

capitalism, which in United States and is bound up with the decline of capitalism, speculation becomes more active. The financial oligarchy operates with the mass of paper claims and increasingly subordinates the production of goods to the production of speculative profits. It subjects whole industries to predatory speculation and plunder (Insull, Kreuger). Where the profits of non-financial

source of

all

wealth. In the epoch of

its

monopoly

1923-29 consolidated

hegemony

in the

corporations were only

of financial corporations were

necessarily

14% higher 177%

in 1929 than in 1923, the profits

higher.

The

financial oligarchy

is

banks and their financing of speculation, with the stock exchanges, with all the speculative and adventurous aspects of capitalist enterprise. Through the export of
identified with the

and intimately

Excess Capacity, Competition, and Speculation

capital, a

179

means

of checking the fall in the rate of profit, speculation

becomes international, encouraged by the financial overlords of monopoly capitalism.

Speculative profits, although they are an artificial creation of in-

come, constitute real claims upon production and goods, upon the labor of the workers and farmers. In the final outcome, when inflated
values crash, past speculative profits

become present and future

losses,

and

result in a restriction of

consumption. But before the crash, specu-

lative profits

promote prosperity to the extent that they are spent on consumption goods (and services). Speculation, however, simultaneously aggravates the instability of prosperity and of capitalist production. In this, speculation resembles excess capacity,

grows stimulates the demand

prosperity, although
it

for capital goods

also contributes to

which as it and thus promotes the ultimate breakdown of

an

prosperity because

it

intensifies competition, lowers the rate of profit,

and eventually
eiTect,

limits

the

demand

for capital goods. Primarily

itself

speculation reacts and becomes

values, speculation puts pressure

profits,

on corporate

By inflating managements to raise

cause.

and tends

to increase competition, excess capacity,

and over-

production. Speculation encourages risky enterprises, augments the

concentration of income, strengthens the adventurous character of

finance capital, and
perity constantly

makes the unstable equilibrium of capitalist prosmore unstable because of an increasing dependence

upon luxury production.

CHAPTER

XII

The Onset of

Crisis

and Depression

Jl

HE antagonism between production and consumption

is

the basic
It results

cause of economic instability, and of crises and depressions.

from the tendency toward an absolute

exploitation of the workers,

the increasing production of surplus value,

and an absolute

devel-

opment

of production while simultaneously

limiting consumption.

But the antagonism is continuous, permanent. How is an equilibrium achieved and maintained? Primarily by an increasing output and absorption of capital goods. These are the outlines of the movement: 1. The production and absorption of capital goods directly promotes
the accumulation of capital:
a.

It

converts realized surplus value, profits, into capital,

is

whose
capital

accumulation
^. It yields

basic in capitaUst production.

profits,

new

which are

investible

and become

because of the increasing output and absorption of capital goods.

2.
a.

The output of capital goods indirectly promotes consumption: Wages are distributed, and are spent mainly on consumption

goods.
h.

part of salaries

and

profits

is

similarly spent.

The consumer

purchasing power created by the production of capital

goods and spent on consumption is a net gain, as it represents no output of competing consumption goods. Thus the capital goods industries contribute to the sustenance of the consumption goods industries.

The antagonism between

overcome.
3.

production and consumption

is

temporarily

a.

The output of consumption goods is active and profitable: Wages are distributed, and spent mainly on consumption goods.

A part of salaries and profits is similarly spent. Another part of the profits is invested and becomes capital because of the increasing output and absorption of capital goods, either in the form of capital goods to produce other capital goods or capital goods to produce consumption goods (or services). Thus the reaction of one department of industry upon the other creates an increasing production in which the primary factor is the output of capital goods. These goods give profits concrete forms,
h.
c.

180

The Onset
they

of Crisis

and Depression

i8i

and claims to income. Upon these forms depend other forms of capital. While creating consumer purchasing power (wages, part of salaries and profits), the output of capital goods makes no direct demands upon such purchasing power.

embody

capitaUst ownership

Demands

are

made

only eventually,

begin to function as productive equipment.

kets is lessened

when the new capital goods Thus pressure upon mar-

and an equilibrium

is

temporarily maintained between

production and consumption. There are other factors in the equilibrium, but the output of capital goods
is

fundamental.
are

Meanwhile speculation
creating

flourishes

because profits

high.

increases the output of luxury or variety goods, distributing

This wages and

demands

for capital goods.

is

The
its

equilibrium

temporary,

is

eventually shattered, because of

own

underlying causes.

One

part of capital goods represents con-

sumption of which the workers are deprived. When new capital arises an accumulating insufficiency of buyers for their output (and the output of older capital goods). The lag of wages behind profits, a stimulus to the accumulation of
goods begin to produce there
capital

and the output of

capital

goods, simultaneously limits the

conditions of consumption.

New
and

capital

goods represent an increase

in the productivity of labor

in the scale of production,

and a

decrease in relative wages, while the output of commodities grows.

Excess capacity, overproduction, and competition force

of profit. This for a time promotes prosperity as
it

down

the rate
invest-

means new

ment,
fall

i.e.,

creates

new demands

for capital goods to

overcome the

in the rate of profit.

absorbed. But as the

forces of production
relatively

More wages are distributed, more capital new capital goods become "procreative," the
greater, the conditions of

become

more

limited.

The

equilibrium begins to

totter.

consumption A minor
7.1 to 5.5

cyclical depression appears, as in 1927,

when

the rate of profit in

factures fell
total

from
a

12.1 to 10.2

on

fixed capital

and from

of 15.7% and 22.6% respectively. was threatening. It stimulated efforts to raise profits by increasing the productivity of labor, and created new demands for capital goods. The index of machinery output rose from 153 in 1926 and 146 in 1927 to 157 in 1928 and 191 in 1929, while the index of total output of capital goods moved from 147 and 143 to 145 and 170. (The index of total capital goods was slightly lower in 1928 than in 1926
capital,
fall

manuon While not

disastrous, the fall

because of a lower output of transportation equipment, rising again

in 1929.) In
to 130

and

131.^

consumption goods the rise was smaller, from 125 and 124 The upsurge of prosperity was based on the mount-

i82

The

Decline of American Capitalism

rise

ing output o capital goods, which sustained the (smaller) consumption. But
this

in

meant an enormous exertion of the productive forcesoutput of manufactures rose from $41,000 million in 1927 to
$47,000 million in 1929, an unprecedented rise accompanied by a great
increase in the productivity of labor.

An

enormous burden was placed

upon

all

markets, both for capital goods and consumption goods,

particularly as the great increase in output took place in the first six

profit

months of 1929: after June production decreased. While the rate of and even wages rose slightly,* this was bound up with the conditions of approaching cyclical breakdown. For the rise in the rate of profit and in wages was the temporary result of an absolute exertion of the productive forces which set in motion:
1.

An

overproduction of capital goods

(including construction)

a.
tries,

Demand and
their

consumption goods indusproductive powers enormously augmented and markets

output both
fell

as the

limited, restricted their orders for capital goods.

Employment and wages fell among capital goods workers, sening demand for consumption goods (and services), restricting
h.

les-

the

creation, by

capital

goods industries, of that consumer purchasing

producing

power which
2.

sustains a high level of output in the industries

consumption goods.

An
The

overproduction of consumption goods:

overproduction latent in excess capacity became actual in

a.

terms of limited markets (particularly durable consumption goods)

as

accumulated capital goods spawned a mass of

h.

new commodities.

This condition was aggravated by unemployment and smaller

is

* "It

purely a tautology to say that crises are caused by the scarcity of solvent

consumers, or of a paying consumption.

other

The
it

capitalist

system does not

know

of any

modes

of consumption but a paying one, except that of the pauper or of the

'thief.' If

any commodities are unsalable,

if

means

that

no solvent purchasers have been

with a semblance
class receive too small a portion

found for them. But

of their of
it,

one w^ere

to attempt to clothe this tautology

of profounder justification by saying that the

working

own

product, and the evil

would be remedied by giving them

a larger share

or raising their wages,

we

should reply that crises are precisely always preceded

by a period in which wages rise generally and the working class actually get a larger share of the annual product intended for consumption. From the point of view of the advocates of 'simple' (!) common sense, such a period should rather remove a crisis.
It

seems, then, that capitalist production comprises certain conditions which are indeclass to

pendent of good or bad will and permit the working

perity only momentarily,
Capital. V.
II,

enjoy that relative proscrisis."

and

at that

always as a harbinger of a

Karl Marx,

p. 476.

Marx

adds: "Advocates of the theory of crises of Rodbertus are

requested to

make

a note of this."

And we might add

the

American advocates

of the

"policy of high wages"!

The Onset

of Crisis

and Depression

183

payrolls in capital goods industries, lowering

mass purchasing power and consumption. c. Consumption goods industries began to retrench; workers were fired or wages cut or both, again lowering mass purchasing power and
consumption.
d.

The

decrease in industrial and speculative profits (stock values

lessened

crashed)

demands upon

the luxury industries,

which

re-

trenched on employment and wages, lowering mass purchasing power

and consumption. e. These developments depressed the demand for capital goods (including construction), whose output moved sharply downward, again lowering wages, mass purchasing power, and consumption.
3.
a.

decline in industry as a whole:

crisis aggravated the disproportions between one industry and another and within single industries, and created new disproportions which accelerated the slump in production. b. Speculative or risky enterprises (all industry had become increasingly speculative) were easily upset and aggravated the upset in the

The

more "sober" industries. c. There was a sharp and steady fall in the activity of the industries producing materials (raw and semi-finished).* d. The slump in industry as a whole sharpened the "crisis" in credit, prices, and other monetary factors: these the bourgeois economist considers decisive, but they are simply effects reacting upon their
cause.

Overproduction appeared primarily in the industries which had been

the major sustaining factors in prosperity:

The output
*

of machinery began to fall in June, 1929;

of

new

orders
of

The overproduction
particularly

raw

materials

was an important
scale.

factor in the

breakdown

prosperity,

on an international

In most raw materials the ratio of

still

world

visible supplies to

consumption rose sharply between 1923 and 1929, and

more sharply
was a
ticular.

after the crisis.

(Robert F. Martin, "World Stocks, Prices and Controls of

Foodstuffs and

Raw

Materials,"

Harvard Business Review,

July, 1932, pp.

437-40.) This

result of uncontrolled production, excess capacity,

and

ruthless competition,

and

of the capitalist exploitation of agriculture in general and of agrarian countries in par-

by the disastrous

The buying power of countries producing raw materials was severely restricted fall in demand and prices. There was an unusually large slump in the
total

American export of goods and a

cessation of the export of capital,

the"

two of the

important factors in prosperity. For several years before

crisis

the export of goods

was

practically at a standstill while the export of capital

had become primarly an export

rate of profit of excess

of interest,

which strengthened the downward pressure on the

of crisis

capacity and surplus capital, increased the instability of prosperity, and contributed to

the

coming

and depression.

184
for

The Decline
machine
tools

of

American Capitalism

of the year, while

fell

and foundry equipment had fallen 50% by the end employment in the machine industries as a whole
automobiles began to
fall

nearly 10%.
in July

The output of 57% by the end

fell

of the year; the output of rubber tires

and had fallen and tubes

51%.
fall

Construction began to

in

August and had

fallen

52% by

the

end of the

year.

The output of iron and steel began 42% by the end of the year.
By
began
to decline in July, in

to fall in July

and had

fallen

the end of 1929 the output of manufactures as a whole, which

had

fallen 24%.^

and consumer purchasing power among the workers and thus lessened demand and output in the consumption goods industries.* To a certain extent the fall in the output of machinery was retarded, because enterprises made efforts to overcome the faUing rate of profit by again increasing the productivity of labor with more efficient equipment. But these efforts, successful in a minor depression, aggravate conditions in the midst of a

As output

the heavy industries producing capital goods

materials

fell, it

restricted the creation of

developing major depression,

when markets break down

precipitously

the rate of profit fell disastrously from 13.9 on on total capital in 1929 to 3.0 and 1.7 in 1930, a decrease of 78.4% and 77.3% respectively. With the onsweep of the crisis the output of capital goods fell more than that of other goods, and much more than in the 192022 depression. In 1932 the output of machine tools was 92.5% lower than in 1929, of foundry equipment 82% lower, of woodworking machinery 96% lower (the decrease in construction was equally great) inability to make profits and convert

and

extensively.

Now
7.5

fixed capital

and

realized profits into capital led to a drop in investment

million in 1929 to $3,000 million in 1932.^ Prosperity depends

production of profit and

its

conversion into capital, a

from $15,000 upon the process which

determines whether the workers

*

may work and

live.

"The excess capacity always present in such industries encourages the production of more goods than the market will absorb at any price, and overproduction results. In this manner the peak of production is driven ever upward, dealers* stocks begin to mount as business recedes, and when the slump comes it is much more severe because of almost complete shutdown of production. This is what happened to the passenger car business, and the same overproduction, followed by collapse of production, took
place in other limited
industries."

W. W. Hay,

"Manufacture of

New

Products an

Escape from Effects of Saturated Markets," Annalist, December 12, 1930, p. 988.

The Onset
It

of Crisis

and Depression

185

was

a crisis of overproduction in terms of the limited class con-

ditions of consumption. In the

is

words of Marx: "If it is said that there no general overproduction, but that a disproportion grows up between various lines of production, then this is tantamount to saying
production
is

that within capitalist production, the proportionality of the individual

lines of

disproportionality, that

brought about through a continual process of is, the interrelations of production as a whole

enforce themselves as a blind law

upon the agents

of production in-

stead of having brought the productive process under their

common

control as a law understood by the social mind.

...
is

If it is said that

overproduction
entire

is

only relative, then the statement

is

correct; but the

mode

of production

only a relative one, whose barriers are

it is

not absolute, but have absoluteness in so far as

capitalist.

Other-

wise

how

could there be a lack of

demand
.
.

for the very

commodities

which the mass of the people want?

any attention
capitalist

All these objections to the

obvious phenomena of overproduction (phenomena which do not pay

to these objections)

amount

to this, that the barriers of

itself

production are not absolute barriers of production

barriers of this specific, capitalist production.

and therefore no
in
its

But the

contradiction of this capitalist

mode

of production consists precisely

tendency to an absolute development of the productive forces, a

conflict

development which comes continually in

with the

specific

conditions of production in which capital moves and alone can move.

...

It is

not a fact that too

is

much

wealth

is

produced. But
its

it

is

true

that there

a periodical overproduction of wealth in

.
. .

capitalist

and

self-contradictory form.
still

Capitalist production

comes

to a standprofit,

at a point

determined by the production and realization of

.
.
.

not by the satisfaction of social needs.

ist

The

real barrier of capital-

production

is

capital itself. It is the fact that capital

and

its

self-

expansion appear as the starting and closing point, as the motive and

aim of production; and not the means

system of the
life

that production

is

merely production for

capital,

of production

mere means

for an ever-expanding
*

process, for the benefit of the society of producers."

The

contradictory forces set in motion by the antagonism between

production and consumption are aggravated by other factors, including monetary factors. But these monetary factors are not primary,
they are simply effects which react

upon

the fundamental productive

relations. Irving Fisher insists that crises are a result of fluctuations in

prices caused

avoided
possible

if if

by changes in the value of money; that crises can be is no change in the general level of prices, wholly the "circulation of goods and the circulation of money
there
. .

1 86

The Decline

of

American Capitalism

should keep going at the same even pace ... or both streams grow

same rate or grow less at the same rate." ^ This is and historically wrong. Crises and depressions have been preceded by constant prices (1857), by falling prices (1873, 1893), by rising prices (1907, 1920), and again by constant prices (1929). Fluctuations in prices are a factor of instability in the measure that they express and react upon underlying economic forces. They do aggravate disproportions. But these disproportions always develop: price movements merely affect the relation of one disproportion to another and the combinations in which they appear. Falling prices force efforts to raise profits by an increase in the productivity of labor. But this results in a higher composition of capital, lower relative wages (real wages may rise), greater excess
greater at the
theoretically

capacity, aggravated competition, a falling rate of profit, speculation,

and a drive toward overproduction under conditions of mass purchasing power and consumption.
Rising prices increase
fictitious
profits,

restricted

although

much

of the increase

is

and depends for its full realization upon lower prices to come. But rising prices negate one of the fundamentals of capitalism, the urge to produce and sell more abundantly and cheaply. Rising prices and profits lower real wages (the productivity of labor rises, if not much), redistribute income and purchasing power, encourage speculation, and restrict mass consumption. The rate of profit tends
to rise, but falls again

as the crisis develops. Excess capacity rises

primarily because markets are restricted by higher prices. Production

may

be stationary or

fall

but overproduction develop in terms of

rising prices

and the

falling real value of

mass incomes.
is

In both cases there are disproportions, although the relations and

combinations vary.

And

in both cases the basic disproportion

the

maladjustment between production and consumption.

But constant

prices are

no way

out.

There was a

practically con-

stant price level in 1925-29. Irving Fisher considered this constancy,

which he

attributed to the "manipulations" of the Federal Reserve

Board, a guarantee of continuing prosperity.

The outcome was

the

greatest of all cyclical breakdowns. For the constant price level was itself a factor of instability. Constant prices contributed to an unusual
rise

in profits because of the great increase in the productivity of

labor.

ditions, as

This temporarily aided prosperity, under the prevailing conit stimulated the output and absorption of capital goods.
prices hastened the

But eventually constant

coming of the

crisis

befall-

cause they restricted purchasing power and consumption, while

The Onset
consumption.
productivity

of Crisis

and Depression
crisis

187

ing prices might temporarily have postponed the

by increasing

The

constant price level wsls accompanied by rising

and

profits, practically stationary real w^ages, accelerated

accumulation, and changes in the composition of capital, more excess capacity, a falling rate of profit, aggravated competition, frenzied
speculation,
stricted

and an increasing production v^^ithin the limits of remass purchasing power and consumption. Prosperity crashed

into depression.

Prices affect the

are

demand

for capital goods, although other factors

prosperity by limiting the increase in the output

thus weaken and absorption of capital goods. Falling prices may stimulate demand and hasten the overproduction of capital goods and the breakdown of prosperity. Either one or the other may result from constant prices, depending upon the level of prosperity. But whatever the particular combination of factors, the moment must come when the output and absorption of capital goods begins to fall because consumption has not kept

more important. Rising

prices

may

limit

demand and

pace with production.

Thus
these

prices act within the limits of the underlying

economic

factors

are primary.

Cyclical

breakdown develops under conditions

prices.

of falling, rising,
after

and constant

The

disastrous fall in prices

crisis,

aggravating the cyclical breakdown and depression,

is itself

an

effect of the crisis

an

effect

which becomes

major cause

only in the analyses of the bourgeois economists. In the pre-1929 era of prosperity everlasting, a whole school of
economists, accepting the temporary and incidental as permanent and

fundamental, stressed the importance of constant

tion.

prices, of stabiliza-

In spite of the demonstration that stable prices do not avert

cyclical

NRA, and

breakdown, the theory reappears in the proposals of the of state capitaHsm, in general to "fix" prices and "stabilize"

the value of

money. But the needs of

it.

capitalist

production are identified

with higher output and lower

torment and upset
Prices
Profits rise disproportionately.
efficiency are not passed

prices,

although these simultaneously

stable,

may The

be

but not productivity.

on

in the

improved productive form of lower prices. Real wages

benefits of
capitalist

are adversely affected, as they generally rise only in periods of falling

prices.

Instability
its

is

an element of

growth. Stabilization,
is

along with
capitalist

twin, the restriction of production,

an element of

decHne and stagnation.

appears more substantial in the arguments
the economist of capitalism in extremis.

The monetary approach

of John

Maynard Keynes,

i88

The

Decline of American Capitalism

stabilization,

Accepting the necessity of

analysis

he incorporates

it

in a larger

which recognizes that prosperity depends upon the output of capital goods, upon the increase in profitable investment. But he stresses the monetary aspects and makes the output of capital goods a function of the rate of interest. "It is," he says, "a large volume of saving which does not lead to a correspondingly large volume of investment (not one which does) which is the root of the trouble"; the slump in 1929 was "initially engendered ... by the deficiency of
current investment relatively to saving."
interest discouraged

The high

market-rate of

new

investment in capital goods, savings exceeded

the market-rate of interest had
i.e.,

investment, and the resulting decline in the output of capital goods

produced the

crisis

and depression.

If

fallen to the level of the natural-rate,

a rate

making

it

profit-

borrow money to buy new capital goods, there would have been no crisis and depression. The assumption is that, if there is no divergence between the "market-rate" and the "naturalrate" of interest, and investment equals savings, capitalist production can uninterruptedly absorb a constantly greater output of capital goods and prosperity flourish undisturbed. This ignores the crucial factors: In 1928-29 there was an upsurge in new investment and in the output of capital goods regardless of the prevailing interest rate: buyers of new stock issues were plentiful and corporate surplus ample. Increasing investment itself and the constantly greater output of capital goods, not the interest rate, tormented capitalist enterprise
able for enterprise to

because of accumulating excess capacity, saturated markets, aggravated

competition,

and the tendency of the

rate of profit to

fall,

fall

independent of any rise in the interest rate. The increasing output of capital goods was (and always
panied by an accumulating deficiency in consumption.

is!)

accom-

While the immediate cause

the deficiency in consumption.

of the

breakdown

of prosperity

the deficiency in the output of capital goods, the underlying cause

was was

Oversaving

is

a factor in the cyclical process.

Not

because

it

creates
it

a deficiency in capital investment (and production) but because

creates a deficiency in

consumption by diverting to investment income which should go into consumption. Keynes, who slights consumption,
does not consider "oversaving" that part of invested savings identified

with excess capacity. Yet

all

this part

and the part which

so

is

not

invested at

both tend eventually to create a deficiency in conthat a

sumption.

Assume

"managed currency"
comes

manipulates the

interest rate that investment

to equal savings.

Good. But what

The Onset

of Crisis

and Depression

189

of the deficiency in consumption, of a greatly increasing output of

consumption goods in the midst of hmited markets? New investment, an increasing output of capital goods,
primarily a function of the rate of interest.
try's capacity
It is

is

not

a function of indus-

to

absorb

new
and

capital goods, dispose of

goods

at profitable prices,

yield a satisfactory rate of profit.

consumption Keynes

makes

a satisfactory rate of profit

depend upon the

it is,

interest rate, in-

vestment depend upon the proportion of the expected rate of profit

to the current rate of interest. Actually

save in exceptional cases,

the reverse: the interest rate becomes unsatisfactory or "unprofitable"

after the rate of profit itself falls.

The

rate of profit,

early in 1929,

began

to fall as the crisis approached,

which rose slightly and fell disas-

trously after the

crisis. It fell

disastrously because of the collapse of

and production, not because of the divergence between the rate of profit and the rate of interest. The divergence was itself an effect of the crisis and the fall in the rate of profit. The monetary approach is responsible for another error. This is

demand,

prices,

Keynes' insistence that speculation contributed to the cyclical break-

down

because "the 'speculative' borrowers were borrowing not for

investment in
investment.

new

productive enterprise, but in order to participate

in the feverish 'bull'

movement,"

thus increasing the deficiency in

On

the contrary, speculation contributed to postponement

of the crisis by encouraging the luxury industries and by preventing

an

earlier

overproduction of capital goods. Most speculative profits are

market or are spent; the part which may be invested in productive enterprises is smaller than the cash and credit tied up in speculation. The "immobilization" of a part of superabundant capital by speculation performs the same function in keeping prosperity going that is performed by destruction and depreciation of capital and waste in general. But while speculation aided
either re-employed in the

prosperity

it

simultaneously aggravated the instability of prosperity,

crisis

sharpened the

when

it

came, and deepened the depression.

Of
are

the depression and recovery,

Keynes

writes: "Capital goods will

not be produced on a large scale unless the producers of such goods

making

a profit.

Upon what do

the profits of the producers of

goods depend? They depend upon whether the public prefers to keep its savings liquid in the shape of money or the equivalent or use them to buy capital goods or the equivalent. The fundacapital
.

mental cause of the trouble

unsatisfactory

is

the lack of

new

market for

capital investment.

due to an Lenders were, and are,

enterprise

asking higher terms for loans than

new

enterprise

can afford."

igo

The
is

Decline of American Capitalism

however, not a cause. Where production and consumption are prostrate, as in a major depression, any large investment in new capital goods may be unprofitable no matter how low the interest rate. It might even be unprofitable if no interest were asked but only safety. For an unusually severe depression is preceded by an unusually large output of capital goods. There is an unusual overdevelopment of plant equipment, and new investment is practically limited to unpostponable replacements, considerably more efficient equipment which might yield competitive advantages to a particular enterprise, and equipment to produce new goods which meet no competition and whose market is assured. Depression is finally overcome, and new investment again becomes profitable, pri-

That

clearly

an

effect,

marily by destruction and depreciation of existing capitals, the piling

up

of unpostponable replacements,

and the development

of

new

in-

and a rise in the rate of profit. At this stage the rate of interest may become an accelerating or retarding factor. But the fundamental factors are the rate of profit itself and the capacity of industry to absorb an increasing output of capital goods. So great was the overdevelopment of productive enterprise in the United States that the government's through the loans, or rather grants, of the efforts to "ease" credit Reconstruction Finance Corporation, and the pressure on industry to borrow and on banks to lend yielded slight results because industry was tormented by overdevelopment of capacity and lack of markets,
for capital goods

dustries, thus setting in motion a

demand

not by lack of credit or capital.*

The admission by many

that prosperity depends
ever, one-sided because
* Keynes,
this

bourgeois economists,
capital investment

among them Keynes,

is

upon
it

correct. It

is,

how-

excludes, wholly or in part, the factor of

1931, p.
24,
sees

"Causes of the World Depression," Forum, January,

its

overdevelopment of enterprise without appreciating

significance: "In the

United
last

States the vast scale

five

years has

on vi^hich new somewhat exhausted

art

capital enterprise has

been undertaken in the

at

for

the

time being

atmosphere of business depression continues

enterprise."

any

rate

so

long as the
for

the

profitable

opportunities

further

Where

thou now,

rate of interest! In

Germany,

in 1932, the governrates to

ment
But

of Chancellor Briining

and the Reichsbank lowered

interest

stimulate
affected.

industry. Failure
failure also

was

attributed to the fact that only short-time borrowing

was

marked
marks

the efforts of the government of Chancellor von Papen, which

tried to stimulate expenditures

on

capital

goods by giving industry a practical subsidy

of 750 million

at

no

interest

(in the

form

of certificates discountable for cash

and acceptable some years later in payment of taxes). Enterprises receiving the money used it to pay off debts, and there was no revival in the output of capital goods. Gerhard Colm,

"Why

the 'Papen Plan' for

Economic Recovery Failed,"

Social Research. February,

1934. P- 93-

The Onset

of Crisis

and Depression

191

consumption. Capitalist prosperity depends upon an increasing output

and absorption of capital goods. But this depends upon the capacity of industry profitably to dispose
output of consumption goods.
other
is

in final analysis of an increasing

The

constant clash of one with the

this, Keynes becomes entangled (much like the money cranks) in proposals for monetary manipulations to revive and maintain prosperity. All such proposals emphasize the secondary factors of exchange, not the primary factors of production. While exchange reacts upon production, the relations of exchange are determined by the relations of production. If exchange is emphasized the causes of cycles appear either bewilderingly complex, where the economist is "scientific," or extremely simple, where the economist is "practical." In either case

inescapable and decisive. Because he ignores

effects

are transformed into causes.

Thus an

effect,

the deficiency

in investment, becomes with Keynes,

"practical," the cause of cyclical

who

is

both "scientific" and

crises or save capitalism, effects

to

dnker only with

effects,

breakdown. If it is proposed to prevent must become causes: for it is possible not with causes. Prosperity depends upon

This means that capitalism is a profit economy. No profit no prosperity. This in turn creates an antagonism between production and consumption: capitalism is unable to develop freely and fully the conditions of consumption. The conclusion is
capital investment.

inevitable

crises

and depressions
is

are inherent in the capitalist relations

of production, they can be avoided only by the abolition of those

relations.

But

this conclusion

either

evaded or openly rejected by

the conclusion arises logically

the bourgeois economists.

Even where

out of their
in theory

own

analysis, if consistently pursued, they fly off at a

tangent and offer "cures" based on secondary factors.

They

prefer,

and pracdce,

to cling to capitahsm.
crisis,

combinations of the secondary

and depression, there are varying An analysis which emphasizes these factors makes every cycle appear unique in itself. This is wrong. For there are primary factors underlying and determining the cyclical process. These factors are always the same. The secondary factors may combine differently in the unstable equilibrium of capitalist prosperity. But the primary factor is -the accumulation of capital, an increasing output and absorpdon of capital goods. The secondary factors may combine differently to produce the onset of crisis and depression. But the primary factor is the deficiency in consumption. The inescapable antagonism between production and consumption
In every cycle, in prosperity,
factors.

is decisive.

192

The
its

Decline of American Capitalism

Thus
is

the conclusion becomes inescapable that capitalist production

strangled by

own enormous
forces, the

productive forces, which arc de-

veloped beyond the social forces of consumption.

tends to use
all
its

When
is

industry
crisis.

result

is

overproduction and

Even
Yet

then, however, only a part of the productive forces

utilized.

this sort of

thing

is still

taught in American colleges: "The one

great hope of

mankind

for greater

abundance of goods

lies

in

remov-

ing ineffectiveness of labor as a cause of scarcity,

in improving the

or, in

other words,

methods of production."

The methods
prosperity
to

of production are improved.

But labor is not ineffective. There is abundance. These

conditions are, however, transformed into causes of scarcity, both in

and depression.

Capitalist industry is

menaced by
to

its

power

provide abundance

by

the

inexorable

drive

produce more

cheaply and abundantly, by excess capacity, by overproduction.

Abun-

dance creates scarcity because abundance becomes relatively unprofitable. Thus under capitalism, production appears as a malevolent fate: man is enslaved and tormented by his own material creations.*

The

productivity

which torments

capitalist industry

and the masses

Capital,

is

a result of the objective

socialization

of production.

materials,

and

labor are concentrated in large-scale enterprises, forms

of social property,

multiplying the productivity of labor. All the

powers of
production.

society

work toward improving

the

social

methods of

More and more,

is

industry assumes institutional forms:

ownership

separated from

of industry becomes collective.

management and control, the direction Only ownership and appropriation are
itself

individual (although ownership

acquires measurably social forms

is

in corporate enterprise). This contradiction

the basis of the an-

tagonism between production and consumption. The antagonism can

be ended only by the socialization of ownership, appropriation, and consumption: by making consumption, not accumulation, the aim
of production.

Man,

the worker,

must produce
of production
as

to

consume.
exists to

* "Things cannot be otherwise in a

mode

where the worker

promote the expansion of existing

values,

contrasted

with a

mode

of

production

where weahh

exists to

promote the developmental needs of the worker.

is

Just as, in the

sphere of religion,

man

dominated by the creature of

is

his

own

brain, so in the sphere

his

of capitalist production, he
Capital, V.
I,

dominated by the creature of

own

hand." Marx,

p. 685.

CHAPTER

XIII

Production and Consumption:

Capitalist Decline

JLf capitalist production and prosperity depend upon an increasing

output and absorption of capital goods, as Keynes and other bourgeois economists admit,
it

follows that there are limits to the economic

capital.

development of capitalism, to the accumulation of

These limits result periodically in crises and depressions. Cyclical breakdowns express an overdevelopment of capital equipment, which lessens the output and absorption of capital goods and checks the
expansion of industry. In the epoch of the upswing of capitalism the

were only relative, as overdevelopment of capital equipment and temporary. Depression, overcome by the action of cyclical forces, was succeeded by a new upsurge of prosperity resulting from new and larger demands for capital goods, because of the working of the long-time factors of expansion. But as these factors approach exhaustion, the overdevelopment of capital equipment begins to assume absolute and permanent forms. Industry is now unable to absorb an increasing output of capital goods: the limits to the development of capitalist production and prosperity become absolute. At the same time, and necessarily, the limits to the development of consumption become absolute. An increase in consumption depends
limits

was

relative

upon

still

larger increase in the output of capital goods.

As

this

output rose in the epoch of the upswing of capitalism, the limits

upon consumption were only relative. Overdevelopment of capital equipment was accompanied and made possible by underdevelopment of consumption, the final cause of crises and depressions; but there was a rise in consumption. As, however, the capacity of industry to absorb new capital goods begins to decrease, consumption must remain stationary or fall the limits to the development of capitalist production and prosperity become absolute.
:

and consumption brings about and prosperity. The crisis can be solved only by intensive development of the social forces of consumpthe;

Thus

movement
crisis

of production

permanent

in production

tion. As,

under

capitalist conditions,

however, increasing consumption

193

194
is

Th^

Decline of American Capitalism

a by-product of an increasing output o capital goods,

crisis is insoluble.

which now

tends to decrease, the

This

is

the decline of capitalism.

But why cannot capitalist production develop the forces of consump? They can and must be developed, insist many bourgeois economists, whose discussion of the problem of consumption is growing. Attention is forced upon this problem because the productive forces are now so great, the antagonism between production and consumption

Nor is this merely a result of the depression: consumption was stressed in the pre-1929 mythology of prosperity. The discussion of consumption, wherein two groups may be distinguished, is wholly inadequate, as it is entangled in all the contradictory relations of production which make the problem insoluble under caption so apparent.
italism.

One group
if

insists that the

the monetary

mechanism
is

is

problem of consumption can be solved manipulated to force prices to fall and

permit absorption of an increasing output of goods.

including advertising,

Or

if

marketing,

"consumer credit" becomes as general as producer credit and "finances" consumption. Or if distribution is "rationalized" by still greater growth of the chain stores. These proposals may all be dismissed without much consideration: they emphasize secondary factors of exchange and not the primary factors of production and its relations. The proposals
efficient.
if

made more

Or

would

tend, moreover, to create

more

disproportions. Falling prices

are a source of instability, increase

and threaten the rate of profit. overhead costs and the wastes of distribution. "Consumer credit" is merely a disguised form of instalment selling. The chain stores neither make distribution more rational nor increase mass purchasing power and consumption: they create new disturbing factors, increase unemployment in the distributive trades, and are associated with
monopolist abuses.

consumption only temporarily, "More efficient" marketing multiplies

problem of consumption can be more mass purchasing power to permit more consumption. Mass production must depend upon mass consumption: only greater consumption can absorb the output of the enormously productive forces of industry. This is an approach to the real problem. But it ignores the crucial questions of how, under capitalist conditions, consumption can increase while the output of capital goods tends to decrease, and of what would happen to the rate of profit and capitalism itself if the output of consumption goods rises while the output of capital goods falls. The "consumption" econoinsists

Another group

that the

solved only through industry disbursing

Production and Consumption: Capitalist Decline

neglect the factor of consumption.

195

mists neglect the factor o capital goods, where Keynes and others

In one form or another the promise to "increase consumption"

appears in

all

the arguments of the apologists of state capitalism.

is a mass of words mass consumption: meanwhile it tends to remain stationary or fall. The National Industrial Recovery Act proclaims its aim thus: "To increase the consumption of industrial and agricultural products by increasing purchasing power." ^ What all the words and acts mean in practice is a concern with markets to absorb the output of industry and insure capitalist profits. This involves, however, a fundamental economic problem, most clearly formulated (among the apologists of Niraism) by Rexford Guy Tug-

In Italy and Germany, in Britain and France, there

acts "in favor" of greater

and

well.^

His

analysis

is

incomplete but

it

reveals the desperate straits

of capitalist production.

The
nitely

older "era of development" of the productive forces has defi-

come
it

to

while

formerly

an end, Tugwell maintains. Unrestrained competition, "may have been a useful economic creed," is now
afflicts

"the final suicide compulsion which

itself

free industry. It throtdes

by closing

off

its

access to markets."

Economic development and

competition must decline.

This is both cause and effect of a new era in American capitalism: "Our economic course has carried us from the era of economic development
to

an era which confronts us with the necessity for economic

is

maintenance. In this period of maintenance there

production. There
is,

no

scarcity of

in fact, a present capacity for

more production

than is consumable, at least under a system which shortens purchasing power while it is lengthening the capacity to produce." In this "new era" the dominant problem is consumption. "More and more conspicuous," Tugwell insists, "is the dependence of our economic existence upon the purchasing power of the consumer upon wages, that is, and protected prices. Only a socialized industry can market its goods continuously because, until it is socialized, it cannot join in the protection of demand. This era of maintenance, the era of our present and future existence demands a new control, a control designed to conserve and maintain our economic
. .

existence."

The
era of

crucial point in Tugwell's argument is the contrasting of the development with the era of maintenance. Or, in other words,

the epoch of the

upswing

of capitalism has been succeeded by the

epoch of

its

decline.

196

The

Decline of American Capitalism

It

What was the "era of development"?

older industries

was the

era

when

the

were being mechanized, new industries arising, and conquered by industrialism. This meant an increasing new regions output and absorption of capital goods, an increasing accumulation of capital. The curve of production was upward. What is the "era of maintenance" It is the era when the older industries are all mechanized, scarcely any new industries are developing, and the industrialization of new regions is declining. The productive forces are ample, highly efficient, capable of producing more goods than the markets can absorb because consumption is limited
.f'

by the

social relations of capitalist production.

Only

to "maintain,"

not to increase, the existing productive forces requires a tremendous

mass consumption. Under these conditions the tendency new capital goods to replacements, to "maintenance" of equipment. This means a decreasing output of capital goods, a decreasing accumulation of capital. The curve of production is down-

growth
is

in

to restrict

ward.

The downward tendency

first

of production

is

not something new.

Its

manifestation

is

a decrease in the average yearly rate of indus-

4.6% in 1909-14 and 3.8% in 1922-29). upward movement. Yet that in itself is ominous, as capitalism must expand or decline: it cannot stand still. Moreover, it is significant that the flattening took place when there was an increasing output of capital goods,
trial

growth (7.6%
decrease

in 1902-06,
relative,

The

was

a flattening of the

particularly in 1922-29. If the output tends to decrease, the

downward
identified,

movement
is

of production

must become

absolute.

And
it
.

this developis
.

ment, as well as the economic decline with which

inherent in the dynamics of capitalist production.
.

While Tugwell
sumption.

distinguishes the
It

two epochs of
is,

capitalism, he does

not recognize the implications.

of course, a problem of con-

The

barriers of capitalist production can be

broken

down

only by an upsurge of mass consumption. But the barriers are created

by capitalist production itself, which always restricts consumption. The problem is now more acute, as the formerly relative limits imposed upon the development of consumption (and production) tend to become absolute, because of the decreasing output of capital goods. Thus, instead of making possible greater mass consumption and eco-

new disturbances and permanent crisis. Tugwell ignores the fundamental problem: How, under capitalism, can consumption rise while there is a jail in the output and absorption of capital goods?
nomic
stability,

the "era of maintenance" creates

engenders a

state of

Production and Consumption: Capitalist Decline

197

The

basic

nature of this problem appears clearly in a concrete

analysis of the relation of the production of capital

goods

to prosperity

and depression (Table V). This

all

relation

is

the controlling factor in

stages of capitalist production. It conditions both the

upswing of

capitalism

and

its

decline.

TABLE
Output of Capital Goods

in Prosperity

and Depression,
wageworkers

i^ig--31

output
(millions)

WAGES
(millicms)

1929

1931

1929
975,000
615,000 220,000 435,000

1931

1929
$1,460

1931

manufactures:
Machinery
Iron and Steel

$6,170
5,000

$2,800
2,290
1,000 1,100

595.000

$690
490
165

420,000
145,000

Other Metal
Transport Equipment
Stone, Clay, Glass

2,500
2,280
1.155

965 300
695

305,000
115,000

415
145

520
415
$8,125

220,000
220,000

300
235

Lumber

Products

895
$18,000

130,000

no
$2,015

Total

2,685,000

[,710,000

$3,955

Percentage of All

Manufactures:

25.6

ig.6

30.4

26.3
*
*

33-9

27.9
*
*

OTHER industries:
Construction

$6,190
1,470

$3,490

1,450,000

$2,400

Mining Products t
*

795

300,000

375

Not

available.
oil

t Includes quarries and

Estimates include:
all

wells.
refrigerators,

machinery except mechanical

sewing machines,

washing machines, incandescent lamps,

iron and steel;

radio, household electrical appliances;

70%

of

70% 50%

of

non-ferrous metals and their products;

20%

of automobiles,
all

50%

of value output of railroad repair shops, all other transportation equipment; of clay

stone products,

and

glass;

25%

of forest products; all construction;

25%

of

mining products (used

Source:

as structural materials in capital

goods or

as

power

fuels in their

production). Estimates are approximate, but with

minima

stressed.

Computed from
pp.

material in Census of Manufactures, 1929 and the Census

preliminary reports for 1931;

stract,

Commerce
I.

Yearbook., 1932, v.

I,

p.
Its

262; Statistical Ab-

1932,

686-87;

W.

King, National Income and

Purchasing Power,

pp. 56, 108, 132, 138.

$18,000 million, br 25.6% of

a considerable
rials.

In 1929, the gross value output of capital goods industries was all manufactures. These figures contain

amount

of duplication, representing the value of mate-

But there are no duplications in the final form of capital goods, in machinery and transportation equipment, whose value was $8,450
million.

Add

$4,190 million as the probable unduplicated value of

198
construction.

The

Decline of American Capitalism

112,640 million, an output

That makes approximately

of capital goods equal to nearly

25%

of the net value ($51,290 million)

of non-agricultural goods produced in the United States in 1929.*

In their various stages the manufacture of capital goods employed

and paid out $3,955 million in wages, or 30.4% all wages in 'manufactures. (There are no duplications in these figures.) Including construction and mining, the production of capital goods and their materials employed 4,435,000 workers, who received $6,730 million in wages. Another 450,000 workers and $700 million in wages must be added on the assumption
2,685,000 workers
all

of

workers and 33.9% of

that one-quarter of transportation

is

occupied in moving capital goods

and their employed

of
all

materials.

Thus

in

1929 the production of capital goods

4,885,000 workers, 31.5% of industrial workers and 17.5% workers, and paid out $7,430 million in wages, 40% of industrial

wages and 22.8% of all wages.f This is exclusive of probably 750,000 clerical workers receiving $1,125 million in salaries who were similarly employed. It is also exclusive of the millions of workers in the consumption goods industries, the distributive trades, and professional occupations who are dependent upon the demand and purchasing power of capital goods workers. The figures of output, employment, and wages clearly reveal the direct economic significance of capital goods. They have a still greater
significance in the relations of capitalist production as a whole.

The

output of capital goods

is

fundamental factor in accumuis

lation. It

permits the conversion of profits into capital. Capital

the private ownership of the

social relation,

means of production,

which gives the capitalist owners the power to exploit the workers and secure an income. The workers are exploited by providing them
with the instruments of labor, with capital goods. If the output of capital goods slows down, it means a decrease in the mass of workers
exploited by the capitalist class and a consequent lowering of its income and wealth. The two departments of industry, one producing capital goods, in*In 1929 the net value of manufactures, less $13,300 million of duplicated materials, was $47,100 million. The net value of construction, less a probable $2,000 million
of materials supplied
bj'

manufactures and mining,

v^^as

$4,190 million. Thus the net

explained by

value of non-agricultural goods produced was approximately $51,290.

t The sharp difference in the percentage of workers and of wages

receive unusually

is

the fact that there are millions of hired farm laborers, servants, and other groups

who

low wages. In 1929, the average yearly wage for workers employed in the production of capital goods and their materials was approximately $1,500; it was
only $1,180 for the workers as a whole.

Production and Consumption: Capitalist Decline

199

eluding materials, and the other producing consumption goods, are

interdependent.

The

first

supplies the

means

of production

which the

second uses to produce means of consumption. Capitalists in the

consumption goods industries convert their unconsumcd profits into capital by investing them in capital goods to produce more consumption goods.
capital

(Some
to

of

them may

invest a part of their profits

in

goods

produce more capital goods, while some of the

goods industries may invest a part of their goods to produce consumption goods.) Profits flow from the department producing consumption goods to the department producing capital goods and return in the form of "concrete" capital,
capitalists in the capital

profits in capital

of capital goods to produce

more

profits.

From

the standpoint of the

individual capitalists in the two departments, only that part of their

workers' output is surplus value or surplus product which represents unpaid labor. But from the standpoint of capitaUst production and the capitalist class as a whole, all the output of workers producing
capital

goods

is

in a sense "surplus product," because the part

which

represents paid labor

(wages)

is

paid for with the output of the

unpaid labor (surplus means of subsistence) of workers producing consumption goods. Upon this fundamental relation is based the

whole economic superstructure. If there were no output of capital goods their producers, of course, would make no profits. Still more serious, there would be no accumulation; the profits of capitalists
in the consumption goods industries

would have

to be

consumed or

put into non-productive investments, becoming a burden upon industry

and

profits.

As long
is

as the relation

between the two departments of industry

is

undisturbed, production
is

on the upswing and prosperity

capital,

prevails.

There

an active accumulation of

the conversion of sur-

plus value, of profit, into capital by means of an increasing output and absorption of capital goods. But the process of accumulation simultaneously depends upon consumption and limits its development. If consumption is not increasing, the

demand

for capital
restrict
is

accumulation tends to
tion.

The antagonism

goods must eventually fall. And mass purchasing power and consumpovercome, for a time, and in spite of the

lag of wages behind profits, because the production of capital goods

consumption by creating consumer purchasing power. Unlike industries producing consumption goods, the capital goods industries offer nothing for sale to consumers: their customers are capitalists,
sustains

200

The

Decline of American Capitalism

with
profits.

They make no direct demands upon power created by them. Eventually, of course, most capital goods offer consumption goods or services for sale. But this is only eventually and conditionally true. The greater part of construction, public works and industrial buildings, never offers any competition to the producers and sellers of consumption goods. Only a small part of construction, private dwell-

who buy and pay

the consumer purchasing

ings, is offered for sale to

services.

consumers; another part, apartments, offers

absorbed by inis

Transportation and electric power equipment also offer serv(part of their output, however,
all
is

ices eventually

dustry).

But in

these cases the capital investment

heavy, and

many

years elapse before full

demands

are

made upon consumers.

its

Only one form

of capital goods, industrial machinery, throws

output upon the market for direct sale to consumers. This, however, is done gradually. For a time the new industrial machinery put into operation is offset by the production of other machinery, provided
orders increase

more than output.

production of capital goods, which do not throw their output upon the market or do so only eventually, creates consumer purchasing

The

power
salaries

in the

form of wages and

profits).

clerical salaries

(and part of other

purchasing power, amounting in 1929 to $8,550 million, not one penny is spent on the output of capital goods industries. All of the wages and clerical salaries, except minor savings and expenditures on services, is spent on the output of con-

and

Of

this

sumption goods industries. These

industries, of

course, create pur-

chasing power of their own. But of this an important part represents

the wages of workers producing consumption goods which are con-

sumed by
capital
their

the workers
falls,

who

produce capital goods.

If the

output of

goods

the workers thrown out of

work

lessen or cease

for consumption goods. The result is a decrease in consumption goods and an increase in unemployment the output of among the workers whose output was bought and consumed by the workers who formerly were engaged in the production of capital goods. This is not all. As the newly unemployed consumption goods workers lessen or cease their demands, there is another decrease in output and more unemployment in the consumption goods industries. Total consumer purchasing power drops much more than the mere drop in the purchasing power of capital goods workers. The relation between the two departments of industry must be adjusted on

demands

a lower level of general production. (Necessarily there

in the

is

fall also

demand

for services, including professional services.)

ja

T3

El
tt

j:

<
a.

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i.^
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1 I
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ATIO

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-S JQ

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ir
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tible

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lue,
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'*.1

D U
w
TH

^
CO Oi

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g 2 > o ? D. I >

^e-t I 3 S 2
s
to
lized
rofits

E
>:

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S Q.
C8

'S,

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'

5. S
o

ted

_=

m o 3
'^'

JZ

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u:

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o.

l!-:H

202

The
is

Decline of American Capitalism

nature of this relation appears clearly if we assume no output of capital goods and that the industries producing consumption goods must depend exclusively upon the purchasing power they create. In this case their output, other than the part consumed by the capitalists, managerial employees, and nonworkers generally, must be bought and consumed by the workers
that there

The fundamental

producing the consumption goods. This requires either a great

in

rise

what the capitaUst class can consume. There are no real profits and no conversion of these profits into capital because they depend upon that part of consumption goods consumed by the workers producing capital
wages or a great
fall

in prices. Profits are limited to

goods.

Thus
sible.

the production of capital goods, with

its

creation of
its

consumer

purchasing power, sustains consumption and makes

increase pos-

But only

as long as an increasing output

and absorption

of

capital

goods creates new purchasing power greater than the sum

of prices of the additional consumption goods

thrown upon the mar\et

by newly producing capital goods.

The temporary
to

equilibrium

of both capital goods

is eventually upset by an overproduction and consumption goods. Cyclical limits arise is

check the further expansion of production. There

crisis,

break-

down, and depression.

The

crisis initially

may
it

be engendered by a restriction of the pro-

duction of capital goods or of consumption goods, or of both simultaneously.

for

But
falls

basically

is

crisis

in capital goods, the

demand

which

because the consumption goods industries are over-

equipped in terms of available consumer purchasing power. For, in

spite of the

purchasing power distributed by the capital goods

in-

dustries, the lag of

wages behind
it

profits creates a deficiency in consell

sumption. This makes

impossible to

the

mounting mass of
augmented by

products thrown upon the market by the consumption goods industries,

whose productive powers have been

capital goods.

greatly

newly producing
capital

As

the crisis develops the output of

goods

falls

much more

than the output of consumption goods,

the depth of the

the output of capital goods (in manufactures)

in 1929,

measuring the depth of the depression. In 1931, was 54.9% lower than the output of consumption goods only 36.6% lower; employfall

ment among capital goods workers was 36.3% lower and their wages 49.1% lower, and only 21.9% and 32.6% lower among consump-

Production and Consumption: Capitalist Decline

tion goods workers.*
capital

203

wages in the was greater in the consumption goods industries $1,940 million compared with $2,520 million. Theoretically the decrease in both employment and

While the proportional

fall

of

goods industries was greater, the absolute

fall

wages

in the

consumption goods industries should be

larger; this does

not happen because unemployed capital goods workers (and others)

maintain a limited consumer demand by means of savings, loans, and charity. By 1932 the output of all forms of capital goods was

75% 30%

tion goods

lower than in 1929; in addition, the output of durable consumpwas 75% lower and of non-durable consumption goods
lower.^
is

Depression persists as long as there

a shrinkage in the

consumer

purchasing power of workers in the capital goods industries, which creates a still larger absolute shrinkage in the purchasing power of

workers in the consumption goods industries, the distributive trades, renewed demand for capital goods and professional occupations. is necessary to stimulate cyclical revival. While it throws no consump-

tion goods upon the market, an increase in the output of capital goods creates purchasing power among the workers re-employed to

produce them, and invigorates consumer buying. The renewed demand for capital goods usually starts with orders for replacements of equipefficient

ment, eventually no longer postponable, or with orders for more equipment to save labor costs, or with equipment required
large, and if the accompanied by an increasing output and absorp-

by a new industry. Production begins to revive. If the demand for capital goods is sufficiently
resulting revival
is

tion of capital goods,

prosperity.
If,

the revival

moves onward
is

to

recovery and

however, the demand for capital goods

failure of

insufficient

and does

not increase, because of considerable overequipment in the older con-

sumption goods industries and the

new

industries to develop

in other words, because of exhaustion of the long-time factors of

expansion

there
It

can be no complete recovery and no upsurge of

prosperity.

The demand
replacements.

for capital

goods must consist of more than mere must be an increasing demand. Otherwise recovery

and prosperity will be limited. An increasing demand for capital goods depends upon the expansion of older industries and the develop*

In both departments of industry, wages decreased more than employment because

of reductions in

wage

rates

and the

resort to the "stagger" system or part-time

work.

Both are methods of throwing the burdens of depression upon the workers.

204

The
of

Decline of American Capitalism

ment
lacks,

new

industries.

But the older industries are enormously

industries are developing.

overequipped and no

new

and

will continue to lack, the stimulus of a vigorous

Hence industry demand

for capital goods. This explains the depth

sion.

More

important,

it

explains
it

why

capitalism

and duration of the depresis now in an "era

restore

of maintenance,"

why

becomes impossible to

prosperity

on any considerable

scale.*

no longer able means that the conditions of depression on a somewhat higher level, however will be the conditions of prosperity. Employment and consumer purchasing power are restricted among capital goods workers (even if
that industry
is

The

"era of maintenance"

means

to absorb

an increasing output of

capital goods.

And

this

is merely constant, because of improving and the coming of new workers into the labor market). The result is unemployment and restriction of purchasing power among consumption goods workers, and among the workers in clerical, distributive, and professional occupations. The general level of production must fall, resulting in a "depressed" prosperity. Permanent and absolute Hmits arise to the development of

the output of capital goods

technological efficiency

capitalist production.

The

resulting economic decline persists, as in

is

the case of depression, as long as there

no upward movement

in

the output and absorption of capital goods.

Why
be done

not stimulate the output of capital goods? But this cannot

if

the consumption goods industries are overequipped,

if

if

no new
ital

industries arise,

the long-time factors of expansion are

The NRA's efforts artificially to stimulate the output of capgoods have been largely unsuccessful. Similar efforts in Germany, on a much greater scale, merely intensified the economic crisis. Nor
exhausted.
are public

works a

substitute for profit-yielding capital goods.

are not an accumulation of capital.

money; and whether this is imposes a burden upon industry, profits, and wages (particularly wages). There may be an increase in the export of goods and of capital, which results in capital accumulation. But the scope of this is limited, under the conditions of the world to-day, and it means
imperialism.

They They must be paid for with public done by means of loans or taxation, it

Why
The

not stimulate consumption?

This

is

the obvious solution.

productive forces are highly developed. Their mere use means

the abolition of
* This
is

unemployment and
more
fully in

poverty. But the question

is

not

discussed

Chapter XXIII, "Prosperity and Capitalist Decline."

Production and Consumption: Capitalist Decline

205

whether an increase in consumption is possible and would result permanent industrial revival. It is and it would. The question is whether capitalism can and will promote an increase in consumpin

tion

which

interferes with the

ma\ing

of profits. This the apologists

of Niraism ignore, or they insist that higher profits

and higher con-

sumption are not mutually exclusive. In other words, they believe problem can be solved within the limits o capitalist relations. Thus William Green, president, American Federation of Labor, says: "Refusal to share gains with producing workers dries up the sources of larger income for industry. There are two main channels through which workers share in the prosperity and progress of an industry: a shorter work week and higher wages as measured by buying power. ... If workers could buy all they need and want, industries could Our power to be earning more, wages and dividends would rise. produce is practically unlimited so far as the mechanics of production go. The controlling limit is the ability of consumers to buy. Here
that the
. .

we run into a difficulty created by our failure to realize the interdependence between production and retail buying. Not only have we failed to do industry-wide and nation-wide planning for our business
institutions,

but the individual employer has failed to realize that

his business depends.

the wages paid his employees constitute part of the retail market

upon which

Unless a

much

larger propor-

on products goes to wage and salary workers there * will not be the market for the increased output." That is exactly what William Green was preaching in the pre-1929 "Golden Age," when he insisted that "high wages" was the accepted policy of American employers. It did not work then. How can it work now? Employers would not reject shorter hours and higher wages if they really meant higher profits. In the epoch of the upswing of capitalism shorter hours and higher wages were, within
tion of the returns
limits,

compatible with higher profits because of the increasing out-

put and absorption of capital goods. That condition does not exist
in the "era of maintenance."
if

Nor is Green's theory unworkable only no national planning. For planning must proceed within the orbit of capitalist production, whose "controlling limit" is not "the ability of the consumer to buy," but the making of profits and their realization as capital by means of an increasing output of capital
there
is

goods, an increasing accumulation of capital.

If there is a definite

downward tendency

in the output of capital

goods, three conditions are necessary to insure an increase in mass

consumption

2o6

The

Decline of American Capitalism

Workers unemployable in the production of capital goods must employment in the industries producing consumption goods. To absorb these workers (and other unemployed workers) the hours of labor must be considerably shortened. And the wages or consumer purchasing power of these and all other workers must rise substantially in order to absorb the augmented
secure

output of consumption goods.

Upon

these fundamental adjustments depends an increase in

em-

ployment, income, and consumption

among workers and

professionals

engaged in the production of

services.

The

three conditions are, of course, economically realizable.

But

not under the relations of capitalist production, as they would tend

to force the rate of profit

down

to zero. (Nevertheless, the

workers

must upon

and higher wages, whatever the effect profits. For the workers must resist the capitalist efforts to impose upon them the burdens of decline. But as any really shorter hours and higher wages threaten the existence of profit, the capitalists will not yield and the workers must broaden their action: the issue becomes one of saving capitalism or of overthrowing it. In this situation the real interests of the farmers and professionals are identified with the struggle of the workers. Only an increasing mass purchasing power can create an effective demand for agricultural products and for services, particularly of the more poorly paid professionals; and only socialism can release the productive forces to serve all manfight for shorter hours

kind.)

How

is

the rate of profit threatened by adoption of the three con-

unemployed and increase mass consumption.? That part of the output of consumption goods workers which was formerly consumed by capital goods workers must now be consumed,
ditions to absorb the

through higher wages, by workers who produce consumption goods. Every capitalist appropriates surplus value. This becomes capital, however,

only in the form of capital goods.

is

The output
It
is

of

workers

producing consumption goods

including
is

all

consumed.

consumed by

themselves, by workers producing capital goods, and by other classes,

capitalists.
It

The output

of workers producing capital goods

capital, capable of

not consumed.
profit.

becomes concrete

producing
of

more
their

Or

consider the matter in terms of wages:

The wages

workers producing consumption goods are spent on buying part of

own

output, which

is

consumed. The wages of workers pro-

ducing capital goods are not spent on their own output, but on consumption goods. All their output becomes income-yielding wealth.

Production and Consumption: Capitalist Decline

207

Thus the wages and consumption o other than capital goods workers are, from the angle of capitalist production as a whole, sheer, if necessary, waste. The surplus product or profit appropriated by the capitalist class must decrease in the measure that workers producing consumption goods consume more of their product. This is inevitable if unemployed capital goods workers are absorbed in the production of consumption goods. They now consume their own product instead of
the surplus product of other workers, formerly appropriated
capitalists

and converted into

capital.

And

their

by the consumption now

produces no compensation in the form of capital goods.

The

situation
capital

becomes

clear

under the assumed condition of no output of

goods: surplus product or profit would practically disappear except

for capitalist

consumption of necessaries and luxuries. (Hence the

production of luxuries tends to increase in the epoch of the decline of

capitalism.)

Under
out
is

these conditions,

and from

a capitalist angle, the only

capital

way

and imperialism. For then an increase in production and employment does not depend upon an increase in wages and mass consumption which results in no accumulation of capital. The additional output (both consumption goods and capital goods) is exported and payment received in the form of
an intensification of the export of

foreign investments, or capital claims

upon foreign
;

labor, production,

and income. Thus the export of capital is a capitalization of the labor of workers who otherwise would be unemployed or who, if employed, would merely produce goods for their own consumption, and thereby
threaten profits.
. .

How much
tion.?

chance

is

there, then, of

an increase in mass consumpcapitalism,

Even

in the epoch of the

upswing of

and of an
although
it

increasing output and absorption of capital goods, there were periods

when mass consumption was merely

tended in general to
absorption of capital
rise.

stationary or

fell,

In the epoch of the decline of capitalism,

because of the decrease in the output and

mass consumption must

fall

goods.''^

For an increase

in

mass consumption,
Only within would not

Would

not more consumption

mean more demand

for capital goods?

limits, as the

productive powers of industry are already highly developed.

It

compensate for the shorter hours necessary to absorb the unemployed in the production
of consumption goods and for the higher wages necessary to .absorb the output. Substantial

and profitable demands for

capital

goods depend upon the development of new

is

industries

and the industrialization of new regions. The solution

possible

under
schools,

socialism: increase the output of "capital goods" in the

form

of finer

homes and

shorten hours and raise "wages," increase mass consumption and leisure.

2o8

The Decline

of

American Capitalism
would not only
disastrously lower

involving shorter hours and higher wages, simultaneously with a decrease in the output of capital goods,

the rate of profit but tend to abolish profit altogether. Capitalists are

not going to raise wages and shorten hours merely to

to

sell

more goods
tends

workers on which they make no

if

profit, particularly as this

to abolish profit

done on a

sufficiently large scale. It is

it

more advan-

tageous to depress the level o production, to restrict

limits,

within profitable

This means millions of unemployed and lower mass standards of living: but that is of secondary importance in a profit economy. The problem is thus one of the abolition of capitalism, not of reconciliation and collaboration.

however

small.

Capitalism has always restricted production

^by

its

underdevelop-

ment

of the forces of consumption, by the restrictive practices of

monopolist combinations, by the decHne of production in depressions. In 192829, years of unprecedented prosperity, many industries were

producing from
duction.
trol"

25%

to

75% below

capacity.

Yet there was overpro-

And

in the pre-1929 years of prosperity the efforts to "con-

production and prices resulted in the organization of "trade intended to adjust output to demand. "Organized with

institutes,"

the approval of the Federal

Trade Commission, they

desire to

do

within the law what the law expressly forbids, and profess to avoid the

which wrecked the open-price associations." was justified on the plea that it meant avoidance of overproduction and depression. Demand is not, however, restricted by lack of wants but by lack of purchasing power to satisfy them. Overproduction was not the result of misjudging demand, but of the whole movement of production and consumption. If output had been adjusted to demand, on the basis of stifling wants instead of satisfying them, it would have lowered employment, wages, and consumer purchasing power and upset the very economic equilibrium it was intended to maintain exactly what happened in 1929-30. Where, however, the restriction of production was formerly only relative, it tends to become absolute in the epoch of the decline of capitalism. This expresses itself both in objective developments and
charge of
illegality

Restriction of production

in deliberate policy. Capitalism rebels against its historical function,

the development of production.

ress, it

Where once

it

offered economic prog-

now

offers

economic stagnation.
large-scale efforts

Since the

World War,

have been made to

coffee

restrict

the output of agricultural commodities, particularly wheat, cotton,

rubber, sugar, and coffee.

Brazil

"controls"

production,

burns the "surplus" crop, and spends $1,000,000 advertising in Amer-

Production and Consumption: Capitalist Decline

ican newspapers

209

to

increase consumption!
.

International cartels

"regulate" the output of minerals.

France and England limit

.

production in one form or another.

Fascist Italy restricts con-

Germany increases downward and prices upward, while "excess production" in agriculture is made legally punishable: output must be limited to "what the German economic body is able
.
. .

sumption (and production) because of exports must go up, imports down.

the

its

unfavorable trade balance:

Fascist

power of

cartels to "fix"

production

to

consume"

on

the basis of the prevailing mass starvation!

Fascism everywhere magnifies the tendency toward economic nationalism and "autarchy," which necessarily means a decrease in production

and consumption.
Fascists, says:
is

General Eoin O'Duffy, leader of the Irish

is

"The

revival of Irish industry

my

first

aim.

My

idea

not heavy industries but hand industries which would have a

double advantage for us: they would enable us to find work for our
people and also to keep them on the land instead of encouraging them
to herd in towns."

against the productive forces of

to liberate

These are manifestations of deliberate revolt modern industry and their capacity mankind from want.
. . .

Niraism

also tends to restrict production.

The

policy of restriction

appears most clearly in the program of the Agricultural Adjustment

Administration, which destroys "surplus" crops and offers the farmers

inducements

to reduce output. It appears also in the

program

of the

National Recovery Administration.

And

the policy

is

impHcit in the

National Industrial Recovery Act

of production (except as
porarily"
is

itself:

"To

avoid undue restriction

may

be temporarily required.)"^

The "tem-

interpreted in their

own

fashion by capitalist interests:

the depression
lect

"The methods which many business groups are proposing for curing all come down to one essential produce less and col-

more. Rule out

new

capacity or

improved methods;
price-cutting

restrict

the

output of present plants;

eliminate

and other cruel

at cost

devices of unrestricted competition; base prices on the high cost of

producing

little;

produce only

as

much

as

can be sold

these

are typical of the suggestions

which appear over and over again."

In agreement

is

the president of the Building Trades Council of the

industrial

American Federation of Labor, who, in advocating control of production and the allocation of quotas, says:

"We

should go the whole length necessary to complete recovery as

or, in

soon as possible,

other words, to adopt in manufacturing, min-

ing and construction the same direct, comprehensive policies that are

210

The

Decline of American Capitalism

being put into effect by the Agricultural Adjustment Administration."

In accord with

its

state capitalist nature, the

NRA

creates

an ap-

paratus and policy for the deliberate restriction of production

dis-

guised as "controlled production." Practices formerly

illegal are

now
is

sanctioned by the government: the National Industrial Recovery Act

categorically suspended the anti-trust laws. Trustification of industry

encouraged, and trade associations are practically given the powers of

cartels to "regulate"

production and prices.

The
and

"fair"
profits

competition

prescribed in the codes

means higher

prices

and lower

output. Prices are fixed to insure "fair" profits, although lower prices

and

profits

might induce more consumption, production, and employ-

ment.

The

NRA enormously enlarges the scale of monopoly conditions

and practices, and monopoly tends toward the restriction of production. Yet the avowed aim of the National Industrial Recovery Act is "to increase the consumption of industrial and agricultural products by increasing purchasing power"! ^^ This is merely one of the contradictions of Niraism, of state capitalism, which professes to increase simultaneously consumption and prices, wages and profits, employment and technological efficiency. Consumption must necessarily fall in the epoch of the decline of capitalism because of the permanent economic crisis, unmistakably
evident in the policy of restricting production.

and
tries

rationalized by fascism.

The necessity is accepted Thus an American fascist says: "Councapital will be

with a

less

abundant supply of natural wealth and

by the

compelled to introduce a restricted consumption system of one sort

or another

^possibly

strict

regulation of wages and price levels."

palatable he excepts the United

To make
States,

the Fascist medicine

more
is

"whose productive capacity

already great

enough

to guaran-

more than adequate standard of Hfe for the entire population." ^^ But American capitalism is not using and cannot use, without danger, its "productive capacity, already great enough to guarantee a more
tee a

than adequate standard of

itself creates

life."

The

great productivity of industry

the conditions

which

result in decreasing

consumption.

And who will consume less ? Not the capitalists, the upper bourgeoisie. Those who will consume less are the workers and farmers, the lower
bourgeoisie, the
of the

unemployed or poorly paid

capitalism, in the epoch of

professionals. In the

epoch

upswing of capitalism the workers' consumption decreased only

relatively;

now

its

decline, forces

an abso-

lute decrease in

consumption upon the workers. Mass standards of

Production and Consumption: Capitalist Decline

living

211

must

fall precisely
. .

when

industry

is

capable of raising

them

to

unheard-of heights.

The

policy of restricting production

"fixing" prices
successful; or,

and "insuring"
if

profits.

(and consumption) includes These measures are not always

disturbing conditions.

successful, create

new

Efforts to restrict,

on

world

scale, the

output of agricultural com-

modities (sugar, coffee, rubber) resulted in temporarily higher prices;

more output, and down. Prices are raised by the American farmers' reduction of acreage and crops; the government wastes millions of public money to "compensate" the farmers, whose critical situation becomes worse; and, unless the policy is temporary, experience shows that the restriction schemes will fail. The efforts to restrict industrial production go hand in hand with efforts to increase it. This contradiction reflects a more fundamental
but
this

encouraged

new

competitive plantings and

the "control" schemes broke

one: the conditions of decline force capitalist industry to restrict

production. But the restriction of production, whether or not
large-scale industry
it

is

result of deliberate policy, threatens the foundations of capitalism, as

profitable only
enterprises;

when when all

itself.

depends upon increasing output. Restriction is practiced by a limited number of industries or

of

them

restrict output,

they strangle each other

and industry

If production is restricted, larger profit margins become necessary on the smaller output. The result is higher prices and lower demand. Or improved technological efficiency and more unemployment. "The NRA wants business to buy new machinery, modernize its plants, and compete through increased efficiency in producing low-cost prod-

ucts."

^^

Or

a combination of both.

And

consumption tends to
if

fall.

If prices are fixed,

they will usually be fixed upward. But

increasing

prices

unemployment and decreasing wages, demand and consumption must fall.

rise

while output

falls,

left, under the conditions of decline, bankruptcy and the depreciation of capitals will develop on an unprecedented scale because of unprofitable prices

If prices are

not fixed but are

level,

to find their

own

and
If

intensified competition.

industry is assured "fair" profits by means of "fair competition" and an upward fixing of prices, survival becomes .easier, and bankruptcy and the depreciation of capitals will tend to diminish. The drive to improve technological efficiency loses much of its force and
lessens the

demand

for capital goods. Surplus capital will increase,

seeking

investment

anywhere,

anyhow, strengthening competitive

212

The

Decline of American Capitalism

pressures. Eventually the "balance" o fixed prices

and
it

profits

is

upset,

and both
If

fall disastrously.
is

competition

limited within an industry,

will intensify the

competition of increasing technological efficiency and the competition

of industry against industry.

Dam

competition here,

it

overflows there.

do not abolish and antagonisms of capitalist production, but aggravate them. Nor do they abolish overproduction, which is a relative condition. On a lower level of economic activity, wages will still lag behind profits and consumption behind production. There will still be cyclical crises and breakdowns. These disasters were not averted in the highly cartellized and "controlled" industry of Germany. Whether industry is "free" or under "controls," whether prices rise or fall,* or capitalism is on the upswing or downswing, there is still that alternating expansion and contraction in the output of capital goods which determines the cycle of prosperity and depression. The deliberate policy of restriction is not the major factor tending
"controls," particularly in the epoch of decline,

Thus

the contradictions

to drive production

downward

in the epoch of the decline of capitalitself,

ism.

That

is

determined primarily by the forces of decline

level of

by

the inability of industry to absorb an increasing output of capital

goods.

The lower

production

is

the

if mass consumption rose simultaneously with a decrease in the output of capital goods. But on the lower level of production the rate of profit still tends to fall disastrously. For all the contradictions pressing down the rate of profit in the epoch of the upswing of capitalism must necessarily work with greater force in the epoch of decline. While production tends to lower levels, there will be no reversion to small-scale industry (one of the demagogic promises of fascism).!

the disastrous

fall

in the rate of profit

outcome of efforts which would ensue

to avert

* "Steadying industry by steadying prices

may, of course, simply mean steadying

perfectly steady prices there

dividends without regard to output.

Under

would

still

be great booms and depressions in the capital-making industries, and resulting booms

and depressions

in industry at large."

J.

M.

Clark,

The Economics
categorical

of Overhead Costs

(1924) pp. 404-06.

t The German
I933>

fascists

made far-sweeping and

promises

to

help

the
24,

"small man," the small producer.

says:

dispatch to the
is

New

York Times, December

combinations

"The

policy

in

industry

ambiguous.

Cartel

have been

favored, even enforced, in the interest of big industry, but, simultaneously,

numerous

small measures have been taken to encourage petty undertakings and hand workers."

Thus

the promises

are

completely repudiated, for the measures "to encourage petty

undertakings and hand workers" are unimportant, in the nature partly of demagogy

and partly of
industry
is

"relief."

similar situation prevails in Fascist Italy.

The

basis of

modern

large-scale production.

Production and Consumption: Capitalist Decline

213

On

the contrary, larger masses

of fixed capital will be required because

of the desperate endeavors to raise profits by lowering costs.

will be an augmenting of the higher composition of
capital

There

capital, variable

(wages) decreasing in favor of constant capital (equipment

and

materials).

The

fixed portion of constant capital particularly will

increase because the

downward tendency
Under

of production limits

the

demand

for

raw

materials.

the conditions of decline, changes

in the composition of capital

may

not be as great, in an absolute sense,

as in the past, but they will be greater relatively to the lower level of

production.
set

And on

this

lower

level, the contradictions

and antagonisms

in motion by the higher composition of capital become more acute

and

devastating.

In the epoch of economic upswing, and increasing production, variable capital

rise in
fell

only relatively to constant capital there was an absolute

:

employment and wages (and mass consumption). In the epoch of decline, and economic stagnation, variable capital tends to fall absolutely, and this means a decrease in employment, wages, and mass consumption. While consumption falls, the capacity of industry rises, the more so as technological progress makes new machinery much more efficient than the old. The problem of excess capacity is enormously aggravated. Overhead costs become greater as output fails, more than formerly, to grow sufficiently. Each unit of
product requires a constantly larger capital investment. Excess capacity

and make survival upward and demand and consumption are thereby lessened. High profits create more disturbances because of the downward tendency of production.* While the conditions of
becomes worse
if

"controls" assure "fair" profits

easier, or if prices are fixed

decline

mean

a considerable destruction of capital

and depreciation of

capital values, the

problem of surplus

cause of the lower level

becomes more acute beof production and the narrowing of investcapital

ment

opportunities. Surplus capital

assure "fair" profits

capitals.

In both cases

is still more abundant if "controls" and prevent destruction and depreciation of an increase in excess capacity occurs. The pro-

ductive forces
"There
is

become

so great that their full utilization

is

unprofitneeded new

possibly a

permanent slackening of the

rate of increase of

investment which, by requiring smaller savings, will

turbing problem in the future.
.

make

larger profits a

more

dis-

We

shall not

need such a large increase of invest-

ment." Ralph E, Flanders, "The Economics of Machine Production," Mechanical Engineering, September, 1932, p. 608. Proportions arc decisive in this connection. Profits

are proportionately higher where, on a lower level of production, their ratio to "needed"

investment

is

as 5 to 3

than where, on a higher level of production, the ratio

is

10 to

9.

214

The

Decline of American Capitalism

is

able; yet production

unprofitable

if

capacity

is

not fully utilized.

The

rate of profit tends to fall disastrously.

Control excess capacity? But that means a lower output of capital

goods, the basis of prosperity. Increase consumption? But that tends
to abolish profits. Capitalist production

cannot be stabilized.

And

the capitalists are forced to

must expand or decline: it do the very

ruling class
being.
is

things which aggravate their problems.

the contradictions and the destiny of

the slave of

its

Thus
.

the

American

slave power, beset by the necessity of expansion or the inevitability of

decline, chose the suicidal adventure of war.
. .

Not

only, in the epoch of decHne,

is

there a greater

downward
fall.

pressure on the rate of profit: the mass of profits tends to

For-

was offset by a rise in the mass of profits. The capitalists are enriched more by an income of $2,000,000 on a capital yielding 5% than by an income of $1,000,000 on a capital yielding 10%. And the mass of profits must tend to fall under the conditions
merly, a
fall

in the rate

of constantly larger fixed capital, lower production, and increasing

excess capacity.*

The

rate

of profit

falls

more

precipitously

and

aggravates
save
itself

all

the disturbances created by the

fall.

In the effort to

capitalism strengthens the

profit.

and mass of

The

state

spends

downward pressure on the rate money lavishly to prop up the

to

sagging foundations of capitalism

loans

industry and subsidies,

It

public works, promotion of exports, imperiaixsm, and war.

also

must
of

spend money on

relief, to

prevent a revolt of the masses. These

expenditures increase the public debt and taxation.

taxation are thrust mainly

The burdens

upon the workers, farmers, and lower bourgeoisie, but profits are also taxed, and tends to lower the mass and rate of profit. (If the drain on profits becomes too great, relief is cut, and capitalism, by means of Fascism, throws all the burdens of decHne upon the masses.)

The
is

fall

in the rate of profit, particularly in the epoch of decline,

the most serious threat to capitalism.

Many

bourgeois economists,

among them Keynes, admit

*

the prospect of a steadily falling rate of

"As soon

as

a point

is

reached where the increased capital produces no larger,

or even smaller, quantities of surplus value than

be an absolute overproduction of
fall

in the average rate

. . .

pletely or partially

it did before its increase, there would There would be a strong and sudden of profit. ... A portion of the capital would lie fallow comwhile the active portion would produce values at a lower rate

capital.

of profit,
fall

owing

to the pressure of the

in the rate of profit

unemployed or partly employed capital. The would then be accompanied by an absolute decrease in the mass
. . .

of profits." Karl Marx, Capital, v.

Ill,

p. 295.

Production and Consumption: Capitalist Decline

profit (or rate of interest).

215

But some of them view the matter with

years appears to
fall,

equanimity.

Thus Keynes says: "The prospect for the next twenty

me

to be a strong
lest this

tendency for the natural-rate of interest to

with a danger

consummation be delayed and much waste and depression unnecessarily created in the meantime by central banking policy preventing The the market-rate of interest from falling as fast as it should.
.

risk

ahead of us

is

lest
is

we

experience the operation of a market-

rate of interest

which

falling but never fast

enough

to catch

up

with the natural-rate of

deflation

interest, so that there is a recurrent profit

level. If this

and a sagging price

^^

occurs our present regime

of capitalist individualism will assuredly be replaced by a far-reaching

socialism."

By

a stroke of hocus-pocus,

Keynes converts the

threat to capitalism

into a promise of life everlasting. If only the capitalists accept a lower

rate of profit!

But they won't. Keynes himself proves

this,

by

his

unsuccessful agitation to lower the interest rate. Capitalist production

is

a perpetual struggle against the tendency of the rate of profit to

fall.

The

struggle
fall in fall

If

a small

considerable
profit
is

becomes more desperate in the epoch of decline. and depressions, a necessarily throws capitalism into convulsions. For
the rate of profit creates crises

practically abolished if the rate falls too low, as profits

would
the

be absorbed by capital replacements.

An

American

fascist,

Lawrence Dennis,

clearly

appreciates
is

danger: "The present financial organization of society

progressive decline of the interest rate to near zero

such that a
entail con-

would

sequences which seem humanly unendurable.

rate

The

declining interest

would paralyze economic activity long before a zero interest rate was approximated."^"* Why? Because capitalism will not passively accept a rate of profit which threatens profit itself. It will not voluntarily accept doom. Capitalism will struggle against the falling rate of profit. It will destroy and depreciate capitals, so that the rate on the
surviving capitals

may

rise.

It will

limit production,

throw millions

out of work, lower wages, and depress mass consumption, in order to "earn" a higher rate of profit. Yes, capitalism will struggle, desperately

and brutally. It will resort to the export of capital and imperialism, and war, to prevent the rate from falling. It will resort to Fascism, as is urged by Dennis, whose heart bleeds over the fall in the interest rate, subjugating the workers and farmers, degrading the professionals,
mobilizing savagery in defense of the profit system.
rate of profit
is

The

fall in

the

not, as

Keynes seems

to imagine, the

means of a

2i6

The

Decline of American Capitalism

smooth

transition to a

"new

social order"

capitalism. It is the expression of

violent class struggles, social

which "is" and yet is "not" economic decline and an omen of explosions, and wars.
is

But the

fall in

the rate of profit

is

also the

omen

of a really

new

social order.

For Keynes

right

on one

thing: because of disturbances

created by the falling rate of profit, "capitalist individualism will be

replaced by far-reaching socialism." In final analysis, the falling rate

is

due

to the

capitalism;
objective

antagonism between production and consumption under and the growing antagonism is an expression of the socialization of industry and the enormous increase in its

productivity, the objective basis of socialism.

The

fall

in the rate

of profit indicates, moreover, that there are economic limits to the

development of capitalism, that it nurtures the seeds of its own decay. In the words of Marx: "The rate of profit is the compelling power of capitalist production, and only such things are produced as yield a profit. Hence the fright
of the English economists over the decline of the rate of profit.

That

the bare possibility of such a thing should worry Ricardo shows his

profound understanding of the conditions of capitalist production. What worries Ricardo is the fact that the rate of profit, the . stimulating principle of capitalist production, the fundamental premise and driving force of accumulation, should be endangered by the development of production itself. There is indeed something deeper than this hidden at this point, which he vaguely feels. It is here demonstrated in a purely economic way, that is, from a bourgeois point of view, within the confines of capitalist understanding, from
.
.

the standpoint of capitalist production

it is

itself,

that

it

has a barrier, that

relative, that

it is

not an absolute but only an historical

mode

of

production corresponding to a definite and limited epoch in the

development of the material conditions of production."**

Summary

Capitalism develops
of consumption. This

the forces of production

is

more than the

forces

a condition of the accumulation of capital.

Consumption grows only if an increasing output of capital goods, the means of converting profits into capital, creates consumer purchasing power which is spent on consumption goods (and services). If it becomes unprofitable to produce capital goods, and their output falls, production and consumption must fall simultaneously. For the capitalist system is based on the making of profits and their conversion into capital, and this creates an irreconcilable antagonism between production and consumption. One result of the antagonism is cyclical crisis and breakdown. Although the production of capital goods creates purchasing power, the lag of wages behind profits eventually engenders a deficiency in consumption, which becomes acute when markets are saturated by the mounting output of newly producing capital goods. The consumption goods industries, overequipped and overproducing, lessen their demands for capital goods. The output of capital goods falls, and the crisis moves on to depression. Production revives if and when there is a renewed demand for capital goods; and if the demand is an increasing one, revival moves on to recovery and prosperity. Another result of the antagonism between production and consumption is that the productive forces are never fully utilized. This amounts to a restriction of production and consumption. The restriction was relative to the epoch of the upswing of capitalism. Both production and consumption scored an absolute increase, although the increase was always below the possibilities of industry; and while
the workers' consumption rose (in spite of periods
tionary or decreased)
classes.
it fell

when

it

was

sta-

relatively to the share of the propertied

In the epoch of decline, however, the tendency toward the

production and consumption becomes absolute. Capitalist
the older industries mechanized,
industrialization of

restriction of

prosperity depends

goods.

With

upon an increasing output and absorption of capital no new industries de-

veloping,

and the

new

regions declining

with

measurable exhaustion of the long-time factors of economic expansion

217

2i8

The Decline

of

American Capitalism

and their increasing demand for capital goods there is no chance of an upsurge in the production o capital goods and, consequently, of an upsurge in prosperity. For capitalist industry fully to utilize its
productive forces would require a great increase in mass consumption

by absorbing the unemployed, shortening hours, and raising wages; but this would seriously reduce profits and threaten profit itself. Under

toward an absolute restrictand consumption. The average yearly rate of growth of production has been slowing down for many years. It is the inevitable expression of growth itself. Nevertheless the slowing down of the rate of growth is eventually ruinous economically, as it tends to approximate to zero and expansion is a necessity of capitalist production. Expansion must primarily, however, take the form of an increasing output of capital goods, which produce more profits and embody the capitalist claims to wealth and income. If expansion is primarily in consumption goods the rate of profit must fall disastrously. The capitalists restrict production. Restriction, if it becomes general, means not only a rate of growth approximating zero but an absolute decrease in production, with the rate of profit eventually tending to fall disastrously. These developments and contradictions create a permanent crisis. It is the decline of
these conditions, capitalist industry tends
tion of production
capitalism.

Decline
that the

is

not collapse.

The

decline of capitalism does not

mean

economic order is unable to function, but that it must function on a lower level. It does not mean an inability to restore production and prosperity, but an inability to restore them on any considerable
scale.

While the decline may be

persist.

interrupted, the
involves,

downward movement

will

Capitalist

class-economic, social,

an increase in and international disturbances, a tendency toward

decline
primarily,

stagnation simultaneously with the aggravation of instability, a reaction

against progress in
all its

forms.

The

capitalist class strives to

throw the burdens of decline upon the

It slashes their

workers (and farmers and professionals).

millions out of work,

wages, throws
a develop-

and

limits their consumption. In particular,

unemployment becomes greater and increasingly permanent, ment inherent in the dynamics of capitalist production. In
of

the epoch

upswing of capitaHsm unemployment, other than seasonal and cyclical, was essentially technological ^the result of displacement of labor by more efficient machinery. Displaced workers were eventually absorbed because of the upward movement of production (the tendency was, however, for unemployment to increase). In the epoch
the

Summary
of the decline of capitalism

219
is

unemployment

essentially

economic

workers are
they are

still

displaced by improved technological efficiency, but

no longer reabsorbed because of the downward movement and this becomes the main cause of unemployment. Increasing technological efficiency is no longer accompanied by increasing expansion of industry. Unemployment becomes disemployment. A growing mass of unemployable workers, whom the profit economy condemns to a living death, is characteristic of the decline
of production;
of capitalism.

PART FIVE
Unemployment, Technology, and Capitalism

Introductory

HE problem of increasingly great permanent unemployment, of the inability to provide work for millions of men and women eager to work, was not a creation of the depression. Like the decline of capitalism, it emerged in the midst of the flourishing prosperity of 1923-29. For employment, during that "Golden Age," moved downward while production and profits were moving upward. Mass unemployment is essentially a peculiarity of capitalism. It has three forms: seasonal unemployment, existing only because it is more profitable not to regularize employment; cyclical unemployment, the result of the recurrent breakdowns of industry, of depression; and the minimum unemployment which is independent of seasonal and cyclical influences. The third form of unemployment is styled "normal," the expression of an economic system in which the abnormal so often becomes the normal. "The unemployed percentage," according to one bourgeois economist, "however it may fluctuate, never fluctuates down to zero."^ Normal unemployment means simply that capitalist industry is so organized and managed that there must always be a reserve of unemployed workers, even in the most prosperous times, to provide labor for new enterprises and as a means of forcing down wages. Under capitalist conditions, the providing of steady employment would hamper expansion (which is unplanned) and tend to raise wages to unprofitable levels. Normal unemployment is therefore a condition of capitalist production and accumulation. In the United States, because of its greater and more violent expansion, normal unemployment has always exceeded that in other counJl
tries.

Unemployment averaged 7.8%

became worse

of the available workers in the

prosperous years 1900-13 (excluding the major depression of 190709).^ It

perity.
If

in 1923-29, as a direct result of unusual pros-

the theoretical assumptions of the

valid, there

"new

capitalism" (and
cyclical

now

of

Niraism) were

would have been no

crisis

and

breakdown. Nor would there have been any substantial increase in unemployment. But the assumptions, where they were not sheerly apologetic, were wholly unreal. They were compact of doctrinal ab-

223

224

The

Decline of American Capitalism

stractions, having little relation to a dynamic capitalism rent by strains and stresses and contradictions, and ignoring the antagonisms o an economic system dominated by the production o profits. It was, and is, assumed that increasingly higher employment and wages follow an increase in the productivity of labor and in production; that as production costs decrease and output rises, prices fall, consumer purchasing power and mass consumption mount, and more goods are produced and more employment is created. In other words, the assumption is that the gains of greater productivity and production are proportionally distributed. But there is no such proportional distribution under capitalism, whose main characteristic is disproportionaUty. Hence crisis and breakdown. Hence the spread of unemployment,

midst of unprecedented prosperity. examination of the fluctuations of employment, in their relation to production, prosperity, and depression, demonstrates that there for the wholly unreal theories of capitalist is no objective basis
like creeping paralysis, in the

An

apologists.

CHAPTER XIV

Prosperity and

Unemployment

iU NEMPLOYMENT

is

essentially

an aspect of the higher productivity

of labor under the social relations of capitalist production.

Normal

unemployment grows when

brought
about
primarily

the productivity of labor rises dispropor-

tionately to output. Cyclical

unemployment
forces
is

prevails in depressions,

by

identified

with

the

higher

productivity of labor (which

not matched by higher employment

and wages).
decline
that
it

And

the increasingly greater

is

a result of industry having

unemployment of capitalist become so highly productive

capacity:

is

unprofitable to use

all

its

hence millions of
efficiency

workers are

thrown out of work. The increasing

of

American industry in 1920-29 considerably raised the total of "normally" unemployed workers. For while the higher productivity of labor may mean higher wages, it always means a displacement of
labor because fewer workers are required to produce a larger output.

Thus labor is penalized by its own efficiency. The great rise in the productivity of labor,
started in 1921-22,

in output per worker,

under the impact of falling prices and rising real wages. In 1922, after a temporary shutdown, during which equipment was improved, the Ford Motor Car Company turned out more work with 40,000 workers than formerly with 57,000. ... In 1925, the Owens automatic bottle machine was adapted to the production of prescription ovals, and man-hour productivity rose 4,100 times.
.

survey of thirty-five plants in 1927 showed that output per worker was 75% higher than in 1919 and 39% higher than in 1924. The
. . .

productivity of labor rose 98?^ in

1919-27 in the manufacture of

automobiles and 198% in rubber

productivity of labor in 1929

tires.

... In

blast furnaces,

with

operation becoming increasingly automatic and almost manless, the

was 135% higher than in 1919, and 43% ... In 1923-29, productivity rose 65% in the coke industry, 48% in beet sugar and condensed milk, 46% in tanning, and 44% in petroleum refining. ... It rose 30% in the electrical manufacturing industry and over 27% in electric power plants. The dial telephone displaced more than half the operators. Building construction was intensively mechanized. The cement
higher in
steel

works and

rolling mills.

225

226

The

Decline of American Capitalism

gun and

the paint spray cut in half the labor of painting; a sanding

machine for flooring did the work of six hand workers; the time needed to erect large buildings was cut 30% to 40%. ... In roadbuilding, output per worker rose from 4.7 lineal feet in 1919 to 17.7
lineal feet in 1928.^
.
.

Many

equally great increases in productivity

took place in various processes of labor on the railroads and in mining

and

agriculture.
rise in the productivity of labor

The

was uneven, but

it

rose sub-

stantially in all industries. In 1927, productivity in

manufactures was

1919, 40.5% higher in mining, 12.5% higher on and 29.5% higher in agriculture. (For the period 18991927 the increases were: manufactures 48%, mining 118%, railroads 63%, and agriculture 6i%.) ^ The productivity of labor kept on rising: thus on the railroads in 1930 it was 20% higher than in 1920.* There was, naturally, a displacement of labor because of technological changes and higher productivity. This is a normal aspect of cap-

42.5% higher than in

the railroads,

italist

development. "It

is,"

according to one bourgeois economist, "as

it

old as the present industrial system and

is

inherent in this system

... a constant accompaniment of progress

technological displacement
it

in

modern

industry." ^

But

is

a constant torment to the workers, as

deprives

many

of

them

of skill

and occupation.

The

significant aspect of the rising productivity of labor in 1919-29

was not
1 899-1 9

its rate nor its technological displacement of workers. Only manufactures was the rate unusually high in comparison with in
1 9,

was a lag in the increase of productivity among factory workers: it was not materially higher than in the i86o's 90*5. And in the past, displaced workers were almost wholly reabsorbed by the expansion of industry, accompanied by an increase in the total

when

there

number

of workers employed.

The
was

significant aspect of the rising

productivity of labor in 1919-29

ican history there

that for the first time in

Amer-

in the

was an absolute displacement of labor, a decrease employment of directly productive workers. Large numbers of workers were permanently displaced in manufactures and mining and on the railroads (Table I). By 1929 the higher productivity of labor in manufactures had displaced 2,1832,000 workers,
of

whom

2,416,000 were, however, reabsorbed by

an increase

in pro-

duction; the absolute displacement was 416,000 workers.

On

the rail-

roads 345,000 workers were displaced by higher productivity and 71,000 by a decrease in output, making the displacement 416,000 workers. In coal mining higher productivity displaced 95,000 workers but the absolute displacement was raised to 171,000 workers by lower out-

Prosperity

and Unemployment

227

TABLE
The Displacement
and
Changes
in

of

Labor by Increasing Productive Efficiency

its

Absorption by

A merican
)

Industry, i^20-2g

MANUFACTURES
Employment
DUE TO
(-\-) or (

RAILROADS
Changes
(

*
(-\-) or

During the Current Year

DUE TO
YEAR EFFICIENCY
1921

NET CHANGE
SINCE

CHANGES IN CHANGES IN

During the Current Year DUE TO NET CHANGE DUE TO CHANGES IN CHANGES IN SINCE
)

in

Employment

OUTPUT
2,045,000

I92O

EFFICIENCY

OUTPUT
494,000

I92O
492,000

163,000

1922
1923

935,000
276,000

+1,759,000
584,000

1,384,000
217,000

2,208,000

183,000 +1,350,000

1924
1925

1926 1927 1928 1929

495,000 +948,000 +211,000 93,000 68,000 204,000 503,000 +440,000 116,000 +541,000

624,000 506,000 778,000 841,000 416,000

(-{-)

1,077,000

36,000 +100,000 428,000 194,000 52,000 +286,000 47,000 103,000 344,000 82,000 +80,000 346,000 39,000 +93,000 292,000 +9,000 67,000 350,000 74,000 5,000 429,000 26,000 +39,000 416,000
TOTALS FOR THE
3

+2,000

COAL MINING t
Changes in Employment
(

GROUPS

or

Changes

YEAR
I92I

) During the Current Year DUE TO DUE TO NET CHANGE CHANGES IN CHANGES IN SINCE EFFICIE y OUTPUT 1920

) During the Current Year ( NET CHANGE DUE TO DUE TO SINCE CHANGES IN CHANGES IN OUTPUT EFFICIENCY 1 920

in

Employment C+J or

15,000

165,000
62,000

180,000

176,000

2,704,000

2,880,000 2,081,000
<

1922
1923

27,000
15,000

269,000
60,000
146,000

998,000 +1,797,000

+224,000
94,000
19,000

250,000 +1,860,000 315,000

782,000

471,000
1,567,000
1,142,000

1924 1925

+ 8,000
7,000

172,000
65,000

584,000 +1,009,000
127,000
70,000

1926

+5,000
11,000

+ 102,000

1927 1928
1929
Class

21,000
12,000
I

66,000 142,000 25,000 188,000 +29,000 171,000

+406,000
337,000

863,000
1,270,000
'1,458,000

598,000
154,000

+410,000 +604,000

1,003,000

railroads.

t Anthracite and bituminous coal mining combined. Source: David Weintraub, "The Displacement of Workers Through Increases in Efficiency and Their Absorption by Industry," Journal of the American Statistical Association,

December, 1932, pp. 396-97. The table covers wage-workers only.

put. (In both these cases the

immediate cause o the decrease in output was essentially technological. Improved motor trucks competed

more
the

effectively

with the railroads;

electricity increasingly

cut into

by industry and the home, steam power plants used less coal because of more efficient combustion, and hydroelectric plants dispensed with coal altogether.) Thus the higher productivity
for coal

demand

228

The Decline

of

Americaa Capitalism

of labor permanently displaced 1,003,000 workers in manufactures and

coal

mining and on the railroads. But that was not all. There was,

also for the first time,

an absolute

displacement of labor in agriculture. In 1929 American farms gave work to 540,000 fewer persons than in 1919. The number of farms,
rising steadily

from

1,449,073 in

1850 to 6,448,342 in 1920,

fell

to

6,288,648 in 1930, a decrease of 159,695.

Thus most

of the displacement

farm laborers, either hired or the children of farmers. As, howfarm population fell from 31,614,000 in 1920 to 30,447,000 in the actual displacement was much greater, there being, probably, 1930, 1,000,000 persons who had to find work in other than agricultural occupations. A surplus farm population appeared in 1909-19, because of the small increase in the number of persons working on farms. It has since grown and it will continue to grow as productivity in farming rises and output is stationary or falls. This completes the profound change inaugurated by the closing of the frontier, which still left, however, some few opportunities of absorbing new workers in farming and of rising on the agricultural ladder; but even those few opportunities are now ended. American farming is becoming as stagnant and hopeless as European farming has been for the past century. The surplus farm population of Europe was absorbed by the expansion of industry and by emigration, much of it to the United States when the frontier was being renewed. But American farming begins to produce

was

of

ever, the

a surplus population in the epoch of the decline of capitalism,

when

industry

is

unable to absorb those

who

cannot find work on the farms.

This has long been true of European farming moreover, are now restricting immigration. .

and nearly
.

all

nations,

The

absolute displacement of directly productive workers

It

is

of ex-

traordinary significance.

was a

result of the

development of the
direct significance

forces underlying the decline of capitalism.

The

appears clearly in a comparison of the absorption and displacement

of workers in the thirty years 1899-1929 (Table II). In 1899-1919,
7,010,000

workers were absorbed by employment in manufactures,

mining, agriculture, and the railroads. In 1919-29, on the contrary, the same industries displaced 1,155,000 workers (including clerical workers,

whose labor was increasingly mechanized) And this displacement was accompanied by greater output, except for a small decrease on
.

the railroads.*

The

significance of the absolute displacement of labor

becomes more

While the output of coal decreased, there was an increase in other minerals: total

mining output

rose.

Prosperity and
apparent
if

Unemployment

229

comparisons are made on the basis of two ten-year periods. In 1909-19, three major industry groups absorbed 3^847,000 new work-

TABLE

II

Absorption and Displacement of Workers, iS^g-igig

1899-19]t9
19][9-29

WORKERS ABSORBED
PER-

WORKERS DISPLACED
PER-

NUMBER
Manufactures
Railroads X

CENT*
105.6
92.7

NUMBER
241,000
266,000
108,000

CENTt
2.3

5,361,000

943,000

13.6
II.4
6.0

Mining t
Agriculture

366,000

62.6
3.9

340,000

540,000

Total

7,010,000

45-9

1,155,000

5.2

Percentage of increase over workers employed in 1899.

t Percentage of decrease over workers employed

are lower than those in Table
t
I

in 191 9.

(The displacement
is

figures

because 191 9 instead of 1920

start

used as the base year.)

The

figures

on mining (including quarrying)

"salaried

with 1902; on railroads with

1900.

Workers include
displaced.

employees" in manufactures, railroads, and mining. In

clerical

1919-29, non-clerical salaried employees increased, so that only

workers were

Source:

Computed from

statistics

in

Bureau of the Census, Manufactures, 1929 and

1932.

Mines and Quarries, 1929;

Statistical Abstract,

crs:

The

manufactures 35175,390, railroads 457,615, and agriculture 214,000. process of absolute displacement began in mines and quarries,

with a decrease of 42,325 workers. While there was a rise in the total number of workers absorbed, from 3,163,000 to 3,847,000, the rate of
absorption fell slighdy, from 20.7% in 1899-1909 to 20.1% in 1909-19. This slackening was a forecast of the 5.2% rate of displacement in
1919-29,

which

necessarily

produced an increase in unemployment.

In 1909-19, there was an increase of 6,027,000 in the

persons gainfully occupied.
displaced in

number

of

To

that

must be added the

42,325 workers

mining because of the

rising productivity of labor,

and

310,000 workers displaced in construction because of the decrease in

building during the

World War and

shortly after.^

Of

the 6,388,000

workers

who had

to find

new

jobs, 3,847,000

found them in manufac-

tures, railroads,

and

agriculture. All other occupations

had

to absorb

only 2,541,000, of

whom

822,000

were absorbed in

trade.

In 1919-29, there was an increase of 7,180,000 in the

number

of

230

The

Decline of American Capitalism

persons gainfully occupied/ to which must be added the

minimum
to find

of 1,155,000 * workers displaced by the rising productivity of labor.

Of the 8,335,000 new jobs, all had

tures, railroads,

persons (mainly wage-workers)

who had

to find them in occupations other than in manufac-

mining, and agriculture. This was an unprecedented development, of profound significance. For it meant that the four major industry groups which formerly
absorbed most of the

new

workers,

now

displaced a considerable

number

of workers. It

meant

that, to

provide employment for the

8,335,000 persons

who

sought work, occupations other than in manu-

factures, railroads, mining, and agriculture had to grow nearly three and one-half times as much as in igo^-ig. They did experience an un-

usual growth. Distribution, motor transportation, and trade (including

automotive and radio products, garages, chauffeurs, motion pictures,

in-

surance agents), gave employment probably to over 3,000,000 persons.

There were similar great

absorption
in

increases in

some other occupations. But

in
spite

the

construction

industry,

of

its

unusual
(at-

expansion, was limited to 320,000, and

in 1929 its total

employees

tached to the industry, but not necessarily regularly employed) was

The

somewhat lower than in 1909.^ The statistical evidence is incomplete. decrease in the number of directly productive workers is a clear

indication, however, that there was, after all absorptions, a substantial remainder of unabsorbed and unabsorbable workers. Prof. Wesley C.

Mitchell, writing early in 1929, said:

"The supply
increase of

of

new

jobs has not been equal to the

number

of

new

workers plus the old workers displaced. Hence there has been a net

unemployment, between 1920 and

a

1927,

which exceeds

650,000 people."

That was admittedly

minimum

estimate. Agricultural workers are

in groups comprising

not included, and the figures of

unemployment
It is

nearly one-half of total employees are conceded to be "the least reliable

of
likely that unemAs there were probably 1,500,000 unemployed workers in 1920, normal unemployment (including clerical workers) in 1927-29 rose to 2,500,000, excluding the unemall

and probably much too low."

at
least

much more

ployment increased by

1,000,000.

ployed in professional occupations.

Actual
displacement was over

And

this
if

great increase in the

the calculation
is

1,500,000 workers

made

for

the years 1920-29.

Employment

in

1920 was greater than in 191 9, and the absolute

displacement of labor began only in 1922-23.

WOAKCRS MPl0yO

21S^

250.

7X5 ^

TOO

j-jEMPLOYMENTj-^

*-

PRODUCTIVITY

OF LA80R

Mm

W04

woq

|qi4

Wn

\<\X\

\^2h

WZ5

RX7

l*JM

X.

THE CREATION OF DISEMPLOYMENT.

232
reserve

The
army
of the

Decline of American. Capitalism

unemployed took place

in the midst of the

most

flourishing prosperity.*

crease, is

That unemployment did rise, whatever the magnitude of the inan indisputable fact. It was observed and admitted by a
of bourgeois economists.

number
tion,

They maintained

that technological

efficiency,

or the productivity of labor, was rising faster than produc-

sheerly apologetic economists.

and displacing many workers. This was denied by the more One of them, the president of the Nademonstrated economic principle that increased pro-

tional Industrial Conference Board, said:

"It is a well

duction creates

new wants and

that

new

industries bring with

new demands
industry with

for both materials

its

and

services.

them As mechanization of
for commodities

requirement of fewer workers per unit of product

decreases production costs

and

prices, the

demand

simultaneously increases and causes not only the theoretically released

workers to be absorbed but in addition

duction."^^

calls

new workers

into pro-

Not

necessarily.

For the argument assumes "ideal" general principles

regardless of whether they

work

in reality. Production costs decrease,

but prices
as

may
it

not

fall

correspondingly: capitalist enterprise retains

much

as

can of the gains of the higher productivity of labor.

Prices in 1923-29 did not

move downward

as productivity

moved

upward. Even if prices fall, they may not do so as much as costs, and consumer gains are offset by the losses of displaced workers. Dispro Increasing unemployment aggravated competition in the labor market and helped
to prevent any general rise in wages, one of the

most important uses of the reserve employed part of the working

class

army

of the unemployed.

"The overwork
of

of the

swells the ranks of the reserve; while, conversely, the increased pressure which, through

competition,
these
latter

the
to

members

the reserve exert

upon

those

who
of

are

in

work, spurs

overwork, and subjects them more completely to the dictatorship of

v.
I,

capital."

Karl Marx, Capital,

p.

702.

"The

difficulty

obtaining employment

has discouraged workers from leaving the jobs which they have held
rate

the resignation

among

factory employees between 1920 and 1926 decreased two-thirds."

Sumner

H.

Slichter,

"Market

Shifts, Price

Movements, and Unemployment," Ameiican Economic

is

Review, Supplement, March, 1929, p. 13. "Unemployment

unit of output

reducing labor costs per

Invariably labor efficiency increases whenever there are

more

men

than jobs."
5,

John Moody,
i.

"Review and Forecast," Moody's Investors

likely to act as

Service,

January

1928, p.
is

"The

labor reserve in the United States, despite immigration

is

restrictions,
rise

slowly increasing and

level."

a bar to any further general

National Industrial ConYork Tames, January i, 1928. "We face an increase in unemployment. . . Unemployment, disagreeable though it be, has its use despite the heartaches The shadow of unemployment will reduce labor to sanity." which accompany it. Nelson, Cook and Company, bankers, New York Times, March 11, 1928.
in the
president,

wage

Magnus W. Alexander,

ference Board,
.

New

Prosperity
portions in prices
intensified

and Unemployment

233

and

profits, in

production and consumption, are

by the

fact that gains in efficiency are

unevenly distributed *

within an industry and between industries. Prices are affected by productivity, but they are also affected

by long-time price movements and

by the

resistance o monopolist combinations to lower prices. Increasit

ing productivity, where

requires

new equipment,

stimulates output

and employment in the machinery industries; but the labor incorporated in the making of the new machinery is always less than the labor it displaces, otherwise there would be no gain to the buyer. Moreover, the greater efficiency of new machinery may flow from qualitative changes, and thus reduce the amount of new equipment. Or higher productivity may result from more intensive exploitation of labor, requiring no capital expenditure. Workers are displaced in the machinery industries because there, too, the productivity of labor
rises.

New

industries create

new demands

for labor, but such

demands

arc

relatively small, as these industries,

adopting the most

of production, have a high composition of capital

labor
tries

methods (with a low ratio of

efficient

and wages

to

equipment and raw materials).

And new

indus-

may

not develop rapidly enough or on a scale proportionate to the

displacement of labor.

The demand

for luxuries
its

may

increase, but their

rises.

production

may

also require less labor as

profits,

productivity

Finally,

because of high

low wages, and the concentration of income, the demand for commodities may not rise simultaneously and equally with the rise in productivity and production if it did, there would be neither an increase in unemployment nor cyclical crises and breakdowns. Thus changes may go on within the limits of magnitudes and proportions which upset the "ideal" assumptions of apologetic eco:

nomics.

liberal reformer, Prof.

Paul H. Douglas, also accepted the "ideal"

assumptions of apologetic economics

permanent technological unemployment is imposImprovements in industrial processes, like changes in demand, will produce a shifting of labor and capital within the economy."
"It is clear that
.
.

sible.

There must be, under capitalism, an uneven distribution of technical efficiency. The simultaneous adoption by all enterprises of improved methods of production would
tend,

from the standpoint of competition and

profit,

to

cancel

the gains.

rise

in

the rate of profit ensues where an enterprise has the exclusive use of

more

efficient

methods and can undersell and competition. The

profit

its

competitors; but

when

their use

becomes general the

rate of profit tends to fall because of the higher composition of capital, excess capacity,

motive

is

the basic cause of the planless nature of capitalist

production: they arc inseparable.

234

TTi^ Decline of

American Capitalism
capital"
is

But the "shifting of labor and

ers

always within definite

limits,

permanently excluding from employment a part of the available work-

small in the epoch of the upswing of capitalism, increasingly larger

And
Douglas' modification of his conclusion
the complete opposite of his
is

in the epoch of decline.

permits drawing one which

own:

"There is likely to be a considerable intervening period of unemployment before all the [displaced] workers find employment. During this period they will not receive wages and their purchasing power will in consequence be reduced. Some unemployment will tend to result elsewhere. This element of instability is multiplied if improvements are taking place simultaneously in a large number of industries and is particularly aggravated if the commodities are subject to inelastic demand. If the rate of technical progress in a society is, moreover, accelerated, the

number who are thrown out of employment The purchasing power of these workers is temporarily reduced and their demand for goods curtailed. This transitional loss of employment has therefore a magnified effect and
temporarily
is

increased.

prevents the previous analysis from working out to the full extent

and with the precision which has hitherto been implied." ^^ Precisely! The "considerable intervening period of unemployment" and the "element of instability" upset all the "ideal" assumptions that workers displaced by the higher productivity of labor are necessarily absorbed by higher output. And if there are factors which prevent the process of absorption "from working out to the full extent and with precision," why insist categorically that "permanent technological unemployment is impossible'} Combinations of the same factors underlying "considerable intervening periods of unemployment" may conceivably produce absolute displacement and an increase in permanent unemployment. It is not only conceivable theoretically, it is demonstrated by the granite facts of the steady, if small, increase in the reserve army of the unemployed in the epoch of the upswing of capitalism, and of the constantly greater increase
in the epoch of decline.*

Even

if it

were true that workers displaced by technological changes

displacement
in

capitalist decline

of labor added to the unemployment produced by Germany, England, and other capitalist nations of Europe. An English economist says: "The introduction of new and improved methods into an

* Technological

industry has the immediate effect of displacing labor by enabling the industry to satisfy
its
is

market with a smaller supply of

a considerable

labor.

... At any

particular

number

of workers

who have

been displaced and

moment of time there who have not yet

been absorbed. Hence, during a period of rapid progress, technological unemployment

is

abnormally high." Allan

W.

Rather,

Britain Decadent? (i 931), pp. 25-26.

Prosperity

and Unemployment

235
great hardships

and higher productivity are absorbed as output rises, would still be imposed upon them. Unless the displaced workers are absorbed by greater output in the same plant and on the same job, they lose their skills or familiarity with particular processes, the older workers are thrown upon the scrap heap, and at least an interval of unemployment must ensue. A survey in Philadelphia in April, 1929, when prosperity was still on high levels, disclosed 100,000 unemployed workers, io.47o of the available labor force; 16% of all families were experiencing unemployment. Of these, 50% had been out of work for three months, 28% for six months, and 12% for one year or more.^^ Even more significant were the findings of a survey of displaced workers "to see just how many were being absorbed by American industry," conducted during the summer of 1928 in Baltimore, Chicago, Columbus, Ohio, and Worcester, Mass. The findings are here summarized: Of 754 workers, who had been discharged during the twelve months prior to the survey, 45.5% had been unable to secure employment
other than

odd

jobs.
still

Of work

the workers

unemployed, the majority had been out of

four months or longer: 8.4% for a year, 9.3% for eleven months

or longer, and only 58.8%

had been unemployed

for less than six

months.

Of the 54.5% who were absorbed in new jobs, only 12% had found permanent work within a month after discharge; one half had been out of work three months or longer and one-fifth six months or
longer.

Of
had

the displaced workers

to accept

who found new

the kind to

jobs,

more than

one-half

work other than

tomed, usually of a type where their

is

which they were accusformer s\ills were useless. The

older workers had the greatest difficulty in finding

a general policy not to

new

jobs, as it

employ workers who are past the age of 45. Of the displaced workers, only 13% were absorbed in the "newer"

industries or occupations

radio, gasoline

stations, garages, chauffeurs,

moving pictures, hotels and restaurants, beauty parlors, bootlegging. Of the workers who found new jobs, 27.1% made about the same as in their old jobs and 18.8% made rnore, while the majority made
less

than their former earnings.^^

there
is

and wastage even if the Workers are forced to take new jobs at lower wages. They are deprived of old skills and experience. Months and months of unemployment intervene, while
suffering

Thus

wanton human

displaced workers are eventually absorbed.


The
Decline of American Capitalism
melt away, and the compulsion
the
arises to accept

236

their paltry savings

Ford automobile plants in Detroit threw 60,000 workers out of work, the city was forced to spend $1,954,000 on charity relief, more than in the two previous years combined. Henry Ford generously contributed $175,000 and this bit of wisdom: "I know it's done them a lot of good everybody gets extravagant ^* to let them know that things are not going along too even always." And in 1928, H. W. Morehouse, president, Brookmire Economic Service, insisted that the increasing unemployment was really increasing leisure: "With such progress in well-being, no wonder some members of the family have decided to take life easier by ceasing to work."" A book by Clinch Calkins, So7ne Fol\s Won't Work^, revealed the reality, the conditions among the unemployed before March,
charity. In 1927,

when

1929, in the

midst of unprecedented prosperity.

cities

It

chosen at random in thirty

Calkins speak:

of twenty-three

states.

gave 300 cases Let Miss

"In a group of twenty men on relief work cleaning streets, fifteen had been displaced from skilled trades." "When Riley lost his work he had no savings. The combination of four children and a peak income of $28.50 weekly is not conducive to savings accounts or investment. Just what part of the $28.50 could the Rileys have put away in a sock ? ... So they ran into debt. They fell behind on their furniture and insurance. At first Mrs. Riley rather went to pieces and rushed about trying to get help. Then she made frantic attempts to get a job herself. Novels could be written about this particular period in unemployment the almost invariable shift of wage-earning from the man's to the woman's shoulders
. .
.

because
cafeteria

women work
from eleven

for less pay.

to three.

Finally she got

work

in a

She was paid $9 a week. And what wonders she did with her $9! She slapped it on insurance. She slapped it on the rent arrears. She slapped it on the furniture instalments. Then suddenly five or six of the newest comers were dismissed, Since then she has worked at the sandMrs. Riley among them. wich counter of the Five and Ten and at several obscure eating places near the docks. She received less pay and had longer hours. But she had to give up even this work when Rosey, aged eight, . contracted an illness which seemed directly traceable to 'poverty and makeshifts resulting from unemployment.'" Jervis was a skilled worker, a mixer of colored inks used by lithographers; he earned the comparatively high wages of $37 weekly, and lived in a seven-room house with his wife and four children.
.
. .
.


Prosperity and

Unemployment
on

237
solid

machines were installed which laid and blended them. Between October, 1928 and March, 1929 (six months), Jervis made fioo at anything he could get for the most part laboring and stevedoring. When their savings were gone and when they could no longer pay their rent, the Jervises went

"During the

last lay-off,

colors of ink

to stay for a

month with

friends while they located a place to live.

found one for $12 a month. To meet expenses he pawned their possessions and sold their radio. The new house is one room deep, has an outside toilet, no heater, and no kitchen stove. When their case was reported, both parents and children were destitute of shoes and clothing. A city nurse obtained for them a $3-a-week order
finally

He

for groceries. Fortunately for the family, Jervis

last day's

was injured on

his

work

as a stevedore
I

and went

to

bed with ulcerated legs

and a strained back.

say fortunately, for besides medical aid the

company paid him $15 a week for indemnity." "He was out of work for fourteen months and got so discouraged he turned on the gas." "She resented her husband's idleness, said he did not try to find work. He became inert and fatalistic. They
. . .

quarreled and were under constant domestic strain."

"Now

that

he has

lost his

work

she attempts to do outside housework besides

caring for her seven children. Frequently, over periods of time, she

had only bread and black coffee to feed them." The Negro worker is hardest hit by unemployment. "The Lovejoy
saga
is

a clear case of race prejudice as such, since this family

is

superior both in intelligence and education to

many

of the white
.

workers

who

have received preferment

at their expense.

From

the spring of 1928 to December, 1928, they lived mainly on an occasional day's

$2 or $3 a

work done either by the father and the mother and the week earned by George in shining shoes."

The
resort,

workers,

when unemployed,

resort to charity only as a last

spirit:

not until they are practically broken in body and

"Mrs. White of Philadelphia said she watched her children starving

until she could not stand
it

any longer. Before she asked for help

went through the equivalent sacrifice of Fred Johnson, who, when he was accused by some one of standing on the corners with other men, was defended by his wife. He stayed there all noon, she said, for fear if he came home he would be tempted to eat what they had been able to put on the table for the children. The six young Murphys of Boston are reported by their teacher as being *soft' from lack of food. The Hagers of Louisville made their savings spin for two years of unemployment and then went
she undoubtedly
.

238

The

Decline of American Capitalism

. . .

without food rather than ask for charity.

tea for six weeks.

The Browns

of Phila-

delphia were reported by their grocer as having lived on bread and

. . .

An

undernourished child was given by the

school teacher a medicine to

whet her
it

and

she continued to give evidence that she

a visit
to eat."

was paid
^^

to her

home. Then

As time went on, was not eating enough, was discovered she had litde
appetite.

These are the heartbreaking accompaniments of technological unemployment, an aspect of the steadily increasing normal unemployment in 1923-29, while prosperity surged upward. (On a greatly enlarged scale they are the accompaniments of cyclical unemployment.) "1 J^now it's done them a lot of good." "Ta\ing life easier."
. .

The output

of goods, of the

the higher productivity of

means of Hvelihood, rose because of labor, of more efficient methods of promeans

of livelihood by depriving
its

duction. Simultaneously, however, the higher productivity of labor

deprived

many workers

of

them

of employment.

And

industry operated below

capacity.

While millions of workers were unemployed

there was, contrary

to the earlier trend, a tendency for child labor to increase during

1927-29, when both prosperity and unemployment reached their peaks. According to Grace Abbott, Chief of the United States Children's

Bureau, full-time working

to eighteen

certificates

issued

to

children
states)

fourteen
increased

years old

(sixty cities

in thirty-three

from

150,000 in

1928 to 220,000 in 1929.^^ Although registering a

decrease over 1920, the

old gainfully occupied in 1930

number of was
to

children ten to seventeen years

2,145,000.^

"The

great mass of

working children," according

ing
all

the National

Child Labor

Com-

mittee, "enter occupations that are

monotonous

in the extreme, lack-

educative content other than a certain

amount
it

of training

in habits of work.

What

they must do can usually be learned in a

few hours or

at the best

a few days; after that

is

a matter of re-

peating the same tasks over and over again. Such a procedure involves

more than
the training

the usual waste during the years

at their highest

when mental growth

poor substitute for
children were
^^

and acquisition are

and

offers a

and

self-expression of school life."

Many

work because of the technological displacement of their fathers. And the number of working children was about equal to the number of unemployed adults.
forced to

Another

result of the higher exploitation of labor, besides the aug-

menting of normal unemployment, was a tendency

for accidents to

Prosperity and
increase in
ploitation
is

Unemployment

239
the rate of ex-

many industries. One method of raising to make labor more productive by the

introduction of

more

efficient

labor: the use of speedier

equipment. Another method is the intensification of and more complicated machines and more
tended to become more dangerous.

speed-up, multiplying the pressure on the muscle and nerves of the

v^^orker.

Work

From

1922

to 1925, in thirty-four industries

employing 254,529 w^orkers, output

per worker rose 14.4% and the accident severity rate 2.5%.

...

In

1925-26, eighteen out of twenty-four industries, employing 1,000,000

workers, had a rising accident severity rate.

dents but a small increase in the fatality rate.
in

... In
. . .

1929, plants re-

porting to the National Safety Council had a small decrease in acciIndustrial accidents

from 346,000 in 1922-23 to 518,000 in 1926-27; in 1929 there were 20,000 more compensatable accidents than in the previous year. ... In this state's building trades the rise in accidents was much greater than in employment from 10,000 in 1923 to 21,600 The fatality rate in coal mining in 1921-25 was 2.73 per in 1927. 1,000 employed workers; it was 3.32 in 1926, 2.94 in 1927, and 3.19 in 1928; or, on another basis, the fatality rate rose from 3.93 in 1916 The risks of the American coal miner (and to 4.54 in 1929. of the worker in general) are infinitely greater than those of the
State rose

New

York

was
are

European. In 1929, the death rate per 1,000 full-time 300-day workers 4.54 in the United States, 2.19 in Prussia, 1.31 in England, 1.29

in Belgium,

and

1.15 in

France.

And

the natural conditions in

.

mining
. .

more iron and

favorable in the United States than in Europe.

steel

The

industry

is

usually considered a "model" of accident

fell

prevention work. Yet, while the frequency rate

fatality rate

in 1920-29, the
rate rose.

was

stationary

and the permanent and

disability

... In

1928, according to the National Safety Council, there

24,000 fatal industrial accidents

3,250,000 non-fatal.

were Manage-

ments are

directly

responsible.

Not more than 10%

its

of industrial

enterprises are

members
sent

of safety organizations. In 1928, the

Gas Association

an accident questionnaire to
.
.

American members, but

accident

the great majority did not reply.

Safety devices multiply but

employers refuse to spend the necessary money.

rate in the
trial

The high

New

York building

trades

is

due, according to the Indus-

Commissioner, mainly to defective equipment and the disregard

of safety devices by employers. In the electric

power industry the

most important

safety devices are not being introduced because of

the cost. Safety engineers are usually limited in their efforts by considerations of output, costs,

and

profits.

The

responsibility

was

240

The

Decline of American Capitalism

placed squarely upon

elers
trial

management by H. W. Heinrich,

Insurance Company,
accident cases, 10,000

who

of the Travcompleted an analysis o 73,000 indus-

from records of his company and others His conclusion was that 9^% of all accidents are preventable; only 10% were due to physical or mechanical hazards, while 88% were due to neglect by management. ... In one of its reports the United States Department of Labor said: "All Ameri-

from the records

of plants.

can industry has been

production.

much influenced by the effort for increased The speeding up has not been accompanied by an equally
'^^

intense effort toward accident prevention."

The

tendency for accidents to increase in

reversal of earlier trends.* It

many industries was a may become more marked; for, as the

mass of profits tends to fall, employers will introduce more speed-up and will be more unwilling to pay for safety devices. But the increase in unemployment was not a reversal. It merely strengthened the tendency of capitalist industry to augment unemployment. And this must become more marked under the conditions
of the decline of capitalism.
*In Germany,
industry,

where rationalization

raised

productivity
of

as

much

as

in

American
accidents.

there

was a similar

intensification

labor

and an increase in

"Labor expressions of opinion on these problems have been particularly outspoken,

critical

and

bitter.

Mechanization and speeding of work routines are held to have

increased fatal, major and minor accidents and the

number
to

of persons suffering

from

industrial diseases. Speeds are adjusted without regard

killing pace

cumulative fatigue, and the

which workers must keep shortens

at

their life cycles

and throws them into

as

the discard

an early age. Injuries reported have steadily increased

output per

worker, indicating greater productivity through rationalization, has risen." Output per

worker rose from loo in 1924 to 140 in 1929; the number of workers injured per 100 rose from 6 to 10, an increase of 66.6%- "The data given by both industrial and
professional classifications in the Statistisches Jahrbuch show, in nearly all cases, increases
in accident rates

between 1927 and 1928. Estimates for 1929 are

are

still

higher. In all

cases the post-war figures

much
in

larger than those for

1913." Robert A. Brady,

pp. 346-48.

The

Rationalization

Movement

German Industry (1933),

CHAPTER XV

Disemployment and Surplus Population

JLn the past, industry absorbed more workers than it displaced, and employment rose steadily. This historical fact is used as an argument against the contemporary fact of increasing unemployment. Since the industrial revolution, it is argued, technological change has created new industries and a multitude of new jobs; although there was in 1920-29, a small displacement of workers, the total of employed workers was greater in 1929 than in 1899. While "the expansion of old industries," according to one economist, writing in 1929, "is not sufficiently rapid, apparently, to absorb the rising generations, up to the present time the increase over and above those absorbed by the old callings has been taken up by the new industries."^ The increase in unemployed workers is temporary: they will be eventually absorbed by renewed expansion. So runs the apology. But what has been need not always be. The theory that workers displaced by machinery are absorbed by new occupations was formucapitalism was at the beginnings of its immense upward movement in production. Now capitalism is in the epoch of decline, of a downward movement in production. This fundamental fact must influence all interpretation of former experience. Moreover, even in the epoch of the upswing of capitalism there was a definite tendency for unemployment to inlated a century ago,

when

great expansion, of an

crease. In the United States, from 1865 on, constantly greater cyclical and normal unemployment tormented the workers. Prosperity prevailed in 1889 and 1899, yet unemployment among workers in manufactures, transportation, and the building trades rose from 5.6% to 7%.^ And in the following years the percentage of unemployed workers rose steadily, both in prosperity and depression (Table III). In spite of greater talk of "stabilizing" employment (as if words become deeds by the sheer magic of words!) there was greater unemployment. In the two periods of prosperity immediately preceding the World War, unemployment, both absolute and relative, rose. It fell only slightly during the war years, in spite of conscription and the mobilization of industry. Unemployment in periods of depression showed the greatest increase, rising from 10.7% in 1907-09 to 15.9% in 1914-15.

241

242

The Decline

of

American Capitalism
III

TABLE
The Upward Trend
CHARACTER
YEARS

of

Unemployment, igoo-SS
YEARLY AVERAGE
OF WORKERS
*

PERCENT
OF WORKERS *

OF PERIOD
Prosperity

UNEMPLOYED
657,000
1,091,000

UNEMPLOYED
7.6

1900-06
1907-09
I9IO-I3

Depression
Prosperity

10.7
7.9

877,000
1,860,000

I914-15
1916-20
1921-22

Depression
Prosperity

159
6.4

817,000
2,625,000
1,149,000 1,250,000

Depression
Prosperity
Prosperity

20.7
9.0
9-5

1923-26
1927-29
1930-33

Depression

5,400,000

35.2

Includes workers in manufactures, coal mining, railroads,

and the building

trades.

Source: 1900 to 1926

statistics in

computed

and rearranged, according

to cyclical periods,

from

to

1933

computed on

Paul H. Douglas, Real Wages in the United States, i8go-ig26, p. 460; 1927
the basis of statistics in Tables
II

and IV.

Usually unemployment was ascribed to unrestricted immigration, which had been so important in American expansion. Yet after the war, when immigration, now no longer economically necessary because of a declining rate of expansion, was severely restricted, normal unemployment increased more rapidly than in the pre-war years. In the depression of 1921-22, unemployment was twice as high as in the depression of 1907-09 and nearly 50% higher than in that of 1914-15. Normal unemployment rose to 9% in 1923-26 and 9.5% in 1927-29, an increase of one-fifth over the two pre-war periods of prosperity. The absolute number of unemployed workers in the prosperity years 1923-29 was greater than in the 1907-08 depression. Average yearly unemployment during 1920-26 was 12.1% of the available workers, considerably higher than the 10.2% during the years

1897-1926.^

And

for the four depression years 1930-33 average yearly

unemployment
three times as

rose to 35.2% of the available industrial workers, over

much

as in 1907-09

and nearly twice

as

much

as in

1921-22.

normal unemployment in 1920-29 was American economy: for the first time the rise in the productivity of labor was greater than the rise in production. This condition is the basic cause of an absoaccelerated increase of

The

the result of a fundamental change in the

lute displacement of workers.

definite, if proportionally

changing, relation exists between em-

Disemployment and Surplus Population

243

ployment and the productivity of labor and output. An increase in productivity must be matched by a corresponding increase in output, otherv^ise there is an absolute displacement of workers. But v^^here increase in output v^as enough to absorb a certain formerly an

X%

number

of

new
still

workers, now, because of the higher productivity

greater increase in output
is

of labor, a

necessary. Production

must grow
If

faster
rises

than productivity.*
rapidly than the productivity of labor, there
is

output

more

no absolute displacement of workers. The theoretically displaced workers and new workers in addition are absorbed by the expansion of production. (It also makes possible higher wages and shorter hours.) Because the increases are not proportional, normal unemployment tends to rise, but not much. This is the epoch of the upswing of capitalism.
relative but
If,

tendency

however, the productivity of labor rises more than output, the is toward an absolute displacement of workers. There is
all

an expansion of production, but not enough to absorb

workers.

the workers

displaced by higher productivity plus a part of the newly available

Normal unemployment rises more rapidly. more than output and, in addition, the movement of production is downward, workers are displaced both by higher productivity and lower output. Normal unemployment becomes constantly greater. (Wages tend toward lower levels; and while
If productivity rises

hours of labor
in

may

not be lengthened, they are at least not shortened

accord with technical-economic possibilities.)

This

is

the epoch

of the decline of capitalism.

From

1899 to 1919, and in earlier years, output rose

1 899-1909,

more than
the increase

the productivity of labor. In manufactures, in

in output was 59%, in productivity only 16%; 2,182,427 new wageworkers were absorbed. For the whole period 1 899-1919, the increase

in output

was 59%,

in productivity only

16%;

2,183,427

new wage-

workers were absorbed.* There was a similar trend on the railroads.

Production, of course, includes the

new

industries.

For the sake of simplification, the

factor of the distributive

to increase

and

service trades

is

excluded.

Employment

in these trades tends

it

much more

than in directly productive occupations (a great part of

as

is

wholly useless and parasitic). But the increase,

to absorb all service trades

shown in 1923-29, is not great enough the available workers. In any event, employment in the distributive and is dependent primarily upon production, which supplies means of livelihood
As
a sop to
its

for all occupations.

supporters, fascism tends to increase arbitrarily the

is

number

of non-productive jobs;

but this also

not enough to absorb

all

the

unem-

ployed, there are definite limits to the creation of such jobs, and they multiply the

burdens imposed upon the workers employed in productive work.

244

T'he Decline of

American Capitalism
of productivity

In agriculture the
that only a small

movement number of
oil

newr workers

and output w^as such was absorbed, while in

displace-

mining (exclusive of
ment.

wells) there

was a small absolute

rise in

The

expansion of production was enough to absorb most of

the available workers; there

was only a small

normal unem-

ployment.

This relation was, however, completely reversed in 1919-29: the

productivity of labor rose
tivity of labor in

more than

output.

The

rise in

the produc-

manufactures was over 40%, in output only 38%. Productivity rose 12.5% and output 2.5% on the railroads, and 30% and 20% respectively in agriculture. There was a similar tendency

was smaller than the an absolute displacement of 1,155,000 workers, wage and clerical, took place. Displacement was most severe in agriculture; in this industry, for the whole period 1 899-1 929, productivity rose over 61% and output not much more than 56%.^ The expansion of production was great (although the rate of increase was smaller than in 1900-14), but it was not enough to absorb any new workers or even all of the displaced workers; hence normal unemployment rose considerably. Under capitalist conditions, an expansion of production depends upon an increasing output and absorption of capital goods. It depends, in other words, upon an increasing accumulation of capital; this means that a constantly greater proportion of the workers are employed in the capital goods industries. But these industries, because of the higher productivity of labor, displaced a large number of workers
in mining.

As

the expansion of production

rise in the productivity of labor,

in 1919-29, although the rate of increase in their output

was

greater

than in pre-war years. There was a similar displacement in mining.

Construction augmented
capital goods.
its

labor force by 320,000 workers. In

loss of

all

branches there was a small net

workers in the production of

And

the higher composition of capital,

made

possible

by the greater output of capital goods, displaced many workers in the industries producing consumption goods.* In most of the European nations normal unemployment was augmented both by the increasing productivity of labor and the down-

The tendency for productivity ward movement of production. to outstrip production was already manifest in the pre-war years. Thus in Great Britain, in 1907-13, output in basic industries rose 7% and trade-union employment only 0.5%. ... In the pre-war
.

This
nology."

subject

is

discussed

more

fully in

Chapter XVI, "The Economics of Tech-

1^.1%

FORMAL UNEMPLOYMBNT
/too -06

/9/0-/5

nOO
nofe

n07
iqo*^

ISIO

\<\\'\

|<^IG

\^X\

1^23
i*?z4

nz7
)^z^

ni3

isi5

isao

nz2

1^30 IS33

XI.

UPWARD TREND OF UNEMPLOYMENT 1900-33.

246
years, British
1,450,000, or

The Decline

of

American Capitalism

unemployment averaged 500,000, or 5%, yearly; it was 12%, in the post-war years (before 1929). The output of mines and quarries was slightly higher in 1930 than in 1925, but 20% fewer workers were employed. In ten industries, an 11% increase
in output

was accompanied by an

8%

decrease in workers.

The

ele-

ment of British economic decline appears clearly in the fact that the number of workers employed in the export industries was 2,465,000
in 1907, 2,485,000 in 1924,

and

2,000,000 in 1930; their proportion to

fell from 44% in 1907 to 38% and 33% in 1930. Trade-union unemployment in Germany rose from a yearly average of 2.3% in 1907-13 to over 11% in 1923-27, and from 11.1% in 1927 to 20.7% in 1929. The former relation between productivity and output was reversed. Productivity rose 23% in the "boom" years 1925-27, and output 24%. In 1930, of 1,500,000 unemployed workers, 1,000,000 had been displaced by the higher productivity of labor and 500,000 by the lower level of production. ... In the prosperous year of 1929, according to the International Labour Office, 3,258,000 workers were unemployed in Germany, Great Britain, and Italy. Total unemployment in the capitalist nations of Europe rose from 3,616,000 in 1923 to 4,330,000 in 1929, an increase of 20%.*^ But the official unemployment figures are under-

the total workers in manufactures

in 1924
. .
.

estimates.

Some

include only those "on

is

relief,"

others only those regis-

tered at the labor exchanges. It

probable that over 4,000,000 workers

Italy,

were unemployed in
all

Britain,

Germany, and

and

6,000,000 in

Europe.
factors underlying the increase in
cyclical

The same
also

produce an increase in

normal unemployment unemployment. The tendency of

more than output is aggravated by industrial breakdown. In Germany, the productivity of labor was 17% higher in 1932 than in 1929, and output 40% lower. In the United States, according to the National Bureau of Economic Research, productivity per man hour rose 12% in 1929-32.^ Workers were thrown out of work both by the higher productivity of labor and the lower level of production. The output of capital goods, whose decreasing rate
productivity to rise
of labor absorption accelerates the rise in
falls

normal unemployment,

now

more
the

in

depression than formerly because of higher producdisastrous nature of cyclical

tivity,

more

breakdown, and the

lower demand for capital goods.

pends,
falls in

And

the output of luxury

and

durable consumption goods, upon which prosperity increasingly dedepression in about the same ratio as the output of

Disemployment and Surplus Population

capital goods.

247

Thus, as prosperity becomes more unstable, depression

tends to become

more

severe.

The
steadily

depression which set in after 1929 augmented

scale.*

unemployment

workers, 30.2% of the 43.8% were wholly unemployed and 22.6% partly unemployed. In Great Britain 2,272,590
5,579,858

and on an unprecedented employment in Germany affected

During

1932, average un-

available labor force; of the trade-unionists

4.5^ partly

workers or 17.6% were wholly unemployed, and 573,805 workers or unemployed. Fascist Italy, whose statistics are notoriously
unreliable, officially admitted the existence of 1,040,910 jobless workers.

unemployment during 1932 was 12,178,000, exclusive of part-time workers. But these are the official figures, which are not inclusive. In Germany, for example, there were
In
all

of capitalist Europe, average

in

December,

1932, probably 3,400,000 unregistered

unemployed. Ac-

tual

unemployment

in

Europe was over

20,000,000.

Never before

had

cyclical depression afflicted

such a large proportion of the working

population.

During

was the rise of unemployment in the United States. when, because of the illusions of prosperity everlasting, 1930, the masters of industry, finance, and politics simply couldn't believe there was a depression, unemployment rose to 5,000,000, compared
Still

greater

with half that amount in 1929.

It

kept on rising. In manufactures

1931

alone there were 2,327,000 fewer workers employed in

than

two years

earlier,

while total unemployment rose to 8,250,000. But

which passed through the "years of world depression
loss,

* Except in the Soviet Union,

apparently with comparatively small

. . .

continuing, indeed, to

new and

greater gains.

Standards of living are debatable, always, but in the present instance can hardly be

considered as other than improved.

tainly has

The average

real

wage

of the industrial worker cer. . .

been improved and that with the hours of work reduced.

The

result of

the experience of Soviet Russia

distribution

would seem

to be primarily twofold:
forces. It
is

the leveling of
effects of

and a new control over economic

not argued that the

the world depression have not been felt there. Most certainly they have been, but not in

and M. Kingsbury and Mildred Fairchild, "Employment and Unemployment in Pre-War and Soviet Russia," World Social Economic Congress, International Unemployment (1931), p. 421. It is often said: "Of course the Soviet Union has no depression and no unemployment; that country is industrializing itself, and work is more plentiful than workers." This is an obviously wrong argument. Every capitalist country has had depressions and a resulting increase in unemployment during its period of
increased" Susan
industrialization: in the United States there

the production processes, nor in employment; wages, also, have been maintained

were three major depressions from 1837 to

1873.

The element
is

of socialist planning and control a function of the contradictions

makes

the difference. Cyclical crisis

capitalist

and breakdown

and antagonisms of

produc-

tion, not of industrialization (or of industrialism itself).

248
this

The
was only
a

Decline of American Capitalism

point. By unemployment

midway

the spring of 1933, the lowest depth

in all occupations

of the depression,

had reached the

staggering total of 17,252,000 (Table IV), an increase of 14,750,000 over 1929. The blight of unemployment fell upon 35% of the gainfully occupied : 14,252,000 or nearly

50%

of the wage- workers, 2,000,000

TABLE

IV

Unemployment, All Occupations, Spring, I9SS

GROUP
Manufactures
Transportation*

UNEMPLOYED
4,561,000
1,684,000

Building Trades*

2,057,000

Mining*
Agriculture

524,000
1,786,000

Trade
Personal Service
Professional Service

1,613,000
1,692,000

363,000
972,000

All Other

Total
Additional

15,252,000
2,000,000

Grand Total

17,252,000

These classifications differ from those in previous tables. Transportation includes

telephones and telegraph, garages, service stations, street railw^ays, and buses; building
trades includes w^orkers

who

are not engaged directly

on new construction; mining

in-

cludes oil and gas wells.

Source: For November, 1932 Business Wee\ (January 18, 1933) estimated unemployment at 15,252,000. But its starting point was a Federal Census estimate of unemployment (3,700,000) for April, 1930, which was too small by about 750,000. And Business

Week,

made no allowance

for

new workers

seeking employment, which

is

may

be conserva-

tively estimated at 750,000.

An

additional 500,000

included to allow for the increase

revisions

in

the

unemployment from November, 1932 to March, 1933. These number of unemployed in professional occupations to 500,000.

would

raise

or

40%

of the clerical workers,

in professional occupations.

and 500,000 or 15% (Unemployment among

of the persons
professionals
is

not a complete measure of their plight, as those independently occupied, such as architects, physicians,

and

dentists,

might not be unem-

ployed and yet suffer keenly from the depression.) Just as normal

unemployment
of prosperity,

in 1923-29

so cyclical

was greater than in any previous period unemployment was greater than in any
is

previous depression. This

capitalism.

progress in the epoch of the decline of

Disemployment and Surplus Population

only part time. This was due to the generosity o employers,

249

In addition to wholly jobless workers, other millions were working

who

"made" work by "staggering" and "spreading" employment, thereby throwing the burdens of the crisis upon the employed workers. In January, 1933, 20% of the members of the American Federation of Labor were working part time.^ The animus of the employers was thus frankly admitted by Virgil Jordan, editor of Business Wee\: "The spread-work movement will probably gain momentum as a means of shifting the burdens of unemployment relief from income to
wages."
^^

Because of the severity of the

italism),

crisis

(typical of the decline of cap-

unemployment swooped down mercilessly on professional and clerical workers. ... A survey by Columbia University in 1933 showed unemployment as high as 98% among architects, 85% among engineers, and 65% among chemists. Five societies of engineers in 1 93 1 formed a national committee to aid their jobless; within one year they had spent 1441,737, of which $307,119 was in the form of wages on "made" work paid for by semi-public bodies, the balance in cash, old clothes, and other relief. Unemployment was intensified among musicians, 9,885 or 50% of whom had been displaced in motion picture theaters by the sound films. ... In New York City, 40% of those seeking jobs from the Emergency Work and Relief
.
.

Bureau were "white

agers.

collar" workers, including executives, technicians,

statisticians, editors, efficiency experts, engineers,

.
. .

and personnel mansaid in

are so

An

executive of a

New

York employment agency

'white collar'

1932:

"Employment conditions among

fall that I

women

appalling this

haven't the heart to think about

them from

a statistical angle."
in

...

survey in 1933 of 3,000 charity patients

New

York City
clerical

hospitals

showed

that 175

were professional workers

and 430

workers, a greater proportion than in previous years

are called the

of patients

who

"new

poor."

^^
.
. .

The tremendous
is

in-

crease in the

number

of jobless "white collar" workers

not only

a necessary result of greater

upon whose employment,

in final analysis,

unemployment among wage-workers, depends the employment

is aggravated by the overcrowding of clerical and professional occupations, a condition which developed ominously during the pre-1929 prosperity. The "scarcity value" of the "educated" workers is no more; for, turned out by mass production methods, their numbers increase while the oppor-

of "white collar" workers. Their situation

tunities of finding

work

decrease.
great.

The need

for relief

was

...

In October, 1930, President

250

The Decline

of

American Capitalism
of Labor
of various

Hoover at the convention of the American Federation condemned unemployment insurance as involving "doles
kinds w^hich limit the independence of men."
according to the

The condemnation,
pleasing to

New

York Times, 'Vas

particularly

some of the Federation leaders, who are opposed to compulsory unThree employment insurance under Federal or state supervision." days later, William Green, the Federation's president, urged government officials to prepare winter relief for the unemployed. And Hoover set machinery in motion to "coordinate" relief in the form of charity. No doles! ... It was charity of the most demoralizing kind. Arthur .Woods, chief of the President's Emergency Committee for Unemployment Relief, broadcast appeals for money: "Increased funds for local relief are needed if human misery is to be prevented. Hospitals and dispensaries must receive more free patients; children's organizations will be crowded as broken homes are increasing." (In New York City, in 1930, evictions increased 30%, children in instituWorkers, with lower earnings, tions 12%, and foundlings 100%. ) were forced to contribute to money-raising drives, public school teachFor the first time women ers to pay for free lunches to children. and children appeared in breadlines. "We must," urged Grace Abbott
.

United States Children's Bureau, "get the children out of the Two years later she added: "Relief agencies have been unable to meet the needs of those dependent in cities and towns and able to give little or no assistance to small mining comof the

breadlines."

munities, where undernourishment

.

among

children

is

widespread."

was niggardly, ungracious, humiliating. ... It was particularly so in the case of Negroes and "aliens." The aliens were thrown out of jobs, denied relief. In New York City, the Emergency Work Bureau discouraged the registration of Negroes, and few Needy families were told to of those who registered got jobs. go to the police, who gave them a basket of food once a week, Charitable persons old clothes, occasionally some money for rent. Hotels, restaurants, organized more, bigger, and better breadlines. and produce merchants gave waste food to the needy, and bakeries Garbage cans were ransacked at night. gave stale bread. One man made it a business to hand out a batch of nickels to applicants and the advice: "Have the will to do, have patience, have hope, place your faith in God, and you will come out on top." Unemployed workers sold apples on the streets of New York, and Well-to-do women wholesale prices went up in a few days. (some of them!) made clothes for the children of the unemployed.
.
.

Relief

Disemployment and Surplus Population

.
. .

251

The President's Emergency Committee for Unemployment Relief made much pother about "providing employment" the old, old appeal

Employers were begged to "stretch matters a little to give added employment for a few months at least." This was done by "spreading" work, taking from one worker to give to Corporations announced proudly that they would not another. discharge any workers; investigation revealed they had either had Department stores "helped" no decrease or an increase in business. by advertising that they had hired new salespeople during the few days of a special sale, workers they would have hired anyway. The housewife was asked to "study her budget, find out what she can aflford to do in the matter of advancing work to be done in Rich men her home, and then have it attended to immediately."
to

"make" work.

were implored

to build rock gardens

. . .

and yachts

to

"make

jobs"

and

revive prosperity.

take time off one or

ployed.
.

Some unions made their working members two days a week to make work for the unemrelief

The

Federal government rejected pleas for direct

was contrary to the American traditions of rugged individualism. (Apparently rugged individualism was not menaced by the doles of local government relief and charity.) The government instead issued considerable publicity on new public works construction, adding, however, that "a long time is required to prepare construction work." ... By January, 1932, millions were
to the jobless workers. It

starving or approaching starvation, 500,000 in Chicago alone.

Meanwhile the unemployed were becoming more and more resentful, more and more desperate. Demonstrations of the jobless, in many of which the communists had the leadership, broke loose all over the They were met with the hatred of the well-to-do. The country. workers in one such demonstration in Seattle were called "bums"
.

by a prominent businessman, "hobos" by a lady active in social afJairs, and "criminals" by a millionaire factory owner in an address to his Henry Ford said: "Men who want work can get employees.
. .
.

it."

The communists, whose

idea spread, started the

Unemployed

Councils, to carry on an aggressive struggle for relief and social insur-

ance; organized state and national hunger marches, dramatized the

and will to struggle of the unemployed. and hunger marches were answered with clubs,
plight

Demonstrations

bullets,

and
.

tear gas,
.
.

brutally revealing the repressive class nature of the state.

The

Federal government deported 18,000 aliens in 1931, many of them because they were radicals or took active part in demonstrations and
strikes.
.
.

The

upflare of lynchings of

Negroes in the South was

252

The

Decline of Americain Capitalism

.
. .

not disconnected with the depression and unemployment.

Farmers
evictions.

organized resistance to foreclosures, went on

strikes,

demanded moraand

toriums on debts and the end of foreclosures, tax

sales,

... In

1931, the Illinois National

Guard

issued the following docu-

ment mob.

to its

members: "Blank

cartridges should never be fired at a

When

troops of the National

Guard
fire

are ordered

on

active

duty to suppress domestic disorders, under no circumstances will blan\

ammunition he issued

to

them. Never
full

over the heads of

rioters.

The aim
and

should be low, with

charge and the battle sight. Officers should not permit

men

should not fear reprisal in case one or more people are

killed. Officers of troops aiding civil authorities

performed" ... A survey by the United States Public Health Service showed that in 1932 one-fifth of a representative group o wage- worker families were "on relief." It was niggardly enough, this relief: some jobs on "made" work, some food, some rent money; and many didn't even get that. According to the Children's Bureau, one-fifth of the children in the country "are showing the effects of poor nutrition, of inadequate housing, of lack of medical care, of anxiety and insecurity. In some regions, without question, the proportion of below par chilthe latter to indicate

how

their duties should be

dren

is

far greater, reaching truly appalling figures."

Conditions

among

the unemployed had become unbearable by 1933. In January, William Green denounced "the money-fat enemies of America, who, through one device or another, have wrung from the people such a

proportion of the fruit of their

less sea of depression.

toil

that they are stranded in a motion-

After three years of suffering we, the organized

We shall use our might to compel the plain remedies withheld by those whose misfeasance has All Green asked was a small Federal relief caused our woe.'" appropriation. But such talk by a conservative labor leader was a reflection of the underlying resentment and pressure of the masses. The efforts of the government, of Niraism, to "revive" industry in 1933 by pouring billions into private enterprise had to include some measures of aid for the unemployed. The masses were desperate. The sight of billions going to corporations and nothing to
workers, declare to the world: 'Enough.
.

themselves would inflame their desperation. Moreover, local govern-

ments, which had borne the burden of what

virtually bankrupt; Federal aid for the

relief there

was, were
in a sense

unemployed was

a measure of financial relief for the local governments. ... In October,

1933,

according to the Federal Emergency Relief Administration,

3,143,678 families

were "on

relief," 12,500,000 persons,

including 5,500,-

Disemployment and Surplus Population

000 children. Millions

253
at all.

more were on

local relief or

And

the Federal appropriation for relief

no relief was a small part

It

of the

billions spent

by Niraism/^
its

Employment reached

lowest point in March, 1933.

rose there-

after because of the inflationary stimulus to production,

and reached

and profits rose more than jobs and wages. After July, the NRA got into action, and there were some small gains in employment. But by November only 3,500,000 more persons were at work than in March. Nearly all the increase under NRA, moreover, was mere "spreading" of work. Employment in the iron and steel industry was higher in October than in preceding months, but hours worked decreased and average monthly earnings were only $91. In 312 New England factories, 90% operating under NRA codes, employment rose 20.7% from June to October, but man hours rose only 1.3% and average weekly hours worked decreased 16%. And in New York City, according to the NRA Administrator, employment rose 20% from August i to November i, but payrolls
a high point in July; but output
rose only 13%, indicating an increase in part-time

work (and lower

From midOctober to mid-November 580,000 workers lost their jobs, 330,000 in manufactures alone. In December the United States Department
wages).

Then employment

again slumped disastrously.

of Labor reported a decrease of 113,000 workers in manufactures;

and the Department's survey includes

facturing industries.

less

than half of the manu-

percentage of decrease was greater than the average for the ten-year period 192^-33- The rise in total em-

The

ployment dwindled to
the

less

than 2,500,000. All the gains

made

after

NRA

got into action were wiped out.

in /pjj than in 1932.
it

And

average unemploy-

ment was higher

figures

Federation of Labor

minimize

total

According to the American from 11,489,000 to 11,888,000.^* (These unemployment; they underestimate the numrose

ber of the jobless in 1930, the starting point of the calculation, the

newly available workers, and the unemployment in agriand professional occupations.) In January, 1934, over 15,000,000 persons were still unemployed, including those engaged on temporary "made work" provided by the Civil Works Administration as a subincrease in
cultural
stitute for direct relief.

The unprecedented mass

prosperity

of cyclical unemployment,

its

great rela-

tive increase over previous depressions,

and the

inability to restore

mendous

on any considerable scale, all indubitably forecast a trenormal unemployment. Productivity is grov^ing at an accelerated rate. The National Bureau of Economic Research estirise in

254

The

Decline of American Capitalism

mates that man-hour productivity rose 12% in 1929-32 compared with only 7% in 1927-29/^ In some cases the increase is much greater;
thus man-hour output in the manufacture of pneumatic tires

was

higher in 1931 than in 1929/^ Total average unemployment in ^933 ^^^ ^% higher than in 1932, yet, according to the Federal Reserve Board, production and trade rose 10%}'^ The displacement of labor

34%

goes on; and as the tendency of production must be

downward

after

revival, while productivity moves upward, absolute displacement will take place on an increasingly larger scale. One estimate is that if production in 1934 reaches the 1923-25 level, with the average work week reduced to forty hours and no further rise in the productivity

wage and clerical workers will still be jobless, which may be reduced by part-time work; if the 35-hour week is introduced, the unemployed will still number 9,000,000, which would become greater if the productivity of labor rises.^ If producof labor, 12,200,000 a total
tion reaches the 1929 level, 4,000,000 workers, according to General

Hugh
is

Johnson,

NRA
It

Administrator, will
forgets that the

still

be

jobless.^^

But that
in 1929

an underestimate.
2,500,000,

unemployed workers

and makes too small an allowance for the rising productivity of labor and the new workers coming into the labor market. Production at the 1929 level, not an immediate expectation, would involve the unemployment of 7,000,000 to 9,000,000 workers.*

numbered

It is

absolutely certain that there will be a tremendous increase in

in-

"normal" unemployment. The surplus population must grow, an

creasing mass of workers for

whom

capitalist

production cannot pro-

The

social-economic losses of

unemployment

are tremendous.

worker in manu-

1929 produced $5,330 (unduplicated value) worth of commodities. If, in 1923-29, 1,000,000 of the unemployed workers had been put to work on some of the
factures in

unused capacity, they would have produced an output of $37,000 million.

If

500,000

more workers, who were

available,

had been working on construction, they would have

produced around $7,500 million (excluding value of materials) of new housing. If in 1930-33 manufactures had employed 4,000,000 unemployed workers, they would have

produced an output of $60,000 million. Unemployed construction workers involved

of $120,000 million in goods

loss

of an output of $15,000 million. This rough calculation indicates a wastage, in 1923-33,

which might have been produced. That

is

two and one-half

times the combined value of manufactures and construction in 1929.

include services which might have been performed.

And

it

does not
is

Nor

other forms of waste. There

services,

tremendous waste in the production of

useless

and shoddy goods and

and in the
for socially

growth

of non-productive occupations; millions of workers

might be released
its

useful labor.

And

it

is

notorious that capitalist industry, in spite of

efficient

excess capacity,,

docs not always utilize the newest and most

losses

technology.

The

social-economic

o unemployment become increasingly greater in the epoch of the decline of

capitalism. Industry can easily

wipe out poverty; capitaUsm

retains

the

abomination.

Disemployment and Surplus Population

vide work.

255

Marx

thus described the underlying causes of the surplus

population,

population

"The working
capital, also

while

efiFecting
it is

the

accumulation of
rendered relatively
it

produces the means whereby

is

itself

superfluous,

turned into a relatively superfluous population; and

.

does so to an ever increasing extent.

The supplementary
chiefly as

capital

formed

in the course of

for the utilization of

new

normal accumulation serves inventions and discoveries,

means
neces-

especially of ad-

vances in industrial technique. But, as time passes, the

sarily

moment

skin,

comes when the old capital renews its head and limbs, sheds its and is reborn with a perfected technique, so that a comparatively

small quantity of labor will thenceforward suffice to set a comparatively

machinery and raw materials in motion. The supplementary capital formed in the course of accumulation attracts fewer and fewer workers; the old capital, periodically reproduced with
large quantity of
.

new

composition, tends more and

. . .

more

to repel

workers

whom

it

used to employ.

The demand
. .
.

for labor falls progressively as the

total capital increases.

An

accelerated accumulation of that capital

is

(accelerated in geometric proportion)

needed to absorb an additional

on account of the continuous metamorphosis of the old capital, to keep in employment those already at work. Capitalist accumulation constantly produces, and produces in direct proportion to its energy and its extent, a relatively redundant population of workers a surplus population promoting capitalist accumulation and indeed a necessary condition of the existence of the capitalist method of production.* It forms an available industrial reserve army which belongs to capital for its own varying needs in the way of self-expansion ... an ever-ready supply of human material fit for exploitation. As accumulation proceeds, and as the accompanyof workers, or even,
. .
.

number

ing development in the productivity of labor takes place, capital's

power of sudden expansion grows. The mass of social wealth, become superabundant owing to the advance of accumulation, and
.

transformable into additional capital, urgently seeks investment, either

in old branches of production for

suddenly expanded, or

else in

whose products the market has newly formed branches the need for
ones. In
all

which has grown out of the development of the old

cases,

it is

such

essential that there

should be a possibility of providing great

increase the net revenue
deteriorate
will be in

Marx quotes David Ricardo: "The same cause which may

of the country,

same time render the population redundant, and the condition of the laborer." With increase of capital "the demand for labor
at the
v. I, p.

may

diminishing ratio." Marx, Capital,

697.

256

The

Decline of American Capitalism

masses of workers whose

activities can be engaged at the decisive points without any interruption in the work o production in other spheres.

... and

sudden and

fitful

expansion

is

a prelude to equally

sudden

fitful contractions.

The

latter, in turn,

evoke the former; but the

is

former, the expansions, are impossible unless there

material, unless there has been an increase in the

available

human

number

of available

of available

workers irrespective of the absolute growth in population. This supply human material is dependent upon the simple fact that

some of the workers are continually 'being set at liberty' by methods which reduce the number of employed workers. The production of a relatively superfluous population has become an indispensable condition of modern industry. The greater the social wealth, the amount of capital at work, the extent and energy o its growth, and the greater, therefore, the absolute size of the proletariat and the
. .

productivity of
available labor

its

labor, the larger is the industrial reserve

its

army.

The

power has

extent promoted by the

same causes

which promote the expansive force of capital. Consequently the relative magnitude of the industrial reserve army increases as wealth increases. But the larger the reserve army as compared with the active labor army, the larger is the mass of the consolidated surplus population, whose poverty is in inverse ratio to its torment of labor. Finally, the larger the Lazarus stratum of the working class and the larger
the industrial reserve army, the larger, too,
officially
is

the

army

of those

who

are

paupers."

Marx added: "This is the absolute law of capitalist accumulation. Like all other laws, it is modified by numerous considerations." The most important consideration is the rate of expansion in production. (Another consideration is the growth of non-productive occupations.) If, as in the epoch of the upswing of capitalism, production rises more
than the productivity of labor, the surplus population grows, but
slowly.
It

grows rapidly in the epoch of the decline of

falls
still

capitalism, berises;

cause the rate of expansion in production

while productivity

and

it

grows

more

rapidly

if

there

is

an absolute downward tendis!)

ency in production.

The Marxist
"Look," they

theory of an increasing surplus population was (and

the

scorned by bourgeois economists, by

said,

post-Ricardian

epigones.

"look at the constantly greater

number

of workers."

But they ignored the increase in normal unemployment, in the insecurity of work. Now the surplus population is so large that it must be recognized and dealt with. In 1932, the British Royal Commission on

Unemployment Insurance admitted

the

existence

of

"an element

Disemployment and Surplus Population

of

257

unemployment
It

that

is

not temporary and will not disappear with

trade revival."

used such phrases as "persistent unemployment,"

"redundant element of workers," "surplus labor," and "excess of

workers."
It

accepted the fact of permanent unemployment:

all

"Until 1928 the view was taken that

or most

unemployment was
this

due
its

to trade depression of the ordinary type.

its

Had

been the

case,

duration would have been limited,

incidence

limited.

...

It is

now

clear that the greater

of the period 1923 to 1929 of a

more
It
is,

persistent character

was not due to due to causes that were not

would have been part of the unemployment trade depression, but was
transient.

...

of course, true that the present depression has involved

workers

who

have every prospect of re-employment when industry

.

But the difference remains that the unemployment caused by trade depression will pass, while the other unemployment will persist when trade improves, as it persisted through the good years 1924, 1927 and 1928 associated with some more pergenerally improves.
.
.
.

manent condition of British industry." ^^ The Commission on Unemployment Insurance

from 395,000
the
to 718,000

estimated, for seven

industries with one-quarter of all the insured workers, an excess of

workers (out of a

total of 3,264,000). It

foresaw

more or less permanent unemployment of 3,000,000 workers. The Commission proposed, and the British government has since substantially accepted the proposal, to "reform" the unemployment insurance system, which has broken down because of the increase in "redundant" and "excess" workers. The insurance system is to be made self-supporting:
it is

to cover only

employed workers who are temporarily

all

unemployed and only

for so long a period as they have paid for with

contributions to the insurance fund;

great majority, are to go
of the

other jobless workers, the

upon poor

relief.

Even before the adoption

of,

new

system, "reductions in, and disallowances

benefits"

had, according to the minority report of the

sion,

"caused a great increase in

words of Marx, "is is also true of Germany, Italy, and France, where most of the aid for the unemployed is on the basis of poor (very poor!) relief. Unemployment insurance in Germany is insignificant in comparison with "emergency relief" and "poor relief." An unemployed worker must "prove" his right to relief, which was always small and is still smaller under the brutal Hitler regime. In England, where
larger," in the

Unemployment Commispauperism and vagrancy." ^^ "The the army of those who are officially

paupers." This

relief

allowances are a bit larger than in the other three nations, the
diet prescribed

minimum

by the government for an unemployed

258

The Decline
is less

of

American Capitalism

worker

than that for soldiers and convicts; and in

many

areas,

unemployed and part-time workers are far below even the government's low minimum ration.^^ These conditions of constantly greater unemployment and mass pauperization appeared in capitalist Europe before the depression which began in 1929. They have since appeared in the United States,
the food expenditures of
after gathering force

One
Civil

of the worst by-products

during the flourishing prosperity of 1923-29. is the growth of an army of homeless

They are larger in number than in the period after the War, when, according to a conservative estimate of the New York Times, there were in New York City alone 10,000 completely homeless children, "exposed to incessant and overwhelming temptation, who suffer severely in winter and stormy weather a fearful mass of childish misery and crime." ^* In 1932, 200,000, probably 300,000 homeless youngsters, many of them girls, wandered over the highways of the nation, "meagerly fed, scantily clothed, told endlessly to 'move on'. No use to go home even if they could get there for home offers even less in sustenance than the open road. No jobs to be had regularly. Few beds to sleep in, except the hard ground in tramp 'jungles' along the railroad tracks." Many are killed "stealing" rides on
children.

trains. Others, as

"criminal" vagabonds, are sentenced to serve in the

horrible chain-gangs of the South.

The

conversation of three of

them

is

revealing:

Tom
Red
way.

[mournfully]
[wistfully]
: :

If I

ever get

home

I'll

just park.

Y'oughta be glad you got a home.

don't
of ice

Mike I've got a home, but the folks What would you give for a dish
Red: Ice cream!
I

ain't

seen any in

want me. So I'm on my cream? months. ... I used to get a

relations lost their jobs I

job delivering for a butcher, but after

lost

my

mine too. Guess they got tired of having me around when I didn't make no money, so I thought I'd better leave. Fun? [ruefully] I ain't had no fun since I left school.^^ Now, when it is too late, American reformism, and this is characteristic of it, proposes compulsory, self-supporting unemployment insurance. In 1932, the Executive Council of the American Federation of Labor, "with considerable reluctance, abandoned its long opposition to compulsory state insurance," and its action was approved by the convention. But the plan proposed was merely, "after a waiting period of three weeks, to pay benefits for a maximum period of sixteen weeks in a year based upon 50% of the normal weekly wages, but not to exceed $15 a week."^^ Niggardly as it is, that plan might have been
. .
.

Disemployment and Surplus Population

of value in the epoch of the

259

upswing of capitalism, when unemploywas relatively small and temporary; although the plan would have had little value in depression. But now unemployment is increasingly permanent; it is ^//employment, a complete separation of the worker from the job. This is most apparent in the millions of young workers in Europe and the United States who do not know work and have no chance to work, who merely swell the surplus population. The permanently unemployed workers are not covered by unemployment insurance; they are thrust upon

ment

in periods of prosperity

emergency or poor

relief.*

This appears

clearly in the 1933 report of

the Secretary of Labor, Frances Perkins:

"Some form

of

unemployment
it
.
.

reserves should be

set

up

in the

different states so that in future

may

take the place of the breadlines

No one has yet found a cure for unemployment. ... In urging unemployment reserves, I realize that adoption would not mean the throwing up of economic bulwarks for all wageor other charities.
.

earners.

The number
paid."

There should be a definite and fairly long waiting period. of weeks of benefit should be limited to bear a definite

relationship to the

amount

of contributions

made

or the

premiums

"
is

That
to

a proposal to force the great majority of

be

satisfied

with emergency or poor

relief or

unemployed workers no relief at all. This

is emphasized by the fact that in the reports of various state unemployment commissions "there is," according to a member of the research staff of the National Industrial Conference Board (an employers' organization), "a recognition that unemployment is not an insurable risk, and the proposed plans are labeled 'unemployment

reserves.'

No

provision

is

made
is

for state contributions,

no
is

benefits

are paid after the reserve

sible

fund
is,

exhausted, each employer

is

respon-

only for his

own

workers, and no attempt

^^

made

to 'insure'

against

unemployment
is

that

to give full security to the

worker
it

as

long as he
relief

unemployed."

Thus
there

capitalism offers merely niggardly

or

no

relief at all to the

surplus population for

is

whom

cannot
will

provide work, and for

ever be provided.
* Because of this, the

whom
class

small prospect that

work

working

must demand and struggle

all

for real

unemployment
collar"

insurance covering

all

forms of unemployment and

workers.

The "white
become
allies

workers,

whom

mechanization and economic decline thrust increasingly into the surplus

also

population,

must

demand

real

unemployment

insurance, and

of the

wage-workers.

CHAPTER XVI

The Economics

of Technology

il

HE absolute displacement
itself.

o labor by technological progress

is

not

a result of technology

"Technological unemployment"
of workers

is

a conit

venient term with, however, a limited application. In one sense,

describes the

unemployment
skills

whom new
is

machines have
it

deprived of jobs or

or both. In another sense,

describes the

element in increasing unemployment which

brought about by im-

efficiency and not by a decrease in production. But technological unemployment becomes permanent only if there is an insufficient rate of expansion in production or if working hours are not reduced in conformity with the higher productivity of labor, both of which factors make it impossible for industry to absorb displaced land newly available workers. Hence permanent unemploy-

proved technological

ment, the surplus population,

not a technological one, and

is
is

essentially a social-economic

problem,

the result of capitalist incapacity to

adjust consumption to production.

Yet technology
talist

is,

within the limits of the

first

social relations of capiIt

production, a causal factor of

importance.

conditions the

whole process of production, including unemployment. Where the rate of expansion is upward, industry might provide work for all
available workers
if

technological efficiency did not disproportionately

raise the productivity of labor.

Where

the rate of expansion

capitalist

is

down-

ward, as in depression and in the epoch of

nological displacement of labor adds to the

decline, tech-

unemployment already
is

created by the lower level of production. Technology

an

accelerat-

ing factor in economic development.

It has,

moreover, an antagonistic

and disruptive impact on capitalist production, which has allowed technology to become a demon it cannot control. But this must be true only because of the black magic of capitalist decline. For technology is a part of the progress of mankind, since man is a tool-making and tool-using animal. When it was crude and empirical, technology was dwarfed by the natural environment. Its development strengthened man's control over natural forces and, consequently, his capacity to produce. When technology, under capitalism, became the purposive application of science to industry, it 260

The Economics
resulted in an

of Technology

261

enormous increase of the productive forces o society and of man's mastery over nature. Now^ these developments are undermining capitalism. Technology is being limited in its progress and uncontrolled in its results. The great productive forces of society bring permanent unemployment and w^ant in the midst of plenty.

And
its

the mastery of natural forces threatens universal ruin because of

use for destructive purposes of w^ar.

Thus

capitalism reacts against

which technology, becomes more fully and creatively the purposive application of science and the means of man's mastery over his environment and himself.* As the mechanical equipment of production, materials, and
progress. It
social order in

makes necessary a new

limitations,

stripped of

its capitalist

processes,

and the accumulation of technical knowledge and

is

skills,

technology

the basis of industry.

it

It

determines the material relations

is

of production; and

influences, but

itself also

influenced by, the

prevailing property, class,

tion as a

whole

is

and social relations. The mode of producdecisive, and not its technology. Thus technology is
its

not an independent but an historical factor;

forms, development,

and uses
merely

are interlocked with the social-economic relations of produc-

tion. It is the
its

mode

of production as a

whole which

is

decisive,

and not

technology.

The emphasis on

technology as an independent

factor distorts both the understanding of history

and the understanding

of present-day problems.

The

technology and economics of production inseparably condition

reveals

* "Technology

man's dealings with nature,

discloses

the

direct

productive

activities of his life,

thus throwing light

is

upon

social relations

and the resultant mental

conceptions.
process in

Primarily, labor

a process going on between

man and

nature, a

which man, through

motion arms and
he
at the

his

own

activity,

initiates,

regulates

and controls the

material reactions between himself and nature.

forces, setting in
legs,

He

confronts nature as one of her

own

head and hands, in order to appropriate nature's

wants.
his

productions in a form suitable to his

own

By thus

acting

on the external world

develops the potento his

and changing
tialities
. . .

it,

same time changes

own

nature.

He

that slumber within him,

and subjects these inner forces

own

control.

The

labor process ends in the creation of something which,

when

the process

began, already existed in the worker's imagination, already existed in an ideal form.

What happens
objects; at the

is,

not merely that the worker brings about a change of form in natural
in the nature that exists apart

same time,

from himself, he

realizes his

own

purpose, the purpose which gives the law to his activities, the purpose to which

he has to subordinate his

own

will.

He makes

use of the mechanical, physical

and chemical properties of things

in order to

as

means

of exerting

make

these other things subservient to his aims.

his
activities

power over other things, and Thus nature becomes

.

an instrument of

with which he supplements his

own

bodily organs,

adding a cubit and more to

V. I,

his stature. Scripture notwithstanding."

Karl Marx, Capital,

pp. 169-71, 393.

262

The Decline

of

American Capitalism

one another, but their relative importance varies in time and place. Technology has acquired an accumulating influence. It was small in

man was dominated by his natural environment; yet even here man could not have become man without the making and using of tools. In ancient civilizations, the slowness of technological change was a primary cause of the slowness of social
primitive society, where

change, which, with the contempt-for-work

spirit

of slave cultures,

hampered the development of technology. There was no direct technological influence on the great change in the mode of production from slavery to serfdom; it was the result of the economic-political breakdown of the Roman Empire, of slave agriculture having become unprofitable, and of the introduction of new labor relations in agriculture. But technology tremendously influenced the coming of the Renaissance and the commercial revolution. While the early Middle Ages were retrogressive or stagnant in their technology and economy, an increasing number of significant inventions and technical improvements were developed from the tenth to the fourteenth century. There were new forms of harnessing for work animals and an improved plow; wind and water mills, mechanical clocks, a new type of plane, improved bellows, and better construction methods; the compass and the steering rudder for ships; more efficient processes in metal working; many other improvements in tools and many new machines (one, for example, to press the heads of pins and a silk-reeling machine operated by a water wheel) the use of gunpowder and the casting of increasingly larger cannon.^ Gunpowder and cannon "democratized" war and had an explosive effect on the hierarchical organization of society. The technical-economic changes led to division of labor and specialization of crafts, stimulated the rise of industry, trade, and the commercial bourgeoisie, and influenced social life and mental conceptions by an increasing production and distribution of old and new products. Improvements in tools and the construction of more complex
;

machines stimulated the rise of experimental science, of the practical spirit of doing which is a characteristic of both science and the bourExperimental science itself requires a technology. New vistas opened up in all fields of life. All these changes merged into the commercial revolution of the sixteenth and seventeenth centuries, which
geoisie.

was, however, essentially a social-economic, not a technological, process.

While

it

was accompanied by many improvements

in tools

and

machines, the distinctive features of the commercial revolution were

the growth of the trading class, increasing production for the market,

emergence of the

class of "free"

wage-workers, expropriation of the

The Economics
peasants from the
soil

of

Technology

263

and the creation of a labor reserve,* developbreakdown o the system o independent handicrafts and guilds, increasing division and specialization of labor in the early factory system, and the rise of large-scale capitalist enterprise. These changes in the mode of production prepared the conditions for the industrial revolution of the eighteenth century, in which technology was relatively the most important factor. They developed all the essential features of the factory system, whose basis is not machinery but the speciaHzation and division of labor for more economical production. All the fundamental social relations of capitalist production free wage labor, separation of the worker from the means of production and their conversion into capital, the system of production for profit, price and the market as "regulators" of industry conquered the older economic relations during the period of the

ment

o the world market,

commercial revolution. The technological revolution of the eighteenth century did not create the social relations dominating the devel-

opment and functioning of modern technology. It is these relations which create the "technological" problems of to-day. Socialism means
a change in the social relations of production, not in
its

technology.

Another aspect of the overemphasis on technology is the overemphasis on energy or power as the decisive factor in both technology and economics. An American "technocrat" and professor of industrial engineering says: "For a period of about 6,000 years, before the becivilization was dependent on ginning of the nineteenth century the energy of man power for the goods and services provided. From the technologist's point of view there was no social change whatever during all this vast period of time. There was no change in the rate of doing work." ^ But energy can no more be separated from
.
. .

technology in general than technology can be separated from the

of production as a whole.

mode

During

that "changeless" period of time,

man
*

developed the basic features of technology, in the gradual imhis tools, materials,

provement of
The
fire

and
soil,

processes.

There were

social

expropriation of peasants from the

by means of enclosures of the land and

it

with

and sword, was

particularly severe in England; but in other countries also

was

a factor in creating

a mass of propertiless

and helpless workers for the use of

innumerable wars, and disruptions

capitalist enterprise. Dissolution of the monasteries,

of the guilds increased the

number

of beggars, orphans,

and adventurers; many of these

were driven into

factories or forced to

work, unpaid, on the construction of roads by

savage decrees of the absolute monarchy. There was no expropriation of peasants from
the soil in the North
labor

American

colonies,

where land was abundant and

free;

indentured

was secured from

its

helpless colonial orphans

and from the mass of unfortunates in

England, but

conditions, while bad enough, were better than in Europe.

264

The Decline

of

American Capitalism
field of

changes of the utmost importance. Even in the

energy there

was the introduction and increasingly more efficient utilization of wind and water power. Technology moved slowly, but it moved, augmenting man's control over nature and his capacity to produce. Without the constantly greater accumulation of technical equipment and knowledge from the thirteenth to the eighteenth century (including steam engines used for pumping in mines), there could have been no development of a new source of power. And the industrial revolution was
ushered in by fundamental changes in machinery, not in power.

The

technology of tools and machines already in existence served

as the starting point for the

development of new machinery which

culminated in the industrial revolution.

larger

An

increasing construction of

and more complex machines improved mechanical engineering

to the technological application of scientific discoveries. In the

and led

early factory system,

where formerly independent craftsmen worked

tools

together in one shop under control of a capitalist, tools were improved

and

simplified,

and many new forms of

were created

to

meet

the requirements of increasing specialization and division of labor.

This simplification and multiplication in turn suggested the mechanical

combination of tools into machines.

The

early factory used con-

stantly

more machinery,

particularly in the

making

of metal products;

was an imposing array of water-driven slitting, pressing, shearing, and rolling machines.^ The machine of the industrial revolution was basically a contrivance which mechanized existing tools and reproduced manual actions.'* The tool formerly held and operated by the worker was incorporated in the machine, thus combining and mechanically operating a number of identical or similar tools. A machine might incorporate only a single tool, but it increased the power, speed, accuracy, and capacity to produce. The manual actions of crocheting and knitting were mechanically combined in the stocking knitting machine. Prior to the invenin one metal factory there

machinery the spinner held a single thread between was replaced by the movable carriage in Hargreaves' spinning jenny. Mechanical substitutes for the human fingers appeared again in the rollers of Arkwright's spinning frame, which twisted the yarn as it was wound on the spindles. While the machines of the industrial revolution were essentially mechanized
tion of spinning

the

thumb and

forefinger; this

tools

reproducing manual actions,

all

this

is

true

only

in

part

and

frequently not at

of a whole series of machines created by later

technological developments,

which

also increased

enormously the im-

portance of apparatus, a means of production totally dissimilar to

The Economics
machines and
tools.

of Technology

265

they stimulated the search for a

As machines became more complex and heavier, new source of power. Water power

was used more and more, but it involved limitations in the location and the relatively inefficient water wheels were incapable of moving very heavy machinery. Newcomen's steam engine was Hmited to pumping in mines, until Watt transformed it into a mechanism which from reciprocating motion produced the rotary motion necessary to drive machines. Human and water power were displaced. A single prime mover was now able to supply power to several working machines; and the factory became a weird maze of belts, ropes, and pulleys whirling overhead and alongside the machines. The steam engine and the new and heavier machines it made possible required large amounts of iron; this stimulated the development of new techniques in metallurgy, a combination of mechanical and chemical imof industry,

provements.

The

final

phase of the technological revolution was the great change

in metal working, in the production of

means of production. Existing

metal-working machines were neither powerful enough nor accurate enough to produce the precise parts needed for the new machines,
especially the

steam engine.

The

creation of an industry manufactur-

ing the mechanical equipment of production, a basic necessity of the

new

industrial capitalism, required

itself

making

the construction of

ma-

chinery
the skill
into

a function of machinery, increasingly independent of

and muscle of the worker. Machine tools, which shape metal wrought forms by bending, pressing, shearii^g, paring, and boring, had to become larger, more powerful, and of greater precision. The trend of developments was symbolized in the slide rest, a device replacing the highly skilled operator, who formerly held and guided the cutting tool, with an ordinary worker who simply turned a screw handle; and the worker himself was displaced when the slide rest was made automatic. "This mechanical appliance does not replace Thus it became possible another tool but the human hand itself. to produce the geometrical forms requisite for the individual parts of machinery 'with the degree of ease, accuracy and speed that no accumulated experience in the hand of the most skilled workman could give.' " ^ The liberation of machine tools (and of machinery in general) from the limitations of manual labor resulted in the transformation or disappearance of the tool formerly operated by a skilled worker. But the scope of labor was enlarged, quantitatively in the performance of heavier work and qualitatively in greater accuracy. Machinery did work which manual labor could not do and did better
. .

266
the

The Decline
work which
it

of

American Capitalism

increasingly dependent
forces of nature,

The construction of machinery became upon the "replacement of human force by the and of rule-of-thumb methods by the purposive apcould do.

plication of natural science."

By

the 1830's

all

the fundamental aspects, including the central one

of labor displacement, of the

new

technology were clearly evident,

particularly in England. All subsequent technological developments

have had essentially an accelerating and quantitative influence.

1.

The

progressive realization of the technical function of machinery

and production (and socialeconomic relations in general), a development which increasingly conditions the nature of machinery. The creation and improvement of tools emphasized the primacy of manual labor in production; technology was essentially an accumulation of manual skills in operating tools. But machinery transfers skill to the machine, and subordinates the worker to the mechanical equipment of production; technology becomes essentially an accumulation of engineering knowledge and skills, and of machines, apparatus, and processes which constantly
reduce the relative importance of manual
skill

revolutionizes the relations between labor

and human

labor.

The

early factory, in contrast to the independent handicrafts,

needed

and used large numbers of unskilled workers; they were greatly augmented by the machinery of the industrial revolution, most evident in the preference given to women and children in the textile mills.

New
they,

skills

arose,

especially in the construction of

machinery; but

and unskilled workers in general, were gradually replaced by semi-skilled labor as machines became more efficient and automatic.

The

automatic principle, although

at

first

imperfectly realized,

is

inherent in machinery.

And

the transfer of skill to the

means not merely machine but eventually of all work itself.

the automatic principle
It

The machine
itself,

is

an arrogant monster.

seeks to be sufficient unto

to displace the

human

worker, and tends to

directs.

make

the worker a

technician
2.

who repairs, controls, and The new technology, with its

constantly greater

demands

for

mechanical equipment and raw materials, profoundly altered the composition of capital. In the early factory system, in spite of the increasing

main element in production was still human labor; was low, with a preponderance of variable capital (wages) over constant capital (equipment and materials). Factories were small, moreover, and did not absorb any large amounts of capital. And while the factory was increasing in importance, the "putting out" system existed on a large scale. In this system, the craftsmen prouse of machines, the
the composition of capital

The Economics
vided their
capitalist,

of

Technology

267

own tools and worked in their own homes; the commercial who marketed the product, supplied the raw materials but
little

did not invest capital in equipment and factory buildings.

consequently, production needed
fixed capital. This

As a whole, was changed

by the technological revolution. Machinery and factory buildings made larger investment in fixed capital necessary. The investment became still larger as machines increased in size and number, with a corresponding increase in the size of factories.
as the efficiency

More raw material was consumed and the scale of production rose. Thus constant capital was continuously augmented. There was an absolute increase in the
number
of workers; but the rising productivity of labor brought about
a relative displacement of workers,
steadily in relation to fixed capital,
3.

and variable

capital

(wages)

fell

raw

materials,

The

higher composition of capital necessarily

and output. meant an increasing

concentration of industry. This tendency appeared very early in the iron

which was transformed by the industrial revolution. grew rapidly, the formerly small and decentralized concerns became larger and more integrated; they mined ore and coal, smelted, refined, rolled, and slit the iron in its finished forms.^ Profits were high, but competition was savage and failures
and
steel industry,

As

fixed capital requirements

many;

the industry

started

series

of

amalgamations, increasing

both the scale of production and the fixed capital requirements.

process of concentration

The

went on inexorably, if unequally, in all branches of industry, urged onward by the constantly greater scale of production, the mounting capital requirements, and the intensification of competition, in which the bigger capitalist usually devoured the smaller. Concentration was encouraged by the increasing technological application of science and its production of machines both more efficient and more expensive. The mechanization and concentration of industry thrust aside both the independent producer and the commercial capitalist. Up to the industrial revolution, the commercial capitalist, who was interested mainly in the marketing of goods, was dominant. He was replaced by the industrial capitalist, who assumed responsibility for the whole process of production. Small producers were either expropriated or permitted to survive only in comparatively unimportant

branches of industry.

The middle

class

rose into the class of large industrial capitalists,

was transformed; one part who now dominated

the bourgeoisie, the other part

became increasingly an intermediate,

subordinate class of petty traders, managerial (including technical)

employees in large-scale corporate enterprise, and professional workers.

268
4.

The Decline
The new
it

of

Americaa Capitalism

technology raised the productivity of labor tremendously.

lagged behind the existing possibilities, national and internaFor the introduction of new machinery did not depend merely upon its efficiency, but upon whether it saved enough in wages; in other words, upon whether it aided the capitalist in the competitive struggle and in the making of larger profits. England, moreover, tried to monopolize the fruits of technological progress, to prevent other countries sharing in them. The uneven development of capitalism meant that at any particular time or place the utilization of new machinery might not be profitable. "That is why to-day," Marx wrote, "machines are sometimes invented in England which can only be put to use in North America; just as, during the sixteenth and seventeenth centuries, machines were invented in Germany which were only put to use in Holland; and just as many French inventions of the eighteenth century were only utilized in England. In the older countries, machinery, when employed in some branches of industry, creates

But

tional.

such a superfluity of labor ('redundancy of labor'

in other branches, that in these the fall of

is

Ricardo's phrase)

wages below the value of labor power hinders the use of machinery, and, from the standpoint of capital, whose profit comes, not from a diminution of the labor employed, but from a diminution of the labor paid for, renders that use superfluous and often impossible. Before the labor of women and that of children under ten years of age was prohibited in mines, the capitalists found the employment of naked women and girls, often harnessed side by side with men, perfectly compatible with their moral code, and still more compatible with satisfactory entries in their ledgers, so that it was only after the prohibition had come into force that they had recourse to machinery. The Yankees have invented a stone-breaking machine. The English do not make use of it, because the 'wretch' [a recognized term for the agricultural worker] who breaks stone by hand is paid for so small a proportion of his labor that machinery would increase the cost of production for the capitalist." ^ Nevertheless there was
. .

a constant increase in the productivity of labor because of the introduction of in

new

machinery.

And

out of

this arose the

problems which now,

more

acute form, torment capitalist industry.

The development

of

the productive forces outstripped consumption. Classes other than the

workers (including the old feudal aristocracy) gained most from the higher output of industry. Cyclical crises and depressions made their appearance, arising out of the dynamics of capitalist production itself.

England

tried to

overcome the contradictions by cultivating the export

markets, which did not abolish cyclical breakdowns but did accelerate

capitalist

development.

The Economics of Technology One result, however, was mass

269
starvation (par-

ticularly in the

Hungry

Forties) in the midst o relative plenty.

Another

result

was the overdevelopment

of industrialism (and consequent ruin

of agriculture), which, "balanced"

the world's workshop,

and profitable while England was was increasingly undermined by the progress

of international industrialization.
5.

Agriculture was the stepchild of the

new

technical-economic desoil

velopments.

The

expropriation of peasants from the

had already

shown what capitalism had in store for workers on the land. The new technology was used in a very niggardly fashion in European agriculture, yet there was a great increase in productivity. Millions of farm
workers were displaced, a

They became
and servants

the

new expropriation of peasants from human raw material of the factory system or

the

soil.

servants

of the well-to-do.

And

as

immigrants they became manual workers

States.

in the

United

In spite of the limited use of the

among American farmers, there was an increasing adoption of capitalist methods and concentration of production. But agriculture lagged behind the general economic progtechnology in agriculture, even
ress.
It

new

lagged because the older social-economic relations lingered

and because agriculture was exploited by capitalism. In the industrial countries of Europe, especially England, agriculture was discouraged in favor of intensive industrialization, which based the national economy on the export of manufactures and the import of agricultural products. In the United States it took the form of forcing agricultural expansion beyond the point where it was profitable, and using the farmers' surplus to pay for the imports of capital necessary for rapid
on,
industrialization.

And

the exploitation of agriculture forced colonial

and other economically backward countries to concentrate on the production of one or two crops, in the interest of foreign capitalism, with eventually disastrous results to the local economy. Technology, in the form of improved agricultural implements and means of transportation, facilitated the exploitation of agriculture. The plight of world agriculture to-day is the cumulative result of the whole development
of capitalist production.
6.

All the developments of the industrial revolution,

its

transforma-

tion of the technological basis of production, contributed in one

way

or another to the creation of a surplus population.. The beggars, vaga-

bonds, and adventurers, the outcasts of a feudal order which was break-

ing

down from

the fifteenth to the eighteenth centuries, were not a

is shown by the measures adopted by the them to work, to develop a labor reserve

true surplus population; this

absolute

monarchy

to force

270

The Decline

of

American Capitalism
in the composition of capital

for capitalist enterprise.

Changes

and the

resulting rise in the productivity of labor

moved

slow^ly,

although

some v^orkers were

the supply.

displaced. The demand for labor usually exceeded Where workers were unemployed it was mainly because of

But the surplus population was the direct result of the workings of capitalist production itself. For industrial growth, the expansion of old and creation of new industries, required a large and growing labor reserve. Labor was displaced by the higher composition
arising after the industrial revolution

the bad organization of the labor market.

of capital. Productivity of labor, in general, rose faster than production.

The

rise,

moreover, was uneven, haphazard; workers displaced in one

industry were not absorbed by expansion in another.

And,

as yet, the

production of capital goods was not sufficiently developed to provide

employment for many workers. In addition to the displacement of workers by more efficient mechanical equipment, there was more displacement because of the barbarous exploitation of labor. Women and children were increasingly employed in preference to men. The working time, which was predominantly ten hours daily in the England
of the seventeenth century, rose steadily as a result of the industrial

was customary and the 18-hour day not unusual.^ The surplus population was augmented by peasants who flocked to the towns looking for work. Wages fell under pressure of unemployed men and working women and children. It was an epoch of increasing misery for the working class.* The earlier industrialism was marked by an absolute displacement of labor and increasing misery among the workers. This was checked in the epoch of the upswing of capitalism, from the 1850's to the 1890's. In the more highly industrial countries working hours fell and wages rose. Much of the newer and more complex technology, in contrast to the crude machines of the industrial revolution, was incomrevolution; by 1800 the 14-hour day
* For

some

years, research students

have been trying

to disprove that the industrial

revolution produced a surplus population and increasing misery from, say,

1750 on.

But

this represents the necessity for

being "original," where

it

is

not sheer apologetics.

Conditions were, of course, not so bad in the United States prior to the Civil War, a

most important peculiarity in shaping American

labor

social

development in general and the

development pro-

movement
to

in particular.

and preferred

The employ women,

scale,

factory system expropriated the crafts of the artisans children,

and orphans. But

this

ceeded on a small

because industrialization was slow; and wages were relatively

high, a colonial heritage which persisted because,

owing

to continued existence of the free

lands of the frontier, wages tended to approximate the level of the farmers' income.

Under

frontier conditions a surplus population, except in depressions, could not arise;

any surplus was absorbed in the westward migrations.

The Economics
patible with excessive fatigue.

of

Technology
in the

271

The miUtary and

improvement

poHtical interests of

the state, moreover, required an

of the workers.

Hving conditions

And

the workers, organized by the

itself,

mechanism

of

capitahst production

forced other improvements through their

political

accumulation of economic and

power.

Lower working hours, more employment, and higher wages were made possible by greater production, the rising productivity of labor, and higher profits; in turn, these developments depended upon and constantly augmented the output and absorption of capital goods. The
most important single factor in the increasing production of
goods, the basis of the capitalist upswing,
lution in transportation.
It

capital

was the technological

revo-

flung, in addition to internal railroad con-

struction, a net of iron rails

absorbed more
1890,

and iron ships around the world, and and equipment than manufactures. (By American manufactures had $6,525 million of invested capital,

new

capital

the railroads $7,577 million.) ^^ The construction of railroads in economically backward countries, including Europe, was the most im-

portant aspect of the British export of capital in the 1840's and after.

But the revolution

in transportation

was even more

it

significant than

the direct absorption of capital goods, for

broadened the world market and the international basis of capitalism.* This enlarged the scale of production, and the amount and efficiency of machinery, by
wise would have saturated the

permitting the sale in foreign markets of surplus products which other-

home market and held back economic and technical advance. In addition, recovery and prosperity after depression were frequently stimulated by new foreign markets and industrialization overseas (or, in the case of the United States, in its own
continental areas), with
its

construction of railroads, urban transit,

public works, and

factories,

requiring heavy

imports of building
industrial

materials and productive equipment

tions.

from the more

na-

Technology combined with other

for,
for

factors to initiate

and sustain

the
*

upswing of capitalism;
The downward curve
of

unlike the tendency of to-day,

new

demand

new

transportation equipment

is

one of the

elements of the decUne of capitaUsm.

pressed industries since the

Shipbuilding has been one of the most deairplane,

World War. The motor truck and

creations,

among
is

the

most important of recent technological

have been economically

insufficient

to offset the decrease in railroad construction.

plete,

Yet the world's transportation net

incom-

and there

is

abundant need for

railroads,

motor

trucks,

and airplanes in eco-

nomically backward countries. But these countries, under imperialist exploitation and

caught in the whirlpool of

possibilities.

capitalist

decline,

are
is

unable to develop their economic

interlocked

Their

expansion

or

retrogression

with

that

of

world

capitalism.

272

The

Decline of American Capitalism

inventions did not merely improve the efficiency of existing equipment,

but revolutionized the technological basis o a w^hole

dustries (ships, boots

series of old in-

and

shoes, glass, iron

and

steel,

printing, food,

the use of metal in building construction), or created entirely

new

industries (railroads, electric powder, telephones, pulp paper, urban electric transit). Underlying all these developments, in their influence on employment and the surplus population, were two fundamental factors: 1. The rate of increase in production was greater than in the productivity of labor. While in some cases productivity rose more than production, this was offset by the general development, and particu-

larly the technical-economic creation of

2.

new

industries.

The

rate of

growth

in industries producing capital

goods was

greater than in the industries producing consumption goods.

forts to raise the productivity of labor, the increasingly higher

The

ef-

composi-

tion of capital, the enlargement of the scale of production, the revolution

in transportation,

areas

all

these factors

and the construction needs in new, undeveloped augmented the output and absorption of capital

goods, whose production required a constantly larger proportion of the

workers.

Because of these two

not absolute.
tries

factors, the

displacement of labor was

relative,

The expansion

of production in general, and of the indus-

producing capital goods in particular, absorbed the majority of and newly available workers. (Another, and increasingly important, factor was the growth of clerical, technical, and managerial employees in corporate industry, and of professional and service occudisplaced
pations.)

The tendency toward

the creation of a surplus population

was checked. But it was checked only partly and temporarily. Workers displaced by technological changes and the rising productivity of labor were not absorbed until after an intervening period of unemployment; and many of them, the highly skilled and the older workers, were either forced to accept lower-paid jobs or thrown into the ranks of the unemployables. Normal unemployment, the reserve army of labor, tended to rise, even
if

not as rapidly as in the earlier industrialism.

And
:

in periods of de-

augment the surplus population appeared in all its unanswerable and terrible reality for there was both an absolute and a relative increase in cyclical unemployment. The surplus population expanded much more in depression than it contracted
pression the tendency of capitalism to
in prosperity.

The partial and temporary check on

the increase of the surplus popu-

lation was, moreover, limited to the highly industrial countries. It

The Economics
backward
peoples.

of Technology

273

was, in large measure, the result of the exploitation of economically

The

industrialization, after the 1850's, of agricul-

tural countries in

distorted, made lopsided and incomplete, by the pressure of the more highly capitalist countries, from whom they imported goods and capital. Workers were displaced by the higher productivity of labor, which rose more than production. Increasing

Europe was

efficiency in agriculture displaced

more workers than industry could

sufficient to increase the population,

absorb.*

Economic progress was

all

but not to provide

with work. Only the great migrations overseas

held the surplus population in check. Conditions were

much worse

in

such colonial and semi-colonial countries as India, China, and Mexico.

The import

of foreign manufactures disrupted the native handicraft

local industrialism. Disrup-

economy, aggravated by the growth of

tion appeared also in agriculture, because of the increase in efficiency

and the demand of the

industrial nations for the production

and export

of one or two particular crops. Workers were displaced on a large scale;

but industry could not absorb them, because

could emigration

its

development was even

tnore incomplete than in the newer industrial nations of Europe.

Nor

much

reduce the surplus population, for most doors

were slammed in the faces of colored peoples. Worst of all, however, were conditions in the tropical countries, in Africa and most of LatinAmerica, in Malaysia and the Philippines. Natives were deprived of land upon which their livelihood depended, an expropriation from the
Intensive industrialization* in the Soviet

Union

is

not accompanied by unemploy-

ment. Henry Hazlitt, "These Economic Experiments,"

1934, pp.
of

American Mercury, February,

141-42, says: "There

is

nothing particularly remarkable about an absence

unemployment under any

Isn't

social

industrialized."

there?

All

system vi^hen an agricultural country is being rapidly through the nineteenth century, unemployment v/zs

the

widespread in agricultural countries being industrialized. But perhaps Hazlitt stresses "rapidly." Nowhere was industrialization more rapid than in the United States
to

from i860
sions.

1900. Yet cyclical

unemployment was

greater

than in earlier depres-

Technological and normal unemployment both increased, and was higher than in other countries. According to the Douglas estimates, unemployment in manufactures, building trades, and transportation rose from 5.6% in 1889 to 7% in 1899. In countries

being industrialized to-day, unemployment moves in about the same manner as in the

in 1927,

more highly industrial countries. Trade union unemployment in Australia was 7% 11.1% in 1929, and 29.4% in 1932; in Canada, for the same years, it was 4-9% 5-7%> and 22%. (International Labour Review, June, 1933, p. 809.) The implication of HazUtt's statement, moreover, is that unemployment must exist where industrialization is not "rapid" or is measurably complete. But why, if not for the social relations of capitalist production? Industrialization in the Soviet
capitalist countries,
is

Union, in comparison with

marked by
and not

a qualitative difference: a socialist planned

for profit
is

economy,

where production

for use

the motive.

274
soil

The Decline
much more

of

American Capitalism
Europe of the commercial revolu-

brutal than in the

tion,

with the deliberate purpose of creating a labor reserve of "free"

all

workers. There was forced labor to build highways and railroads;

forced labor in the mines and on plantations. In spite of
labor, the surplus population grew.

the forced

handful of European nations

Germany, Holland, Belgium) secured cheap foods new markets for surplus goods and capital. But the economically backward peoples paid in sweat and blood, although the
(Britain, France,

and raw

materials,

upper ruling layers shared in the

ing

spoils.

All these developments, includ-

and wars, were a part of imperiaUsm, an essential element in the upswing of capitalism. But the upswing was, for the world as a whole, marked by growth of the surplus population and increasing misery among the masses. The technology of the upswing of capitalism, in addition to the revolution in transportation, built upon and developed more fully the technology of the earlier industrialism. There was an increasing transfer of skill, machines became more precise and automatic, and they made larger capital investment necessary. These were universal trends, but they were particularly marked in the United States. "The keynote of the American development was mass production of standardized articles, each part of which was made by machinery designed for one task. Skilled labor was scarce; the frontier consumer wanted goods which were cheap, serviceable, or labor saving rather than polished, well finished and long of life. The designing of special machines which could be attended and fed by unskilled workers therefore became ^^ the first manifestation of 'Yankee ingenuity.' " New and improved working machines were adopted in one branch of manufactures after another. Not only were the earlier textile machines improved, but new machines were created for other phases of the work, for mechanization of one process makes necessary the mechatrocities, colonial revolts
.

Congo

anization of other processes.

The

characteristic of the

Jacquard loom,

whose system of cords simultaneously and automatically selected and moved the needed warp threads, was incorporated in a large variety of machines which performed mechanically all operations involved in the production of textiles. A collateral development was the application of machinery to the production of garments, initiated by the sewing machine. Starting with the invention of the skiving machine in 1845, a mechanization of the skiving knife, the making of boots and shoes was completely transformed by an intensive division of labor and specialization of machinery, based on one hundred operations and scores
of machines.

The manufacture

of pulp paper, while essentially a prod-

The Economics
uct of chemical research

of

Technology

275

and

its

industrial application, required also

many new

machines. By the

1870's,

paper making was almost entirely

automatic. In a

modern paper

plant, the fluid

pulp

is

fed in at one end

and emerges

as rolled paper at the other

all

operations are automatic

within the limits of the machine and apparatus.

The making of steel was rapidly mechanized by means of machines and apparatus of immense size, complexity and capacity, forcing labor requirements down to a minimum. Use of the regenerative furnace with the continuous melting tank was followed by the mechanization of glassmaking and the perfection of the astonishingly complex Owens automatic bottle machine, which wiped out one of the most highly skilled groups of craftsmen.''^ While the linotype machine replaced one skill with another, the printing press developed to the point where all operations
are

performed automatically by one giant machine. The canning of

foods involved the use of almost completely automatic cooking and

cooling apparatus, measuring devices, and can-packing machines.
milling, measuring,
a relatively trifling

The

and packing of flour was mechanized until only labor force was necessary. Workers were inexorably

displaced, not only by the transfer of skill but of labor itself to the

mechanical equipment of production, because of increasing realization

of the automatic principle. In addition, scores of devices for
offices

homes and

mechanized not merely manual

skills

but

human

intelligence,

as in the case of calculating machines. Scientific research

stantly

more

technological,

basis in great laboratories

became conmore and more organized on an industrial with intricate mechanical equipment and the

agriculture

and specialization of labor. And the technological basis of was revolutionized by machinery, which, starting with improvements in the older implements and tools and the invention of a mechanical reaper, was augmented by an increasing variety of machines and implements. (In addition, theie were advances in soil fertilization
division

and

in plant breeding.)

The

construction of

more and more

diversified

machinery could not

have been accomplished without the greater automatization of machine tools and advances in the manufacture of interchangeable parts, the
*

duction of the
of

The organized glass manufacturers of Europe prevented, for many years, the introOwens machine because it was unprofitable. This is another illustration
social-economic relations condition technology, as the machine was profitable in

how

the United States because of the high wages of glassmaking craftsmen

of large markets
trates

and the existence

also illus-

which made economical

large-scale production possible. It

how

capitalist interests retard technological progress.

In the United States as well

many machines were

and
desirable.

not used because they were unprofitable, although socially useful

276
basis of

The Decline

of

American Capitalism

mass production. Profound changes took place in the machinfrom the 1850's to the 1890's, particularly in the United States, whose machine tools began to invade the European markets. While the parts of machines became more complex and varied, they also acquired more regularity, and this created nev^ standards of precision for machine tools, indispensable in the production of interchangeable parts. These standards were made possible by innumerable improvements in machine tools and particularly by the development of the turret lathe, the universal milling machine, and the automatic screw machine. The turret lathe enhanced precision and control. Constructed in a variety o types, the universal milling machine displaced considerable manual labor, performed high quality work, and was peculiarly adapted to mass production, since the rigidity of the cutting tool and its multiple edges permitted accurate and cheap reproduction of shapes and forms. The automatic screw machine, several of which could be attended by one worker, meant production of cheaper and better screws. Hand filing had been formerly necessary, but it was now done more accurately and with less labor by improved machine tools. There were many other great advances. New tools developed, among them the pneumatic drill operated by compressed air and working at tremendous speeds. Higher speeds and deeper cuts, more than doubling the output of a machine, were made possible by the introduction of high-speed steel after the i88o's; twenty years later machine-shop
ery industries
practice
tools.

was revolutionized by

the

growing use of

alloy steel for cutting

The

greater the rigidity of the tool, the greater the precision

and

automatic character of operation; hence the development of

tures,

jigs, fix-

and other appliances

to guide the tool or hold the

Not only was machinery

limitations of

construction
it

logical application of science,

work in place. more purposively the technowas increasingly liberated from the
clearly in appa-

manual

labor.

The
logical
tries.

transfer of both skill

and labor appeared most

ratus, a

means of production whose importance grew as the technoapplication of chemistry created new and modified old induspipes,

its vats,

is most highly developed in the chemical industry with and similar contrivances, but it is also of great importance in other industries which require one or more chemical processes. It was first used on a large scale in the production and distribution of

Apparatus

gas, in the chemical industry itself, in metallurgy, the

manufacture of

rubber, glass,

leum, and in
(dyestuffs,

and soap, the production of alloys, the refining of petroelectrolysis. With the development of synthetic products
nitrates, rayon,

pulp paper, cement, celluloid,

regenerated

The Economics
and
artificial

of

Technology

277

and rubber, distillates of coal), whose technology involves complex chemical action and precise control, apparatus attained still greater significance. It makes usable formerly unused rav^ materials and makes possible new uses for many others; reproduces rare materials or creates new ones by synthetic transformation of common and widespread raw materials. Apparatus, whose output may be solid, liquid, or gaseous, produces a series of products, raw and finished, beyond the capacity of machines, and takes on constantly greater importance as production increasingly turns toward the synthetic.^^ (There are political aspects to this, in the efforts of nations to become independent of foreign raw materials.) Very little labor is needed in production by means of apparatus; it is highly automatic, the workers are either unskilled or semi-skilled, and act under orders of a handful of engineers whose work is also highly mechanized. More and more the mechanical equipment of production assumes the form of apleather

paratus. This

means

still

higher composition of capital, driving

toward the absolute displacement of labor and aggravating all the contradictions and antagonisms of capitalist production. Yet the promise of apparatus is great. For it makes possible more abundance utilizing hitherto unusable and common raw materials, creating cheaply many new products. And it liberates mankind from the drudgery of production, lowering the amount of necessary labor and
transforming
it

into higher forms.

More automatic machinery emphasized

and the
specialization of machines.

the transfer of skill

No

and labor more than average manual

to "operate" auto-

dexterity, intelligence,

and attention are necessary

matic machines. Although machines were built which performed all operations needed to turn out one product, the tendency was toward

and seriaUzation of machines. The work to be done mechanical problem, split up into its separate and constituent elements, with a series of machines for the different processes. The work "flowed" from operation to operation and from machine to machine; neither the worker nor the machine was the decisive consideration but the work itself and its increasingly mechanical and automatic performance. These technical developments were accompanied by the steady growth of mass production, with intensive
the specialization

was considered

as a

specialization

and

serialization involving the use of. considerable auxil-

iary appliances, particularly the automatic conveyor.

Technical-economic progress after the 1850's resulted in a constantly greater investment of capital; in American manufactures it amounted
to $533 million in 1849

and

$9,813 million in 1899. Capital investment

278

The Decline
The number

of

American Capitalism

per worker rose from $557 to $1,840 and output per worker from $1,065
of workers rose from 957,000 to 5,306,000, an compared with 1,741% in capital and 1,043% in output/^ Hence, although labor was relatively displaced on a large scale by the higher composition of capital, there was no absolute displacement because production tended to rise more than the productivity of labor. In addition, millions of workers were absorbed by the tremendous growth of transportation, construction, and agriculture, a direct result of the inner continental areas (the American equivalent of Europe's overseas markets),* whose development, moreover, provided a vast internal market for consumption goods. Accumulation of capital, the making of profits and their conversion into capital, was extremely active. Not only did production rise more than productivity, but the output of capital goods was constantly and greatly augmented, absorbing relatively more workers than the industries producing consumption
to $2,450.

increase of 454%,

goods.

All these conditions checked the tendency toward the creation of an

overlarge and threatening surplus population, in spite of the increase
in

normal and

cyclical

that a surplus population did appear: for

unemployment. But the significant thing is it was practically non-existent

its cyclical

before the Civil

War

(except in

aspects),

when

technical-

economic changes were slow, industrialism was only acquiring momentum, and the new lands of the frontier offered more possibilities of escape than after the 1870's. Unlike England, moreover, the American industrial revolution and the upswing of capitalism measurably coincided in time, the conditions of one modifying those of the other. Not only did a surplus population arise, it was greater than in the industrial nations of Europe, Cyclical and normal, including technological, unemployment was an increasing torment to the workers, an important cause of the labor discontent and struggles of the 1870's90's. The large surplus population did not create more unrest and militant action because its composition was repeatedly changed by immigration; only in depression was there prolonged unemployment among the same groups of workers.
*
It

must not be assumed

It

that foreign trade

was not an important

its

factor in

American

economic development.
rably

was.

The United

States, in spite of

peculiarities,

was insepa-

out which
tures

bound up with the world market. Agriculture exported its surplus to Europe, withits expansion would have been Umited. Capital, raw materials, and manufacwere imported, accelerating industrial development. After the 1870's, the American
was enlarged by an increasing
meats,
boots
cultivation of export markets, particu-

scale of production
larly

for textiles,

and shoes, petroleum, and metal products, including

agricultural

and other machinery.

The Economics

of

Technology

279

American technological progress was unparalleled in both its inventive and practical aspects. Where an invention or discovery was European in origin (railroads, the dynamo), it was developed most highly and applied most generally in the United States. Almost everywhere the urge was to let mechanical equipment do the work, to scrap the old and accept the new. Not only that: as industry tended to adopt the most efficient equipment, so machinery tended to conform strictly to mechanical requirements, to become completely functional. The engineering approach was interlocked with an important element of American life, the spirit of being practical, experimental, even revolutionary in a limited empirical sense. Technological progress was hampered by the profit motive, it had a crude, devastating effect on culture; but that was the result of capitalist relations, for technology is the liberator of man and the basis of a new, human culture. The urge for increasing technological efficiency marked the upswing of capitalism; its decline is marked by a revolt against technology, by proposals for a "moratorium" on invention. The unparalleled progress of American technology was conditioned
by three basic social-economic factors:
1.

The

relative

insignificance of tradition,

resulting in
.

"pure"

capitalist ideology (except in the

slave-owning South) There were few

vested interests, especially of a feudal character, to

hamper technology
still

and

industrialization.

partly in the clutch

The European farmer was conservative, of an older ideology and mode of living;

the

American farmer was

struggle

as practical as the capitalist, unusually eager

Europe the industrial revolution had to and move slowly against traditional, class, and political opposition; in the United States it swept onward practically unopposed, building, in addition, upon the pioneer work of other nations. The
for technological change. In
social

atmosphere favored the engineering approach of the new techcapitalism, technological progress

nology.
2.

Under

depends upon the mak-

ing of profits and their conversion into capital. This, in turn, depends

upon the scale of production and the output of capital goods. Both were tremendously augmented by development of the great mass markets of the inner continental areas, much more than in the case of Europe, with its dependence upon foreign markets. The use of many machines, unprofitable in other countries, was made possible by the greater American scale of production and the more active accumulation of capital. (Yet there was excess capacity and capital investment rose more than output, making necessary an increasing capital invest-

28o

The Decline
to

of

American Capitalism

ment
3.

fewest economic limitations

produce a unit of product.) American capitalism imposed the upon the development of technology. The comparatively high level of American wages encouraged the
it

introduction of wage-saving machinery. (This, and not labor-saving,

is

the real objective of machinery under capitalism; for while

saves

labor, this

becomes

a saving

on wages accompanied by

intensification

of labor.

Only

socialism can realize fully the inherent labor-saving

function of machinery.)
capitalist

The high level o wages was not a result of development but a colonial heritage, which capitaHst prorelatively

duction tried to break down; the differences between American and

European wages were

tolerable"

about the same in the nineteenth

century as in earlier periods. Colonial governors denounced the "in-

wages and the "exorbitant" demands of the workers. Gov-

ernor Winthrop, of the Massachusetts Bay Colony, observed in 1633 that the "excessive" rates asked by workers had given rise to "general

complaint" and urged legislative action.^*

wages.

The

policy

was

to beat

down
work

Maximum-wage laws were

passed, to force workers to

for lower pay. Indentured labor

and Negro

slaves

were imported.

But only slavery was partly successful; the other measures failed. There was a scarcity of labor in general and of craftsmen in particular; land being abundant, cultivation paid better than work at low wages.

The

factory system, early in the nineteenth century, again tried to

Women and children, often mere babes from the almshouses, were employed in preference to men. One textile manufacturer, commenting on the economy of the new machinery and water power, wrote: "We got rid of 60 weavers, and substituted for them 30 girls, who were easily managed and did more and better work." ^^ But the opportunity of becoming an independent farmer on the new lands of the frontier created an income norm around which wages tended to fluctuate, and much below which they could not
lower the level of wages.

permanently
in

fall. Thus historical elements (and they are important wage determination) maintained American wages, low as they

were, at levels generally higher than the European.

The

necessity of

wage-saving stimulated technological progress. The onward sweep of technical-economic change destroyed the rule
of the old middle class,

dominated by the commercial and agrarian merchants and large landowners. Economic and pobourgeoisie, the litical power was usurped by the industrial capitalist. But the development of large-scale industry, with its increasing capital needs and constantly higher composition of capital, meant the decay of the class

of small industrial producers,

who were

either

wiped out or subordi-

The Economics

of Technology

281

nated by the concentration and trustification of industry. This in turn

produced another change within the ruHng class. As industry, with growing capital needs, raked in the savings of smaller investors, and was more and more trustified, the multiplication o stockholders
its

separated ownership, management, and

vested in managerial employees; control
capitalists,

control.

Management was was usurped by financial

an oligarchy operating

the masters of

monopoly
1870's,

capitalism,

through the institutional mechanism of the great banks. This develop-

ment, which appeared in the

pletely

triumphant twenty years

later. Its basis

transformation of industry, out of

was ascendant by 1900 and comwas the technological which arose industrial concentration

and monopoly and the centralization o financial control. There were important changes also in the other classes. All persons engaged in agriculture, although scoring an absolute increase, fell from 52.8% of the gainfully occupied in 1870 to 35.9% in 1900. The wage-workers, more and more a class o unskilled or semi-skilled workers, became an increasingly larger proportion of the gainfully occupied. "White collar" occupations made the largest relative gains. Technicians increased from 8,000 in 1870 to 102,000 in 1900, clerks and stenographers from 148,000 to 499,000, salespeople and clerks in stores from 105,000 to 811,000, with an increase of 60% in the number o persons in professional occupations.^ There was a similar growth in the managerial and merchandising employees of corporate industry. This is a general tendency of capitalist production; in England, from
1861 to 1891, the

number

of the gainfully occupied rose 100%, with a rise

and salesmen.^^ Although the small producer was becoming relatively unimportant in the shadow of trustified industry, a "new" middle class was shaping itself. It was new, however, only in the sense of inner proportional changes; for its elements were old professionals, technicians, brokers, and agents. salesmen, storekeepers, merchandising employees, The newest and most important element were the managerial employees in corporate industry, made necessary by trustification and the separation of ownership and management, once the combined function
of nearly 200%, however, in clerks, brokers, agents,

of the industrial capitalist.

The later stages of the upswing of capitalism, from the 1890's on, were marked by the increasing use of electric and oil power in industry, especially the former. This coincided, in Europe, with the pre-war beginnings of decline, which would have been much more severe if not for the stimulus of electric power to the output of capital goods. In the post-war period the decline of capitalism in Europe was acceler-

282

The Decline
was
it

of

American Capitalism

ated in spite of the expansion in electric power; only in the United

States, in 1923-29,

Now

electrical expansion,

a factor in a new upsurge of prosperity. comparable only to the railroads in the de-

mand it created for capital goods, is practically at an end.* As in the case of the steam engine, the development of new
of

sources

power profoundly influenced the structure and operation of machines and the character of the labor force. The limitations of steam power were broken by the electric motor and the internal combustion
engine.

Agricultural machinery was especially influenced by the oil engine. Steam power had been used to pull plows on large farms, but the results were unsatisfactory. The new oil engine was early adapted to
the use of agricultural machinery;

construction of light, general-purpose tractors, the

for

improvement and the way was opened the growing use of motor power on farms and their intensive
its

with

mechanization.
tural

The

tractor forced modifications of the older agricul-

machinery and the development of many

is

tendency
plements.

new implements; the toward the universal machine with interchangeable imtractor
is

The
it

adapted to the performance of

all

sorts of
hilly,

farm work;
stony,

can

now

be used both for small farms and for

Efficiency

and boggy

soils.

was

increased, particularly during

and

after the

World War, but

this

tended to multiply the farmers'

burdens. Larger capital needs meant more mortgages and interest

payments. Larger output saturated markets and lowered

gravating the permanent agricultural
(stimulated also by
ing) increased
crisis.

prices,

ag-

As productive

efficiency

more progress in soil fertilization and plant breedmore than output, labor was displaced and a surplus
created.

farm population
greatly
*

In industry, electric power not only accelerated mechanization but

augmented the automatic character

period after the
1

of machinery

and

its dis-

The

890's

was marked, because

of the increasingly higher

comrate

position of capital
profit. Capitalists

and keener competition, by more downward pressure on the

raise the productivity of labor

rate of

sought eagerly for methods to

and the

of surplus value without the costs of investment in

more

efficient

equipment. The answer

management, whose basic element is improving the efficiency itself. This still means a higher composition of capital, for fewer but more efficient workers set in motion the same quantity of fixed capital and a larger quantity of raw materials. But the higher productivity of labor is not compenwas Taylorism, or
scientific

of labor in terms of labor

sated by an increase in the output of capital goods. Scientific

management made enor-

mous
total

strides in

1922-29.

decline.

But

scientific

makes still greater strides under the conditions of capitalist management means an absolute displacement of labor and lower
It

wages.

The Economics

of Technology

283

placement of labor, emphasized by the increasing use of chemistry and

apparatus as means of production. Electric drive changed the early
transmitting
w^ith

mechanism

of belts, shafts,

and

pulleys. Individual drive

a motor for each machine

made

possible the

most

logical arrange-

ment

of machinery, of prime importance in serialization

and mass pro-

duction.

The conveyor system depends upon

the electric motor. Motors

were designed and constructed for the needs of particular machines; motor itself v^^as made an integral part of the machine, which increasingly became an electrical mechanism. In rayon plants there are spinning frames on which every spindle is driven by its own
finally the

motor, far outstripping the older mechanical spindles; electrification

has

made rayon

production practically automatic in

all

its

varied

stages.

All machines are virtually automatic in the silk

still

industry,

with the exception of reeling, in which the operator

performs a

large part of the work. In rolling mills, the electrification of main-roll

drive and controls has resulted in automatic continuous operation.

In blast furnaces and power plants coal

is

automatically stoked; the

stokers are replaced by "combustion engineers"

dials.

who

supervise control

The

electric teletypesetter,
typist, displaces

using a worker no more skilled than

compositors with perforated cards which and operated automatically; and the rolls may, by radio, be sent from a central point to any number of plants. A photoelectric device sets type automatically direct from typewritten copy. Non-factory work is marked by similar developments; in open pit mining an electric shovel digs enough dirt in twenty-four hours to fill 7,500 motor trucks.^^ While in some cases the tendency is toward the one-job machine, in others it is toward the multiple automatic combining operations formerly performed by separate machines. A modern drilling machine performs 132 operations. An automatic monster makes complete automobile frames in one plant. In a paint factory the raw materials are fed into the machine and move mechanically from one process to another until the filled and sealed cans arrive at the shipping floor.^^ Auxiliary appliances also become constantly

an ordinary

are attached to the linotypes

more automatic, operated with electric, pneumatic, or hydraulic power. There are machines which count 25,000 pieces to the ounce and others which count tons of heavier pieces. Electric devices, often within the machine itself, increasingly control precision and quality. Industry is multiplying its automatic thermostats, automatic mixing devices, and more highly accurate gauges. In steel, aluminum, and pulp-paper
mills,

temperatures and pressures are under electric control; in an

heated
billet

electric heater for forgings a photoelectric cell passes the

284

The Decline

of

American Capitalism

on when it reaches the right temperature, eliminating overheating, which weakens the metal, and underheating, which breaks the die; an electric machine inspects the surface of quality products and discards those with defects.^^ The levers and push-buttons, which control the operation of automatic machines and apparatus, find their highest expression in remote control and the automatic plant. Control appliances are concentrated on switchboards in a "cabin" at some central point; a few workers, each attending one or more switchboards and dials, control the plant's automatic operation. The plant becomes almost manless. In some hydroelectric plants there is not a single worker; reports are made and control is exercised through automatic
electric devices.

The

photoelectric

cell,

or "electric eye," has become a most powerful

factor in the fuller realization of the automatic principle.

"An unusual

variety of uses has been

found for

this

mechanical eye, which never

knows
light,

fatigue,

is

marvellously swift and accurate, can see with invisible

It

and coordinates with all the resources of electricity. beans, fruit, and eggs, measures illumination in studios and
appraises color better than the
bills

sorts

theatres,

human

eye, classifies minerals, counts

and throws out counterfeits, counts people and vehicles, mines thickness and transparency of cloth, detects and measures
in glass, sees
television,

deterstrains

through fog,

is

indispensable in facsimile telegraphy,

pictures,
directs
^^

and sound-on-film
an automatic

traffic

automatically,

and

serves as

train control."

Electricity functions as

power, regulates precision and quality, and makes possible the remote
control of automatic machinery, apparatus,

and

plants. It is also used

more

constantly in chemical processes, in the creation of alloys

and

of synthetic materials

and products, which

has, moreover, only

begun.

Modern industry depends upon electricity and make for an increasingly automatic performance
purposive application of science.

chemistry; and both

of

work by

the

more

Automatic machines and apparatus and the automatic

the revolution in the relations between labor

plant, fully

reahzing the principle inherent in mechanical work, are completing

and production. The

but labor
itself; it

mechanical equipment not only absorbs

but absorbs the function

skill

no

longer merely displaces workers by performing their function more

efficiently
itself.

There

is

a change both in

the relations of labor

and

in the character of labor.

In the handicraft system,

artisan

all labor was skilled, whether it was the working on machines and appliances or the craftsman working

The Economics
directly

of Technology

285

on raw material, or a combination of both types of labor. All-around sJ^illed labor was the basis of production. In the early factory and in the earlier stages of the industrial revolution, unskilled workers appeared and became increasingly numerous. It was the dominant type of labor, although more and more machinists or mechanics were necessary to superintend the machinery. The division and specialization of labor was the basis of production. In the later stages of industrialism, with its large-scale industry and more efficient and skill-absorbing equipment, the tendency was to make the mass of workers semi-skilled. The need was neither for highly skilled nor wholly unskilled labor, but for workers whose partial skills were easily acquired. Relatively fewer mechanics were needed to superintend the more efficient machines and apparatus. (At the same time a new class of mechanics arose, such as locomotive engineers, linotype operators, and electricians.) The division and specialization of both labor and increasingly automatic mechanical equipment are the
basis of production.^

This third stage

is

still

the predominant one.

But a fourth stage

has already definitely appeared, although limited to the more highly

developed industries and plants. Complete automatic production trans-

forms the labor force into a small group of

the *key'
nician.

skilled supervisors

and

repairmen. "The development of more automatic machinery requires

man, a new and higher type of mechanic, the junior techLabor formerly unskilled becomes highly technical; thus the occupation of stoker traditionally the lowest gave way to that of the junior technician who operates the boilers by tending a gauge. . All types of automatic machinery demand the services either of the mechanic or of the junior technician." ^^ The modern mechanic and the junior technician need almost as much technical knowledge as engineers; they can, at a pinch and temporarily, replace the engineers.

The

division

and

specialization of automatic mechanical

equipment

becomes the

basis of production.

Not

only labor but

management

also

is

profoundly affected by
is

mechanization and automatic production. One-man management

in the discard. Managerial functions are simplified, specialized,

and

skill

mechanized, and need increasingly smaller skill to perform. Managerial and labor are transferred to mechanical devices. In automatic
* All
these developments

involve a tremendous socialization

of

production,

in

the

form

of large-scale industry. It also involves a socialization of invention, for all large

industrial corporations

have highly organized and

eflScient laboratories

employing hired

"inventors"

who

systematically develop

new

technological applications of science.

286

The
itself

Decline of American Capitalism

:

plants only a thin line divides managerial

the utmost cultural importance is the tendency of highly developed technology to brea\^ down the division of labor between wor\er and wor\er and management and the worl^ers. The worker's new

ment Of

and ordinary work managetends to become an automatic mechanical function.

requirements of "mental alertness, general intelligence, 'polytechnic

literacy'

and

loyal dependability"

make him,

according to one observ-

"more and more an intelligent human being, an all-around educated man, defining 'educated men' as 'those who can do everything that others do.' This transition in the functional
ant
engineer,
characteristics of

management

workers
. .

is

slowly but surely obliterating not only the

it is

'division of labor'

but

also steadily abolishing the distinction

between the 'man in

technology
itself

Marx, who,

fifty

and the 'white collar man.' " -^ Thus confirms one of the most derided "utopian" ideas of years ago, wrote of the "higher phase of communist
overalls'

society, after the

enslaving subordination of individuals to the division

of labor and with

lectual labor

it also the antagonism between manual and intelhave disappeared, after labor has become not merely a

means

to live but

is itself

the

first

necessity of living."

^*

ObUteration

of the division of labor,

which means that division and specialization of "labor" increasingly becomes a function of the mechanical equipis

ment,

now

merely a tendency.

Its fulfillment

presupposes a constantly

greater development of the forces of technology; but this multiplies

the contradictions
is,

and antagonisms of

capitalist production,

and there

consequently, a growing revolt against and limitation of techno-

logical progress. It presupposes,

ditions.

moreover, definite social-economic con-

town and country must be ended by the socialization of agriculture and its combination with industrial production, the liberation of industry, made possible by electric power, from
cleavage between
the fetters of geographical concentration. (Capitalism uses only slightly the opportunity to decentralize industry: too

The

many

vested interests are

menaced. The Henry Ford idea of "combining" industry and agriculture

to

means simply

that workers, after their labor in the factory, are

insufficient

"farm" vegetable gardens to supplement

wages; the real

farmers, of course,
be,

would

suffer

and

this is

wholly possible,

from the lower demand.) There must a mass participation in higher learning.

Out

of these conditions will arise the

its

new

ideology of stressing the

dignity of wor\, and not

forms.

While the technology conditioned by

different

electricity

means

partly

"^a

\ind of machine,"
^^

it

does not

mean

"a different 1{ind of social

relations,"

does not change the fundamental social-economic relations

The Economics
*

of

Technology

287

of capitalist production.* Electricity, technologically, has induced

many
Power.

group of engineering mystics, the Technocrats, worship

at the shrine of

They
and
to
1

forget that

power does not function

all

in emptiness, that

it

needs machines, apparatus,

labor,

and that

the factors are conditioned by social-economic relations.

From i860

890, the productivity of labor increased

more than
labor.

the consumption of power, because

to 1914, the

machinery increasingly supplanted manual

From 1890

consumption of
in

power increased more than

machinery.

productivity, because there were

no fundamental changes

From
of

191 9 to 1929, productivity increased

more than power consumption,

in
it

because, primarily, of an essentially

electrification

new

type of machine. In terms of electric power, the

rose

American manufactures

from

5%

1899 to
rose to

with a very small increase in the productivity of labor;

56% in 1919, 82% in 1929, a

{Census of

smaller rate of growth accompanied by a great increase in productivity.

Manufactures, 1929,

v. I, p.

112.)

The

greater increase in the productivity of labor in

itself,

1919-29 was primarily the

of the electrical

result,

not of electric power in

1

but of the development

electricity,

machine and of electrochemistry. In

to replace

899-1 91 9,

by and large,

was merely used

steam power in driving old types of machinery. Moreover,

labor,

productivity in 1919-29

was increased by changes in the organization of

by the

raw materials and their wastes, and by the increasing use of synthetic materials (in the creation of which chemistry is as important as electricity). While horsepower per wage- worker rose 54% in 1899-19 19, it rose only 49% in 1919-29. Manufactures in 1929 used less than 6% of installed horsepower; 80% was
scientific

more

utihzation of

used in buses and automobiles,

Hirshfeld, "Power,"

90%

of

it

under the hoods of pleasure

cars.

(C.

J.

Toward

Civilization, p. 74-75.)

The

use of

power
basic.

in automobiles

and the home undoubtedly has a profound influence on

production (except in

social life,
is

but not directly on

Price spoils

demand

for goods),

and production

the

promise of power, say the Technocrats, in the manner of the most doctrinaire price
economists. But price
basic;
is

only one element in the capitalist mechanism, and not the most

price in the Soviet

Union
and

exists

without the disturbances characteristic of the

capitalist

economy.

And do

they think they can tinker with price relations without

profit?

abolition of private property

speak of "ergs" and "energy

money"

as a

The Technocrats' power-mysticism makes them medium of exchange. This is sheer technoyou meet

logical idolatry. It forgets that at every point in the productive process

human

labor, either living labor in the

form of workers or dead labor

in the

form of the means

J.

of production. This

is

recognized by two engineers, L. P. Alford and

E.

Hannum,

who

urge that production be measured by a time-rate based on 1,000 productive man-

hours, the "kilo

lent of

man-hour" or kmh: "One hour

of

human work
is

is

the objective equiva-

any other hour of

of productive hours

human work, when

each hour
to

averaged from the total

is

number

worked by the group

which the worker belongs. This

the principle of economic or exchange equality, which

must be enforced

to

stabilize

the interchange of goods, articles and services between the

members

of one producing
4,
is

group and those of any other working group."

(New York

Times, February

1934.)
it,

The kmh
final

is

urged, fantastically, as the basis for capitalist planning; but what

in

analysis, but the labor

theory of value, which

The amount
value;
this
is

of socially necessary labor

distorted

Marx analysed most thoroughly? incorporated in a commodity determines its

and commodities nearly always
sell

by

capitalist

production,

above or below their value (a basic factor in

in the
price.

capitalist disturbances),

but only changes

amount

of labor incorporated in commodities can explain long-time changes in

288

The

Decline of American Capitalism

qualitative changes in the machinery, apparatus,

and chemical

processes

remote control would be impossible. But economically, the changes are merely quantitative; electricity realizes
of production;

and without

it

more

fully the inherent automatic principle of machinery, and, by tremendously increasing the productivity of labor, aggravates the

antagonism between production and consumption and multiplies the

strains

and
is

stresses of capitalist industry.

Thus
all

the newer electric tech-

nology

an accelerating agent, as were

is

former great technological

significant because of

changes. But this acceleration

:

the

more

an

economic change in the epoch of the upswing of capitalism the curve of production was upward, now it is downward. The threefold results
are an expression of the general crisis

The
The

rate of increase in production is

and decline of capitalism: smaller (where it is not minus)

than in the productivity of labor.

displacement of labor becomes absolute; where formerly the
industries producing capital goods absorbed relatively

than the consumption goods industries,

workers.

now

they

displace

more workers more

TABLE
The
Year
1923
,

V
<:,

Increase in Production, Capital Claim

and Wages, ig2s-2g

ProfitsInterest

New
Production
lOO.O
*

Total

Total
Capital

Industrial

Capital
100.

Debts
lOO.O
108.1

Wages
lOO.O
95-0 99.9
105-3 102.3
99-7 *

lOO.O 105.8
122.8 131-3
139.3

lOO.O
92.3

1924
1925

87.7

103.5
#

125.8
115.3

112.3
1 1

109.4 II3.0
1 1

1926 1927
1928

4.0

no.
*

102.7
128.6
136.1

114.

1.2

136.1

145.0 152.7

131-9 143-8

1929
*

120.6
available.
is

146.9

Not

Production
less

value output of manufactures.

trusts

New

capital

is

net issues of securities,

issues

of investment

and trading and holding companies;

total
is

debts

includes

funded and unfunded obligations;

savings, or surplus. Industrial

capital includes

net

new

issues

and corporate

wages

the wages of workers in manufactures, mines,

quarries and oil wells, construction and transportation

(including electric power, telethese

phones

and telegraphs), water transportation, and municipal traction; amounted to $18,105 million in 1923 and $18,050 million in 1928.
Source: Production

wages
F. C.

Census of Manufactures, 1929,

v. I,

p.

16;

new

capital

Mills,

Economic Tendencies

in the United States, pp. 427, 438; total capital

Internal Revenue, Statistics of

Income

for the respective years; total debts

Bureau Robert R.
King,

of

National Income and

Doane, The Measurement of American Wealth, p. 173; Its Purchasing Power, pp. 132-33.

wagesW.

I.

The

\'\5
/

\^o

i dJOTALCAPITAl^^

/ f
1
1

4
1
1

1 1
1

/^
130

1
1 1

EBTS h

(j^NEWC

>

uo

'^r 33 S
<

/
A

y
v^
/
1

PROFITS-

Ik Ik

INTEREST
fcil.

v!
/

#V #
)<

RODUCTIO 1^^ Ij/k

110
1

/ / /

a B
f
F

7
^

^
X
A
5c

1
1

/ t

/ / / 1 ^

100

^ 1 v/ Xj
1

rC Lis

NDU5TRIAL WAGES

><

*
IS iJ

\>
<L

fit

WM

NiS

Ilii

Ni7

11 v\

XII.

PRODUCTION, WAGES, AND CAPITAL CLAIMS.

290

The

Decline of American Capitalism

The tendency

for capital claims to increase faster than production

becomes more marked.

Capital claims, profits, and interest in 1923-29

grew

at a faster rate
is

than production (Table V),

particularly evident in

much

faster

than in former years. This

which rose 36.1% compared with 20.6% in production. While the growth of capital claims always outstrips production, this becomes more marked as capitalism approaches maturity and decline. Much of the higher productivity of labor represented no new capital investment; but the composition of capital, nevertheless, was increasingly higher, and, because of excess capacity and the tendency of the rate of profit to fall, a constantly greater capital investment was necessary to produce a unit of product. Capital claims, moreover, do not arise only out of investment in production, but out of "investment" in mere claims upon production. This tendency was sharpened in 192329, because the increasingly speccapital investment,

new

ulative character of industry multiplied capital claims regardless of

production.

The marvels

of technology enlarge the wholly predatory

superstructure of production, a decisive aspect of

monopoly

capitalism.

forms of capital claims. To make this the causal factor in "unbalancing" the economic system is a total misunderstanding of the facts, where it is not mere
as other

Corporate debts increased nearly as

much

apologetics.

Debt

is itself

a capital claim. It can be separated only in a

principle.

functional sense, not

is

on

The

debt of industrial corporations

an expression of the constantly greater capital investment needed to produce a unit of product, of the excess capacity and intensified competition

which force down the

rate of profit

and

result in deficits

and bor-

rowing.
non-debt

The

debt of non-industrial corporations, and most of their

mere claims upon production. Pressure of outcome of capital, profits, and interest increasing more than production, multiplies mere "claim" capital, particularly in the form of debt. The debts of the farmers represent an intensification of capitalist exploitation and the permanent agricultural crisis (smaller markets, larger output, and still larger productivity) Thus the increase in debt arises out of the aggravation of basic maladjustments and disturbances in the capitalist economy. It is also evidence of growing parasitism, the "purest" form of which are the world's enormous government debts. As an element of rigidity in the economic structure, debt is simply one of the many rigid elements in monopoly capitalism control over output, markets, and prices, and, in depression, interference
capital, represents

surplus capital, the

with the forces of liquidation. All of these elements intensify depression and hamper recovery. Scale down debts or abolish them, and they

The Economics
rise

of Technology

291
capitalist

anew; for debt must increase under the conditions of

capital claims

production.

As
on

grow

faster

than production, more pressure

profits.

is

put

capitalist enterprise to

"earn" larger

Excess capacity and

competition are aggravated, including the struggle for foreign markets.

Higher

and interest payments proportionally lower mass purchasing power, and sharpen the antagonism between production and
profits

consumption.

Wages

are slashed or merely maintained: during three

of the five years 1924-29, total industrial wages were below 1923, while
capital claims, profits,

and

interest rose.

More

efficient

equipment

is

introduced and labor displaced. (In the epoch of the upswing of capitalism the introduction of

more

efficient

equipment, and the resulting

higher composition of capital, lowered relative wages, but total and

average wages rose because of the increase in production and markets.

Under
for

the conditions of capitalist decline, however, the tendency

to result in lower total

is

and average wages, as the great costs of the newer machines and apparatus become relatively still greater because production and markets are restricted and the costs
of excess capacity rise.)

new equipment

Higher
placement

capital claims
is

and labor displacement are

interlocked. Dis-

most

significant in the industries

producing capital goods,

upon which

capitalist

production depends (Table VI).

Up

to 1919 these

an increasingly large number of workers, relatively more than the industries producing consumption goods. That meant
industries absorbed

TABLE

VI

Displacement of Labor in Capital Goods Industries, igi^-2g Number

1914
1919
960,000
600,000

of Workers Employed:
1923
850,000

1929
975,000
615,000 220,000

Machinery
Iron and Steel

575,000 435,000
170,000

625,000

Other Metal
Transport Equipment
Stone,

215,000
840,000
155,000

210,000
545,000
195,000

395,000
185,000

435,000
220,000 220,000

Clay,

Glass

Lumber Products
Totals

215,000

215,000

235,000
2,660,000
1,16^,000
*

1,975,000
1,492,000

2,985,000
1,078,000

2,685,000
1,400,000

Construction

Mines and Quarries

*

310,000

296,000

263,000

Not

available.

Source and methods of computation: same as in Table V, Chapter XIII, except that,
because of exclusion of
oil

wells,

one-third

of

workers in mines and quarries are

credited to capital goods work.

292

The Decline

of

American Capitalism

an upswing o capitalism, an increasing output and absorption o capital goods. It meant also an oflfset to the displacement of workers by the rising productivity of labor. But the rate of absorption of workers in capital goods industries slowed down considerably from 1914 to 1919, with the rate thereafter changing to one of displacement. The number of capital goods workers rose from 3,777,000 in 1914 to 4,348,000 in 1929, an increase of only 15%; but the increase in fact was much smaller because the one was a year of depression and the other one of prosperity.* While the statistics indicate that the rate of absorption was at
a standstill in 1919-29,
it

actually

decrease in the
4,348,000

number

of capital goods workers

became one of displacement; for the from 4,359,000 to

was small only because the number of construction workers was unusually small owing to the war-time drop in building. In 1929 the number of construction workers was below the 1914 level.
in 1919

(In 1914 construction workers represented 39% of all capital goods workers, in 1929 only 32/0. This decrease is of extraordinary significance; because of the undeveloped inner continental areas, construction

has played a more important part in the American accumulation of

capital than
capital

elsewhere.)
fell

If

construction

is

omitted, the

number

of

goods workers

from

3,281,000 in 1919 to 2,948,000 in 1929.

lo>s was wholly in transport equipment and mining, but with employment stationary, although labor was relatively displaced, in the other industries. These other industries in the past absorbed increasingly more workers and the production of transport equipment was for a time the most important element in the accumulation of capital;
its

The

displacement of labor

is

time factors of expansion in transportation,

the motor truck.

an expression of the exhaustion of the longoffset only in small part by

In the epoch of the upswing of capitalism the number of industrial

workers grew constantly. In particular, the capital goods industries absorbed more workers than the industries producing consumption goods; but now they displace more workers. In manufactures, in
1919-29, the decrease in capital goods workers
*

was

300,000 or 10%, in

The slowing down

of capital goods production

is

a world development.

The num-

ber of workers engaged directly in the manufacture of industrial machinery in England,

Germany and

France, according to Friedrich Kruspi, "Machinery, Industrial," Encyclov.

pedia of the Social Sciences,

in 1925; in the

(1933), p.

6, rose

from 875,000

in 1913 to 1,037,000

whole from 1,891,000 to 2,055,000, or only 9%. The increase was almost wholly English, and was due more to the relatively small rise in the producworld
as a
tivity of labor

than to any considerable

of

rise in

output. In

all

industrial countries,

more-

over,

the

number

workers in capital goods industries tended to decrease from

1920 to 1929.

The Economics

of Technology

293

consumption goods workers 138,000 or 2%. This complete reversal of previous trends took place when the American economy was still on the upswing, although the rate of expansion was downward; it now

becomes the creator of an increasing surplus population of unemployed and unemployable workers. For it not only means that the productivity
of labor
is

rising

more than production, but

is

that technological displaceof pro-

ment

of wor\ers

aggravated by the

downward movement

duction, particularly in capital goods.

Some urge
it

"control" of the machine. But since the machine acts as

possible only when socialism abolishes private The Cigar Makers International Union, supported

does only because of the social-economic relations of capitalist procontrol

is

duction,

property and profit.

by William Green, urges legislation to tax employers to contribute

"toward the

relief of the displaced

^^

employees until such time as they

may

be absorbed elsewhere."

This proposal might have been of some

value in the epoch of the upswing of capitalism,

greater than displacement.

when absorption was But now, with permanent displacement

relief.

on

mass

scale? It

means poor

Others urge a revolt against the machine. Either "down with machines" or a "moratorium" on the introduction of

(Many
first

NRA

codes forbid the introduction of

new machines. new machinery unless

is

approved by the code authorities.) That

of plenty, leisure,
capitalist fetters.

revolt
all

against the

increasing purposive application of science, against

ties

the possibili-

of

its

and culture inherent in technology if freed These possibilities might be measurably real-

ized by mere use of existing equipment.

The

efficiency of this equip-

ment, moreover,
production
is

is

very

uneven; in blast furnaces the range of

to 1,313 tons,

from 145 tons per 1000 man-hours

and in

petroleum refineries from 633 barrels to 141,829 barrels.^^ Thus productive efficiency, and the mass of goods and services, might be greatly
all industry to the level of the most efficient But still greater are the possibilities of technological progress, and of plenty and leisure for all. "Our chemical techniques and manufacturing processes," in the opinion of Prof. Richard Willstaetter, Nobel Prize winner in chemistry, "are usually drastic and crude, resembling forces of the inorganic rather than of the organic world. It is our task to appropriate more and more the delicate methods of the living cell, where reactions proceed at normal temperatures and pressures, with mild reagents, and with the most subtle catalysts." ^^ And when American scientists produced in furnaces metals which occur rarely in nature and which are indistinguish-

augmented by

raising

existing equipment.

294
able

The Decline
when

of

American Capitalism
scientific

from the natural product, the

^

comment was:
become the
application
are

"It is

impossible to say
of to-morrow."
restricted

the theory of to-day will

its

practice

Yet both research and

being

by

capitalist decline.

limited opportunity for science

of capitalist fetters.

Only the Soviet Union offers an unand its technological application, freed
is

But the technological

basis of capitalism

a force

which perpetually

changes the material relations of production.* Decline will limit the progress of technology, but will not stop it. (The greatest technological
tion.)

advance will be made in armaments, increasing their powers of destrucIn the midst of the greatest depression in history there was
technological improvement, an increase in the productivity of labor.

This limited progress will not realize the full possibilities of science. But it will aggravate economic maladjustments and disturbances; for technological improvements will proceed even more haphazardly and
unevenly than in the
past.

And

a smaller rate of technological change

than formerly will be more disturbing because of the downward movement of production and the absolute displacement of labor.

The
it

resulting surplus population

is

composed mainly

of workers.

But

includes other elements of the population,

who

also feel the pressure

of capitalist decline.

numbers of farmers and farm workers The main factor was increasing productive efficiency, as the markets for agricultural products were virtually constant. The government's "farm relief" program accelerated displacement and augments the agricultural surplus population. Thus R. G. Tugwell, Assistant Secretary of Agriculture, says: "We must study and classify American soil, taking out of production not just one part of a field or farm, but whole farms, whole ridges, perhaps whole regions. ... It has been estimated that when lands now unfit to till are removed from cultivation, something around 2,000,000 per^ sons who now farm will have to be absorbed by other occupations." But these "other occupations" are also displacing workers who must find other work. Moreover, if all farms used the most efficient meth191 9 to 1929, large

From

were displaced,

at least 500,000.

"The bourgeoisie cannot

exist

without constantly revolutionizing the instruments

of production,

and thereby the

relations of production,

and with them the whole

classes.

rela-

tions of society. Conservation of the old

modes

of production in unaltered
all

form was, on
Constant
ever-

the contrary, the

first

condition of existence for

earlier industrial
all

revolutionizing of production, uninterrupted disturbance of

lasting uncertainty

social conditions,
all

and agitation distinguish the bourgeois epoch from

earlier ones."

Karl

Marx and

Friedrich Engels,

The Communist

Manijesto.

The Economics
ods, the displacement

of Technology

295

would be even

larger than the 2,000,000 envis-

aged by
If

Tugv^^ell.

The movement
it

for "subsistence farms"

means simply

a desperate evasion of the

large-scale

problem and a lowering of living standards.

will
intensify,

farming grows,

because of constant

markets, the economic pressure on the smaller farmers, displacing

them or lowering their income. The American farmers are steadily becoming peasants, v^th many of them thrown into the surplus population.

Clerical

workers are also swelling the surplus population. The numfell from 1,447,000 in 1919 6.1% (compared with 1.8% among wage-

ber of "salaried employees" in manufactures

to 1,358,000 in 1929,^^ a loss of

workers). But the loss was actually greater, as the figures include

managerial employees and

officers,

whose numbers

increased.

The

modern
factory.

office,

with
is

its

array of machines and appliances, resembles a

skill, and diviand bookkeepers are replaced by machines tended largely by semi-skilled workers. Many of the machines are automatic. Mechanization lagged in office work; its speeding-up

There

increasing mechanization, transfer of

sion of labor. Clerks, statisticians,

resulted in a displacement of clerical workers greater than

among

wage-workers.

From
faster

1 91 9

to 1929, the

number

of technical workers increased

it

much

was hard for graduates of technical schools to find jobs; it is becoming harder. Technicians are scourged by permanent unemployment. The situation in Germany is characteristic, if most acute; in 1930, according to one
professor of engineering, only

than the demand. Already before the depression

another

10% continued

studying,

20% of technical graduates got jobs, 20% took any kind of job, and 50%
the only suggestion the professor has

were wholly unemployed.

is

And

this: "Is it
^^

not time to put a stop to this mass striving for higher

learning?"

(That

is

exactly

what fascism

is

doing, with a similar

trend in non-fascist countries: one of the most suggestive aspects of

the decHne of capitalism.)

Most

clerical

and technical workers have been pushed down

wage-workers. In the

to the

occupational level of
the clerical

earlier stages of capitalism

worker was measurably a "higher" employee, in the confidence of the employer, considering himself in the same class. The technician, who originated in the master mechanics of the early factory system,

was made

member

of the "free" professions by the tech-

nological transformation of industry;

now

he

is

practically a

wage-

worker, in

many

cases earning
collar"

less

than the organized skilled workers.

still

Yet these "white

workers

cling in large measure to the

296
This

The Decline
still

of

American Capitalism
class.

elder ideology,
is

consider themselves apart from the working

true also of the non-industrial "free" professions, although

many

of their

members

are employees either of corporations or public

institutions. All of these

groups are heavily represented in the surplus

population. In January, 1934, of 25,127 "white collar" workers on Civil Works Service relief payrolls, 6,240 were professionals: 1,841 teachers,

763 doctors, dentists and nurses, 632 engineers, chemists, architects and draftsmen, and hundreds of musicians, artists, sculptors, actors, librarians, cartographers, botanists, geologists, research workers, statisticians

and

translators.^^

The "new" middle

class is

being rapidly

proletarianized,

thrown

into the surplus population.

The

surplus population not only grows quantitatively,

qualitatively. In the

it also changes epoch of the upswing of capitaHsm the surplus it

population grew slowly;

ever, the rapidly

was

essentially a labor reserve, facilitating

the expansion of capitalist production. In the epoch of decline,

growing surplus population

the production of

reserve;

it

restricts

howmere labor surplus value and profits and

ceases being a

threatens capitalist domination.

Increasing
ers

unemployment means

a decrease in the

number

of work-

producing surplus value, whose realized form is profit. "Profit comes, not from a diminishing of the labor employed, but from a
diminishing of the labor paid for."
contradiction of the capitalist
^*

This

is

mode

of production:

bound up with a basic "The workers as

sellers of

buyers of commodities are important for the market. But as

their

own commoditylabor powercapitalist

to the lowest price." ^^

society tends to depress

them

Consumption

is

necessary to production;

but capitalism limits the wages and consumption of the workers, thus
creating cyclical crises

and breakdowns. Another form of the contradepends upon the workers, upon the living labor which yields surplus value and profit; but capitalism tends to displace workers. In the epoch of the upswing of capitalism the displacement was relative; the increase in the number of workers meant an increase in the mass of surplus value and profit, which
diction: capitalist production

checked the tendency of the rate of profit

to fall.

Now

absolute dis-

placement of workers on a constantly greater

means a decrease in the mass of surplus value and profit. Unemployed workers do not produce surplus value. Neither do they consume, or they consume very
scale
little.

The mass
less.

of surplus value shrinks, in spite of a rise in the rate,

as the

mass of workers shrinks.

Excess capacity

And

markets shrink as the workers

rate of profit falls. For machines neither produce surplus value nor do they consume. The

consume

rises

and the

The Economics
one
is

of Technology

297

necessary to yield profit, the other to sustain production. These

are the conditions

which

exist in depression,

and they become chronic

in the epoch of decline.

Thus

the surplus population threatens the

economic foundations of capitalism.

It also
tial

threatens capitalism poHtically.

Mass disemployment

is

poten-

with revolution. Unemployed workers must be fed (as niggardly,

of course, as possible) to prevent revolt.

This means a drain upon the wages of employed workers; it also means a drain upon profits in the form of higher taxes, as long as there is the fear or possibility of action by the workers. By every means in its power, however, the capitalist class attempts to throw all the burdens of disemployment and decline upon the workers; where "democratic" means fail, it resorts to fascism. Social disturbances become social upheavals. Capitalist monopoly
tightens
its

grip

upon

industry, the capitalist oligarchy

its

grip upon

society and government. The resort to war becomes more possible and more frightful. Technology, although limited in its progress and beit, creates new economic maladjustments and disturbances; becomes clearer that the capitalist mode of production is wholly relative and historical, that it imposes new fetters upon the technicaleconomic forces of society. These forces revolt against the fetters imposed upon them, they thrust forth the need for new social relations of production. As mass standards of living fall and mass misery grows, the struggles of the workers take on new and higher forms, attracting other exploited elements. For while, in the words of Marx, there is "an increase in the mass of misery, oppression, enslavement, degradation and exploitation," with this "grows the wrath of the working class, a class always growing in numbers, and disciplined, united, organized by the very mechanism of capitaHst production itself. The monopoly of capital becomes a fetter upon the mode of production which has flourished with it and under it. The centralization of the means of production and the socialization of labor reach a point where they are incompatible with their capitalist husk. This is burst asunder.

cause of

and

it

The

knell of capitaUst private property sounds.

^^

The

expropriators are

expropriated."

Summary

iU NEMPLOYMENT

is

normal aspect of

capitalist production,

which

needs a labor reserve for the expansion of industry and to beat down wages. The amount and character of unemployment are closely associated with the

development of capitalism.

In the earlier stages of industrialism, the displacement of labor by

generally rose

machinery tended to be absolute, because the productivity of labor more than production. There was the growth of a surIn the epoch of the upswing of capitalism the creation of a large
surplus population

plus population and increasing misery.

was checked
relative,

in the industrial countries. Production,

particularly of capital goods, rose

more than the productivity of labor. employment increased. Nevertheless, normal, technological, and cyclical unemployment was a constant and increasing torment to the workers. This was especially true in the
Displacement was

United States
first

after i860,

when

a surplus population appeared for the

time.

And

the check in the growth of the surplus population in

the industrial countries of

of economically

Europe was mainly due

peoples,

to the exploitation

in the surplus population

If,

was an increase and increasing misery. in the epoch of the upswing of capitalism, unemployment inbackward
there
it

among whom

more than the producmust increase still more in the epoch of decline, when the curve of production moves downward while technological efficiency and productivity move upward. The displacement of labor is absolute, unemployment tends to become permanent ^/Vemployment, and the surplus population grows. After the World War, under the impact of economic decline, normal unemployment was greatly augmented in most of the capitalist nations of Europe. It compelled adoption or extension of unemployment insurance and relief plans, which American businessmen considered the sad necessity or moral flabbiness of people not nourished on the traditions of "rugged individualism." But during the same period, in spite of and because of prosperity, unemployment was increasing in the United States, although not as yet on the European scale. This was more than mere repetition of
creased in spite of the fact that production rose
tivity of labor,

298

Summary
former experience. For the
agriculture. It
first

299

time in American history there was

an absolute displacement of labor in manufactures, transportation, and

the decline of

marked the coming to maturity of the elements of American capitalism. The tremendous cyclical unemployment in 1930-34, nearly twice as
what
is

great relatively as in the worst of former depressions,

of

to

come.

there will
state

still

is an indication and when production reaches the 1929 level, be 6,000,000 to 8,000,000 unemployed workers. Nor can

If

capitalism or fascism check this development, for

it

is

a re-

sult of

economic decline, of the

fact that

production moves down-

ward while technological efficiency and the productivity of labor move upward. Workers are thrown out of work both by lower production and higher productivity. Where formerly technological changes meant
only a relative displacement of labor,
placement.

now

they
It

mean an

absolute dis-

The
it

surplus population grows.

threatens capitalist profit,

because permanent unemployment limits the production of surplus

value.

And
is

threatens capitalist domination, because mass disemploy-

ment

potential with the threat of revolution.

is
is

Underlying permanent unemployment

proceeds of industry. For unemployment

the unequal division of the

essentially the result of the

antagonism between production and consumption, of the fact that capitalism augments production and profits while it limits the income

and consumption of the workers. A piling up of capital claims, profits, and interest occurs as the composition of capital becomes increasingly higher. This forces lower wages and displacement of labor. The unequal distribution of income and wealth tends to become more unequal. The increase in capital claims and unemployment are interlocked with each other; both are interlocked with the distribution of

income and wealth, which responds and class changes.

sensitively to technical-economic

PART

SIX

Concentration of Income and Wealth

Introductory

Jl

HE unequal
bone in the

distribution of

capitalist society's pretensions to

throat.

And

unequal distribution

arises

income and wealth renders absurd all democracy and equality. It sticks like it threatens to choke capitalism, for the out of and aggravates all the maladjust-

ments and disturbances of capitalist production. Although the concentration of income and wealth has become constantly greater, many capitalist apologists have always insisted that it was breaking down. This was one of the major claims of the pre-1929 "new capitalism." The logic of the illogical assumption that the "policy" of increasingly higher wages was accepted by the employers
led the prophets of the

"new

capitalism" to insist

That, in the words of President Calvin Coolidge, "the results of

prosperity are going
less into

more and more

into the
^

homes

of the land and

the enrichment of the few."

That, consequently, the distribution of income and wealth was becoming more equal, more democratic; the indubitable proof of which, according to the apologists, being the "enormous" increase of

"mass" participation in stock ownership.

morning after, it is said that // had been less unequal there would have been no cyclical crisis and depression. This was also said by the prophets of the new "new capitalism" of Niraism. Thus Rexford Guy Tugwell declared that "imperious necessity" compels a "more even" and "just" distribution of wealth and income
in the cold gray

Now,

dawn

of the

the distribution of the proceeds of industry

among

"the people as a whole," otherwise "our whole economic struc-

ture falls into idleness

and

ruin."

And Harold

L. Ickes, Roosevelt

Secretary of the Interior, said:

"A
we
and and
all,

bloodless revolution has occurred, turning out

privilege.

from the
I

seats of

power the representatives of wealth and

are at the

...

believe that

dawn

of a

new
just

era

when

the average

man and woman

so.

child in the United States will have an opportunity for a happier

richer

life.

And it

is

and desirable that

303

this

should be

After

we

are not in this

world to work

like galley slaves for

long hours

304
population

The
80%

Decline of American Capitalism

accumulate in the hands of
^

at toilsome tasks, in order to

2%

of the

of the wealth of the country."

Thus Niraism created its ballyhoo. And "practical" economists manufacture theory to make the deception appear rational. But the
history of capitalism
is

full

of promises to "equalize"

income and

wealth, while their concentration was becoming steadily greater.

the promises burst into

And
must

new

life precisely at

the

moment when, under

the conditions of capitalist decline, the income of the workers

decrease while the concentration of wealth and income becomes relatively greater.

CHAPTER XVII

Class Distribution of

Income

w.

facts, have inincome was becoming more equal, others have used economic theory to justify the existing unequal distribution. It was assumed that "fixed natural laws" determined "distributive shares," according to productive function performed. The theory was fundamental in the system of the American economist, John Bates

HiLE some capitalist apologists, contrary to the

sisted that the distribution of

Clark:

"There are fixed laws of distribution which society is not at liberty to violate. Where natural laws have their way, the share of income that attaches to any productive function is gauged by the actual product Every laborer of it. Wages are the whole product of labor. is paid the exact equivalent of what he produces and capital receives Natural law, so far as the exact equivalent of what it produces. ^ it has its way, excludes all spoliation." The animus is clear the same animus of the efforts to disprove the Marxist theory of value by means of the subjective theory of marginal utility, now discredited: labor is not necessarily exploited under the
.

social relations of capitalist production,

income, however small,

is

fixed, natural,

and and
is

its

share of the national

just.

A
is

variant of the "fixed shares" theory

the "law" formulated by

Vilfredo Pareto, the "philosopher" of fascism, that income distribution

essentially the

same

in all countries

and
is

at all times. Analysis has

demonstrated, however, that the "law"

mathematically inaccurate

and

statistically

disprovable. (It

is

also disproved

by Pareto's

Italy,

where, since the advent of fascism, the unequal distribution of income

has become

more unequal.)

These theories rest on the assumption, unreal and apologetic, of an economic order based on "natural law," in which the free play of economic forces assures functional harmony and the "larger good." But there is no such order. Economic forces are not eternal, they are historical. They work, not in an unreal world of "natural law," but in the midst of class rule and exploitation, of social-economic change and conflict which affect the movement of economic forces, including the distribution of income. The only "eternal" aspect of income is that,
305

3o6

The Decline

of

American Capitalism
class rule, its distribution

under a system of private property and

must

be unequal, with the producers getting the smallest share. There are
long-time movements and short-time fluctuations, but concentration
of income always tends

upward*

Capitalism augments the unequal distribution of income.

One

of the

most competent investigators of the subject writes: "General historical knowledge would lead one to infer that numerically the income
inequality
present,
if

must have been smaller

limit of

in pre-capitalist

Europe than

at

only for the reason that incomes were then absolutely lower

and that the lower

measured
there
social

incomes

is

more

rigid than the upper.

In those countries in
for

which personal distribution of income has been some time past the preponderance of evidence is toward
^

increasing inequality of incomes."

In the earlier stages of capitalism

at the top of the

was

a "broadening" of

income concentration

pyramid, because of the emergence of rich bourgeois merchants

and speculators; but concentration was increased relatively to the mass of the people, and kept on increasing. The curve of income distribution in capitalist society
fluctuations
is

not constant;

its

profoundly
. . .

aifect

social-economic

upward movement and maladjustments and

disturbances.

In the colonial and early national periods of the United States, the

unequal distribution of income, largely because of an agrarian economy,

* It
is

suggestive that engineers,

who

think they have a "new^" approach to economics,

price, in

merely vulgarize the older unreal concepts. Thus the Technocrats emphasize
the

manner

of

the most extreme price

economists,

but with a slant of

their

own.

Another engineer economist swallows Pareto's law: "Competition has always distributed
incomes according to some
sort of a probability curve.

...

In the same

way we could
of various

express the probability that any molecule in a mass of gas

velocities.

would have any one

...

In any particular nation and at any particular stage of social progress the

distribution appears to have a certain

normal form about which

the general

it

fluctuates but

toward

which

it

always tends to return. In

fact,

form

of this

normal distribution prob-

ably has not changed greatly throughout history." H. C. Dickinson,

"The Mechanics

of
2.
its

A. E. Journal (Society of Automotive Engineers), February, 1933, p. Dickinson, who thinks the economic system "is a mechanism, a machine," argues that
Recovery,"
S.

"instability can be controlled

through adjustments of the mechanism

is

itself

without disturb-

ing the present competitive economic system." But the instability

of the capitalist system
itself.

a result of the

working

And

the "adjustments" needed are not mechanical: they

are social, involving class interests

and

class conflicts.

This angle meets the engineer at

every turn.

How

often

is

he thwarted in the mechanical, functional approach toward

the construction of, say, machines and bridges, by the pressure of capitalist profit and
vested
interests!

How

often

is

his

suggestion
little

for
is

the

installation

of

safety

devices

rejected because of their cost!

How

attention

paid to his arguments that tech-

nology

is

capable of providing plenty for

all!

Class Distribution of

Income

307

was

not great, although increasing. It increased

tremendously during

the Civil

War, because
this

of the

growth of

industrial capitalism and,

A slight downward tendency was apparent was temporary and was accompanied by a multiplication of millionaires 4,000 in 1892 compared with probably 500 in 1860.^ Concentration thereafter grew swiftly, in the period of relative economic decline; the share of the national income received by the richest 1.6% of the population rose from 10.8% in 1896 to 19%
particularly, of speculation.

from 1870 on; but

in 1909,*

War
rose

concentration

an increase of nearly 100%. In the early years of the World mounted to new heights; incomes of f 100,000 up
2,290 in 1914 to 6,633 in 1916,^ a year of extraordinary profits

from

nourished by speculation and the butchery of European peoples. Concentration of

income tended downward

after the

United States entered

the war, because of high taxation

and

the depreciation of fixed incomes

through sharply rising prices. Fortunes connected with war industries and speculation increased enormously, however, and many new fortunes were created. Much of the decrease in concentration was nominal, and all of it was temporary. A large part of corporate earnings, to escape taxation and expand production, was reinvested in the enlargement or modernization of plant and equipment. This, in the post-war period, accrued to the benefit of stockholders in the form of high cash and stock dividends; the latter alone amounted to $4,240 million in 1922-23. The wholly temporary downward fluctuations of the war period were used to back up the argument that income was being "equaUzed" and "democratized." It was backed up by more "proof" in the form of an apparent reduction of income concentration in 1921-22. But those were depression years, when swollen incomes are deflated and all incomes move downward. This is not, however, an indication of

more equal

distribution of income, for millions of workers, farmers

and professionals stop being income receivers. Mass unemployment augments the concentration of income. In 1932, one study reveals, salaries and wages were 40% lower than in 1929, property income only 31% lower. Wages alone were 60.2^/0 lower, twice the loss in property income, indicating greater concentration of income in depression!'
Moreover, throughout 1923-29,

when

the apologists insisted that init

come distribution was becoming more equal, more unequal (Table I). The concentration
the world.

was

in fact

of income

becoming was greater

than in any pre-war period, and greater than in any other country in

still,

While the farmers' income fell disastrously and wages almost stood the income of the upper bourgeoisie (incomes of $10,000 up) rose

3o8

The Decline
The Movement
Incomes of
$10,000 and

of

American Capitalism
I

TABLE

in the Distribution of
Incomes of $3,000 to $10,000

Income, 1^20-2^

Up

Wage-Workers

Farmers

YEAR

AMOUNT
(millions)

AMOUNT
INDEX
lOO.O
74.8 91.9
(millions)

AMOUNT
INDEX
100.
82.1

AMOUNT
INDEX
lOO.O
79.1 83.1

(millions)

(millions)

INDEX
lOO.O
59.2
64.9
72.3

1920
I92I

$6,761
5,056
6,211

$9,132
7,497
8,225

$29,540
23,353
24,553
28,691 29,051

$9,394
5,562
6,097

1922
1923

90.1
II 7.0

6,812

100.8
1

10,689

97.1

6,796
7,092

1924
1925

7,910
10,783

17.0

ii>257
*

123.2

98.4
104.

75-5
83.4

159.5

30,762 32,604 32,884

32,235
*

7,836
6,941

1926 1927
1928
1929

10,877
11,642 14,472

160.9
172.2

IIO.4 III.3
109. *

73-9
75.8

* *

7,119
6,830 #

214.0

14,466
available.

214.0

72.7

Not

Incomes of $3,000

to

$10,000 kept on

rising; in the case of

incomes

from $5,000

to $10,000, for

which data ^re

available, the index rose

from 111.9 in 1925

to 145. 1 in 1929.

Source: Incomes of $3,000 to $10,000 and up

computed

from Bureau of Internal

Revenue,

Statistics

of

Income

for

the respective years;

Its

wages and farmers' income

W.

I.

King, The National Income and

Purchasing Power, pp. 108, 132.

114% in nine years. Substantial gains were also made by the intermediate incomes of l3,ooo to $10,000. Gains were greatest in the higher brackets. The number of persons with incomes o $100,000 up increased
from 4,182 in 1923 to 14,816 in 1929, compared with 6,633 ^^ ip^^j ^^^Y reported a total income of $1,127 million in 1923 and $5,088 million in
1929.^

Income was

redistributed

upward.
income are not is based upon

Any downward

fluctuations in the concentration of

only temporary, they must be temporary. Capitalism

private property in the

an economic and
the labor

means of production; and property constitutes upon income, which must be satisfied by of the producers. The concentration of income becomes conlegal claim

stantly greater under capitalism because it is an economic system in which wealth breeds more wealth than in other systems. Exploitation of the workers yields surplus value and income, part of which is invested, is capitalized, yielding more surplus value and new income. As the capital needs of industry grow, under pressure of expansion and the increasingly higher composition of capital, capital and capital claims grow and impose a larger tribute on production, which does not correspondingly grow. Profits and interest rose from $10,998 million in 1923 to $15,816 million in 1929, an increase of 44%; production rose only

309 20%. This, since ownership of capital and capital claims is highly concentrated, was the solid basis of the growing inequality of incomes. By and large, the farther an occupation is from directly productive wor\, the larger the income it yields. This is the functional or occupational aspect of class exploitation in a society based

Class Distribution of

Income

For

1916, the

on private property. Bureau of Internal Revenue reported (a practice since

discontinued) the occupational distribution of income.

The

statistics,

covering incomes of $3,000 up, give the following interesting results: Labor, 2,304 returns, 0.2% of the income reported; engineers and
architects, 8,047 returns,
ers, journalists, actors,

1.2% of the income; intellectuals

(artists, writ-

musicians, statisticians, teachers), 13,048 returns, 1.5% of the income; farmers, 14,407 returns, 2% of the income, in a year
agriculture

was unusually prosperous; salesmen and insurance 2.1% of the income; medical profession, including dentists, oculists, and nurses, 20,348 returns^ 2.2% of the income; bankers, 6,518 returns, 3.2% of the income; lawyers, 21,273 returns, 3.8% of the income; managerial employees (superintendents, foremen, and others), 38,388 returns, 4% of the income; brokers and real estate and securities salesmen, 17,878 returns, 6.1% of the income; corporation officers, 53,060 returns, 11.3% of the income; industrial capitalists (manufacturers, mine owners, and lumbermen), 27,504 returns, 11.4% of the
agents, 19,517 returns,
talists,

when

income; merchants, 54,363 returns, 13.2% of the income; financial capiinvestors, and speculators, 85,465 returns, 26.6% of the income.

Labor
slice of

is

naturally the smallest of the groups.

The more

parasitical

"functional" occupations

(brokers, salesmen, lawyers)

secure a fair

the pie. Engineers and other professional workers make a poor showing; they acquire large incomes only when they cease being professionals and become primarily promoters and capitalist exploiters.

The

largest part of the pie

is

eaten by the capitalists, particularly the

financial capitalists, investors,

and

speculators.

The
is

direct appropriation of surplus value, of workers'

unpaid

labor,

the source of capitalist income.

On

the basis of this a struggle goes

.
. .

on

incomes and incomes from any source. Political power not only sustains class rule and the claims of property to income, it becomes itself a source of income. Politicians plunder the public finances and sell favors to individual capitalists, which in turn become
to secure larger

sources of income.

The

vast natural resources of the

United States

passed into private ownership mainly through the manipulations of

corrupt politicians.
public

The Western
. .

railroads

were
of

built

with grants of

money and
to

public lands, yet their ownership and income ac.

crued

capitalists.

The manipulation

political

power

for

310
income.

The Decline
.
. .

of

American Capitalism
during the World
steal the

personal ends became after i860 an increasingly important source of

This was true

also

War and

the post-

The conspiracy to Teapot Dome, which was only

war
period.

government's
officers

oil reserves in

accidentally frustrated, revealed a cess.

pool of poHtical corruption.

Seventeen

and

directors, in-

cluding the president, of an

oil

company mixed up

in the Teapot

Dome

to $8,000,000.

were sued by stockholders for the return of $6,000,000 The air-mail contracts let by Postmaster General Walter F. Brown, of the Hoover Administration were enmeshed in
scandal,
.
. .

conspiracy.

Enormous
.

lines; the president of

$9,514,000.

profits were made by officers of the favored one company turned an investment of $253 into Contractors have been making as high as 90% profit
. .
.

on army airplane orders. Officers of corporations not only receive inflated salaries and profits on their stock, but they have other means
of adding to their income.

One

is

the "bonus" system. Five officers

of one

company received bonus payments of $2,225,000 in 1929. (The company is bankrupt.) Three officers of another company received $2,770,000 in 193132. In a third company the president in 1931 received $2,627,000 in salary and bonus payments. Stockholders' protests

have been unavailing.

in 1923-32 to three bankers serving

Another bankrupt company paid $1,300,000 on its finance committee. The

.
.

chairman of the Chase National Bank received in four years salaries and bonuses of $1,500,000, made millions speculating in the bank's stock while the bank itself was losing money, and upon his retirement was voted a life "salary" of $100,000.^. Corporation lawyers amass millions by a little legal trickery here and there. Corporation directors use their influence to get business for other interests with which they are identified, palm off property they own on the corporations they serve, and speculate on inside information. Bribery is rampant in business. "There are few branches of American business which are not honeycombed by its corroding influence. The average politician is the merest amateur in the gentle art of graft compared with his brother in the field of business. There is more graft in business Where, under these conditions, than there is in political life." ^^. are the "fixed distributive shares" determined by performance of pro.

ductive functions?

clerical

In 1928, wage- workers received 34.3% of the total national income, workers 6.7% (Table II) The upper bourgeoisie, only 0.8% of
.

the gainfully occupied, received 21.8% of the national income; the

bourgeoisie as a whole 51.9%, although they constitute only 15.9% of

the gainfully occupied and the workers 58.5%. American workers


WORKING CLASS rs BOURGEOISIE

iVkm>
X

200 _

AT Jr
JT

ns _
lllllllll

NUMBR RaOl INCOME

rKK<>

1^0

INCOMES OF lO.OOO UP

VLA

X
X
>r

JT

INCOMES OF
3^000 TO

ic
Xr

lO.OOO

^1

WAGE-WORKERS

&

Hfar>mers'H

50

Rzo

wzi

i<iza

H23

iiz4

my

HZ6

mr

ms

iw*j

XIII.

CLASS DISTRIBUTION OF INCOME 1920-29.

312

The Decline
is

of

American Capitalism

probably receive the smallest share of the national income; the share
of the English workers

approximately 45%.^^

TABLE

II

Class Distribution of the National Income, 1928

MONEY NUMBER
CLASS
IN CLASS

TOTAL
PER-

PER-

INCOME
(millions)

AVER/GE

INCOME
(millions)

PER-

CENT

CENT

INCOME

CENT

Working Class: Wage-Workers

Clerical

27>750'OOo
4,750,000 7,400,000

58.5
lO.O

$32,985
6,412 6,830

37.4
7-3

$1,189
1,350

$32,985
6,412
6,830

34-3
6.7
7-1

Farmers
Bourgeoisie: *

15.6

7-7

923
2,575
5,110

Lower
Intermediate

4,300,000 2,880,000

9.0
6.1

11,075 14,700 16,198

12.6 16.6 18.4

12,675 16,300

13-2
16.9

Upper
Total

382,241

0.8

42,400

20,998

21.8

47,462,241

100,0

$88,200

loo.o

$1,858

$96,200

lOO.O

Lower

bourgeoisie, incomes below $3,000; intermediate, incomes of $3,000 to $10,000;

upper, incomes of $10,000 up.

Source and methods of computation:

Money

incomes, excluding "imputed" income on

durable consumers' goods, was $81,000 million (M. A. Copeland, "The National Income
v. II, p. 763); to this is added $2,400 consumed on farms, and $4,807 million for realized speculative profits {Statistics of Income, 1928, p. 12). Total income is the money income plus business savings ^$6,600 million added to corporate surplus and an estimate of $1,400
its

and

Distribution," Recent

Economic Changes,

million for food produced and

million for reinvested earnings of non-corporate enterprises {Statistics of Income, 1928, p.

125). Workers' income

is

W.

I.

King's estimate of wages plus an allowance for other

is

income. Income of the upper bourgeoisie

the reported income plus tax-exempt income

and an allowance of
mate, and

10%

for under-reporting; this allowance of

States, p. 286,

10%, according

to

Maurice Leven, Income in the Various

it

"seems to be a conservative

esti-

is

quite probable that,

if

anything,

it

is

too low." Speculative profits arc

included because, unlike "imputed" income, they are realized

the recipients

money income with which

affect

may buy goods and

services,

and which profoundly

investment,

production, and consumption, and, consequently, the whole cyclical movement.

The
While

distribution of
it

income
its

is

closely associated

with

class relations.

alone does not determine the character of a class (that de-

|>ends primarily

upon

place in the production process),

class relations
its

income

throws light on changes in

and within

classes.

In 1923-29, the bourgeoisie increased

share of the national in-

come;

as usual

it

took most of the gains o prosperity. There was,

however, a growing concentration of income, more than in former

years, within the bourgeoisie.

Incomes of $5,000 to $10,000 rose from

Class Distribution of
455,442 in 1920 to 658,039 in 1929, or

Income

313

45%, while incomes of $10,000 up rose from 226,120 to 374,032 or 65%. Concentration also increased within the upper bourgeoisie. Incomes of $100,000 up rose from 3,649
306%, and incomes of $1,000,000 up rose from 33 to 513 ^^^ income of the million-dollar-income group rose from $727 million in 1920 to $4,368 million in 1929, an unprecedented absolute and relative increase.^^ At the same time the upper bourgeoisie,
to 14,816 or

or 1,454%.

^^^

and

to a lesser extent the intermediate bourgeoisie,

became more mark-

edly a class of financial

and

speculative capitalists.

As

finance capital

and the banks strengthen

their control over industry, financial coris

porations "earn" the largest profits; this

an expression of the
is

in-

creasingly speculative character of industry under the conditions of

monopoly
capitalists

capitalism.

The upper

bourgeoisie

separated from direct

participation in production;

as a class of financial

and speculative
it

(with a large element of passively parasitic rentiers)

roams the field of industry, plundering where it may. In 1920-29, the upper bourgeoisie "earned" $24,064 million in realized speculative profits, of which $8,000 million were "earned" in the two years 1928-

They are the masters of industry. The middle class, the intermediate and lower bourgeoisie with incomes below $10,000, made great gains both in numbers and in income; the income gains ranged from 40% to 50%. It was the heyday of the
29.

middle

class.

But

this class

is

no longer the old middle

class of inde-

pendent small producers. In 1924, 125,559 individual, non-corporate manufacturers reported net profits of only $380 million, compared

with $3,437 million for corporate enterprises. Of the total net profits of $4,755 million reported by 1,645,971 individuals in business (an average of only $2,900), $3,150 million was "earned" in trade, amusements, hotels, professional service, and similar occupations. In corporate
manufactures, 43,984 of the smaller producers, 50% of the total, made only 1.7% of the aggregate net income, while 967 of the larger producers, 1.1% of the total,

made 65.6%

of the net income; in 1929,

1.3% of the total, made 75.6% of the aggregate net income.^* Thus the small, independent industrial pro1,289 of the larger producers,

ducers, the essential element in the old

middle
real

class,

merely linger on,

an economic anachronism deprived of

steadily decreased in 192029.

power. Their importance

The

real gains

were made by the "newer"

elements of the middle

geoisie

class,

concentrated in the intermediate bour-

with incomes of $3,000 to $10,000. More than half of them,

the most important group, are corporate employees; in 1928 about

$7,000 million of the $14,700 million

income of the intermediate hour-

314
geoisie

The Decline

of

American Capitalism

was derived from salaries, commissions, and directors' fees. Another $788 million came from dividends and possibly $1,000 million from speculative profits. This group, particularly those in the income class of $5,000 to $10,000, performs the "professional" function of management in corporate industry, because of the separation of ownership from management by monopoly capitalism and the multiplication of stockholders. It is directly dependent upon and is wholly identified with the interests of monopoly capitalism the real "new" middle class. Most of the elements of the old middle class, the small producers, merchants, and professionals, are concentrated in the lower bourgeoisie.

Their income gains were considerable; but they were accompanied

by an intensification of competition and a pressure for jobs which

now evident in the crisis which and storekeepers, the technicians and professional workers. For the growth of the middle class, identified with all the maturing elements of capitalist decline, was a final burst of splendor before the coming of darkness. Many middle-aged workers, thrown out of work by technological changes, took their petty savings and became small storekeepers, sharpending the struggle to survive. The automobile gave many the chance to become "independent" owners of garages and gasoline stations. Rationalization of industry
created increasing class insecurity,
afflicts

the small producers

gave work to

many

technicians, but also developed the conditions of

eventual displacement.

Much

of the middle class growth, however,

represents cancerous elements of social-economic parasitism, multiply-

ing the burdens upon productive labor.

The more

parasitic occupa-

tions (advertising, merchandising, speculation, the

law) fattened upon

inflated prosperity. But the middle class grew faster than its economic opportunities. The number of students in universities, colleges, and professional schools, all of them middle-class aspirants, grew from 521,754 in 1920 to 919,381 in 1928,^^ creating a constantly greater mass of actually and potentially unemployed and unemployable "intellec-

an

tuals."

They now

swell the surplus population.

The

"fixed productive share" of the farmers

moved downward. In
was
pain-

the "deflation" of 1921, their share of the national income fell disastrously; during the next four years a small part of the loss
fully recovered, only to

slump again

in the

1926-29.

creased only

The farmers 25% as a

increased their

peak years of prosperity productivity over 30% and de-

proportion of the gainfully occupied, yet their

fell

share of the national income

farmers' share

to one-half the pre-war share.

The

(including food produced and consumed at

in 1928, although they

home)

was only 7.1%

were 15.6% of the gainfully

Class Distribution of
occupied.

Income
fall after

315

And

the

fall

was

absolute, affecting per-capita income.

The

farmers' share of the national income began to

(defeat of the slave

the Civil
it

War
re-

power was

also

an agrarian defeat,

as

assured the

supremacy of
but
it

capitalist industrialism).

The

fall

was temporarily

versed by rising prices after 1900, up to and including the

reasserted itself

World War;

on

the 193034 depression.

more devastating scale during 1921-29 and At the same time, the farmers' mortgage

burden rose from $7,857 million in 1920 to 19,468 million in 1928, exclusive of over $3,000 million of other debts. The burden was all the greater because of the fall in agricultural prices and income, and in the "value" of farms from $71,791 million to $58,141 million. As a business proposition, farming was almost a total loss; the rate of return on operators' net capital investment fell from 5.4% in 1919 to 3.7% in 1928, with only 1.6% as the average for 1920-28.^ Non-farmer elements increased their tribute from agriculture; payment of interest to non-farmer mortgage holders practically trebled between 1909 and 1927.^'' The sharp drop in the farmers' share of the national income expressed the crisis and economic decline of agriculture. But this did not affect all groups alike. The inequality of agrarian incomes was augmented. A small upper layer of capitalist farmers was relatively prosperous. Owners of leased farms enlarged their share of agricultural

income 60% between 1909 and 1927. "Retired" farmers drew an increasingly large real income from their $1,000 million of farm mortin the

gages.^^

The mass of farmers were, however, impoverished, expressed growth of tenancy from 38.1% in 1920 to 42.4% in 1930,^ the
By
1932 the farmers' gross income had

largest increase in thirty years.

fallen to

greater.

44% of the The result is

1929 level;
a

the

fall

in net

income was even

class relations;
defi-

profound change in agrarian

the poor farmers, the majority of tenants

and small owners, are

nitely thrust into the peasant class, while the position of the inter-

mediate middle

class

farmers becomes continuously more precarious.*

All through this period, while income

was being "equalized" and

fell

"democratized," wages constituted a diminishing proportion of the

national income.

The wage-workers'

share

1920 to 37.4% in 1928. (Their share in the total national income

*

from more than 40% in was

Among
It
is

Yet reformers urge "Back to the land!" as a cure for unemployment.

in the

the

most miserable farmers are many who took that advice

gestive that
yield a

pre-war days.
is,

sug-

what

is

now
"farm

urged

is

"subsistence farms,"

that

farms which are to

man and

his family

merely enough to keep from starvation. Other reformers,

relief"

however,
farmers!

insist that

depends upon the displacement of 2,000,000 more

3i6
still

The Decline

of

American Capitalism
was due
to the

lower, only 34.3% in 1928.) Part of the decrease

fact that, for the first

time in American history, the number of workers

increased only slightly as a ratio o the gainfully occupied, while the

better-paid industrial workers decreased.

And

increasing unemploy-

ment

cut into the workers' share. But the larger part of the decrease in

was due to the fact that wages did not move upward in line with productivity, production, and the national income, while the bourgeoisie appropriated constantly more of industry's proceeds as capital and capital claims were augmented. The majority of working class incomes were at or below the poverty line. In the "paradise" of the Ford automobile plants, the average family income of a worker in 1929 was only $1,711 yearly! The family income of the majority was even smaller. Inequality of incomes within the working class was intensified, especially in the case of the skilled union trades and the unemployed. This inequaUty, along with craft and racial prejudices, helps to create and maintain divisions among the workers, which the employers exploit. The concentration of income means poverty among the many and swollen incomes among the few; underconsumption among the masses and conspicuous overconsumption among the classes. It is urged that the national income, and this means essentially the existing productive
the workers' share of the national income

equipment,

is

insufficient to abolish poverty.

Thus

Irving Fisher said

in 1928: "If the share of the richest class

were divided up to increase

the share of the lowest income group, comprising nearly two-thirds of the population,
it

would not go
is

far."

Another economist agreed, and

our unprecedented wealth,

added:

"A

basic trouble
is

that, in spite of

our national product

not yet large enough to supply anything but

if
it

the barest essentials to everyone, even

were equally divided."

^^

That

and evasive. For in 1929, a more equal disincome (inconceivable under capitalism) would not merely have wiped out the worst forms of poverty, it would have materially improved the living conditions of the masses as a whole. This was all the more possible if wasteful, useless goods and services had been replaced with more necessary things, and if the enormous excess capacity of industry had been utilized. The mere
is

much

too simple,

tribution of the national

elimination of these social-economic wastes, inseparable aspects of the

income inequality, would enormously increase real income and mass welfare. All arguments to the contrary are mere repetitions of Pareto's "law" that welfare can be increased only by raising the national income a justification of capitalist distribution. It is necessary, of course, to raise the total income. But the unequal
social relations of

social

Class Distribution of
distribution of

Income
all

317

income

is

interlocked with

the class-economic forces

potential social forces of

which prevent a

full use of the existing

and

production: low wages, excess capacity, recurrent cyclical crises and

breakdowns, limitation of technological progress, and the mass

dis-

employment of
tation

the decline of capitalism.*

is

Inequality of income

not merely an expression of capitalist exploi-

and

injustice. It is itself
all

gravating
industry

the

maladjustments

an economic force, expressing and agand disturbances of capitalist

of

Disproportionate

development

production

and consumption:
the appropriation of

Unequal

distribution of

income

is

firmly based

on

its realization as profit, the accumulation of capital. This means low wages and high profits, depressed mass purchasing power and consumption, the lag of consumption behind the growth

surplus value and

of production.

and capital claims: While the increase in augments the concentration of income, this in turn increases capital and capital claims, as surplus income must be invested, anywhere, anyhow. Excess capacity: Unequal distribution of income depresses consuming income in favor of investment income. More of the proceeds of industry go into capital goods than into consumption, markets are relatively restricted, and excess capacity and competition are aggraincrease in capital
capital

The

and

capital claims

vated.

Surplus capital

income, and capital and capital claims

As investment income grows more thaa consuming grow faster than production,

a surplus capital arises, in spite of the constantly greater capital needs

of industry. This surplus, whether used for unnecessary investment or

* This sort of stuff
"If
still

appears in textbooks used in

all

many American
idle

universities:
loafers

incomes were equalized,

would be poor.

The

rich

and other

are

more conspicuous than numerous, and if they were all set to useful labor the total output of industry would not be substantially increased nor would the burden of toil
of the rest of the people be

much

lightened.

...

considerable part of the income

of the rich

is

already being used directly or indirectly for the benefit of the poor in

the form of huge donations to philanthropic, scientific and educational institutions, in the form of taxes, and in the form of savings which add to the industrial equipment
of society and thereby increase

the

effectiveness

of labor.

The

possible gains to

the poor from increasing the effectiveness of labor are infinitely greater than the possible
direct gains

from equal

distribution of wealth

and income." L. A. Rufener,

Price, Profit

and Production:

Principles of

own

the industrial

Economics (1928), pp. 803-04. But why can't the "poor" equipment? And why not add that the rich make work for the poor

don't they hire servants, spend millions on dress and jewels, on entertainments and

debauchery, give work to the makers of yachts, Rolls-Royces, and private railroad cars?

31

The Decline

of

American Capitalism
and disturbances of

for speculation, aggravates the maladjustments

capitalist production.

Speculation: Itself partly a result of the concentration of income,

speculation increases concentration

and

all its
all

disturbing effects.
the preceding develop-

Increasing unemployment:

As

a result of

ments, unemployment tends constantly to grow. Millions of workers,

who might be adding to the national income, are deprived of work and of the power to consume. This, in its form as mass disemployment in the epoch of the decline of capitalism, is bound up with more
definite limitation of technological progress.

The

export of capital and imperialism: Surplus incomes and capital,

excess capacity

and limitation of markets

intensify the struggle for

foreign markets to absorb surplus capital and goods. Itself interlocked

with the concentration of income, imperialism augments concentration by making an increasingly larger part of the national income dependent

upon the

profits of foreign enterprises,

which provides no work or

income

to "our

own" workers.

income not only deprives the workers income and consumption, it prevents a fuller development of production, income, and consumption in prosperity, and thrusts them downward in depression. For unequal distribution of income is the synthesis of all the forces of cyclical crisis and breakdown.* Unequal distribution is dynamic, not stationary; its
the concentration of
of a larger immediate share in
variations, within the limits of the long-time
closely
*

Thus

upward

trend, correspond

with the
[of

cyclical

movement

of prosperity
that

and depression. As
a fixed

"The theory
income

Marx]

rests

on the supposition
and

wages are
subject

quantity,

always near the

national

minimum
is

of subsistence;
.
.

further, that labor's proportion of

is

the

ever decreasing.

Marx' theory

to

two conditions:
and (2) that

(i) that there are only

two

classes in existence, capitalists

and

proletariat;

wages are

rigidly fixed

and near the

minimum

of subsistence." L. V. Birck, "Theories

of Overproduction,"

man

of straw, Prof. Birck cleverly demolishes

fixed or that there

Economic Journal, March, 1927, pp. 22, 25. After setting up this it. But Marx never said that wages are is a fixed minimum of subsistence: that was the Rodbertus-Lassalle

"iron law of wages," specifically repudiated by Marx.

certain conditions; this
is

Wages may and do

rise,

under

itself

an aspect of the movement of

capitalist contradictions

category subject to change; the

and antagonisms. Wages tend toward a minimum of subsistence, but this is an historical minimum rises in the epoch of the upswing of capitalism and
falls in

the epoch of decline.

is

The workers'
income

share of the national income does

decrease; but this

not conditioned by fixed wages and

minimum

of subsistence, for

while wages
are only
class);

may

rise, profits

and

capitalist

rise still

more. Marx never said there

two

classes (he recognized the existence of landlords, of farmers, of the

middle

but industrialism dominates the class-economic relations of contemporary society,

capitalist

class,

and industrialism is dominated by the relations between the proletariat and the whose antagonism shapes, in general, the movement of other classes.

Class Distribution of

Income

319

prosperity moves upward, the concentration of income is augmented from three sources: more intensive production and realization of surplus value; speculative profits, which are both a redistribution of previously realized surplus value and a manufacture of new claims upon production; and the increasing "profits" of middle class services. Even if wages and mass purchasing power rise, they shrink relatively to the income gains of the bourgeoisie, to the mounting accumulation of capital and capital claims. Both investment and speculation aggravate old disproportions and create new ones. The moment comes when prosperity crashes. The tremendous increase, in 1927-29, in the incomes of the upper and intermediate bourgeoisie, while wages were nearly stationary and farmers' income moved downward, inexorably prepared the conditions of breakdown and depression. Some bourgeois economists admit that cyclical fluctuations originate in "the adverse balance of consumption over production," in the "deficiency" of consumer income distributed by industry .^^ But they insist that the deficiency is not the result of appropriation of profits and

concentration of income, that stability

is

possible without interfering

with them. Yet,

industry does not distribute enough of its proceeds as consumer income, is it not because profits * take more than wages ?
if
if

And
is it

investment income increases more than consumption income,

not because unequal distribution of income favors investors and

speculators?
1.

The

uses of profits are threefold:

Consumption income for the appropriators of profits, their tribute upon labor and production. 2. Investment income for the progressive expansion of production,
a conversion of part of the proceeds of industry into "capital" equip-

ment, which
3.

is

necessary under any social system.

surplus which becomes excessive investment and speculation,

instead of

consuming power. and

their

Even

the consumption of the appropriators of profits

"necessary" investments create maladjustments and disturbances, for

they are carried out haphazardly, without regard to the balanced needs
of industry. (This
is

apparent, for one thing, in the constantly greater

dependence of production upon luxury consumption.) The maladjustments and disturbances are enormously aggravated, however, by
* In this connection, "profits" includes all forms of tribute levied
interest, rent,

upon
is

labor

^profits,

"fancy" corporate

salaries, excessive

charges for professional services,

etc.

That part of professional income

labor consumption;
if

vv^hich represents services to

it

workers

a vi^ithdravi^al of

invested by the professional,

adds to the deficiency in con-

sumption.

320

The Decline

of

American Capitalism
and
speculation:

the surplus capital involved in excessive investment

it

means an accumulating

deficiency in consumption, expansion of

production beyond the capacity of markets, and growing speculative violence. For a time, an unstable balance is maintained by a variety
of means; but the balance
is

eventually upset,

and

crisis

and depression

ensue.

Unequal

distribution of

income

is

not,

however, an independent
capitalist production.

factor. It expresses all the

underlying relations of

Hence
causes

the liberal economists are stressing secondary

and not primary

when

they urge

more equal
is is

distribution to prevent cycHcal

breakdowns. (This theory

his

identified with

John A. Hobson; while

emphasis

is

wrong, his analysis

as suggestive as his earlier, the

social relations of capitalist

pioneer, study of imperialism.)

For the

production

make an

increasing concentration of income inevitable,

because of the exploitation of labor and the multipHcation of ownership claims. Ownership and exploitation are responsible, not only for income concentration, but also for its disastrous economic results. More equal distribution, under capitalism, could favor only the middle class, and would simply whet its appetite for ownership, investment, and speculation. Essentially the same result follows if income distribution favors the upper layers of the workers, who would save more for the "rainy day," the savings becoming "institutional" means for investment and speculation. It is necessary to change the social relations of
capitalist production.*

As

the distribution of income

relations

is

inseparably identified with the

class-economic
affected

of

capitalist

production,

it

is

profoundly

by the decline of capitalism. The lower

level of the national

income makes more ruthless the efforts of those in economic and political power to get a larger share. Labor's share moves downward, because of lower wages and the millions of disemployed workers. Capitalist decline strengthens the tendency toward an increase in the most parasitic form of income, the interest on private and public debts. Corporate debt mounts as excess capacity and capital claims rise and production falls. Public debt mounts as government revenues fall and

Unequal

distribution of

income

exists
is

in the Soviet Union.

But

it

is

enormously

smaller than in capitalist society; there

no concentration of income

in the real sense.

exists has no disastrous economic results, for there means of production, no capitaUst investment and speculation: income cannot become private capital, a source of economic maladjustments and disturbances, and production is managed according to plan. While income inequality exists in the earlier stage of socialism, the drive is toward continual modification and

Moreover, what income inequality

is

no

private ownership in the

its final

abolition

under communism.

Class Distribution of
expenditures to "revive" industry
penditures
rise

Income

321

(and

this includes greater ex-

on armaments because
and

of sharpened imperialist rivalry).

As imperialism grows,
foreign investment

a larger part of capitalist

exploitation; this

income flow^s from means more income concenor profit yield creates
to

tration, for after capital is

exported

its interest

no income for other

1 914,

classes of the

"home" population. From 1900

the concentration of income in Great Britain w^as increased by

from accumulated overseas investments.^^ Concentration importing countries, for in crisis and decline the interest is paid by extorting more from the workers and peasants, in higher taxes and lower wages. And, unlike the experience in the epoch of capitalist upswing, labor's share of the national income now tends toward an absolute fall. This is particularly marked under fascism, which recognizes that incomes must be limited, thrusts the burden upon the masses, deprives them of the means of resistance,
the income
is

also increased in the capital

and

cuts

down on

distribution of

relief and the social services. The movement in the income becomes one of the most explosive elements of

the decline of capitalism.

CHAPTER

XVIII

The

Multiplication of Stockholders

Jl

of stock ownership, the

HE concentration of income has strong roots in the concentration most characteristic form of property in modern
realiz-

capitaHst society. In the ballyhoo of Niraism, of state capitalism, there

is

nothing about "democratizing" corporate ownership and thus

ing "industrial democracy," a

talism,"

new

social order.

Yet

this

was the heart

of the "economic revolution" proclaimed by the pre-1929

"new

capi-

in

and the only one of the older claims which does not reappear the new ballyhoo. It was all very simple: corporate ownership was

being democratized by the multiplication of stockholders; the stockholdings of large investors, of the capitalists, had decreased, were still
decreasing,

and would continue

to decrease; in the redistribution of

stock

ownership the wage-workers, because of their increasingly higher wages and larger share of the national income, were the largest

becomno doubt whatever that American labor is headed toward the control of American industry." ^ This was a prophecy made in 1926; where now are labor's stockholdings and control of industry ? The multiplication of stockholders is an indisputable fact. But it was, and is, grossly misunderstood and exaggerated. Thus, in 1929, the President's Committee on Recent Economic Changes stated that "the number of shareholders in the country's business enterprises has grown from about 2,000,000 to 17,000,000."^ The statement implied individual stockholders, although the figures mean only boo\ stockholders, whose names may appear scores of times in the lists of as many corporations. Book stockholders multiplied to a truly great extent, from 4,400,000 in 1900 to 18,000,000 in 1928. The greatest upward movement took place during and shortly after the World War; book stockholders increased an average of 12% yearly in 191720, 6.2% in 1920-23, and 4.5% in 1923-28.^ The smallest rate of growth was in the period after 1923, when the prophets of the "new capitalism" were insisting that corporate ownership was being rapidly "democratized." And book stockholders multiply more rapidly than individual stockholders. If each of 3,000,000 small investors owns
beneficiaries.
capitalists, the capitalists

Workers were becoming

ing workers. Consequently: "There

is

322

The

Multiplication of Stockholders

323

one share of stock worth fioo in various corporations, they figure as 3,000,000 book stockholders; i 100,000 large investors each owns $300,000 worth of stock distributed over thirty corporations, they also figure as 3,000,000 book stockholders, although their total holdings are $30,000 miUion as against the $300 miUion o the other group. According to a statistician of the United States income-tax bureau, there
were, in 1927, not
received dividends ranging

more than 3,300,000 from $5 to

individual stockholders,
$15,000,000.

who

The

distribution

was:
holders,

In the group with net incomes over $5,000, there were 516,000 stockwho received $3,762 million in dividends. In the group with net incomes below $5,000, there were 484,000 who received $493 million in dividends.
In the group of over 40,000,000 persons gainfully occupied, not filing

stockholders,

income-tax reports, there were 2,300,000 stockholders,

$45,000,000 in dividends.*

who

received

By
its

1928, the

number of

stockholders had probably

grown

to 3,750,000,

compared with
significance

1,250,000 in 1900.

This was a substantial increase, but

was more

absolute than relative.

stockholders, corresponding with that in corporate enterprise,

For the increase in was not

much

larger than the increase in the

number

of persons gainfully

occupied, and was smaller than the increase in production

porate wealth.

and

cor-

Thus

the multiplication of stockholders does not

of industry. Its real
capitalist

mean
the

more "democratic" ownership

development from small-scale
older capitalism to monopoly.

meaning

lies in

important class-economic changes in

production,

in

the

to large-scale industry

and from the

is

The

multiplication of stockholders

interlocked both with the

upswing and the decHne of capitalism. Capitalist production moves inexorably toward large-scale industry, with capital needs beyond the resources of individual capitalists. Corporations become increasingly ascendant, combining small scattered capitals into one enterprise. Small corporations merge into larger, and these merge into monopolist combinations, which use the capital resources of multitudes of stockholders. Ownership, management, and control are separated. This is a fundamental change in the forms of
capitalist property,

erty

once wholly individual impersonal, corporate propbecomes dominant. According to one bourgeois economist: "Most fundamental of all, the position of ownership has changed from that of an active to that of a passive agent. In place of actual physical properties over which the owner could exercise direction and for which he was responsible, the owner now holds a piece of paper
:

324
prise.

The Decline
.
. .

of

American Capitalism

representing a set of rights and expectations with respect to an enter-

He

bears

no

responsibility for the enterprise or its physical

property. It has often been said that the

If

owner

of a horse

is

responsible.
it.

the horse lives he

must feed

it.

If

the horse dies he

. . .

must bury

No

such responsibility attaches to a share of stock.

The

value of

an individual's wealth is coming to depend on forces outside himself and his own efforts. Instead, its value is determined on the one hand
by the actions of the individuals in
viduals over
=

command

of the enterprise

indi-

whom

the typical

owner has no

control;

and on the other

hand, by the actions of others in a sensitive and often capricious

market."

The
term;

implications,

capitalist property is
it is

which the economist does not draw, are clear: no longer private property in the full sense of the
an objective socialization of pro-

social property, expressing

duction, while ownership rights

modern

capitalist property is

and claims remain individual. Thus wholly parasitic. The antagonism between
all

social property

and individual appropriation aggravates

the maladconditions,

justments and disturbances of capitalist production.

in
its

It also

class-economic aspects, the possibility of and the struggle for a

.
.

new social order.*. The multiplication

enterprises,

of stockholders, because of the transformation of

Corporate property involves:

"An enormous

expansion of the scale of production and

. . .

which

vv^ere

impossible for individual capitals.

Capital,

which

rests

on

a socialized

mode

of production
is

and presupposes a
enterprises
is

social

concentration of means of
the

production and labor powers,

here directly
its

endowed with

form of

social capital as
social enter-

distinguished from private capital, and

prises as distinguished

assume the form of

from individual

enterprises. It

the abolition of capital as private

itself.

property within the boundaries of capitalist production

actually functioning capitalist into a
capital,

Transformation of the
of other people's
capitalists.
is,
. .
.

mere manager, an administrator

and of the owners of

is

capital into

Total profit
of

henceforth received only in

mere owners, mere money the form of interest, that

which
is

in the

form
its

mere compensation

of the ownership of capital,

now

separated from

function in the actual process of production, in the same

the person of the manager,
presents
itself as
is

way

in

which

this function, in

separated from the ownership of capital.

The

profit

now
from

mere appropriation
from
its

of the surplus labor of others, arising

is,

from the

transformation of means of production into capital, that

its

from

its

alienation

actual producers,

antagonism as another's property opposed

to the individuals
. .

actually at

tion of
is

The funcwork in production, from the manager down to the laborer. management is separated from the ownership of capital, and labor, of course, entirely separated from the ownership of means of production and surplus labor.
.

This result of the highest development of

property of individual producers, but as

capitalist

production

is

a necessary transition
as the private

to the reconversion of capital into the property of the producers,

no longer

common

property, as social property outright."

Karl Marx, Capital,

v. Ill, pp.

516-17.

The

Multiplication of Stockholders
is

325
a character-

individual productive property into corporate property,

istic expression of the upswing of capitalism. Independent capitalists, where they are not totally wiped out, become stockholders in the corporations which absorb their enterprises. Individuals who formerly might have been independent enterprisers become, under the new conditions, officers or supervisory and technical employees of corporations;, in which they may acquire stock. The number of these employees is greatly augmented by monopoly capitalism. Another source of stockholders are the merchandising and advertising employees and professional workers, and all sorts of other middle class elements which have money to invest. Underlying these developments was the upward movement in production, the increasing accumulation of capital, and the multiplication of capital claims, making possible more

widespread ownership of stock.

This multiplication of stockholders

scale

is

also identified

with large-

industry's increasingly greater capital requirements, not only

absolute but relative, as capital investment rises

more than production

and

profits.

The

fall
is

in the rate of profit

augments the investment of

capital,

and there

a drive to get capital anywhere,

anyhow

(includ-

ing the small savings of workers, in the form of institutional invest-

ment).

One

aspect of the

growth of monopoly
is

is

the "recapitalization"
is

of corporate combinations, which

successful only if their stock

absorbed by a multitude of stockholders. At the same time, efforts to

overcome the fall in the rate of profit involve the plundering of stockholders. There is a great turnover among small stockholders. Large
corporations

augment

their profits at the expense of the smaller.

Small

stockholders are plundered by promoters and financial capitalists,

who
com-

unload
panies

securities

upon the

gullibles

and expropriate small

investors in

corporate reorganizations.

large part of the profits of holding

come from plundering the stockholders of underlying corporations. The pressure of surplus capital results in the organization of many fly-by-night concerns, and more stockholders. Finally, the highpressure salesmanship of investment bankers and brokers swells the
stockholding multitudes.

These developments do not, however, break down the monopoly of ownership. For corporate ownership is concentrated in the upper bourgeoisie. But the character of this class changes. "It is now composed primarily of financial capitalists, whose resources are invested in scores of enterprises, none of which they own but all of which they control.
Their
capital, unlike that of the industrial capitalist, is

not bound up

directly

v^th production; a mass of paper rights and claims upon

326
line

The

Decline of American Capitalism

it

production and income,

of speculation.

migrates from enterprise to enterprise, in

profit,

with business conditions, the prospects of

and

the needs

The

Rockefeller interests, originally associated wholly

to include

with Standard Oil, came

capitalists

financial corporations throughout the world.

hundreds of industrial, utility, and But though the financial

stock, they
is

seldom

own

any large part of a corporation's

control

its

destiny, while

ployees: the

ownership

is

emmore stockholders there are in an enterprise, the more separated from control, the easier it is for a minority to
the function of hired

management

usurp control.

And

this control

by a financial clique ruthlessly tramples

upon both the stockholders and rival minority cliques. This was an early accompaniment of the growth of large corporations. A classic illustration was the meeting, in 1902, of the stockholders of the Metropolitan Street Railway Company of New York City. The chairman of the meeting was P. A. B. Widener, millionaire capitalist, director in the United States Steel Corporation and other affiliated enterprises of the House of Morgan. The meeting went on in this manner:
widener:
before

The

tellers will

now

take the vote.

it

stockholder:

We

wish a discussion of the matter. Let us discuss

it.

we

vote for

widener: Well, you can vote for

it

and
:

discuss

it

afterward.
to say that

STOCKHOLDER [amazed, incredulously'\

Do

you mean

we must
is

vote and then discuss?

to be executed
first,

ANOTHER stockholder: You wish us

that it?

then

tried,

We

object to voting before discussion.

:

WIDENER
taken. [It

[l^ored, smilingly]

Well,

sir,

you may withhold your vote

until after the discussion.

is.]

The Chair

orders that the vote shall be

These methods have not changed in essentials; they are merely more formal, more labyrinthine, smeared with the holy oil of "service."
In
fact,

stockholders to-day are even

more

helpless, because of their

increasing numbers, the greater size of corporations}, and greater use of

holding company devices.

control.
profits

The

financial oligarchy has tightened

its

And

this oligarchy is

merely interested in the production of

and

speculation, in the plunder of corporations

and

their stock-

holders, including stockholders of the upper bourgeoisie itself; for in

this the oligarchy
its

knows no

class brothers or sisters.

Thus

it

increases

share of profits, of the surplus value produced by labor, in spite

fall. The separation of manageby the multiplication of stockholders, arising out

of the tendency of the rate of profit to

ment and

control

of the progressive socialization of production, the transformation of

The

Multiplication of Stockholders

327

individual property into social corporate property, becomes a

for the intensification of capitalist plunder
tion.
. .

means

and

capitalist disorganiza-

(Table

There was no decrease in the stockholdings of the upper bourgeoisie III) On the contrary, dividends received by incomes of $10,000
.

TABLE

III

Distribution of Dividends by Inco me Groups, igiy-2<)

$3,000 to $5,000
$5,000
to

$ 10,000
PER-

$10,000

Up
PER-

YEAR

AMOUNT
(millions)

PER-

AMOUNT
(millions)

AMOUNT
(millions)

CENT
* *

CENT
* *

CENT
*

I917 I919
I92I

$128
198

$230 322 349 356

$1,570
1,800 1,565
1,818

230 227
421

#
8.6

1922
1923

135
10.5
8.5

69.0

12.8
II.

1924 1925

380
*

346 292
321

2,095

63.6
67.9 67.9

2,325 2,724

*
* * *

8.0

1926 1927
1928 1929
*

435

9.8 9.0
8.5 8.8

3,146
3,331

71.0
70.0 69-3 64.9

*
*

430

438
506

3,571

3,740

Not

available.

Total

dividend payments by corporations

were not compiled for

19 1 7-2 1. Income-tax changes in 1925 substantially reduced the

required to report in the brackets below $5,000.

number

of individuals

Percentages are based on total dividend payments

less

intercorporate dividends.
Statistics

Source:

Computed from Bureau

of Internal

Revenue,

of

Income

for

the

respective years.

Up were 140% higher

in 1929 than in 1917; the slight falling tendency

in the early post-war years

was reversed

after 1921.

At

the

same time
invested

the upper b6urgeoisie, especially the rentiers in this

heavily in tax-exempt

class,

government bonds, amounting

to $5,373 million

in 1929,^ in addition to
Statistically,

more

millions invested in foreign securities.

however, the share in dividends of the upper bourgeoisie

smaller than in the pre-war years. But this was only appar-

was

trifle

ent, not real.

For the dividends reported by incomes of $10,000 up

is

not the total they receive; they are underreported to evade the surtax.

Stockholdings are distributed

the form of
gifts,

among

other

members

of the family, in

the creation of trusts, or partnerships. (These part-

nerships, although clearly a tax-dodging device, have been declared

legal

by the

courts.)

up

are reported in the lower brackets.

This part of the dividends of incomes of $10,000 According to a statistician of the

328

The Decline

of

American Capitalism

$2,500, 200,000 stockholders

income-tax bureau, there were, in 1924, in the income groups below who received dividends either from inheri-

tances or trusts/

Another tax-dodging device

is

the personal holding

company (one banker maintained six such companies!),* which receives dividends, reinvests them, and avoids the surtax. Such
or investment

dividends appear as part of intercorporate dividends, but are really

received by the upper bourgeoisie. Increasing tax-dodging created a
tious relative decrease in the dividends
ficti-

and stockholdings of the upper

by the

bourgeoisie.

There were
in

fluctuations in the share of dividends received

intermediate and upper bourgeoisie, mainly because of temporary shifts

upward,

income from one class to the other. But the movement was definitely if for no other reason than because these two classes increased

numerically

more than

the total of gainfully occupied persons.

The

were scored by the intermediate bourgeoisie, especially those with incomes of $5,000 to $10,000. This is because the most important part of this class is composed of officers and managerial employees in corporate industry; they steadily augment their ownership of stock (often received as a bonus) in the corporations which employ them, and are encouraged to do so by their financial masters to make them more "loyal." In the middle class as a whole, stockholdings were increased by employee stock ownership,
significant gains,
class angle,

most

from a

by the drive of public

utilities

to sell stock to customers

(to create

"reserves" of public opinion against immediate

government regulation
get-rich-

and

possible

government ownership), by the stimulation of

quick appetites.

The workers made some small gains in stock ownership, but they were absolute, not relative. And their share was insignificant: corporate ownership is a monopoly of the bourgeoisie (Table IV). The working class, wage and clerical, while 68.5% of the gainfully occupied, owned only $750 million of corporate stock, an insignificant stake
of 1.2%.

The

bourgeoisie, only 15.9% of the gainfully occupied,

owned

monopoly stake in corporate ownership of 97.8%. Of this, the largest share was owned by the upper bourgeoisie, 0.8% of the gainfully occupied $48,322 million, or 77.3%. That is, however, a minimum; their real share was at least 80%. For a part of the dividends received by the lower income brackets appear there only because
$61,137 million, a
:

of the tax-dodging devices of the upper bourgeoisie; another part

was reported by individuals with gross incomes over $5,000, but no net income; and a third part is credited to intercorporate dividends, because
of the use of personal investment companies.

The

share of the lower

The

Multiplication of Stockholders

329

TABLE

IV

Class Distribution of Corporate Ownership, igiS

STOCK

NUMBER
CLASS
IN CLASS
Class:

STOCKHOLDERS
IN CLASS

OWNED
(millions)

PER-

CENT

Working

Wage-Workers
Clerical

27,750,000
4,750,000
7,400,000

600,000

$438
312
625

0.7
0.5
I.O

400,000
600,000

Farmers
Bourgeoisie:

Lower
Intermediate

4,300,000

1,000,000

2,188

3-5

2,880,000

825,000

10,627

17.0

Upper
Total

382,241

325,000

48,322

77.3

47,462,241

3,750,000

$62,512

lOO.O

in dividends, of

Source and methods of computation: In 1928, corporations disbursed $7,073 million which $1,916 million were intercorporate dividend payments. Among

the 4,070,851 income-taxpayers there were 791,579 stockholders,

of $4,350 million in dividends,
distributed
as

who

received a total

incomes below $5,000, $341 million; incomes of $5,000 to $10,000, $438 million; incomes of $10,000 up, $3,571
follows:
million.
(Statistics

of Income,

1928, pp.

11-12.)

The

balance of $807 million was

received

by non-income-taxpayers,
institutions

non-profit

institutions,

and

foreign

stockholders.
their

Non-profit

(endowments,

foundations,

churches)

greatly

increased

stockholdings after the

in

World War.

Foreign holdings in American corporations, which,

1912, constituted
in

9%

of the stock of representative corporations,

and were nearly

1913; Federal

wiped out

1915-20, became again important; in 1922, foreigners owned 1.5% of

of preferred stock.

common and 2.5%

(New York
p.

Times, January

5,

Trade Commission, National Wealth and Income,

non-profit
institutions

156.) These holdings rose after 1922,

It
is

because of American prosperity and European economic decline.

assumed that

$450 million in dividends. Another deduction must be made: individuals with gross incomes over $5,000 but no
net

and foreign stockholders received

$88,000,000

income received,

in

1928,

in

dividends,

which do not appear in

$610
with

the income-tax total.

That

leaves approximately

$269 million received by individuals

not filing income-tax reports.

All incomes below $5,000 received approximately

million in dividends; of this amount, probably $350 million

went

to stockholders

incomes of $3,000 to $5,000,

who

are not

wage or

clerical
all

workers.
of

Of the $260
are workers,

million in dividends received by incomes below $3,000, not

whom

the probable distribution was: wage-workers, $30,000,000; clerical workers, $25,000,000;

farmers,

among whom
stockholders

there

was a prosperous upper

incomes of $3,000

layer,

$45,000,000; lower bour-

geoisie, $160,000,000.

Of

the dividends received by incomes of $3,000 up,

to

$788 million
million
total

went

to

with

$10,000,

and $3,571

to

stockholders with incomes of $10,000 up,

the upper bourgeoisie.

The

of

the

upper bourgeoisie
devices
of
trusts,

is

underestimated,

because of underreporting and the tax-dodging

is

partnerships,

and personal investment companies. Stock owned

secured by applying percentage of dividends to total stock

owned by

individuals.

330

The Decline
the middle class

of

American Capitalism

intermediate bourgeoisie was substantial. It which scored real gains, not the workers; and this was admitted by one bourgeois writer in an unguarded moment: "Labor makes an absolute, not a relative gain in corporate ownership. What we really have is a vast middle class rather than a proletarian movement." ^ Employee stock ownership was also essentially a middle class movement, in spite of some of its specific labor aspects. Two claims were made: that employee stock ownership is peculiarly American, and that it favors the workers. Both claims were false. Employee stock ownership exists in all highly industrial nations. In England, where the movement started and employee stockholdings were relatively as large, if not larger, than in the United States, 503,400 stockholders, many of them employees, owned stock in eighteen corporations; in one chemical concern, employees owned 643,000 shares, 5% of the total." Owen D. Young, chairman of the Board of the General Electric Company, an affiliate of the House of Morgan, said this of employee stock ownership: "Labor will be the employer and capital will be the commodity." ^^ But not only were employee stockholdings very limited, they were concentrated in managerial and supervisory employees and a small upper layer of highly s\illed workers.

and, particularly, the

was

Employee

stock ownership

was

limited, both in value

and

in scope.

In 1928, 1,000,000 employees

lion in stock, or

1.6% of

all

owned not much more than fi,ooo milstock owned by individuals. Not more than

400 out of 450,000 active corporations promoted employee ownership,

which was most general in the larger, monopolist combinations. all employee stockholdings were in twenty-four corporations; the amount was $426 milUon, or 5% of the total stock. In thirteen of the largest corporations, employee ownership averaged only 4%. While in some companies fairly large numbers of employees owned stock, that was exceptional; the average of participants was below 15% of the total number of employees.Not only was participation concentrated in a small group of employees; concentration of ownership existed within the employee stockholders, one-third of whom owned one-half of all employee stock.^^ Nor was there any development toward employee control. Employee stock ownership plans usually make no provision for employee stockholder representation; in a few corporations, meetings of employee stockholders were held and they elected a member of the board of directors, but this was extremely
Nearly one-half of
rare.

And

employee stockholders, a small minority, have even

less say

^1
ii ii
i i |

PBRCENTA(^ OF STOCK OWNf/i^lP

J>RCArrAGE OF GAINFULLY OCCUP/FD

ii i|

XIV.

CLASS DISTRIBUTION OF STOCK OWNERSHIP 1928.

332

The Decline

of

American Capitalism
is

in corporate affairs than the majority absentee stockholders; control

vested in the officers and their masters, the financial oligarchy.

it was still smaller in terms working class participation. Employees comprise all individuals working for a corporation other than officers and directors. Stock ownership was concentrated among the non-worker employees the managerial, supervisory, and selling staffs. This is confirmed by the

Small as employee stock ownership was,

of

National Industrial Conference Board: "It

is clear

that corporate stock

ownership by employees up to the present has been, for the most part, an ownership by the superior employees." ^^ General Motors, with few stockholders among the mass of its employees, organized in 1923
a

Managers

Securities

Company, whose shareholders were

stock,,

exclusively

the higher employees; the company's ownership of

on which
pos-

General Motors paid "bonus" dividends, created 100 millionaires.^*

Such

plans, according to the Journal of

Commerce, "hold out the

sibility

of arousing cooperative efforts in a

way
^^

that

able conditions, be superior to any other."

may, under favorThus, from its most

a

important angle, employee stock ownership

is

means

of

making

management "more
tion;
it is

loyal"

by enlarging

its

stake in a particular corpora-

also,

Where employee

by the same token, a means of domination over labor. stock ownership includes workers, it is an aspect of

the struggle against labor,

waged by management and

opposed
to

its

financial

overlords. In general, the corporations with employee ownership plans

are the ones

Steel,

most

bitterly

trade unions (United States

Standard Oil, General Motors, Goodyear Tire and Rubber);

exist, as in

where unions do

the case of the Pennsylvania Railroad,

or surreptitious

management wages an open Employee stock ownership is

war against unionism. company unions, spy systems, and "welfare" schemes, all aimed to prevent unionism and independent action by the workers. This purpose was clearly evident in the earliest exponents of the movement. An American economist,
interlocked with

Nicholas Paine Gilman, said in j88g:

"When
on

this privilege

[stock

ownership]

is

accorded by a prosperous firm, the

to

workmen

generally

show themselves eager

become
little

capitalists

a small scale,

and they

indulge thereafter in very

denunciation of the class which they

make

have entered." (Gilman claimed that employee ownership "tends to the establishment a purely cooperative one in time." ^ Where,

forty-five years later, are these "cooperative establishments"?)

And

the

same idea

of "moderating" labor discontent

was

expressed, in 1926, in

the theory that employee stock ownership develops, against the inde-

pendence and insurgency of unionism, a group of workers

who

arc

333 and dependable; are not primarily reformers, belong to the non-insurgent type, have no essential quarrel with corporations and employers as such, nor with the industrial system
"better satisfied,

The

Multiplication of Stockholders
efficient

more

as such."

''

The upsurge
It

of labor militancy in the strikes of 1877 led the employ-

ers to consider the

aroused

new
S.

interest in profit-sharing,

problem of "harmony" between labor and capital. and it gave birth to the idea

of employee stock ownership.

The

idea

by

Abram

Hewitt,* millionaire iron and

a director of the United States Steel

in 1901:

was thus formulated, in 1878, steel capitalist, who became Corporation upon its formation

"The harmony of capital and labor will be brought about by joint ownership in the instruments of production, and what are called 'trusts' merely afford the machinery by which such ownership can be distributed among the workmen. ... By abstinence, which is the parent of capital, the workmen can acquire sufficient wealth so that
whole capital invested in industrial undertakings ^ might be transferred to the wage-earning class."
in a generation the

In a generation!
sharing.

was also the purpose of profitwas an expression of small-scale industry, where larger output could be secured by stimulating the interest of the individual worker: the "father" of profit-sharing was a French employer of painters, of craftsmen. Where larger output depends primarily upon the machine and not the worker, the scope of profit-sharing is Hmited. This was recognized, in 1889, by Gilman, himself an advocate of
labor and capital

Harmony between
But
it

profit-sharing:

"A

matter of

first

importance, however,

is

the nature of the occupa-

tion in

which the system of profit-sharing is applied. Theory and experience harmonize here in declaring that if the employee is to create an extra fund of profits, which shall at least provide his bonus, the business must be such that increased industry, skill, care, or economy will The manufacture of cotton and woollen tell upon the result. goods will occur as being a comparatively unpromising field for this
.

Hewitt,

who might
its

be called
(along

the

"father"

of

employee stock ownership, and

practices)

who

influenced

adoption

with other "welfare"

by the United

States Steel Corporation,

encouraged the crushing of the

steel

Workers' strike in 1901,

and urged "stern repression" of the

exponent of philanthropy,
to

coal miners' strike in 1902.

He was

an enthusiastic
rich," said

which he gave

a conscious class purpose.

"The
If

Hewitt, "in contributing are but building for their

so to build, barbarism, anarchy,

own

protection.

they neglect

and plunder

will be the inevitable result."

See

New

York Times, November

26, 1900;

August 26, 1902.

334

The Decline
system.

of

American Capitalism
part,

is great, the working capital is and much of the labor employed is unskilled, save in a very narrow line. The market is variable, and the balance sheet is determined more by the skill of the management than by the quality of the manual labor employed." ^ Hence many employers in England and the United States adopted the plan of paying "shared" profits in company stock. Eventually profit-sharing was abandoned in favor of selling stock to employees. It was both more effective and cost little. Employee ownership is intended primarily for the managerial and supervisory personnel, where profit-sharing was primarily for workers. But there is still the problem of making workers more "efficient," "dependable," and "loyal." While the tempo of efficiency for the mass of workers is set by the machinery and apparatus in use, the "key" workers must be considered. Moreover, excessive labor turnover is bad for efficiency, while strikes are fatal to the yield of profits on the masses of capital in modern industry. Capitalist industry resorts to employee stock ownership for the "key" workers and "welfare" for the mass of workers. Stock ownership for "key" workers is involved with a neglected aspect of scientific management: the insistence of Taylorism, not

new

The

value of the plant

large,

machinery plays the chief

wholly a matter of "time and motion," that a definite proportion of

workers must be put "on the side of management." In Taylor's

cally all

own

words: "The work which under the old type of management practigreat divisions,

was done by the workmen, under the new is divided into two and one of these divisions is deliberately handed over to those on management's side. ... A machine shop, which, for instance, is doing an intricate business, will have one man on management's side to every three workmen." ^ From a slightly different angle, the same idea was urged by another efficiency engineer, H. L. Gantt: "The [theory] is coming to be discredited that in order to get low costs the expense of the supervising force must be small com-

pared to that of those

. . .

who

are actually performing the physical labor.

The

increasing productivity of our automatic machinery requires

Httle direct labor,

but quite a good deal of supervision."

^^

Industry's

supervisory employees were greatly augmented.

in manufactures, transportation,

While wage-workers and mining rose from 9,982,000 in

1910 to 12,757,000 in 1920, supervisory employees rose

much more,

from 495,169 to was accelerated,

823,513.^^
after

This change in the organization of labor

1920,

by more intensive automatization and

rationalization. Supervisory employees, including "key" workers, are

The
represented
of the older

Multiplication of Stockholders
stockholders. So, also,
is

among employee

a small

335 group

and better-paid workers. For the mass of workers there is the cruder "welfare" work, company unions, and other measures, which involve a brutal mixture of calculated benevolence, espionage, and terrorism to prevent unionism and strikes, to maintain "loyalty." (According to one estimate, the costs, in 1927, of the welfare work of 514 corporations was only 1%
of the payrolls.^^

The

costs of strikes are infinitely greater.)

its

Thus

capitalism attempts to strengthen

fare

dictatorship over labor.

. .

For wel.

work is itself a form of struggle against the workers. The functional distribution of stock ownership is in line,
It

of course,

with the exploiting relations of capitahst production.

as follows in 1929:

was roughly

Absentee stockholders, 87%.

Officers

and

directors, 11.5%.*

Managerial and merchandising employees and employees "on the side of management" (supervisory employees, "key" workers), i%.t

The "new"
tions,

Mass of workers, 0.5%. Hberals, Hke the

old, insist

on

stressing the "constructive"

aspects of capitalist development, not their class significance, contradic-

of stockholders,
arise

and antagonisms. Clearly large-scale industry, the multiplication and the separation of ownership and management
is

out *of the constructive, objective socialization of production.

the basis of socialism.

This, the historical function of capitaHsm,

But the socialization of production, itself a negation of private property and the capitalist relations of production, means both the possibility of new progress and a reaction against progress. For, while the
older social-economic relations persist, labor (and the farmers),
decline,
liberals
it means more exploitation of monopoly capitalism, imperiaUsm, economic mass disemployment, and war. But these conditions the "new" overlook, or else consider them "independent" categories, not

understanding the

dialectical

unity

of

capitalist

development.

So

they stress the "constructive" aspect of the separation of ownership and

management: the appearance of an "independent" class of management. This class is to introduce a "new spirit" in industry, compact of devotion to the interests of employees and consumers, disregarding
*

The

Federal Trade Commission estimated in 1922 that

officers

and

directors

owned

10.7%

of the

common

stock and

5.8%

of the preferred in the corporations employing

p. 159.

them. Federal Trade Commission, National Wealth and Income,

fThe total course, much

ownership of stock by higher employees,

greater, for they

officers,

and

directors

is,

of

may own

stock in other corporations. But that

is

an

absentee, not an employee ownership.

33^
lated by Prof.

The Decline
and

of

American Capitalism

the rights of property

stockholders.
Slichter, a
all

The

idea has thus been formuliberal

Sumner H.
is

"new"

and an

institutional

economist,

who

entangled in

the contradictions of the "older"

in the control of industry seems to through the growth of state intervention, of trade unionism, and, probably most important of all, of professional management which is more or less independent of control by investors. Mere private ownership of capital ... is not capitalism.

and the "newer" economics: "The voice of property owners

be diminishing
. .
.

Capitalism

is

the control of policies by private property owners.

become independent of ownership there is no check in sight. It may be objected that the shift in power from owners to managers represents no real change in the control of industry, that professional managers are guided essentially by the same pecuniary standards which business owners accept. This, however, is
the tendency of
to

To

management

true in part only, because professional

management develops standards

of

its

own

to

which

it

tends to adhere even in violation of investors.

^*

By

influencing these professional standards, the public has an excellent

opportunity to affect the conduct of industry."

This

is

simple,

all

too simple.
is

State intervention

in the interest of the capitalist class. It ends in

fascism, a reaction against all progressive forces.

Trade unionism, unless

tives, is

it

moves toward

larger revolutionary objec-

increasingly subordinated by state capitalism

and

finally sup-

pressed by fascism.

These two forces do not move "smoothly" toward a "new" social They move, in the epoch of capitalist decline, toward an explosion of class-economic contradictions and antagonisms: revolution or
order.
reaction.

cient.

The merely functional, not class, From the functional angle,

analysis of

"professional

management is insuffimanagement" is a

progressive development, an expression of the socialization of production,

sional

one of the elements of socialism. From the class angle, profesmanagement is thwarted to serve property interests; it is a

hireling of the financial oligarchy. Slichter himself says:

sional

"They

[profes-

managers] are not free men. They are not neutral, hired to
all interests alike.

employed by stockholders to promote But still: "They must be neutrals equally the servants of the owners of capital, wage-earners, and consumers."^^ The eternal simplicity of the "new" liberals! Always they indulge in wish-fulfillments, to evade the need of struggle. Higher
serve
are

They

the interests of stockholders."

The
ownership,
all

Multiplication of Stockholders

337
are
still

wages, social legislation, protection of the consumer, employee stock

the older reforms,

and the newer: they

urged,

while capitalist decline and reaction prepare to annihilate

that capitalism

all

reform.

For the separation of ownership and management does not mean is "not capitalism" any more, in the sense of any basic change in class relations. It simply separates the functions of exploitation and management, formerly combined in the lordly person of the capitalist himself, now become an absentee or financial capitalist. Feudalism was still feudalism when the nobility became a class of absentee landlords and courtiers, while management was made a function of underlings. Feudalism was not transformed by the "professional spirit" and "independent standards" of the nobility's managerial employees; it was undermined by social-economic development and overthrown by the revolutionary class struggle of the bourgeoisie. A ruling class, when it comes to power, combines constructive and exploiting functions. The bourgeoisie was not merely an exploiter of the workers. It performed the historical task of overthrowing feudalism, and it organized a new, more progressive mode of production. The early industrial capitalist combined the functions of ownership and management, of exploitation and labor. Now, however, the industrial capitalist is an anachronism, and nowhere more so than in the United States, where large-scale industry and the multiplication of stockholders are most highly developed. Stockholders own,, but they do not manage. Management does not own, but it manages as
employees.
trol,

The

financial capitalists are merely exploiters; they con-

and have a monopoly share in ownership, but they perform no useful social function. Thus ownership becomes more wholly parasitic,

control

more wholly

predatory.

new

social order

thunders at

the gates of history.

Neither management nor stockholders control industry; control is usurped by the financial oligarchy and its institutional mechanism, the great banks. Of whom is management composed? It is under control
of the higher administrative officers

and

directors,

many

of

them

major or minor financial capitalists, most of them plundering their corporations, and all of them dependent upon the financial oligarchy. Upon them the real management, the lower officers and managerial and supervisory employees, is dependent. This dependence, moreover, is not only objective; for the ideology and practices of management are still dominated by the social relations of capitalist production. Nor is management independent of the stockholders; its most important elements are themselves stockholders.

From

a functional angle.

338

The Decline
its

of
is

American Capitalism
simply to increase profits by exploita-

except in so far as

work

and of commercial opportunities, professional management is a step toward socialism; it develops the arts and some of the relations of the sociaUst economic order. From a class angle,
tion both of the workers

management

is

to-day partly a privileged caste, beneficiaries in varying

measure of the subjection and exploitation of the workers. (The lower layers are, however, increasingly exploited, particularly under the conditions of capitalist decline; they are possible allies of the workers.)
It is

management which

uses

all

means

in

its

power
is

espionage, blacklists, "yellow dog" contracts, violence

company unions, suppress the

to

workers; management, not

in the

its

financial masters,

on the

firing line

minor

civil

wars of

strikes.

The

significance of hired

liberals. It

managers is not a discovery of the "new" was observed by the bourgeois economist, Ure, in the 1830's.

On

this subject,

Marx

wrote:

"The

labor of superintendence

and management

will naturally be

required whenever the direct process of production assumes the form

of a combined social process, and does not rest on the isolated labor
of independent producers. It has, however, a double nature.

On

the

which many individuals cooperate, necessarily require for the connection and unity of the process one commanding will, and this performs a function, which does not refer to fragmentary operations, but to the combined labor of the workshop, in the same way as does that of a director of an orchestra. This is a kind of productive labor, which must be performed in every mode of production requiring a combination of labors. On the other side, quite apart from any commercial department, this labor of superintendence necessarily arises in all modes of production which are based on the antagonism between the worker as a direct producer and the owner of the means of production. To the extent that this antagonism becomes pronounced, the role played by superintendence increases in importance. Hence it reaches its maximum in the slave system. But it is indispensable also
one
side, all labors, in

under the
is

capitalist

mode

of production, since the process of production

same time the process by which the capitalist consumes the labor power of the laborer. In like manner, the labor of superintendence and universal interference by the government in despotic states
at the

comprises both the performance of the

common

operations arising

from the nature of all communities, and the specific function arising from the antagonism between the government and the mass of the people. The labor of superintendence and management arising out of the antagonistic character and rule of capital over labor, which
.
. .

all

339 modes of production based on class antagonisms have in common with the capitalist mode, is directly and inseparably connected, also under the capitalist system, with those productive functions which all combined social labor assigns to individuals as their special tasks. The
wages of an epitropos, or
regisseur, as

The

Multiplication of Stockholders

he used

to

be called in feudal
industrial capitalist

France, are entirely differentiated from the profit and assume the

form of wages for

skilled labor.

That not the

but the industrial managers are 'the soul of our industrial system/

has already been remarked by Ure. ...

of the capitalist
is

To

the extent that the labor

not the purely capitalist one arising from the process

itself,

of production and ceasing with capital

that

it

is

not limited to

the function of exploiting the labor of others, that

it

rather arises

from

the social

form of the labor process

just as
its

as a

combination and cooperation

of

many
it

for the purpose of bringing about a

common
to the

result, to that
itself,

extent
as

it is

independent of capital as that form

. .

as

soon

has burst

capitalist shell.

Compared
. .
.

money

[finan-

cial]

capitalist the

industrial capitalist is a worker, but a

working
of super-

capitalist,

an exploiter of the labor of others.

The wages

intendence appear completely separated from the profits of enterprise

in the cooperative
.
.

workshops

as well as in capitalist stock companies.

Stock companies in general have a tendency to separate this labor

of

capital.

management as a function more and more from the ownership of Only the functionary remains and the capitalist disappears from
^^

the process of production as a superfluous person."

Once the capitaHst combined the functions of exploitation and management; in his typical modern form, he merely exploits. But management still performs both the function of managing and exploiting. They can be separated, however, as they were separated in the person of the capitalist. Where, however, economic development was enough in the one case, in the other a revolutionary social transformation is necessary. In the Soviet Union the capitalist was annihilated and management was deprived of its exploiting aspects. Management is now wholly a junctional task, merely a form of productive social
labor.
. . .

The

multiplication of stockholders,

and the separation of ownership,

management, and control, are identified with increasing economic instability and the decline of capitalism. Concentration of the ownership of stock, of wealth and income, provides the sinews of speculation. Because of control by the financial oligarchy, corporate industry becomes increasingly irresponsible, adventurous, speculative, and unstable. Capitalism is no longer capitalism in the old sense, it is

340

The

Decline of American Capitalism

and resist and produce economic decline, new maladjustments and disturbances.* Yet these sinister conditions arise out of essentially progressive developments capable of becoming the basis of a new social order, in which man, the worker, masters society, nature, and himself.
rotten-ripe for change; but capitalist relations persist, thwart
social change, react against progress,
Depression wipes out most of the holdings of small stockholders. Where they
arc trying to get a job or slightly raise their wages, with the lower living standards

and
of

mass disemployment of
stockholders.

capitalist decline,

workers are not likely to aspire to become

capitalism

Hence

the

ballyhoo

of

state

does

not

include

the

idea

realizing "industrial

democracy" by making the workers stockholders and

capitalists!

CHAPTER XIX

Class Distribution of

Wealth

In! iraism claims that

talism in Europe,

its

program means the

is

redistribution

and "more

democratic" ownership of wealth. That

also the claim of state capi-

and of fascism. Meanwhile the concentration of

universal

wealth

is

being augmented; only poverty and misery become "more

democratic,"

more

and inescapable.

Similar claims were made, before the

liberals,

World War, by American

incomes and They were

who

for forty years fought for the taxation of

inheritances to break

up

the concentration of wealth.

the embattled owners of great fortunes and their apologists immoral wretches, anarchist enemies of God and country, a menace to democracy and the republic. For the simple proposal to tax incomes and inheritances! Finally, in 1913 and 1916, the proposals were enacted into Federal law. But the concentration of wealth, and of income, was not broken; it was strengthened. That the concentration of wealth was at least unshaken during the war and the early post-war years, was proved by the Federal Trade
as

damned by

estates in 1912

Commission's study of the distribution of comparable samples of and 1923. Curiously, however, the Commission, and

the ballyhoo

men who

seized

upon

its

conclusion, used

its

figures to

"prove" the existence of a tendency toward more equal ownership of

wealth. Yet even the

Commission did not claim much of a change,

merely "an apparent trend toward a somewhat wider distribution."

income and inheritance taxes, of heavy war and the higher incomes, of many economic political changes. But the conclusion itself was unjustified. "In and 1912," according to the Commission's report, "about 29% of all the probated estates amounted to less than $1,000 each, while in 1923 only
Merely
that, in spite of

taxation of corporate profits

20.8% were
in 1923,

less

than $1,000. Furthermore, in 1912, the estates of over

$100,000 each

amounted to 52.6% of the total value of all estates, while they amounted to only 45.9% of the total." ^ These figures

prove the opposite of the Commission's conclusion. In 1923, the purchasing power of money was 45% lower than in 1912; this would

nominally raise the value of

estates,
is

would tend

to decrease.

That

and the number of small estates no indication of a more widespread

342
merely meant

The

Decline of American Capitalism

distribution of wealth.
that, to

And

the

fall

in the value of larger estates

evade inheritance taxes,

many

fortunes were

partly distributed before the death of their owners.

What

the

Commission did prove, and prove

fully,

was the

existing

great inequality of wealth.

By

including decedents, the overwhelming

majority of workers and poorer farmers,

they were not probated (76.5% of
"estates"
all

who

left estates so

small that

decedents), and assigning these

just

an estimated average value of $258,

enough

to

bury the

owners, the Commission found that:

Estates below $500, 79.8% of the total,

Estates of $500 to $10,000, 14.9% of the total,

owned 5.6% of the wealth. owned 12.7% of the

total,

wealth.
Estates of $10,000 to $50,000,

4.2% of the

owned 23%

of the

wealth.
Estates of $50,000 up, 1.1% of the total,

owned 58.9%

of the wealth.^

The "new

capitalism"

flourishing

in

1923-29 also claimed that

as a
It made no means of breaking up this was being done by

wealth was being redistributed in favor of the masses.

mention of income and inheritance taxes

the concentration of wealth.
increasingly higher
It insisted

that

wages and the more equal

was
also refuted

distribution of income.

The

claim was refuted by the facts of stationary wages and increasing

inequality. It

income

the value of the larger estates.*

estates fell

from

13,011 in 1923 to

by the upward movement in Although the number of probated 8,798 in 1929, their value rose from

$2,540 million to $4,108 million, a

tion, the national

much

greater rise than in produc-

income, and national wealth. Estates of $50,000 up

6,344 ^^^ ^^^i^ value from $1,857 ^^ S3j749 million, an in100% compared with 60% in the value of all probated estates.^ This substantial upward movement in the concentration of wealth was the natural result of an accelerated accumulation of capi-

rose

from

crease of

tal,

the amassing of industrial and speculative profits, and the multi-

New fortunes were piled up, and the older grew tremendously. One aspect of the "new capitalism" was the theory of "trade union capitalism." t Its assumption was this: if the workers mobilize their "enormous" savings, and invest them in corporate stocks and labor
plication of capital claims.

fortunes

According
p.

to

Robert R. Doane, The Measurement of American

Wealth

(1933),

33, the share of the national wealth

in to
1

owned by incomes
all

of $10,000

up

rose
fell

from
from

38.7% 31.9%

92 1 to 42.6% in 1929; the share of

of incomes

incomes below $3,000

29%, and
is

of $3,000
fully in

to

$10,0000 from 29.4% to 28.4%.

t This subject

discussed

more

Chapter XXVI, "The American Revolution."

Class Distribution of
banks, the working class
will

Wealth
get
control

343
of
industry.

eventually

Workers will become capitalists, and the antagonism between labor and capital will be ended. "Even a barber, if he owns his razor," said Warren S. Stone, Chief of the Brotherhood of Locomotive Engineers, an enthusiastic advocate of "trade union capitalism" and one o the original labor bankers, "is a capitalist; most workingmen own stocks and bonds." * But only a small group of workers were able to buy stocks. Depression has now expropriated most of them. The labor banks are now a mass of ruins. And the "enormous" savings existed only in the imagination of the apologists. "Each year," said one labor banker, "our industrial workers save from $6,000 million to $7,000 million in various ways." ^ This conclusion was reached in a simple (very simple) fashion: one estimate of the national savings was $12,000 million; the workers are more than half the gainfully occupied, so
they save that proportion of the national savings!

Workers

slightly

augmented

their absolute share of savings,

but not

their relative share. Total savings deposits rose

from

$6,835 million in

1910 to $28,218 million in 1929. Over half the increase, however, was an accumulation of interest, totaling $11,588 million.^ Another part was a nominal increase, because of the fall in the purchasing power of money. Yet the rise was substantial.* But the savings were primarily
those of the bourgeoisie, not the workers.

While

deposits in

mutual

savings banks, where workers are most likely to have accounts, rose

165% from 1910 to 1929, they rose 328% for all banks.^ In the nonmutual banks savings are not really savings, they are mainly the "time" deposits of businessmen; where they are savings, they are overwhelmingly those of the middle class, especially the upper layers. Nor are wage- workers the majority of depositors in mutual savings banks; less than a third in one Philadelphia bank were workers. Another investigation revealed that, among a group of women workers, only one-half had savings accounts; half of them were under $100 and only seven over $500. The ownership of deposits is highly concentrated. In the savings banks and the savings departments of state banks and trust companies of Connecticut, in 1929, the distribution
of deposits

was

as follows:
and insurance,
in
line

New
capital

savings,

interest,

with the tendency of capital and

claims,
in

increased

much more

than production and the national income, and

their
bit

more

1919-29 than in preceding periods. Thus savings do

to

intensify

maladjustments and disproportions.

"rainy-day" funds.

And
it

this

is

true also of those savings

illness,

which are
is is

Only when the provision

for

old

age,

and

disability
it

sociaUzed, in a socialist society, will

stop being a disturbing factor, for then

done according

to plan

and the balanced needs of industry.

344

The Decline

of

American Capitalism

The
The

smaller accounts, 1,152,311 or 84.3% of the total, had deposits

of I167 million, an average of $145.

intermediate accounts, 209,608 or 15.3% of the

total,

had deposits

of $534 million, an average of $2,550. The larger accounts, 5,555 or 0.4% of the total,
000,000,

had

deposits of $79,-

an average of $14,315. Most workers with savings were included in the smaller accounts,

with an average deposit of $145!

of the accounts

And

in 1933, of 30,556,105 accounts

96.5% had 23.7% of the deposits, with an average of $189, while 0.1% of the accounts had 44.6% of the deposits, with an average of $224,000.^'' Use one or the other set of statistics, and the conclusion is the same: the share in savings of the working class was miserably small. It is smaller now, much smaller, because of losses during the depression and mass unemployment. The share of the workers was larger, in 1929, in the $8,695 million assets of building and loan associations, with their 12,111,209 members.^^ But it was far from a majority share, for most of the members are of the lower middle class. (Never, in any previous depression, were there as many foreclosures of small home-owners as in 1930-34, including workers and professionals.) Nor did the workers have any "enormous" share in life insurance. That is also highly concentrated. In 1932, 402 individuals (thirty-five

in Federal Reserve banks, with total deposits of $23,542 million,

more than
million.^^

in 1930)

owned

policies of over $1,000,000, totaling $640

Average insurance for all policyholders was $3,000. For policyholders with incomes from $1,000 to $2,000 the average was only $1,023, ^^^ $2,798 for those with incomes from $2,000 to $3,000.^^ But the average policy of the workers was even smaller. According to one estimate, a working class family in 1924 was able to spend an average of only $43 on insurance.^* The workers' real stake is in industrial insurance, although a part of it is carried by non- workers. In 1929,
industrial policyholders held insurance of $17,902 million, or

17.4%

of total life insurance;

$360.^^

the value of the average holding

gain, moreover,

was only

Workers

lose

more than they

insurance. Costs are great. Lapses

still

greater: they rose

from industrial from 6% in

1921 to 23% in 1932. In 1929, for every dollar of insurance sold, 67.1% had vanished. For 1928-32 alone, the losses on lapsed policies were $200 million. There is much more profit for the insurance company in 1,000 industrial policies, of which 500 lapse, than in 500 policies, of which only 200 lapse.^ Life insurance is identified, not only with the unequal distribution of wealth and income, but with all the preda-

Class Distribution of
tory aspects of capitalism.

Wealth
are plundered

345

The companies

by manage-

ment, whose upper layers get fabulous

for every 68^ distributed!
^^

salaries; they spent $921 mil-

lion in 1929, while the policyholders received $1,961 million: 32^ costs

And,

in spite of their

mutual

character,

they are under the control of the financial oligarchy, which manipulates their resources for

investment, speculative, and other profitable

purposes.

The

saved $122 yearly;

average workers' family, according to one estimate for 1924, 24% of the families had an average deficit of $127.^^

TABLE

n in National Savings, 1^28

TOTAL
SAVINGS

LABOR
SHARE
(Millions)

TYPE OF SAVING
Savings Deposits

(Millions)

$2,322
2,296

$ 500 850

Premiums Building and Loan

Life Insurance

860
5^346
2,035
1.325

300
50

Corporate Issues

Government
Construction
Agriculture

Issues

Foreign Issues

6,628
1,500

100

Business Savings

8,000

Total (Net)
*

$18,000

$1,800

None.

Source and methods of computation: All of the labor shares are wholly estimated,
except insurance premiums;
Taylor,
to

$700 million paid

in

industrial
is

premiums (Maurice

The

Social

Cost of Industrial Insurance, p.

life

193)

added a probable $150

Statistics

million for ordinary

premiums.

Business savings are additions to corporate sur-

plus and undivided profits of $6,600 million

of Income,

(Bureau of Internal Revenue,

1931, p. 48), and an estimate of $1,400 million as the savings of non-

corporate enterprises.

The amounts

of the different savings

are

from Department of

Commerce,

Statistical Abstract of the

United States, 1931, pp. 280, 318, 876.

Small as the workers' share of the national income

the national savings
is still

is,

their share of

smaller.

This share, in 1928, was only 10%

(Table V).

It is necessarily

small, because all the class-economic rela-

tions of capitalism

make

"saving" a monopoly of the

owning and

possessing class.*
*

The

workers' small share in savings and insurance disposes of the argument that

they have a large indirect interest in corporate ownership. Moreover, the banks and insur-

ance companies

own

not

much

over

5%

of total corporate stock.

346
not

The

Decline of American Capitalism

as social-economic relations change, but
is

Wealth changes its forms, its main characteristic: it

a claim

upon production and income.

Concentration in a class of the ownership of the means of production,

upon which depends the

livelihood of society,

means

a class

monopoly
in

of wealth. In one aspect, as tangible things, wealth represents the

product of social labor, the means of satisfying

another aspect, as ownership,
it

society's needs;

represents an appropriation of the

means of labor and

the producers.

of the product of labor, the

power

of exploiting

New

increments of wealth result from the combined

of a class. as a social relation of exploitation, the

labor of society; under the relations of private property the increments

become the possession

Where wealth
convert
value.

is capital it is,

"right" to appropriate surplus value, the unpaid labor of workers, and

it into capital as new means for appropriating more surplus That is why capitalist production depends upon continual expansion, upon an increasing output and absorption of capital goods. Great fortunes are typical of capitalist wealth. They are not, however, the result of mere direct appropriation of surplus value; fortunes may be acquired and enlarged by theft of natural resources, by speculation and political corruption, by plunder of the wealth, or realized surplus value, of other owners of property, by mere flukes of chance. But all great fortunes are claims upon production and income, upon the

unpaid labor of the workers.

Not

the "abstinence" or savings of the individual, but the "savings"

of society are the source of

new

capital.

result of abstinence or thrift, they

become

Even where savings are the capital only by commanding

imposed
is

and exploiting

labor. Individual abstinence plays a very small role in

capital accumulation;

an impersonal,

institutional abstinence,

upon the masses by the

1.

social relations of capitalist production,

the

source of capital. This appears clearly in the three forms of savings:

Where

savings represent individual abstinence from consumption,

It is

they are the least important source of investment capital.

to the savings of the workers, the

limited

mass of farmers, and the lower

bourgeoisie

This

real abstinence

(who, however, may also appropriate surplus value). produces not more than 15% of the national
savings, moreover,

savings.

The

become

capital only

when

they are

invested,

mainly in the form, of the

institutional investments of

banks

and insurance companies, and yield realized surplus value in the form of interest or profit. 2. The major source of "savings" is the surplus income of the intermediate and upper bourgeoisie. It is this surplus the apologetic econo-

Class Distribution of

Wealth
is

347
all

mists justify with the theory that "abstinence

the source of capital."

the

But the
of
life.

capitalists are

not abstemious.

They enjoy

good things

Their great expenditures, especially on conspicuous competitive consumption, are the direct opposite of abstinence. The surplus, and
the

consumed part

or product of the workers; yielding capital

was originally unpaid labor becomes income-yielding and wealthby extorting more unpaid labor. (Speculative profits
of capitalist income,
it

are either realized surplus value or claims

value.)

upon prospective surplus

is

In one sense, the surplus income of the bourgeoisie

the

product of abstinence, of the abstinence from fuller participation in the fruits of their labor, and from consumption, of the masses of workers

and poorer farmers,*

3.

On

the average,

from 40%

to

50%

of the national savings are the

result of business savings, of undistributed profits. Personal abstinence

does not contribute to these enormous savings, neither the self-imposed

abstinence of the worker,

who

saves a

little

for the rainy day, nor the

imaginary abstinence of the

capitalist.
it is

The

small businessman

who

saves a part of his profits performs,

is

true, a personal act.

of diminishing importance in capitalist

But this production, which becomes

enterprises
in

increasingly large-scale

and corporate; non-corporate

than

1928 contributed not

much more

15%

of total business savings.

Corporate surplus and undivided

lion,

profits, in 1927-29, rose $21,300 mil-

an average of $7,000 million yearly.^^ These are impersonal, institutional savings, independent of individual initiative, a social form
of accumulation within the relations of personal property ownership.

In the measure that corporate savings are reinvested and yield profits,

they

augment

the income

particular case, have

and wealth of stockholders who, in done absolutely nothing, not even to invest.
institutional,

this

This impersonal and

of a corporation gets a

or

social,

character of capital

accumulation appears most strikingly in

credit.

When

the

management
are under-

bank

loan, or

when

its securities

written and, while

get credit
*

still

unsold, are used by the investment banker to

credit represents only in very
does
the

from a commercial bank, the

does

"The

capitalist

not become

enriched

as

miser

in

proportion

to

his personal labor

and

his personal abstinence

from consumption, but

and
to

to the extent to

which he can put the screw on

other's

labor power,

which he can enforce

Although, therefore,

upon the worker the renunciation

which was
avarice
his

of all

the pleasures of

life.

the capitalist's extravagance never has the genuine character of unbridled prodigality
typical of certain feudal magnates,

and although behind

prodigality

it

there lurk sordid

and anxious

calculation,

none the

less his

grows proportionately with

to

accumulation,

without the one necessarily putting an end

635.

the

other."

Karl

Marx, Capital,

v. I, p.

348
small part
credit

The

Decline of American Capitalism

money saved and deposited in the bank. For banks issue beyond their actual resources. Loans become deposits, and these deposits become the basis of more loans. Where formerly bank credit was used largely for commercial and working capital purposes, it is
used largely for fixed capital purposes. According to the estimate

now

of one economist, over

capital.^^

50%

of commercial
is

bank

credit

is

used for fixed

And

the greater part of credit

merely an institutional crea-

tion, repayable

capital

because of the profits it makes by command over labor, equipment, and raw materials. Capital created by credit is
is

obviously the product of social labor. There

neither real nor imagi-

nary abstinence, except the abstinence imposed upon the workers pro-

ducing surplus value. But so is all capital the product of social labor, although it all becomes private property. In final analysis, the creation of capital is determined by assigning so much social labor to the production of capital goods, an elementary fact disguised and distorted by
the ownership, financial,
tion.

and predatory

relations of capitalist produc-

Another source of wealth, independent of personal saving or

ment,
is

invest-

the multiplication of capital claims.

(Some claims

are the

result of non-productive investment.)

of this is the upward growth of population, production, and the national income. Another form is the recapitalization of industry and the inflation of stock values. This may result from speculation, or from capitalizing the general upward movement of

One form

movement

in land

values,

capitalizing the

production, technological changes, seizure of natural resources, un-

market conditions, formation of monopolist combinations, and monopoly advantages.* This, in certain stages, may be an unusually important source of capitalist wealth; as in 1 898-1 91 4, when monopoly recapitalized American industry. It was important in the pre-1929 prosperity: mergers and combinations yielded great profits to promoters and bankers, and inflated capitalization. Monopolist comusually profitable

binations
of labor,

all

capitalized increasing production, the rising productivity anticipations of higher profits.

and

An

investment, in 1922, of

$10,000 in the

common
new
. .
.

stocks of a

group of corporations rose in eight

were not a
result of savings

"Those millions of

capital resources

and abstinence, and

last

but only capitalization.

Technical

progress

made production
as

cheaper,
in

this

cheapening of processes did not reduce prices

was the

case

the

thirty

years of the nineteenth century; the gain in the present century has been absorbed in

the process of capitalization.

Thus

the private capital, which

is

really only a right to

income without
real

effort,

a multiple of a free income,

has been increased without the

and

social

capital

being

proportionally

augmented

by

saving."

L.

V.

Birck,

"Theories of Overproduction," Economic Journal, March, 1927, p. 26.

60%

jy%\
fj<HMetKs

/^.V%

SQ%\

4S%\

W0RK1N&
CLASS

FARMERS

imiminii

I
XV.

P:/K/VrA&

OF WALTH 0WNO PiRdAjrAoeof gajnfullv occup/sd

CLASS DISTRIBUTION OF

WEALTH 1928.

350

The Decline

of

American Capitalism

years to $23,500, an increase of 235%, in addition to yielding cash income of $8,535, ^^ average yearly increase of 16.5%.^^ Independent of

new
faster

investment, capital and capital claims were augmented, rising

than production and the national income, engendering malad-

TABLE

VI

Class Distribution of Income-Yielding Wealth, ig28

NUMBER
CLASS
IN CLASS
Class*

PER-

WEALTH OWNEDt
(millions)

PER-

CENT
68.5 15.6

CENT
4.7

AVERAGE

Working
Farmers

32,500,000
7,400,000

$13,500
43.990

$415
5.950

15.4

Bourgeoisie :t

Lower
Intermediate

4,300,000

9.0
6.1

34.850
61,420

12.2

8,100

2,880,000

21.6
46.1

21,300

Upper
Total

382,241

0.8

131.240

343.400
$6,000

47,462,24]
clerical.

loo.o

$285,000

lOO.O

Wage and

+ Lower bourgeoisie, incomes below $3,000;

$10,000; upper, incomes of $10,000 up.
X Robert R. Doane,

intermediate,

incomes of $3,000

to

The Measurement
million
all

of

American Wealth,
incomes
of

p.

25,

estimates

the

1929 distribution of
of

all

wealth, including non-income yielding,

as

follows: Incomes
to

$10,000

up,

$150,691
or

or

42.6%;

$3,000

$10,000,

$100,161

million

28.4%;

incomes below $3,000, $102,239 million or 29%.

14,816
individuals
{Statistics

Incomes of $100,000, a handful of

p. 39),

of

Income,

1931,

owned $46,482

million or 13.2%.
as

Source and methods of computation: Basic sources are the same

in Table

V,

and Department of Agriculture, Crops and Markets,

yielding property includes
(less

July,

1929,

p.

254.

Income-

duplications)

all

individually
securities,

owned
real

corporate stocks
capital

and bonds, mortgages, government bonds, foreign

companies and building and loan
are
associations.

estate,

value

of unincorporated business enterprises, farms, savings deposits, and assets of insurance

Private
are
as

excluded.

Estimates

of

class

distribution

follows:

homes and personal property Working class stocks

$750 million, corporate bonds $250 million, savings deposits $7,000 million, government bonds $500 million, share in building and loan assets $2,500 million, share in Farmers stocks $625 million, corporate bonds life insurance assets $2,500 million. $1,750 million, savings deposits $2,000 million, government bonds $2,000 million,

insurance
rented
of

$1,500

million,

farms

($58,645

million

less

$32,530 $10,000

million

value
for

of

land

and

debts

to

non-operators

plus

probably

million

value

rented

land

and mortgages owned by farmers)

$36,115

million.

Upper bour-

geoisie

$9,940

$48,300 million, corporate bonds $10,000 million, government bonds million, foreign securities $5,000 million, unincorporated business $17,000
stocks

million, real estate $26,000 million, savings deposits $10,000 million, insurance $5,000
million.

Intermediate

and

lower

bourgeoisie

balance

of

income-yielding

property,

apportioned roughly in accordance with income and stock ownership.

Class Distribution of

Wealth

351

justments and disturbances.

Many

of the gains of recapitalization are

wiped out {not the part represented by the profits of bankers and promoters). But the losses are a necessary condition of capitalist accumulation, and they help to concentrate wealth in the ownership of financial capitalists. In the epoch of the upswing of capitaUsm, moreover, the gains were greater than the losses, enlarging capital claims
like a snowball

going downhill.

It is

different in the

epoch of decline,

when

losses

tend to outstrip gains; this inflames

capitalist passions,

makes their fight for profits more ferocious, creates new antagonisms and social explosions. As the accumulation of wealth is essentially an impersonal, institutional function of ownership and class exploitation, the share of the working class must be small. It is even smaller than the 10% partici. . .

pation in national savings, because these savings are rainy-day funds,

cut into by illness, unemployment,
a

worker uses up
if

his savings, the loss is final.

owning

class are not necessarily

they rise again;

the stocks are

gain.)

and depression. (If, in depression, But the losses of the final. If the values of stocks go down, sold, what the former owner loses the

new owner may

Hence, in 1928, the workers' share in the

income-yielding wealth of the nation was only 4.7% (Table VI), half their share of the national savings. Not only is concentration of wealth
greater than of income,
it

is

greater than the statistics indicate.

For

the workers' "wealth"

is

merely a

pitifully small reserve against illness,

mated, and ownership

unemployment, and death. The farmers' share is probably overestiis concentrated in the upper layers; the tenants, share croppers, and poorer farmers, the majority, do not even make a fair living. The share of the lower bourgeoisie is largely bound up with their occupations, their petty business enterprises. Ownership of income-yielding wealth, of capital resources, is a monopoly of the
intermediate and upper bourgeoisie, with their 67.7% share massed
in corporate

ownership and control of industry. Combined they are

only 6.9% of the gainfully occupied, the upper bourgeoisie only 0.8%.*
*

The

depression wiped out

much wealth and

increased the concentration of owner-

ship of the remainder. In 1929,

99%

of the people

owned only 17%

of the nation's
their share

liquid wealth (cash, savings deposits, insurance, stocks

and bonds); by 1932

had dwindled

to less

than

6%. "This

is

the most rapid, drastic, and gigantic dissipacapital that has, in all probability, ever taken

tion, redistribution,

and transformation of

place in so short a period in any individual

. .

economy
a
It

in the history of

modern

times.

That

it

represents nothing
of capital
is

more than

picturesque incident in another of our

great

'shifts'

gravely doubtful.

has been far too broad and deep and

penetrating this time to allow of easy escape." Robert R. Doane,

The Measurement

of

American Wealth (1933), pp. 28-32.

352
ruling

The Decline
class. Its

of

American Capitalism
is

In any class society the ownership of wealth

forms change

as the

mode

of production

monopoly of the and resulting

class-economic relations change. Landholding, the direct exploitation

of the producer,

was the

essential

form of

pre-capitalist wealth.

The

commercial revolution in Europe, from the fifteenth to the seventeenth

centuries, thrust forth a

new

type of wealth, derived from trading,

mining, speculation, and promotion, while landholding became a new source of wealth by levying tribute upon economic development. Capitalist

wealth

is

based upon the production of surplus value by the

it

workers.

Hence
a

depends upon an increasing output and absorption of

capital goods, of

new means

wealth

is also

for the exploitation of labor. But capitalist mass of claims upon production. Great fortunes {cf.

ownership of natural resources)

may

represent simply the "right" to a

share in the social wealth, in the surplus value appropriated by others.

While

all capitalist

wealth

is

derived from the exploitation of labor,

capitalists of their wealth.

fortunes

may

be amassed by plundering other

These conditions become the more typical as industrial capitalism is transformed into monopoly capitalism. The wealth of the financial oligarchy is merely a mass of paper claims upon production and labor, upon the surplus value appropriated by active capitalists, or, increasingly,

by hired management

as agents of

ownership.

Changes in the form of capitalist wealth parallel class-economic changes which express not only the development of capitalist production and exploitation, but also the historical drive toward a new social
order.

While

in sixteenth-century

Europe and

after fortunes

were piled up
soil),

out of trade, promotion, and speculation (including the "primitive

accumulation" of the expropriation of peasants from the

lation in the

North American
civilizations,

colonies

assumed

at first the older

accumuform

of large landholdings. Spaniards acquired fortunes by plundering the

Aztec and Inca

another form of primitive accumulation,

and
gave

by forcing the Indians to dig gold

title to

and

silver.

But farther north

kings

there was only land to wrest from the aborigines.

vast

The English

domains who combined with merchant capitalists to exploit the grants. Alongside and within the proprietary grants, great landed estates were created. In the New Netherlands, the Dutch also built up large landholdings; the 700,000-acre estate of KiUiaen van Rensselaer was not unusual. These manorial estates were worked with tenants and indentured laborers, and the owners were for years dominant political powers. Farther south, the plantation system was based on Negro slavery; the
to their favorites, often pauperized aristocrats,

Class Distribution of

Wealth

353

cultivation of tobacco with slave labor in Virginia

earliest colonial fortunes.

produced some of the

Even

after the colonies reverted to the British

crown, the accumulation of large landholdings continued, although

some of

the older ones were broken up. Entailing o land

was exten-

sively practiced.

The

colonial manorial estates represented the trans-

plantation of an essentially feudal type o wealth, but they functioned

in an environment which the commercial revolution was rapidly transforming into a capitalist economy; in fact, the estates depended upon trade with England for the profitable disposal of their products. Another source of wealth was overseas trade, an expression of the world market and developing capitalism. Colonial plunder enriched European merchants and aristocrats, and provided new means for the exploitation of labor. Gold from the New World, while it helped to ruin Spain economically, invigorated the general development of capitalism. (The gold was red with the blood of labor; for, in Mexico and Peru, the working conditions were so terrible that 80% of the Indian miners died every year.^^) The North American colonies were drawn into the whirlpool of the world market. By 1680, there were thirty merchants in Massachusetts each worth between $50,000 and $100,000.^^ The fur trade, supplying the growing luxury demands of the European aristocracy of blood and money, yielded great wealth, mainly for the absentee masters of the Hudson's Bay Company in England. The slave trade, never before organized on such a vast scale, was a fertile source of colonial fortunes. Money lending and a crude form of banking developed to meet the needs of commerce, constituting another source of wealth. By the time of the American Revolution, mercantile fortunes were disputing supremacy with landholding fortunes, although land still enjoyed social recognition as a dominant form of wealth. The father of James Fenimore Cooper owned a manorial estate of huge proportions; his boast was that there were "some 40,000 souls ^* holding land directly or indirectly under me."

dispersed some fortunes, particularly among the whose estates were confiscated as a revolutionary measure; but others became larger and new ones were created, mainly by financiering, speculation, and privateering. One revolutionary privateer later increased his wealth from mercantile and manufacturing enterprises, accumulating Ji, 800,000.^^ Speculative wealth was' greatly augmented when the new Federal government assumed $70,000,000 of national and state debts; most of the bonds were in the hands of a few speculators, who had bought them at 10% to 15% of their face value.^' Mercantile fortunes, based upon the expansion of trade, agriculture,

The Revolution

loyalists

354

The Decline
industry,

of

American Capitalism

fortunes

grew swiftly after the Revolution, with manufacturing becoming increasingly more important. Stephen Girard amassed a typically capitalist fortune, derived largely from speculative manipulations in banking, trading, manufacturing, and shipping. With the onsweep of capitalist enterprise, wealth represented by large
and
agricultural landholdings definitely receded in importance.

The

pro-

tests

of tenants forced the adoption of legislation to break

earlier abolition of entail

up the

and primogeniture dwindled in the East, great landed wealth came to consist of urban realty holdings, whose value was increased enormously with the rapid growth of cities. Similar fortunes arose in the West in Chicago, Cincinnati, and St. Louis. Speculation in the new lands of the frontier began to assume more importance as a source of great wealth. Land ownership levied its tribute upon economic development and population growth. According to one estimate, in 1846, of the nineteen New York millionaires
had a similar
effect.

manorial domains, and the

As

large agricultural landholdings

a total of 165,000,000, eight, including John Jacob Astor and E. van Rensselaer, were landowners and seven were merchants. But the original wealth of Astor, whose fortune was the largest in its time, came from the fur trade and the oriental trade, and it was multiplied by speculation in urban real estate. Of the seventy-eight fortunes of $500,000 and over, twenty-six were owned by merchants, seventeen by landowners, five by manufacturers, and seven by bankers and
brokers.^^

who owned

The merchant
said of

capitalist

was now

the

dominant

type.

Great wealth

based directly on manufactures was

still

rare; a

contemporary chronicle

man that he had "managed, strange to say, to obtain and wealth" from manufactures. Of nine Boston millionaires, in 1845, only two were engaged in the manufacture of goods. But the designation merchant now covered a multitude of interests. While merchants seldom pioneered manufacturing enterprises, which were considered risky, they financed the distribution of the products and secured thereby a large share of the profits. Thus, in 1834, 85% of the Boston merchants were closely connected with manufactures.^ Differentiation proceeded steadily, however; many merchants became industrial capitalists and others abandoned trade for finance. The great American investment banking houses were originally mercantile firms. George Peabody gave up trade for international banking and acquired a fortune of nearly $10,000,000 out of the American need for foreign capital.^^ The founder of the House of Morgan was a merchant. Banking was transformed by developing industry's greater need for fixed
one
rich

large profits

Class Distribution of
capital.

Wealth

355

Merchants and bankers promoted railroads, whose rapid development was an important source of economic change and capital accumulation. The railroads offered an unexcelled opportunity for piling up profits, both "legitimate" and illegitimate; and Jacob Little, reputed inventor of short sales, was already demonstrating how a fortune might be
characteristic

made by railroad manipulation and speculation. The forms of modern wealth began to emerge, based upon the

development of industrial and financial capitalism. Modern capitalist fortunes appeared much earlier in England, because of the more rapid tempo of industrial development. Immense
wealth had poured into England from overseas trade and chartered companies, such as the Africa Company and the East India Company,

most of which combined trade, slaving, and colonial plunder. The great wealth stolen by English adventurers in India led to the use of the Indian term nabobs to designate the newly rich. Security speculation, made possible by the rise of joint-stock companies, culminated in the organization in 171 1 of the South Sea Company, whose promoters were mainly wealthy merchants. When the South Sea bubble burst, as its predecessor the Mississippi bubble had burst in France, thousands of people were ruined, but some insiders reaped large profits. Meanwhile, in the nooks and crannies of the English economy, forces were accumulating which were to create new riches, to change
the

form and

increase the size of great fortunes.

The

industrial revoits

lution not only multiplied wealth but also accentuated

tion.

concentra-

Wealth direcdy connected with the industrial revolution, in its earlier stages, was made by new men; only after the new industries were successfully established did they prove attractive to the conservative, play-safe owners of older fortunes. But the industrial revolution also enriched aristocratic landowners whose lands contained coal, iron, and other minerals, and whose ancestral privileges enabled them to levy tribute upon economic progress. The earliest of the new capitalist fortunes arose in the coal and iron industries. Although Henry Cort, whose processes transformed iron making, died a poor man, the ironmasters

who

violated his patents secured great wealth. In the districts

of South Wales,
ously,

where the new industrialism flourished most vigorand where labor and social conditions, according to one au^ thority, combined "the worst features of the industrial revolution," capitalists in a few years amassed huge wealth from the most merciless exploitation of labor and the needs of industry. Another crop of rich men was produced by the textile industry, which ruthlessly expropriated craftsmen and sweated women and children, and also disrupted

356
the village

The Decline
economy

of

American Capitalism
on handicraft weaving. Great

of India based

w^ealth w^as also acquired by exploiting railroads, especially in the

form of
for

speculation. Investment bankers (Rothschilds, Barings) garnered great profits from promotion, and from the export of capital

government loans and the financing of railroad construction on Never before had wealth poured forth in such a torrent as in capitalist England between 18 15 and 1850, and never were the conditions of the working class more miserable. At the same time, land fortunes were
the continent, in the United States, and in Latin America.
still

powerful; even after the Reform Bill of 1832, land represented

While aristocratic landowners had beyond the dreams of their ancestors by industrial and urban growth and by corporate investments, industrial and commercial capitalists bought landed estates in order to quaUfy for titles and social position: the parvenu spirit of the bourgeois! Capitalist development on the European continent paralleled English development on a smaller scale. As the financial manipulations of the Rothschilds spread beyond Germany, they became the most powerful factor in the realms of international finance. Their function was essentially the mobilization for capitalist investment and exploitation of the wealth of the feudal aristocracy based on pre-capitalist forms of exploitation. IndustriaUsm and corporate enterprise encouraged promotion and speculation, all forms of the financial plundering of economic progress. The Credit Mobilier, which offered competition to the Rothschilds, paid fabulous dividends in the 1850's, and then crashed. France under the tragic mountebank, Louis Napoleon, was the paradise of corrupt and predatory speculators and adventurers (including the emperor); other fortunes were made by industrial capitalists in coal, iron, and textiles. All over the continent railroads were built, enriching their promoters, not the builders. Railroad construction was often beyond immediate economic needs, imposing new burdens upon the workers and peasants; but promoters raked in the profits. Holland was no longer the important power it had been in the sixteenth and seventeenth centuries, but the Dutch merchant capitalists continued to draw wealth from the exploitation of their colonial possessions. The rapid industrialization of Germany was the basis of many great fortunes. Aristocracy in Germany, almost as much as in England, allied itself with capitalism and enormously increased its wealth. Thus the feudal landowners of Upper Silesia piled up great fortunes by the capitalist exploitation of coal, iron, and other
political

power and

social prestige.

their wealth increased

minerals on their estates. In 1913, of the five greatest fortunes in Ger-

357 many, three were owned by landholding aristocrats; in England, the Duke of Westminster had an income of 200,000, mainly from rents.^^ By 1890, the more industrial nations of Europe England, Germany, France, Belgium were actively engaged in the struggle for imperialist supremacy, which led inexorably to the catastrophe of the World War. Imperialism, the predatory aspect of the industrialization of the world's economy, the expression of the developing forces of capitalist decline, became a most important factor in the accumulation of wealth. Capitalist industry came increasingly to depend upon the export of capital and the exploitation of economically backward countries as the source of cheap raw materials and even cheaper labor. Immense profits were made in China by financiers, promoters, speculators, and ordinary adventurers. Construction of railroads in Asia, Africa, and Latin America yielded profits which in many ways suggested tribute levied upon the conquered.* Loans were knowingly made to the corrupt governments of economically backward peoples, and wasted; interest and principal were repaid by the blood and agony of the workers and peasants. A cabal of Belgian aristocrats, financiers, and speculators, led by King Leopold, drew immeasurable wealth from the horrible exploitation of men, women, and children in the Congo, including "disciplinary" massacres and mutilations. French and Belgian financiers drew wealth from the construction of the Trans-Siberian and the Chinese Eastern railroads. (The Soviet Union expropriated these properties, but the financiers had unloaded the losses onto small investors.) In Africa the British South Africa Company of Cecil Rhodes extorted profitable concessions from the natives, and inextricably merged his wealth and business interests with the politics of imperialism. The basis of empire, said Rhodes, is "philanthropy plus 50%"^^ His imperialist schemes led directly to Britain's war with the Boers. An aspect of imperialism was the augmenting of competitive armaments; the most brutal, unscrupulous, and predatory capitalists flocked to the munitions industries, creating and exploiting war scares, some amassing incredibly large fortunes. (American capitalists, on a smaller scale, did the same thing in Latin America.) Munitions capitaUsts during the

Class Distribution of

Wealth

Conditions

were

typical in Mexico,

where

British, French,

adventurers plundered the Mexican people.

at $40,000,000, could

Thus

the Vera

and American financial Cruz Railroad, capitalized

have been

built for $10,000,000,

yet paid dividends of

5%

to

12%.
profits

Corruption

and construction frauds were widespread.

longest,

One
p.

source
to

of

extra

was unnecessary mileage, using the

most crooked

routes,
8.

get the

government subsidy. Matias Romero, Railways in Mexico (1882) one of the earliest stamping grounds of American imperialism.

Mexico was

358

The Decline

of

American Capitalism

World War traded with the enemy and provided means to kill "their own" soldiers for a profit. The mounting needs of European industry for overseas raw materials produced some native fortunes. A landholding family in Chile in-

its wealth to $70,000,000 by capitalist exploitation of minerals, and a Bolivian family amassed over $200,000,000 from ownership of tin mines.^^ But, by and large, the natural resources of economically backward countries, and their profits, were seized by foreign capital-

creased

ists.

In these countries the older type of landholding fortunes persisted,

capitalist

although modified by
political

influence.

Personal exploitation of

power yielded immense wealth to the inner clique of Porfirio Diaz in Mexico and to Juan Vicente Gomez of Venezuela. The Venezuelan, when he became president in 1908, was a poor man; twenty years later his private fortune was enormous. The native exploiters of both countries "made" their money by an alliance with foreign capitalists, involving robbery of natural resources and the most brutal suppression of workers and peasants. All this involved some of the most
brutal forms of primitive accumulation.

Great as were the European fortunes created by

the Civil erated
it

capitalist develop-

ment, they were smaller than those piled up in the United States after
politically. Relatively

War, which strengthened capitalism economically and libunhampered by older vested interests
civilization,

and the culture of an older

tive ideology justifying unrestricted

with an almost "pure" money-making, American

acquisicapital-

ism drew upon the apparently inexhaustible natural resources of an

undeveloped continent, exploiting them with the aid of large and

poorly-paid masses of immigrant labor provided by Europe.

primitive accumulation,

and exploitation of vast natural resources, a form of was of fundamental importance in the formation of many American fortunes. Most of the natural resources were originally part of the public domain, which in i860 still consisted of 1,048 million acres. But they came into private capitalist ownership by "the benevolent paternalism" of a government, according to one bourgeois historian, which "sold its natural resources for a song, gave them The away, or permitted them to be stolen without a wink or nod. public land office of the United States was little more than a center for the distribution of plunder."^* Not only capitalists became rich by
seizure
.
. .

The

exploiting natural resources; somnolent farmers acquired wealth over-

night by the discovery of minerals or

oils in their lands.

Speculation was a mighty source of wealth in the Civil

ploiting the

War, exwar needs of the government, and connected with polit-

Class Distribution of
ical corruption.

Wealth
dynasty

359

The founder

of the

Armour

made

a kiUing

speculating in pork. Jay Cooke built up his fortune financiering in government bonds. In the period immediately after the Civil War many fortunes w^ere w^rested from the railroads. Yet the legitimate construction costs of the great American railroads were more than paid for by Federal, state, and municipal contributions of $700 million and grants of 155 million acres of public lands.^^ Cornelius Vanderbilt's great wealth came almost exclusively from speculating in railroads and watering their stock as an accompaniment of consolidation; he left $100 million and one of his sons left $200 million. More than $40,000,000 were extorted from the Union Pacific Railroad in excess construction costs; the profits were distributed among promoters and politicians.^^ Jay Gould's fortune of $72,000,000 came mainly from railroad manipulation and speculation; it was identified with no constructive achieve-

ment.

Many

others exploited the railroads in similar fashion.

When

and unbridled competition drove the railroads into bankruptcy, wages were cut and workers on strike brutally suppressed, while thousands of small investors were ruined; but reorganizations yielded large profits to financiers and promoters. Part of the Morgan money and power came from this source. Other great fortunes (Hill, Harriman) were piled up by speculation in railroads and their consolidation into overcapitalized systems from 1895 to 1905. Underlying it all was a mounting production and realizaspeculation,
thievery,

mismanagement,

tion of surplus value.

While the older fortunes did

sitically satisfied

as a rule

no economic pioneering, parain-

with safe investment and income, the onward sweep

of technology

and general economic progress revolutionized one

dustry after another;

industries
at

men

of small means,

who

entered the

new

an early

stage,

amassed large fortunes by shrewdly

inventions. (Inventors seldom be-

capitahzing

new developments and

came wealthy. In Wall Street they said: "It's the third or fourth man who cleans up on inventions.") The Armours in meat-packing, Cyrus McCormick in agricultural implements, George Westinghouse in electrical manufacturing, Andrew Carnegie and Henry Clay Frick in iron and steel all levied tribute on technical-economic changes and tribute on labor. Conditions in the iron and steel and coal regions

of Pennsylvania

were

typical;

workers were held in a

sort of feudal

bondage, shackled by the law of the masters, and

strikes,

they went by the masters' police. on The i86o's-9o's was the epoch of the industrial capitalist, who participated directly in industry. But only within limits; for the speculakilled, if

360
tor

The

Decline of American Capitalism

financial capitalist

was everywhere and the

made

his appearance

with the development of monopolist combinations. Technological

changes, large-scale production, and competition drove inexorably to
industrial concentration and corporate combination. The profits of monopoly were tremendous; the Standard Oil Company, with an original capitalization of $1,000,000, between 1(882 and 1906 paid out $548 million in dividends, while other millions were represented by reinvested profits and cash resources.^'^ Equally tremendous were the
profits of trustification; the series of

combinations in the

steel industry,

which culminated in the United

promoters profits of
tion

States Steel Corporation, yielded the

at least $150 million.^^ Profits of this type

were

often fortuitous; in order to prevent the revival of ruinous competi-

form the steel trust, Carnegie was paid $447 million for what he would have accepted two years previously. By 1900, the industrial capitalist was swiftly receding into the limbo of small-scale industry or was becoming a financial capitaUst, with interand
to

his interests, twice

ests in a

multitude of enterprises, promoting, speculating, financing,

not engaged directly in production.

lionaires,

The Standard

Oil multi-mil-

an oligarchy dominated by John D. Rockefeller, were now promoters, speculators, and bankers on a large scale; "their resources are so vast," said one financier, "there is an utter absence of chance" in their manipulations.^^ Another source of great fortunes (Morgan,
of corporate enterprise

was investment banking, growing with the expansion and trustification and allied with promotion speculation. For the separation of ownership and management and vested control increasingly in the financial capitalists and the great banks. Industrial concentration was paralleled by centraHzation of financial control, of which the dominant institutional expression was. the House of Morgan. The swifdy rising stream of national wealth was deflected into
Stillman)
other,
if

minor, channels

politics,

patent medicines, journalism, the

law. Politics favored predatory

cians;
it

capitalists

served the capitalist

class

in general

more than corrupt politiand special capitalist

chances for the politician;

groups in particular. But there were

many

they expected, and got, something: in return for handing over the nation's natural resources to capitalists or for giving them tariff benefits.

"If I

had

my

way," said one

politician, "I

would put the manu*

facturers over the fire

and

fry all

the fat out of them."

Millionaires

who looted traction systems (Yerkes, Ryan) worked hand in hand with municipal political machines, stealing franchises and plundering the public.

The

clash of predatory interests gave lawyers their

Class Distribution of

Wealth

361
twisted the law

opportunity, especially the corporation lawyer,

(e.g.,

who

the "due process" clause enacted in the interest of the Negro,

but distorted to protect the "rights" of capital) and swayed courtrooms

on behalf of

his corporate clients. Journalism cashed in

on

advertising,

capitahzed public prejudices, and protected capitalist interests; the

mercenary struggle for circulation between Hearst and Pulitzer contributed to the making of the Spanish-American War. Under the forms of bourgeois democracy, class rule needs the services of journalism and the law, and they get
of
their share of the spoils.

The beginnings

American imperialism, from 1880 to 1900, swelled the stream of capitalist wealth. In Chile and Peru, Henry Meiggs and William R.
Grace (the "Pirate of Peru") made substantial fortunes exploiting natural resources, promoting railroads, organizing banks, mixing in
dirty,

murderous

poUtics.

Minor C. Keith, the "American

Cecil

Rhodes," piled up immense wealth as the spearhead of American economic, financial, and
political penetration of the

Caribbeans, creating

an empire
olist

fertilized

with the blood of peons, ruled over by the monoprailroads, ships,

. . .

combination, the United Fruit Company, with

its

other plantations,

its banana and and banks, protected by the might

of the American government.*^

York Tribune published a list of 4,047 American fortunes of $1,000,000 and over, which shows quite clearly the change in the dominant form of wealth since 1845.*^ Of the 4,047 millionaires, 1,140 or 28% secured their wealth from manufactures. The next largest group, merchandising, numbering 986 millionaires, included,
In 1892, the

New

however, great merchants engaged in other enterprises as well; thus

of Marshall Field's $120 million estate, his interest in Marshall Field

and Company was valued

at

$3,400,000,

the balance including in-

vestments in (besides real estate) 150 industrial, public utility, and financial corporations. There were 468 fortunes connected with real
estate; 410

with transportation and communication, including 186

rail-

road magnates; 356 with banking, brokerage, and insurance; 286 with mining, of which seventy-two were based on the production, refining, and transportation of oil; and 168 with forest ownership and lumber manufacture. Of the eighty-four millionaires who derived their fortunes from "agriculture," forty-seven were Western cattle ranchers, a group of whom President Theodore Roosevelt's land commission said that "hardly a single title is untainted by fraud;" fifteen were owners of plantations in the South, and six owned plantations in Latin America. The professions contributed seventy-three fortunes of $1,000,000 and over; sixty-five of them belonged to lawyers, mostly corpora-

362
tion lawyers,
royalties.

The Decline

of

American Capitalism

and only three were based on accumulations of patent

What manner of men were these millionaires, who got into their hands the greater part of the wealth produced by the labor of a nation? Their attitude toward labor was expressed by the management
of the Carnegie Steel

Company, who provoked

it." *^

the bloodshed

at

Homestead
a

in order to crush unionism,

sticks

and one o
I

whom

said: "If

workman
I

up

his head, hit

Their general attitude was excare for the law?

pressed by CorneUus Vanderbilt:

"Law? What do
by
J.

Haint
with

got the power?"

And

Pierpont Morgan: "I

owe

the
like

public nothing.
it."

Men owning

property should

do what they

**...*
1900 to 1914, the accumulation of great wealth, because of the

From
slowing
of

and the growth became increasingly dependent upon the recapitalization of industry, upon promotion and speculation. As concentration of income was augmented, and fortunes became still more swollen, financial capitalists tightened their grip upon corporate industry. The combination movement swept onward, piling up paper claims upon production and income. The "water" in the United States Steel Corporation, whose capitalization of $1,400 million was based upon tangible assets of only $682 million, was a typical case of capitalizing monopoly advantages and profits. Imperialism, moreover, became more important as a source of wealth. The early years of the World War were a godsend to the American accumulators of great wealth, exploiting the agony of Europe. Scores of new millionaires were created after the United States marched forth "to make the world safe for democracy." European developments were similar. Then revolution and inflation changed the distribution of wealth. The communist revolution in Russia confiscated and socialized wealth, along with the expropriation of the bourgeois and feudal classes. The Succession States broke up many of the large estates of the old aristocracy. Inflation wiped out much of the wealth of the middle class, but financial and speculative capitalists were enriched.

down

of the rate of economic development

monopoly

capitalism,

"Man

is

a beast of prey.

of prey, brave, crafty, and cruel.

he
idea

tolerate

an

equal

in

his
is

The tactics of his living ... A beast of prey den. Here we are at
the

are those of a splendid beast

is

everyone's foe.
root
of

Never does
truly

the

the

royal

of property.

Property

domain

in

which one

exercises

unlimited power,
victoriously

the

power
It

that one has gained in battling, defended against one's peers,

is

upheld.

not a right to mere having, but the sovereign right to do as one wills

with one's own."

Oswald Spengler, Man and Technics (1932), pp.

26,

28.

The

Prussian Junker and the capitalist are geistige brothers under the skin.

Class Distribution of

Wealth

363
fortunes,

The

devastating inflation in

Germany

liquidated

many

and

few escaped
Inflation

intact, particularly those

based on "fixed" investments;

but out of the general ruin a few monstrously large fortunes arose.
countries

and deflation produced similar results in other European on a smaller scale. Post-war France illustrated beautifully how
is

abstinence

the source of great wealth. In the "recovered" provinces

of Alsace-Lorraine, industrial enterprises expropriated

from the Ger-

mans, worth 8,000 gold francs were sold secretly to a score or two of Frenchmen for 180 milHon paper francs. One of the beneficiaries was the Comite des Forges, the steel trust, which received tremendously
valuable iron mines and works.*' In general, because of economic
crisis

and

sisted

decline, the accumulation of wealth in post-war Europe conmainly of the redistribution and concentration of existing wealth;

new

fortunes usually arose out of speculation, financiering, and the

by means of monopolist combinations, and international. In the United States the post-war period was characterized by an increasing concentration of wealth and the augmenting of great fortunes. Mergers, combinations, and speculation yielded enormous profits. Foreign investments became an increasingly important source of
recapitalization of industry

national

capitalist wealth.

On
this

the basis of income-tax statistics there were, in

American millionaires, compared with 7,000 in same year, 504 multi-millionaires with incomes of $1,000,000 up"* held claims to wealth amounting to over $30,000 million, or nearly one-third more than the national wealth of Italy. This immense wealth was in the form of paper claims upon production and income. Marx said that wealth in the capitaHst mode of production takes the form of an immense accumulation of commodities; from another angle, it may be said to-day that capitalist wealth takes the form of an immense accumulation of paper. In the great Amer1929, probably 30,000

Great Britain. In

ican fortunes, landownership

case of

is

relatively

unimportant except in the

(ownership of natural

some fortunes based on urban

is,

realty

resources by corporations

of course, extremely important).

The

wealth

is

represented by investments in a broadly diversified group of

corporate enterprises, with a backlog of government bonds. In 1929,

incomes of $5,000 up reported ownership of $5,373 million of taxexempts,*^ in addition to other government bonds. In the case of
fortunes with yearly incomes of $100,000 to $150,000, their wealth consisted 58.3% of stocks and bonds, including foreign securities, and 91.9% in the case of fortunes with incomes of $1,000,000 up.*^ The characteristic form of modern capitalist wealthpaper claims

3^4
fortunes.

The Decline
The wealth

of

American Capitalism
sharply with older types o

upon production and income

contrasts

of the feudal aristocracy

was

associated with

land, that of industrial capitalists with particular enterprises; both

fortunes,

had a tangible form and definite habitation. Contemporary capitalist on the contrary, are Hquid, mobile, intangible, a mass of
this

paper rights to ownership. At the basis of

development are the

concentration of industry, the separation of ownership, management,

and

control,

and the transformation

of the industrial capitalist into the

is

financial capitalist.

One

aspect of these developments

the increasing
clipper of

importance of the passive, wholly parasitic

coupons.
It

rentier, the

mere

has been estimated that individual trusts

managed by
and spend
trusts,

banks for

their owners,

whose only function

is to

receive

the income, are worth over $25,000 million.

for national

The

value of such

banks alone, rose from $922 million in 1926 to $4,319 million in 1930.'^^ Ownership here is separated even from administration; private income is drawn from collectively produced and collectively

managed wealth. Modern wealth is separated from

owners are absentee
capitalists,

direct participation in industry;

its

with management and control

assuming

institutional forms. Because of this the possession of wealth

does not carry responsibilities with regard to the sources from which
it

is

derived.

The

lord of the

manor had
on

definite obligations, either

legal or customary, to the tenants

his land, the serfs

who

cultivated

his
ist

domains, and his household servants.

Where

the industrial capital-

recognized obligations to the workers in his factory or the consum-

ers of his product, they

were forced upon him by

his identification

with a particular enterprise.

fortune
is

The modern
effectively

financial capitalist,

whose
in

scattered in scores of corporate enterprises

countries,

and perhaps

almost as

Even
he

if

many he owns
1926,

escapes

such responsibilities.

a large block of securities in a particular enterprise,

is

may

plead that the responsibility

not his but that of management.

Jr. was asked to influence which was waging ruthless war upon its striking workers, the unctuous son of an unctuous father replied: "The facts are that the combined holdings of our family, together with those of the funds to which this stock may have been given, represent considerably less than 25% of the stock of this company. [He was, however, the largest single stockholder.] Only two of the

Thus, in

when John D.

Rockefeller,

the

management

of a railroad,

twelve directors can be regarded in any sense as representatives of our

interests.

The management

of this

company

is

entirely in the

hands

Class Distribution of
^^

Wealth

365

o the board of directors and, no matter what

be,
I

my

personal views

may

don't control the situation."

is

example of relations of private claims to ownership what are essentially collective or social forms of production and management. Wealth has assumed a form which makes it ripe for expropriation and socialization: the wealth expropriated from the producers reverts to them in the form of social property, serving the whole of society. For the antagonism between the two opposites, proletariat and wealth, is, in the words of Marx, resolved by the synthesis of socialism, in which both private property and the
This
a clear

persisting within

proletariat disappear.

An

expression of private property and class rule, the unequal dis-

tribution of wealth results in great fortunes at one extreme

erty at the other. All legislative efforts to break

and pov-

down

the concentra-

tion of wealth

have

failed;

it

increased tremendously in the United

States following the introduction of

income and inheritance

taxes.

The
and

revolutionary bourgeoisie, which objected to great feudal fortunes

in

many

cases confiscated them, considered the "free

ownership"

of property equivalent to social equality; but bourgeois private property constituted the starting point of accumulations greatly exceeding

the feudal fortunes. In the United States the middle class

to 1914

waged

bitter

war upon
arose.

"tainted wealth"

from 1880 and "unearned in-

crement," but this class defended the system of private property out
of

which great fortunes

The augmenting

of capitalist wealth depends

upon an increasing

output and absorption of capital goods, the means for the exploitation
of labor and the production and realization of surplus value and profit.

Under
capital
if

the conditions of decline, with the output of capital goods and

accumulation moving downward, wealth decreases

relatively,

not absolutely.

Unemployment and lower wages make

still

smaller

the workers' share of the national wealth. Concentration

moves up-

ward, on a lower level. More than ever capital claims and speculation become the source of capitalist wealth. But in the measure that wealth
tends to decrease, the struggle for a larger share

among

the capitalists
instability

becomes more

intense, aggravating the

maladjustments and

of capitalist production.

Wealth takes more and more the form of

This
is

debt,

an old trend acquiring new vigor. The government debts of the world rose from $7,500 million in 181 to $30,000 million in 1900 and $250,000 million in 1933, a stupendous
particularly of public debts.

increase even after

making allowances

for the changes in the purchas-

ing power of money.

The

total public debts of the

United

States,

366

The Decline
rose

of

American Capitalism
amount was
yielded by

which

from

$4,850 million in 1912 to $36,822 million in 1932,

yielded an interest of $1,500 million; a similar

the national debt of England.^^ Since ownership of government bonds

is

the burden of public debts

"bunched" in small groups, and taxation covers the whole of society, is enormous.* They tend to increase, more-

over, as the capitalist state

makes

larger

overcome

crisis

and economic

decline,

and larger expenditures to and to prepare for war under

the conditions of intensified imperialist rivalry.

distribution of wealth

Not only does

the

become more unequal, it also becomes more parasitic, for in the form of debt it is a first claim upon the diminishing fruits of labor. Wealth now tends to increase in the hands of the few only by an absolute lowering of standards of living among the many. Both the forms of capitalist wealth and its unequal distribution are underlying forces in the creation of cyclical crisis and breakdown, and the decline of capitalism. But those very forces are simultaneously an expression of developments which make possible a new social order. Capitalist wealth as a mere mass of paper claims upon production and income grows out of the socialization of production, the possibihty of
its

transformation into social property, or socialism.

And

the

very conditions of large-scale industry, resulting in the separation of

ownership and management, make the industrial

ingly the carrier of a

proletariat increas-

new

social order.

In this

new

order, the

work
is

of
to

production does not pile up great fortunes whose only function

own and
*

exploit.
arise,

Most public expenditures, out of which public debts

are

non-constructive.

Only 1.3% of the expenditures of the national government in the United States (1927) was for social services, including education, 9.6% in France, and 15.6% in Britain (1929). On the other hand, the American expenditures on war (including
pensions and debt interest and retirement, most of the debt being incurred for war

purposes)

were over 70%, the French 69%, and the

British

70%. Paul
p.

Studenski,

"Public Expenditures," Economic Foundations of Business

centages are not wholly comparable because of differences

(1932),
in

450.

The

per-

government functions;

thus the national government in the United States, unlike the French and the British,

has

little

to

do with education. But they are indicative

of the general situation.

Summary

lONTRARY c,

to the claims of the myth-makers of the "new capitaUsm," and wholly in line with the nature of capitalist production, there was an upward movement in the concentration of income and wealth dur-

ing the prosperity of 1923-29.

The

solid

foundation of the concentration of wealth and income

is

means of production, upon which depends the livelihood of society, and which permits the owners to exploit the workers. But forms of ownership and exploitation change. The capitalist originally combined the functions of exploitation and management; he was at one and the same time the organizer of industry and its plunderer. With the development of large-scale, corporate industry, however, the separation of ownership and management has deprived
private ownership of the

the capitalist of his managerial functions.

The

multiplication of stock-

holders
class

with ownership a

monopoly of the

bourgeoisie, the

working

having an insignificant stake in corporate ownership

capitalists,

has vested

management
is

in a class of hired professional managers, while control

usurped by the financial

who

merely rule and exploit.

retains

The

basis of this development, the socialization of production, is also

the objective basis of socialism.

For modern corporate industry

private property relations within the relations of social production

social property.

and
all

Unequal

distribution of

income and wealth

is

identified
all

with

the exploiting relations of capitalist production, with

cyclical crisis

the forces of

and breakdown. They are

it is

also identified

with the decline

of capitalism, for

the socialization of production

which has

so in-

creased the productive powers of society that they choke capitalism

with the abundance they are capable of yielding. These conditions de-

mand new
to this

social relations of production, a

new

social order. Resistance

demand by

the capitalist class

is

responsible for increasing in-

stability, for

economic

decline, for the social convulsions

now
is

afflicting

the world.

The

capitalist expression of the socialization of

production

monop-

oly capitalism,
retains all

dominated by the financial oligarchy. Since monopoly the old relations of private property, it is identified with

367

368

The Decline

of

American Capitalism

with economic decline, with the export of capital and imperialism as the means of broadening the economic
restriction of production,

basis of national capitaUsm, of securing

markets for surplus capital

possibilities of

and surplus goods. Thus the progressive

ment, and war.

modern

in-

dustry are turned into their negation, into a source of want, unemploy-

As

capitalist decline

becomes worse, mass disemployment

limits the

production and realization of surplus value, the accumulation of capital.

All the stronger
is

the drive of capitalism toward imperialist aggression

and war. For

in foreign

markets and the overseas investment of capital

the capitalist class, especially the financial oligarchs

who dominate

monopoly

capitalism, see a

way

out of the

crisis.

As

the inner sources

of wealth tend to dry

up because of economic decline, as surplus capital, at home, becomes more threatening, all the highly industrial nations of the world concentrate on the task of conquering foreign markets. Monopoly capitaUsm and imperialism, arising out of capitalist production and its concentration of income and wealth, are interlocked with the decline of capitalism, and inevitably bring on the threat of more devastating wars.
unable to find profitable investment

PART SEVEN
Monopoly Capitalism and Imperialism

Introductory

vU NDERLYiNG the

resplendent mythology of the pre- 1929 prosperity was

the real and contradictory

movement
and
illusion,
it

of economic forces. Instead of

realizing prosperity everlasting,

precisely because of the

economic

marked the final transformation of competitive capitalism into monopoly capitalism, and of monopoly capitalism into imperialism. This transformation was the feature of
upswing which created the
post-war developments in the United States, conditioning prosperity,
the character

American
mation:

capitalism.

and prolongation of the depression, and the decline of These are the major aspects of the transfor-

The
capital.

increasing concentration of industry and centralization of cor-

porate control under the domination of monopolist combinations of

The

increasing concentration of financial institutions under control

of a financial oligarchy,

which dominates economic

life

by the com-

bined mastery of monopolist combinations, investment resources, and

credit.

The

final realization of the rule of finance capital,

/.

e.,

the fusion

of industrial and banking capital; tighter centralization of the financial

control of industry.

The

export of capital on a constantly greater scale and the consoli-

dation of imperialism as the definite expression of American capital-

ism; an intensified struggle for foreign markets to absorb surplus

capital

reaction,

and goods, an aggressive foreign and the threat of war.

policy,

larger

armaments,

Two

important changes in class relations:

final suppression of the

farmers as a class capable of independent action on a capitalist basis;

final transformation of the

middle

ent of

monopoly

capitalism,

class from an enemy into a dependand the consequent collapse of the

struggle against the trusts.

of monopoly and imperiaHsm, inescapably determining American (and world) capitalism, comprises the real significance and historical character of the pre-1929 economic changes not the temporary prosperity and its vulgar mythology. While the
the future of

The growth

372
apologists

The Decline

of

American Capitalism

lesser peoples outside the

were crowing that hard times could only prevail among law of American prosperity everlasting, the contradictory nature of prosperity's development produced a depression worse than in any other country. While the apologists were crowing about national self-sufficiency, the export of capital and imperialism were binding the American economy with new chains of steel to the economy of the world market. Monopoly and imperialism contributed to the coming of depression and its prolongation, for they express all the underlying contradictions and antagonisms of capitalist production.
Yet the efforts of the NRA, of state capitalism, to "assure" a new permanent prosperity tend to strengthen monopoly and imperialism, a fundamental contradiction which dooms the program to disaster. Monopoly and imperialism are not new; they have been developing in the United States since the i88o's. What is new is their maturity and suprenmcy, and their significance as elements in the decline of
capitalism.

CHAPTER XX

Trusts: Concentration

and Combination

began to assume definite shape in the i88o's, and have since dominated the American economy.* The first socialpoUtical reaction was: "Smash the trusts!" But they grew inexorably. The second reaction was: "Regulate the trusts!" But they bent regulation to their own purposes: trusts became more and more ascendant. Regulation, at least in theory, was still suspicious: some limits ought
Jl RUSTS

increasingly

to be

imposed upon the

urge

trusts.

Now
with,

apologists of the

NRA,

of state the

capitalism,

another

policy:

complete

acceptance,

even

strengthening, of the trusts,

however, "social control."

The
its

poHcy has thus been formulated by Rexford

Guy Tugwell:
most of

"We
forms

are resolved to recognize openly that competition in

is

wasteful and costly; that larger combinations must in any

society prevail.

modern

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 accumulate

to

the people as a whole."

This policy

is

not altogether new. For in the past

that regulation should destroy the evil but retain the

as they "organize" production cient

it was argued good in trusts,

and "implement"

prosperity.

The

suffi-

answer

is

the

disorganization of industry

economic catastrophe of 1929-34.

Why

which led to the should the "new" policy be

more

successful?

Trusts, the monopolist combinations of capital, arise out of free

competition and accumulation, out of the struggle for profits and

survival in which the stronger garner victory. Underlying this development was the technical-economic transformation of industry, augmenting fixed capital and the scale of production. Concentration is the basis of combination. While both are a reaction against competition and the result of accumulation, the emphasis is different. Industrial

concentration

is

essentially technical-economic, originating in the

units.

efficiency of larger
*

producing
economy

Combination

is

essentially financial,

And,

of course, the

of other industrial countries. In addition the trusts, by

means

of the export of capital

and imperialism, have increasingly dominated the economy

of non-industrial

and economically backward countries.

373

374

The Decline

of

American Capitalism

the centralization of control, exploiting but not limited by industrial

concentration and technical-economic efficiency. Both concentration

prices,

and combination and labor.

yield

greater

control over

competition,

markets,

The

distinction

between concentration and combination

it

is

not

merely theoretical;

involves a difference in historical stages and in

forms of

class control.

In the United States, before 1898, trustification

concentration,

was primarily
tion,

industrial

capitalists; * after 1898, trustification

was primarily

under control of industrial financial combinapromoters, and bankers.

in-

under control of financial

itself.

capitalists,

Concentration after the Civil

dustrialization

War

developed almost as rapidly as

This was particularly marked in the 1870's. While the number of manufacturing establishments was virtually stationary, rising from 252,148 in 1869 to 253,852 in 1879 (including
a multitude of

hand and neighborhood

enterprises,

which minimize

the trend toward concentration), capital investment rose from $1,694

million to $2,790 million, wage-workers from 2,054,000 to 2,733,000,

and output from $3,386 million industrial concentration was the

to $5,369 million.^

This process of

basis of trustification.

The
in

primarily industrial character of concentration appears clearly

the

development of three typical concentrated enterprises: the

Standard Oil Company, the Carnegie Steel Company, and the meat
* Concentration

and combination proceeded almost simultaneously on the

capitalist operating

railroads,

because of greater capital requirements and more ruinous competition.

turers

While manufac-

were dominated by the industrial

with his

own money,
money

rail-

roads were dominated by the financial capitalist operating with the

of others,

including the government. Separation of ownership, management, and control, by the

multiplication of stockholders, appeared on a large scale
of the type of Vanderbilt, Daniel
first

on the

railroads. Buccaneers

Drew, Gould, Jay Cooke,

Collis

Huntington, and Lcland

Stanford plundered the railroads at a time

when

similar plundering

was almost unknown

railroads).

in other fields of industry (except municipal traction,

where

financial plundering, mis-

management, and
neering,

political corruption

were

at least as great as

on the

Bucca-

mismanagement, and ruinous competition threw most of the

P.

railroads into bankcapitalists

ruptcy from 1879 to 1899.

This gave bankers and other financial

J.

another

opportunity. Railroad reorganizations, mainly by

yielded
control.

Morgan and Company, not only

the

great

profits

but

promoted
half the

combination
railroad

and

tightening
in

of
six

financial

By 1900 more than

mileage was included

systems:

Morgan, 19,073 miles; Morgan-Hill, 10,373 miles; Vanderbilt, 19,517 miles; Pennsylvania As their bankers Railroad, 18,220 miles; Harriman, 20,245 miles; Gould, 16,074 miles. and members of the
bilt

directorates, the

Morgans had considerable

influence over the Vander-

and Pennsylvania systems. Harriman and Gould were

allies,

and owned stock in

banks and insurance companies. Harriman, in particular, was associated with the National
City
of

Bank of New York, dominated by Rockefeller Morgan (1930), Chapters XV-XVII and XIX.

interests.

Sec Lewis Corey,

The House

Trusts: Concentration
packers,

and Combination

375

Armour and Company.

Increasing efficiency, use of the most

improved technology, and enlargement of the scale of production were the basic factors. Standard adopted the most economical methods of refining and marketing and promoted the more efficient pipeline transportation. Carnegie Steel was always introducing new processes, including coke, making plant improvements and extensions. The

Armours

led in the elimination of waste, the introduction of chemical

control for better quality

and more

utilization of by-products,

and the

use of refrigerator cars. Enlargement of the scale of production pro-

duced integration, stimulated by competitive purposes of control over sources of raw materials and transportation and by efforts to secure
the profits of related fields of production to offset the fall in the rate

and coal mines, coking plants, and means of transportation. The Armours owned stockyards, their own refrigerator cars, and distribution systems. While Standard adopted the plan of separate companies, under common ownership, specializing in production, transportation, refining, and marketing, the whole constituted one giant integrated concern. Efficiency, with its lower costs and prices, was used to wage ruthlessly the battle of competition. Except in the case of Standard Oil, and even with them only to a minor degree, competitors were not absorbed, they were destroyed. (The existence of many small producers made it unprofitable to absorb them.) Carnegie was against combination because it meant including inefficient plants; his emphasis on competition was typical of concentration and the industrial capitalist. Although efficiency was primary, it was not the only factor; competition was also waged by means of
of profit. Carnegie Steel acquired iron
price wars, by terrorism, especially in the case of Standard Oil, against

competitors, by extorting discriminatory rates and rebates

roads.
Steel

from the

rail-

Monopoly elements became dominant only

yielded

particular

advantages.

Carnegie

after acquiring the

Frick coking interests,

efficient

coke being indispensable in the newer and more

processes; the

metallurgical

dominance became almost impregnable with the achievement of monopoly in unfinished steel. Standard Oil had a monopoly of pipeline transportation and the Armours of refrigerator cars, placing competitors at an enormous disadvantage. The monopoly elements were strengthened by discriminatory agreements ^yith the railroads; Standard Oil systematically used this method, acquiring large stock interests in railroads to invigorate its influence. Both "unfair" competition and the monopoly elements were an abandonment of efficiency as the means of waging the competitive struggle. All three concerns were built up by reinvestment of profits, not with the money of out-

37^
side investors.

The Decline
This
is

of

American Capitalism
of concentration as
technical-

as significant
itself

economic

efficiency,

which

yielded the great profits (involving

exclusive exploitation of

new

inventions and processes) whose rein-

vestment enlarged the

scale of production.

Although Carnegie and

Armour
were
value.

started with

money made

in other ventures, their enterprises

built

up with

reinvested profits, the direct capitalization of surplus

The

original capital of Standard Oil

earlier oil profits),

was and not one penny of new

$1,000,000
capital

(much

of

it

was

thereafter

invested.

The

masters of concentrated concerns were essentially in-

whatever their origins; they were identified with one enterprise, responsible for it and active in its affairs, although management was increasingly functionalized and performed by employees. And all of the masters sweated labor, drove after more and more surplus value, crushed unionism. Concentration gave terrific control over labor. The Knights of Labor declared a boycott against
dustrial capitalists,

Armour
While
it

products in 1886, and Carnegie Steel

is

inseparably associated

with the ferocious breaking of the Homestead Strike in 1892.

industrial concentration usually results in greater efficiency,
rais-

has definite limits as a means of overcoming competition and

profits.

More efficient productive equipment costs money, as do price wars; the new equipment, moreover, comes into general use, competitors adopt still more efficient methods of production, and the rate of profit moves downward. Where competitors are small and
ing

numerous, they may be killed off; but the survivors, who become stronger, cannot be as easily exterminated. Concentration makes competition more destructive and unprofitable. While Carnegie Steel was the dominant factor in the industry, other enterprises, partly by con-

had become almost as powerful. was on the verge of a most destructive competitive war; all the more so as Carnegie's rivals were identified with great financial interests, particularly the Morgans. The threat was overcome by combination, by merging the rivals into the United States Steel Corporation. The combination was not, however, formed by industrial capitalists but by financial capitalists, by promoters and bankers. It marked the retirement of Carnegie, the most powerful industrial capitalist; United States Steel was dominated by the financial overlords of the House of Morgan. There had been combinations before 1898; but their number was limited and they had been formed primarily by industrial capitaHsts. In some cases, however, there was active participation by promoters and bankers, whose profits were large. Formation of the Standard Discentration and partly by combination,

By

1900, the iron

and

steel

industry

377 and Distributing Company, the Whisky Trust, yielded $250,000 in stock to the underwriters for every $100,000 cash advanced to buy plants, and another $150,000 to the promoters.^ After 1898 promoters' profits became a decisive factor. A series of combinations in the iron and steel industry, in 1 898-1900, netted the promoters nearly $100 million in profits. United States Steel paid the Morgan syndicate a "commission" of $62,500,000, in addition to large amounts of common stock issued as bonus with preferred for property or cash.'* From now on the profits of promotion (a charge upon prospective surplus value) were a major source of income for the rapidly developing financial
tilling

Trusts: Concentration

and Combination

oligarchy.

Considerations of increasing efficiency were not dominant in combination.

On

the contrary, efficiency

was usually

sacrificed

by the

inclu-

sion in combinations of obsolete, inefficient, or unnecessary plants.

Where,

in general, industrial concentration destroyed competitors

by

increasing efficiency, combination absorbed competitors,

who

usually

were willingly absorbed because they received huge profits from the new enterprises. Combination aimed to control competition and prices, to check the fall in the rate of profit by limiting competition and so "earn" monopoly profits. According to one bourgeois economist: "Least influential of all was the expectation of reducing costs. The large proportion of trusts formed which accepted a loose form of organization indicates that reduction of costs was not the dominant objective. Many consolidations acquired inefficient plants and clearly relied more on buying out competitors or killing them off by resort to unfair methods of competition than on driving them out by lower prices based on lower costs." ^ MonopoHst combinations were made possible by previous industrial concentration, and they promoted concentration; but their emphasis was financial, not industrial, recapitalizing combinations on the basis of prospective monopoly profits. Their tendency, one of the elements of capitalist decline, was to retard the development of efficiency, although (another contradiction of capitalist production), combinations developed new forms of competition;
overcapitaUzation of the
this forced efforts to increase efficiency because of the

downward

tend-

ency of the rate of profit and resulted in more and larger combinations.

By

1904, there

were 440 great American

trusts,

with a capitalization

was in seven comwhich towered the United States Steel Corporation.^ Trustification grew in manufactures and in mining, on the railroads and in municipal traction. Two important developments accompanied the combination moveof $20,379 million; one-third of the capitalization
binations, over

37^

The Decline

of

American Capitalism

ment: the multiplication of stockholders and the centralization of financial control over corporate industry. Combinations, mainly to pay the huge profits of promoters and former owners, needed large amounts of new capital, which could be raised only by selling masses of stock to the general public. Ownership was no longer vested in the active industrial capitalist, but in a mass of investors; ownership and management were separated, while control was usurped by financial capitalists. Many of the older industrial capitalists became financial capitalists. Armour acquired large interests in railroads, banks, and insurance companies. In the 1890's the Rockefeller oligarchy became a group of
financial capitalists, with far-flung interests in
active speculators
all

sorts of enterprises,

and promoters on a large scale. They typified the fusion of industrial and banking capital: with the huge cash resources
of Standard Oil the Rockefellers

went

into banking; in cooperation

with James Stillman they built up the National City Bank of

New

York, which engaged actively in promotion, speculation, and invest-

ment banking. At the same time banking, particularly investment moved toward more direct participation in industry. For the banks were no longer mere intermediaries who mobolized the nation's
banking,
savings for the use of industry, they were rapidly becoming the masters
of industry.

vest control in

The separation management

of ownership

and management did not

but in financial capitalists and the banks

which they controlled or with which they were in "community of Commercial banks became increasingly investment institutions; when this was prohibited by law, the banks organized investinterest."

ment

affiliates.

And

financial control of industry

was

increasingly insti-

tutionalized in the banks, including private investment banking houses.

They acquired

control of the resources of insurance companies

and

used them for investment and promotion purposes. Investment banking

houses in turn acquired control of banks (and insurance companies)
to facilitate their operations.

The "money power," with

imposed
its

its

control of
trustified

investment resources and

industry.

credit,

dominion over

By

1912, 180 individuals representing eighteen investment

trust

banking houses, commercial banks, and

companies held 746 interlocking directorships in 134 corporations with total capitalization or resources of $25,325 million. The most powerful group, the House of

Morgan,

its affiliate,

the First National Bank,

and

its ally,

the Standard

Oil National City Bank, held 341 directorships in 112 dominant corporations with total capitalization or resources of $22,245 million,
distributed as follows;

Trusts: Concentration

and Combination

379

Thirty-four banks and trust companies: resources, $2,679 i^iHioi^y 13% of all banking resources.

Ten

insurance companies:

resources,

$2,293

million,

57%

of all

insurance resources.

Thirty-two railroads: capitaHzation, $11,784 million; mileage, 150,000. Twenty-four industrial and commercial combinations: capitalization,
$3,339 million.
utility companies: capitalization, $2,150 million.^ This fusion of industrial and banking capital, which thrust power into the hands of a financial oligarchy operating mainly with the money of others, increasingly dominated capitalist production. The oligarchy did not merely participate in combinations, it ruled ruthlessly. The system was one of private property without direct ownership and

Twelve public

responsibility,

without the control of ownership; financial

capitalists

garnered their largest profits by plundering stockholders, by violating

the "rights" of private property.
cial

And

the combinations

and

their finan-

on the was unionism able to establish itself successfully. Combination and the centralization of financial control proceeded steadily, in spite of the opposition of agrarian and middle class radicals, in the midst of clamor against the trusts and regulation by the government. Legislation against the trusts merely forced them to adopt new and, ironically, more impregnable forms.* When courts declared illegal the original trustee device (whence the term "trust"), which combined corporations by assignment of stock and control to a board of trustees, it resulted in the development of the most successful method of combination, the holding company. For the holding company merely owns stock, and may combine and control corporations by ownership of a
overlords were ruthless in their exploitation of labor; only
.

railroads

bare majority of their stock.

"regulate" the trusts led

The government's
to adopt

efforts to

"smash" or

means of evading the law (making the corporation lawyers indispensable and millionaires) public clamor was stilled with minor reforms, in the interest of
them

more

clever

trustified industry itself,

consolidation of the
*

and regulation ended in regularization, the power of the trusts. In the midst of the struggle

As

in the case of the

"due process" clause in the constitutional amendment intended

to protect the

Negro's rights, which was instead transformed into a bulwark of the

"rights" of corporate property, the anti-trust acts were used against the workers,

who

supported the middle class and agrarian radicals in the

demand

for legislation against

the trusts. Labor unions were increasingly considered by the judiciary as "combinations
in restraint of trade." Because of
its

economic and
it

political

weight, the capitalist class

transforms concessions,

wrung from

by other

classes,

into

new means

of

domination

and oppression.

380

The Decline

of

American Capitalism
of

against the trusts, in 1907, the

Aluminum Company

America was

organized: the one perfect monopoly, with almost unlimited control over sources of raw materials, manufactures, and distribution. In 191 1,
the United States
trust.

Supreme Court "dissolved" the holding company Standard Oil, and the operating company trust, American To-

its "rule of reason," the Court accepted and justified trustification. After dissolution, Standard Oil was still under common control; the separate companies, instead of specialized concerns, became more fully integrated, combining production, refining, and distribution. If Standard's monopoly control was lessened, it was not a result of the Court's decision but of the enormous growth of the oil industry due to the automobile. The needs and patriotic hysteria of the World War were exploited by the trusts to consolidate their control over industry. Trust magnates, formerly denounced as criminals and "undesirable citizens," blossomed forth as $i-a-year heroes to "make the world safe for democracy" (meanwhile protecting their own interests and the interests of their class). And in 1920 came the final legal victory of the trusts: the Supreme Court decision denying the government's petition to dissolve the United States Steel Corporation. The Steel Trust, said the Court, six to three, was "not monopoly, but concentration of efforts with resultant economies and benefits." ^ Concentration and combination now proceeded on an unprecedented

bacco; but simultaneously, with

scale.

Trusts again strengthened their control in the depression of

1921-22 (one of the sweet uses of capitalist adversity), and

made new

conquests in the ensuing period of prosperity. Never were there as

which disappeared through mergwere 140% higher in 1930 than in 1922.* Industrial concentration was unusually active, stimulated by the upswing in the output of capital goods because of the growth of old and new industries and of mass production for mass markets, on the basis of increasingly larger masses of fixed capital required in modern industry. Concentration was especially marked in the newer industries, which do not usually repeat the small-scale phases of the older industries: they adopt the newer technology and largescale production at the start (and are usually promoted by financial capitalists). Profits were high, and a large part of them was reinvested in more efficient equipment and plant extensions. But the higher composition of capital, excess capacity, and intensified competition forced down the rate of profit. This led to the introduction of more efficient equipment to raise the productivity of labor and to more industrial concentration, either by enlarging the plants of a particular enterprise
mergers; the
of firms
ers rose

many

number

from 760

in 1920 to 1,245 in 1929; disappearances

Trusts: Concentration

and Combination

381

or by consolidating formerly independent plants. But because of the

and efficiency, the and more menacing was competition. For concentration, as in the earlier stages, was still determined primarily by technical-economic efficiency, the production of more goods at lower cost and their sale at lower prices; this meant a fall in the rate of profit because of intensified excess capacity and competition. Hence a strengthening of the movement toward monopolist combination, to control production, markets, and prices.* Combinations, however, went beyond this purpose, and became involved with the purely financial and speculative manipulations of the financial oligarchy. As, under the conditions of monopoly capitalism, the production of financial and speculative profits is increasingly more important than the production of goods, combination
greater

restriction of markets, the greater the concentration

increasingly outstrips

its

technical-economic basis in industrial con-

becomes more and more subordinate to the predatory purposes of the financial oligarchy. Innumerable mergers, reorganizations, and combinations had no other aim than the profits of promotion and speculation. In the case of an automobile company, whose private family ownership was transformed into "public" ownercentration

and

efficiency:

ship, recapitalization yielded

the bankers profits of $15,000,000; the

Van Sweringen mergers and

transaction
in

regulation, yielded profits of over fioo milHon, $23,933,000

government from one 1929; one small airplane merger promoted by the
reorganizations, an evasion of
affiUate

National City Company, investment

of the National

City

Bank, in addition
rising market.^^
ficed

to the bank's profit of $2,499,000, netted large profits

for "close friends, officers,

and key men" who

efficiency

sold their stock

safety

on a
sacri-

Economic

and corporate

were

by combination, especially where the main purpose was to

inflate

values

on the stock exchange or

to consolidate the control of financial

oligarchs.

One

of the most striking examples

was the stupendous and

utility

fraudulent InsuU combination in the public

field:

it

yielded

enormous

profits to its

promoters and favored "insiders" (including

easily

politicians);

and

it

crumbled

under the impact of depression.

The
mists,

"abuses" of combination were

condemned by

"liberal" econo-

who

consider the abuses as independent categories and not as

British Industries

movement in the early post-war years, G. C. Allen, and Their Organization (1932), p. 296, writes: "The main impulses behind the movement were the wish to ensure markets and supplies and the hope of controlling prices." In later years the rationalization movement, both in Britain and Germany,
Of
the British amalgamation
stressed industrial concentration
i.e.,

and

efficiency;

but

it

included "financial rationalization,**

combination and the centralization of financial control.

382
early in 1929:

The Decline

of

American Capitalism
capitalism.

inseparable accompaniments of

monopoly

One

of

them

said

"Mergers have not proved, and are not

road to exceptionally large profits in any
to-day mainly

likely to be, a cure-all for

excess capacity, overproduction, or cut-throat competition, or a royal

field.
.

They have

to

depend

upon

their potential superiority in efficiency to control or

dominate the market. While such superior efficiency has been achieved in some fields, it has not been demonstrated in every instance. Many mergers that have been promoted by financial interests in recent years have been based upon exaggerated hopes or uninformed calculations of cost reduction and market control, and have dissappointed investors. ... If the merger movement is going on so strongly to-day, it is chiefly because the widespread ignorance of fundamental business
.

conditions and the fantastic security markets based

upon

this

ignorance
securities

have offered an exceptional opportunity to unload contingent

upon the general public." ^^ Thus the "liberal" economist persists in separating economic categories from their capitalist social relations. Combinations sacrifice efficiency? Of course, for efficiency contributes to excess capacity and
competition, forcing

down

the rate of profit; monopolist combinations

is

aim
of

to

overcome them. They are not overcome? That

hopelessly capitalist production
is

more proof

how

entangled in

its

contradictions

and antagonisms. Investors are disappointed? Naturally; their losses are one condition of the profits of the financial oligarchs. Monopolist combinations may violate economic efficiency, cheat investors, and aggravate contradictions; but they promote, and this is the decisive factor, the profits and control of the financial oligarchy, which dominates

sitism

monopoly capitaHsm: an and decay.

indication of constantly greater para-

The

increasing concentration of industry and centralization of finan-

cial control

more than

justify the analysis

and prediction made by

is

Marx.* One aspect of industrial concentration and combination

the
as

"The

continual retransformation of surplus value into capital displays

itself

steady growth of the capital engaged in the process of production. This, in turn, becomes the foundation of an increase in the scale of production and of the accompanying methods
of increasing the productivity of labor

and of bringing about an accelerated producton of

there
capitalists,

surplus value.

... As

the mass of u^ealth which functions as capital increases,

goes on an increasing concentration of that wealth in the hands of individual

with a resultant widening of the basis of large-scale production.

sents itself,

Accumulation preof production

on the one hand,

as increasing concentration of the

means

and

of

command

over labor; and, on the other, as the mutual repulsion of

social capital into a

many

individual
is

capitals.

This splitting-up of

number

of individual capitals

coun-

383 growth of corporations. In 1929, while only 101,815 manufacuring plants out of 210,945 were under corporate ownership or control, they employed 89.9% of the workers and produced 92.1% of all manufactures. Plants with an output of $1,000,000 up, less than 6% of the total, employed 58.2% of the workers and had 69.2% of the output.^^ Industrial concentration, in terms of single plants, was as follows: Plants with 501 or more workers, numbering 2,718, employed 3,336,980 or 37.8% of the workers.
Plants with loi to 500 workers,
185 or

Trusts: Concentration

and Combination

numbering
numbering

14,035,

employed

2,920,-

33%

of the workers.
12,467,

Plants with 51 to 100 workers,

or 10.1% of the workers.

employed 891,671

All other plants, numbering 181,739, employed 689,897 or 19.1% of the workers; of these smaller plants, 95,767 employed only one to five
workers.^^

In the first category are the plants of such industrial giants as the United States Steel Corporation, employing (in prosperity!) over
250,000 workers. In the fourth category are petty producers, mainly

non-corporate, 125,559 ^^

whom
do

reported, in 1924, profits of $380 mil-

Hon, an average of only $3,000.^*

The

single plant statistics

not,

however, give a complete picture

of the plants are units of larger
is

of industrial concentration, as

many

corporate enterprises. Concentration

size of single plants;
it

not measured alone by the

may, and

this

1923-29, concentrate and integrate plants by

ship,

was particularly marked in means of common owner-

management, and control. Thus, in 1929, 8,246 multiplant groups employed 48.4% of the workers and produced 54.3% of the total output of manufactures.^^ But multiplant groups, while measuring
teracted
tion

by

their attraction.

The

latter is

not simply a concentration of means of produc-

and command over

labor, a concentration identical

with accumulation.

It is

the con-

centration of already

formed

capitals, the destruction of their individual

independence,
small capitals

the expropriation of capitalist by capitalist, the transformation of

into a

many

few large ones.

involves nothing

The

process

is

distinguished from simple accumulation by this,

that

it

more than

a change in the distribution of the capitals that

.

already exist and are already at work.

tion to accumulation

Here we have
It is

centralization in contradistinc-

and concentration. ...

possible for vast

amounts

of capital
capital

to be concentrated into

one hand because comparatively small amounts of

of individual hands. In
its

are

withdrawn from
tralization

number

any given branch of industry centhe capitals in this industry were

would have reached

extreme limit

if

all

fused into one.

... A growing

concentration of capitals

(accompanied by a growing
Karl Marx, Capital,

number
V. I, pp.

of capitalists, though not to the

same extent)

is

one of the material requirements

it."

of capitalist production as well as one of the results produced by

689-92;

V. Ill, p.

257.

384

The Decline
and

of

American Capitalism
do

industrial concentration

integration, the basis of combination,

not measure the centralization of corporate control. This appears more

fully in the distribution of net income. In 1929, 1,299

manufacturing
corporations

corporations, mainly

large

combinations, 1.3%

of

the

engaged in manufactures, received 75.8% of the net income :^^ a

centralization of control

much

greater than industrial concentration.

TABLE
NUMBER OF CORPORATIONS *
996
1,026

Concentration of Corporate Income, igig-2g

PERCENT OF ALL
CORPORATIONS
0.29

YEAR
I919
1923

PERCENT OF ALL NET INCOME

48.4
47-9 48.3 51.9
54.1

0.26
0.21

1924
1925

901
1,113

0.26 0.24
0.22
0.25

1926
1927 1928

1,097 1,042
1,238

51.6
55-9
60.1

1929

1,349

0.26

Corporations with net income of $1,000,000 up.

Source:
of

Computed from corporation

for the respective years.

reports in Bureau of Internal Revenue, Statistics

Income

Nor

is this

centralization of control limited to manufactures. In 1929,

1,314 corporations,

0.27% of
stock;
Still

million,

44%

of

all

all corporations, had assets of $147,697 corporate assets; capital stock of $48,522 million,

44.2% of

corporate surplus.^^

and surplus of $29,188 million, 57.5% of all was the share in corporate net income of these giant combinations of capital, because of their monopoly
all capital

larger

advantages; in 1929, 1,349 of them, only 0.26% of all corporations, received 60.1% of total net income (Table I). Centralization of control
is

underestimated by the

statistics:

tions does not include all the

net income of the larger combinaincome of their subsidiaries, many of

which must

file

separate income-tax reports; combinations, moreover,

tend to have larger bonded indebtedness than small corporations, and

the high interest payments are not included in net income. In 1929,

238 corporations
or 35.6% of

making

consolidated reports covering from six to 286

subsidiaries for each corporation, reported net

all

income of $4,148 million,

net income. Concentration of profits and centralization

of corporate control increased steadily in 1923-29: the

number

of cor-

porate giants rose

from

1,026 to 1,349, although they

stant as a proportion of all corporations,

and

their

remained conshare of net income

PERCENTA&E OF ALL CORPORATE

NET INCOME RECEIVED BY

CORPORATIONS WITH NET INCOME OFtl.OOO^OOO

AND

OVER-

l<Z<^

i^S

IXO

115

no

OS

100
l?

ni4

ni5

nz6

nz7

WZ8

Ra<j

XVI.

CONCENTRATION AND CENTRALIZATION 1923-29.

386
rose

The Decline
from 47.9%
to 60.1%.

of

American Capitalism
and
centralization
are

Concentration

overwhelming.

Under

these conditions of centralization of control in monopolist

combinations, the small producer and other petty enterprisers are a

negligible economic factor. In 1929, 228,475 small non-corporate enterprises of all types reported profits of $1,836 million,

an average of only

$8,000; roughly three-quarters of the total profits were derived from trade and services.^^ The essential element in the old middle class,

the small producer,

the

is

"new" middle

class is

corporate enterprise.*
in 1923-29.

no more a factor in capitalist production, while dominated by the managerial employees of This is why the struggle against the trusts ended
economic
all
life

Combination

centralizes control of

beyond the

limits

of industrial concentration. Monopolist combinations

may

unite a series

of independent producing plants; engage in

stages of production

from raw

materials to final manufacturing and marketing; manufac-

ture a series of different products; or

combine

totally unrelated enter-

prises merely for the profits of financial exploitation

and

control.

An

growth of giant combinations in the post-war period is the fact that where in 191 9 there were only seven corporations with assets of $1,000 million up, combined assets $18,847 million, in 1931 there were twenty-three, combined assets $43,126 million,^* one-seventh of all corporate assets. Acceleration was marked. The assets of the 200 largest non-banking corporations grew from $26,000 million
indication of the rapid
*

Marx, in blasting the "philosophy" of Malthus,

rise

who

held out to the workers the

ilber

inducement that they might

V. Ill,

in the world, said in Theorien

den Mehrwert,
the proletariat

pp. 59-60:

"The
less

highest hope of the profound thinker, Malthus, which he himself

Utopian,
is

regards as

more or

that the middle class should

grow and
it

(which

is

employed) become a
is

relatively smaller part

(even

if

grows absolutely) of
is

the whole population. That

in fact the course of bourgeois society." Part of this

quoted by Hans Speier, "The Salaried Employee," Social Research, February,

p.

1934,

124, to prove that

Marx made
is

"contradictory statements" about the disappearance of

of the

the middle class.

There

no contradiction. Marx prophesied the doom

is

middle

class of small producers.

The doom

fulfilled.

Economically, the "class" of small pro-

ducers

is

now

helpless,

unimportant in the shadow of the massive power of concentrated

although they have grown, the small producers have

corporate capital;

numerically,

shrunk to insignificance
of the elements

relatively to the

working

class.

Marx never prophesied

the

doom

which make up the "new" middle

fully,

class;

on the contrary, although he

growth of the
sense,

never analyzed the subject

because he died after writing only a few pages of his

clearly indicates that he foresaw the
really

analysis of classes in Capital,

Marx
is

"new" middle

class.

This

not

class

in

the

full

economic

but

an aggregation of diverse groups standing between the workers and the

the term middle class included the whole bourgeoisie,
a class

capitalists.

Once

standing between the

masses and the ruling aristocracy;

now

it

includes only the lower bourgeois groups.

Trusts: Concentration

and Combination
average yearly rate of

387

growth of in 1909 to $81,000 million in 1929, an corporations; but from 1924 5.4%, compared with 3.6% for all other to 1928 the average yearly rate of growth in the assets of the largest corporations was 7.7%, compared with only 2.6% for all other corporations.^" The economic power of monopolist combinations grows faster
than production or corporate wealth in general. Concentration and combination develop unevenly in the different fields of industry, but everywhere they tend to be dominant (Table
II),

with the tendency for them to become

still

more dominant.

TABLE
NUMBER OF CORPORATIONS *
627
65

II

Centralization of Corporate Control, jg2g

NET INCOME
(millions)

INDUSTRY
Manufactures

PERCENT OF ALL NET INCOME

64.0
84.6
86.0

$3,338

Mining
Public Utilities

278
1,805

230
93
31

Trade
Service

316
108
1,048

27.5

34-4 47.7

Finance

283

Total

1,329

$6,893

60.5

Corporations with net income of $1,000,000 up.

Source:

Computed from corporation

reports in

Bureau of Internal Revenue,

gas,

Statistics

of Income, 1929.

Mining includes quarrying, natural

and

oil;

public

utilities

in-

cludes transportation and electric power; service includes amusements, hotels, and professional services; finance includes banks, insurance companies, brokers,

and

real estate.

The unevenness
the planless

reflects

the general unevenness of capitalist develop-

ment, a fruitful source of contradictions and antagonisms, expressing

and exploiting character of

capitalist

production.

But

everywhere monopolist combinations, alone or in agreement with

others, wield

measurable control over production, markets, and

statistics, it

prices.

While this appears clearly enough in the general still more clearly in particular fields of industry.

appears

In manufactures 627 giant corporations received

64%

of the net

income. In addition, these monopoHst combinations control

subsidiary plants directly
are dependent

many

other
plants

and

indirectly:

many "independent"

upon the giants for their markets. Concentration and combination are most marked in heavy industry, the basis of modern
economic
life.

Six companies in

1930 controlled

75%

of

the steel

making

capacity,

compared with only 58.9%

in 1920. United States

388
Steel

The Decline
and Bethlehem

of

American Capitalism

What

had assets of over $3,000 million. coke plants are not owned or controlled by the iron and steel companies are in the power o the gas utilities, whose control is
Steel alone

centralized in a
Electrical

few monopolist gas and electric holding companies. manufacturing is practically a monopoly of three corporain

tions

working

of the

House

of

harmony and bound together by the financial power Morgan General Electric, Westinghouse, and Western

with combined capital stock in 1929 of $506 million, in addition to stockholdings of I243 million in other electrical manufacturing enterprises and power and light companies. Two giants, with assets of over $2,000 milhon, dominate the automobile industry. In 1930, four comElectric,

70% of all rubber tires and a large proportion of other The Allied Chemical and Dye Corporation, which, through political manipulations and for a song, acquired the German patents expropriated during the World War, is the dominant combination in the chemical industry. The E. I. du Pont de Nemours Company,
rubber goods.

panies produced

with

assets of $986

miUion in

1929, produces

an extraordinary variety

of chemical products, and has in addition large interests in munitions

and automobiles. Concentration

with
ders)
its

is

high in pulp paper manufacture,

is

great masses of fixed capital, and so

combination, the com-

panies
;

owning forests, power plants, and newspapers (to control orone company in 1929 had assets of $767 million. The Aluminum
of

Company

America has an almost

air-tight international

monopoly,

owning bauxite mines and aluminum plants in many countries. Although the monopoly of Standard Oil was lessened, primarily by the enormous expansion of the industry, renewed concentration and combination has been going on actively. In 1930, seventeen companies had 80% of the operating refinery capacity, 61% being held by seven

companies.
in 1926,

The Standard Oil group is still dominant, for it controlled, 73% of the pipeHne transportation facilities and marketed
oil.

Although the Radio Corporation of America was it still masters the industry; Westinghouse and General Electric disposed of their Radio stock, to their own stockholders, but community of interest is maintained by the Morgans, the

45%

of

motor

"dissolved" in 1932,

financial overlords of the three corporations. Eight companies, includ-

ing du Pont Rayon and the Viscose Company, control rayon production.

One company

controls

agricultural

machinery, one company

output.^^

boot and shoe machinery, three companies aviation products, five

companies over one-fourth of the

field of
olist

flour milling

In every

manufactures, heavy and light, a similar condition of monopprevails.

domination

Trusts: Concentration

and Combination

389

In mining, 65 great corporations received 84.6% of the net income. This does not, however, tell the whole story, for the control of strategic
natural resources
is

a decisive aspect of

monopoly

capitalism. In 1922,

two companies controlled over

half of the iron ore reserves, four

com-

panies nearly half the copper reserves, six companies about a third of
the developed water power, eight companies over three-quarters of the
anthracite coal reserves, thirty companies over a third of the immediate

bituminous coal reserves, and thirty companies one-eighth of the petro-

leum

reserves.

Almost

as great

was the concentration of production.

In 1929, fourteen iron mining enterprises produced 46% of the output; fourteen copper companies employed 72.5% of the workers; 118 bitu-

minous
tion of

coal

companies produced 59.8% of the output. This concentraresources

power over natural

was much greater because many

of the separate companies are merely dependents in the system of

centralization of financial control. Concentration has since increased,

moreover; thus, in 1931, a merger of the Phelps Dodge Corporation and the Arizona Mining Company resulted in the new combination,

with assets of $370 million, becoming the second largest producer of copper in the United States.^^

The
ties,

greatest concentration

and centraHzation

prevail in public utili-

because of three factors: the element of "natural monopoly," the

and the tremendous development means of centralizing financial control. In 1929, the telephone trust, the American Telephone and Telegraph Company, had assets of $2,477 rnillion. Six railroad combinations had combined assets of $9,546 million. The Van Sweringen system, by means of a series of holding companies with combined investments
great masses of fixed capital required,
of the holding

company

as a

of $519 million, controlled 28,631 miles of railroads, in complete defi-

ance of regulation by the Interstate

Commerce Commission and

its

plans for unification. In the six years 1923-28, 3,933 electric power companies merged or were acquired by other companies; the number

systems decreased from 125 to twenty-two. The United Corporation, formed in 1929 by the House of Morgan and affiliated interests, augmented an already great centralization of financial control, a combine of combinations; in 1931, with assets in excess
of "independent"

of $600 million. United dominated, by

subsidiary holding companies, underlying

means of stock ownership in power properties with assets

of $5,459 million. Before this, in 1925, five combinations controlled 46.9% of the output of electricity, 10.7% by the giant Electric Bond

The formation

and Share Company, an affiliate of the General Electric Company.^^ of United Corporation, the subsequent breakdown of

390

The Decline

of

American Capitalism

the Insull empire, and other developments resulted in a redistribution and greater centralization of control. Concentration and centralization appear comparatively small in trade and service. This is particularly so in service, which is largely personal; yet even here the trend is av^ay from petty individual enterprise. Hotels are dominated by chain systems. In 1926, 5,000 out of 20,000 moving picture theatres w^ere owned or operated by a few large producers and distributors, and the proportion has since grown. The "free" professions are increasingly dependent upon corporate enterprise. In 1929, chain-store systems in retail trade did a combined business of $10,771 million, or 21.5% of the total (compared with probably 5% in 1920); nearly one-half of the chain business was in the hands of 321 national chains. The Great Atlantic and Pacific Tea Company, with 15,737 stores, increased its sales from $200 million in 1922 to over fi,ooo

million in 1929. Chain stores have invaded

all retail fields;

they

made

31%

of

all

grocery
sales,

sales,

27.7% of apparel

sales,

30.8% of general

merchandise
station
sales.

19.5% of furniture

(Gasoline chains are

sales, and 33% of gasoline owned mainly by the great oil

companies.)

Growth
fire

of the chain stores forced independent store-

keepers to fight

with

fire; in

1929, 60,000 independents

were

or-

ganized in "voluntary chains," with one-third of the independents

doing 65% of the business.^* Even the surviving petty enterprises of

the middle class are

becoming
and

"collective"!

This concentration and

centralization in trade
final

service,

bulwark of petty individual capitaHst

which were once considered the enterprise, is of enormous

statistical

significance.

Developments in management, accounting, and

control have

made

all

types of enterprise capable of large-scale corpo-

rate organization,

breaking

down former
. . .

limitations.

It

is

another

objective element of sociaHsm.

Concentration and centralization in finance

is

even greater than

appears in the fact that 283 financial corporations, only 0.21% of the
total,

received 47.7% of the net income.

The

picture

is

obscured by

the existence of thousands of petty brokers and "independent" banks,

all,

however, dominated by the great financial

insurance companies

institutions. In

1932,

six life

owned 69%

of total insurance assets,

and

more owned another 13%;^^ these giants wield an enormous financial influence. The large number of small banks (steadily deten

creasing since 1920) seems to indicate the existence of a "democratic"

banking system

in

comparison with the oligarchic system in other

Trusts: Concentration
highly capitalist countries; but, in
fact,

and Combination
American banking
is

391

dominated

by the financial oligarchy.*

The

control of industry by monopolist combinations

is

by the community of

interests of intercorporate stockholdings

augmented and in-

from J870 million mainly an increase in stock ownership and influence over corporations by monopolist combinations, holding companies, and financial institutions. In some cases a combination is specifically organized to unify particular interests: United Corporation was a concentration of the interests of other comterlocking directorates. Intercorporate dividends rose
in 1923 to $2,593 million in 1929,^^ representing

Radio Corporation of America, which dominates radio manufacturing and transmission, represented (until the dissolution) the
binations; the

patent

monopoly and other

Electric

interests of the

General Electric Company,

and Manufacturing Company, and the American Telephone and Telegraph Company. And every monopolist combination is represented on the directorates of other corporations; this appears from the number of directorships held by the directors
the Westinghouse of the following combinations:

United States Steel 174, General Motors 167, Radio Corporation of America 232, United Corporation 77, General Electric 218, International Harvester 77, Anaconda Copper 164, American Telephone and Telegraph 226, E. I. du Pont de Nemours 96, International Paper and Power 174, Bethlehem Steel 198, United Fruit 197, Goodrich Rubber
85, Aluminum Company of America 149, Armour and Company 173, American Smelting and Refining 179, Pennsylvania Railroad 241, Consolidated Gas 195, Standard Oil Company of New Jersey 41, New York Central Railroad 306.^''

Some
tions of

of these interlocking directorships are personal business

affilia-

tions, others are directorships in subsidiaries, still others are manifesta-

community of
It is

interest; all of

them represent

centralization of

corporate power.

partly an expression of

economic interdependbut this progressive

ence, an objective sociahzation of production;

development becomes the basis for the erection of a predatory empire ruled over by the financial oligarchy.
tions, their

While the apologists speak of "control" over monopolist combinapower is augmented by the NRA, whose program is an immense cartellization of industry. Where in Europe before the World War, especially in Germany, government encouraged the
*This
Capital."
subject
is

discussed

more

fully

in

Chapter XXI,

"Monopoly and Finance

392

The Decline
the

of

American Capitalism
{e.g.,

formation of cartels but did not participate,* the American govern-

ment under

NRA

both encourages and participates actively

government representation on the cartel governing boards, the code authorities). There are four essential elements
loans to industry, of the cartel: Elimination or modification of competition, the fixing of prices, restriction of production,

RFC

and allotment of

sales

quotas or

trading areas. All these elements appear directly or indirectly, openly or

in disguised form, in

most of the codes. The element of

restriction of

production

is

accepted with particular enthusiasm. Listen to a "liberal"

member

of the

NRA:

tell you frankly that their aim is to set up codes under which they can break even when operating plants at 35% of capacity and make a good profit at 50%. The combination of fixed

"IndustriaHsts will

and the licensing of new machinery One industry, which had been losing money since 1923, was able, through advancing prices, to make huge profits in 1933. Now this same industry is asking for the right to license new equipment and otherwise control production. Another industry, with an amazing profit record in 1933, asks to be allowed to buy up and scrap the excess plant capacity of the inprices,

controlled production,

and

plants, they feel will bring this about.

dustry."

The monopoly
the relaxation of

policy of the

NRA

is

a continuation of previous

developments: of "trust busting" giving place to regulation and of

all

anti-trust

laws in 1923-29. Both the policy and

the developments express the dominant economic

industry, the inevitability of

power of trustified monopoly capitalism. Price-fixing and the restriction of production must favor the great corporations,! which, moreover, dominate the codes and the NRA itself. Small businessmen
*

European governments now

trustification
9,

participate.

The

pre-fascist

governments in Germany
steel trust.

took part in the trustification movement, particularly in the formation of the

France encourages

with legislation and public money. According to the

1934, the British government
is

New

York Times, February

capital

promoting a merger of
trust

North Atlantic shipping

000 for working

interests, the

Treasury to provide the

for

new

up

to

;Ci500,-

and
scale,

8,000,000

the
is

construction

of

giant

Uners.

The

"organization" of industry by fascist governments

fication

nothing but cartellization or

trusti-

on an enormous

with brutal emphasis on one of the major aspects of

monopolist combination: suppression of the workers.

t Restriction of production in agriculture and fewer farms is the government program

relieve the small
is

also

favors concentration.
its

"Smaller crops

in all

ramifications. This will certainly

farmer of his livelihood. To the large plantation owner this program more than welcome. He has everything to gain and nothing to lose from a program which protects the price of his cotton by removing the small farmer from producWe find 800,000 families, involving about 5,000,000 men, women, and tion.
.
.

Trusts: Concentration

moan and
loans,

protest, the

393 government speaks o "helping" them with

and Combination

Hugh Johnson makes the pledge: "Certainty of monopoly control and oppression of small enterprise."^^ But the philosophy and practice of Niraism, an expression of monopoly capitalism and its decline, must strengthen the great combinations. Still the small businessmen moan and protest. They object most strenuously to minimum wages, for wages are a larger item of costs among them than among the great enterprises. According to the report of the Advisory Review Board on NRA Codes (the Darrow board), "codes are developing a monopolist trend and are doing injury to small industrialists and businessmen." The report was denounced by the embattled chiefs of the NRA. According to the Federal Trade Commission, several provisions in the electrical industry code "tend to eliminate and oppress small enterprises, discriminate against them, and thus promote monopolies." The Commission also sharply criticized the code for the iron and steel industry: the code strengthens the monopoHst combinations, it is used to justify practices prohibited by the Commission as opposed to fair competition, and it oppresses small enterprises. The code authority, which is composed of the directors of the Iron and Steel Institute, is governed by plural voting based upon the amount of sales, and is consequently dominated by two or three large enterprises.^^ Of the oil code, one
and General
protection against

observer writes:

"The

industry, or so

it is

contended, will discipline

itself.

The new

arrangement provides for price-fixing by the industry, or rather by the dominant major companies, instead of by a public agency. It
relatively
lic

encourages centralization of control of the industry in the hands of few companies. It slights the interests of the consuming pub-

and affords no protection

effect dictate the

can in

to small enterprises. The major companies terms upon which independent gasoline dis-

tributors

and others may do

to 'maintain

strongest companies have the

business. Nine of the financially power of Hfe and death over the pool
.

which

is

prices.' "

The code

fosters

and support proper relationships of gasoline monopoly, declared the small operators and
to Congress:

refiners in a

memorial

ruling of the code administration

"The proration and fixed price makes it possible for the larger
petroleum

companies to obtain more than

children,
all

their fair share of available

who

are in danger of losing their

It is

means

of existence.

It is

probable that not

of

of these will be actually released.

certain that a large

number

them

will be."

Webster Powell and Addison T. Cutler, "Tightening the Cotton Belt," Harpers, February,

I934> pp. 315-17.

394
trade."

The Decline
These are

of

American Capitalism
bituminous

also the sentiments o small operators in

coal, in shipping, of

small enterprisers in general.^^

The
a

apologists of the

NRA, who

speak of "social control" over

monopolist combinations, admit in so

many words

that the

forms of

new

social order are clashing

with the older

social relations of pro-

duction.

They

say "control"

is

for purposes of "social justice," of "re-

mass purchasing power. That is mere pretense; the program of state capitalism is to bolster up the old order, make it more workable; to manipulate the forms of the new social order to prevent that order from definitely emerging. For, in a decisive historical sense, monopoly capitalism is no longer capitalism. It is no longer capitalism where "collective" combinations of capital dominate industry, where ownership, management, and control are separated, where the personal rights of property persist in an impersonal system of collective industrial property, where the state, presumably representing society, does not merely use political power to insure
distributing" wealth, of "increasing"

the domination of the ruling class, but intervenes economically to aid

industry, using collective economic resources
rights

and action to insure the and income of individual ownership. Within the objective socialization of production and institutionalization of management there is still private ownership and appropriation, competition and the clash of personal property interests, making impossible the planful management and regulation of industry. These contradictory elements are strengthened by the NRA and state capitalism, which cling to the older social relations of production. The whole social-economic situation is one of transition, whose only progressive outcome is socialism, a revolutionary act liberating production from its capitalist fetters and making possible a new social order. But state
capitalism tries to "freeze" the transition:
it

restores neither the older

competitive capitalism, with

it

its

free play of

economic

forces,

nor does

complete the transition toward the

new

social order.

Hence, neither

one thing nor the other, Niraism and state capitalism aggravate all the contradictions and antagonisms of capitalist production. This means

more

instability, transition

converted into disintegration.

is

The

attempt

to "stabilize" disintegration: that

state capitalism

(and,

still

more,

fascism).

And

it

necessarily
social

is

monopoly
which

state capitalism,

dominated
is

by the economic and

strengthening of

weight of monopolist combinations and the

their pou/er arises. It
capital

social relations of production out of

the

monopoly and finance

and

their predatory

domination of

society.

CHAPTER XXI

Monopoly and Finance Capital

ivJloNOPOLY capitalism has two interlocking

financial oligarchy. Industrial concentration

aspects:

separation of

ownership, management, and control; usurpation of control by the

and the centralization of

is

financial control increasingly transform the social capital into finance

capital, liquid, intangible, mobile.

This capital

mobilized and manipit is

ulated by the oligarchy and the financial institutions with which

identified,

and makes them the masters of industry and

society.

Bourgeois economists, particularly those of the "institutional" variety,

recognize the separation of ownership and management. But this
separation
is

only one aspect of monopoly capitalism;

it

is,

moreover,

involved with profound changes in class structure and class relations.

The
is

class aspect is decisive.

:

The animus
is

of the "institutional" approach

clear

//

"professional"

management

an independent category, then

there

may

be a smooth, gradual, peaceful development toward a "new"

meanwhile retaining the fundamental exploiting relations of But management is not an independent category. It is separated neither from the underlying relations of capitalist production nor from the superstructural control of the financial oligarchy. The good and the bad in the "institutional" approach is evident in
society,

capitalism.

the analysis of the subject by Gardiner C. Means, in

The Modern

Corporation and Private Property. After a comprehensive and convinc-

ing demonstration of

how

monopolist combinations have separated

ownership and management. Means concludes: "Under the corporate system, control over industrial wealth can be and is being exercised with a minimum of ownership interest. Conceivably it can be exercised without any such interest. Ownership of wealth without appreciable control and control of wealth without appreciable ownership appear to be the logical outcome of corporate
development. This separation of functions forces us to recognize *control' as something apart from ownership on the one hand and management on the other." ^ This clear appreciation of control as independent of ownership and

management
trol is

is offset,

however, by an unclear conception of

how

con-

secured and exercised and by

whom. Of

the 200 largest non-

395

39^

The Decline

of

American Capitalism
to

financial corporations, according

Means,

44%

are

controlled by

management, 21% by

legal devices,

23%

by minority ownership,

5%

by majority ownership, and 6% by complete private ownership (1% were in receivership).^ Here, in a fundamental sense, ownership, either
in
its

positive or negative aspects,

is still

made

the deciding factor in

control; the

problem

is

considered wholly in corporate terms, not in

social and class relations. Who are the private owners } Only one, Henry Ford, is an active industrial capitalist. One group of owners are the estates of financial capitalists, with interests in other corporations. Another group is the Mellon oligarchy, with its owner-

terms of larger

Aluminum Company of America, the Gulf Oil Corporaand the Koppers Company; the Mellons are typical financial capitalists, whose far-flung interests include the domination of great banks. Who are the majority owners? One investment banking house;
ship of the
tion,

(tobacco) family, with typical widespread one corporation controlled by financial capitalists; family owners, many of them identified with the financial oligarchy. Who are the minority owners? Estates of financial capitalists; other corporations controlling subsidiaries or affiliates; holding companies, such as the Van Sweringen Allegheny Corporation in railroads and the Electric Bond and Share Company in public utilities; financial oligarchs, the du Fonts and the Rockefellers. What are the legal devices ? Voting trusts, non-voting stock, and holding companies, typical
the estate of the
financial interests;

Duke

methods {particularly the holding company) used by financial capitalists to get control of corporations without any substantial investment
of their

Service

own; among the combinations thus controlled are the Cities Company and the Morgan United Corporation. Management,
it is

according to Means, controls corporations with "no single important

stock interest." But
is

precisely these corporations,

where ownership

which come most easily under control of the finantheir banking institutions. Who, in this case, make up management? Not the mass of managerial employees, but the officers and directors; most of them are financial capitalists, all of them are identified, by interlocking interests and directorates, with the institutional arrangements of financial control dominated by the oligarchy. The United States Steel Corporation, since its inception ruled by the House of Morgan, is considered to be under "management"
most
scattered,
cial oligarchs

and

control!

"management" corporations are ruled by particular oligarchs, others by community of interest among the oligarchs. And the dominant financial power dominates. For years the elder Morgan
of the

Some

397 and Hartford Railroad (his policy of combination ruined the property). At an investigation, by the Interstate Commerce Commission, of the New Haven's affairs, Joseph Folk
ruled the

Monopoly and Finance

Capital

New

York,

New Haven

questioned the railroad's president, Charles S. Mellen, about a particular transaction:

Folk: Why didn't you buy that stock?"

tell

Mr. Morgan: "By what right did you

[Outburst of uproarious laughter from the lawyers present, convulsed by the idea of putting such a question to Morgan,^ Mellen [^smilinglyl Well, it did not seem that that was just
:

exactly the right

way

to approach

Mr. Morgan.

To
ings,

cut short discussion and opposition at

Morgan would
table,

fling his

New Haven board meetbox of matches from him, smash his fist

on the

and

say:

is

They always Morgan wanted them to stand. "I do not recall anything," said Mellen, "where Mr. Morgan was determined, emphatic, insistent I recall no case in which he did not have his way." ^ The only dif"Call a vote! Let's see where these gentlemen stand."

stood where

ference to-day

is

that the financial dictatorship

.
. .

is

not so personal,

it

more

oligarchic.

Another aspect, which the "institutional" economists neglect, is that monopoly and finance capital mark a new stage of capitaUsm. Three
stages

may

be distinguished in the development of capitalism

conversion into capital)

(its basis

remains unchanged: antagonism between wage labor and

production of surplus value and
1.

capital,

its

Commercial capitalism, dominated by merchant or commercial who were interested primarily in buying and selling and the necessary financial operations. Petty industry was carried on by craftsmen or small manufacturers, whose output was disposed of by the merchant capitalists. (Some of the great merchant capitalists, e.g., the Fuggers, were identified with mining, the first form of large-scale capitalist enterprise, which contributed enormously to the technicaleconomic development of capitalism.) Unlike its ancestors in the medieval and ancient world, merchant capital was now bound up with the growth of a new, the capitalist, mode of production. "The merchant becomes an industrial capitaHst, or rather, he lets the craftsmen, particularly the small rural producers, work for him, while the producer becomes a merchant and produces immediately on a large scale for commerce." * This was the stage of the commercial revolution. 2. Industrial capitaHsm, dominated by industrial capitalists, who participated personally in production and whose wealth was augmented
capitalists,

398

The Decline

of

American Capitalism

by the direct capitalization of surplus value, the reinvestment of profits. The commercial capitalist, who stimulated the development of the new mode of production, is thrust aside by the industrial capitalist. Expansion of the market makes necessary larger output, an enlarged scale of production, larger masses of fixed capital: production becomes greater, more organized, and dominant. Commercial capital and commerce itself are subordinated to industrial capital. The capitalist is both exploiter and constructive organizer of industry. Free competition measurably prevails. This was the stage of the technical-economic
changes of the industrial revolution and their consolidation in the ensuing years.
3.
ists.

Monopoly or finance

capitalism,

dominated by financial
scale,
is

capital-

Industry becomes increasingly large

requiring constantly

greater masses of capital. Free competition

replaced by

monopoly
serving

competition. Capital
as capital only
its

more and more assumes

to use

the

money form,

by other persons (or institutions) than owners. Industrial concentration and combination separate owner-

when put

ship,

management, and

control.
is

function of employees. There

the objective basis of a
financial capitaHsts

Management becomes an an immense socialization

but control
is

institutional

of industry,

new

social order;

usurped by

and the banks under their mastery. Owners become absentees, rentiers in one form or another, who merely receive the income of ownership. The capitalist is now a mere exploiter, as the organization and management of industry is an employee function. Except for the unimportant small producers who still survive, the industrial capitalist is no more. In the United States, where monopoly capitalism is most highly developed, the only important industrial capitaUst is Henry Ford, who, however, has acquired considerable financial interests and in 1930 "bought into" the National City Bank.^ (The Fords will either become financial capitalists or eventually lose control of their enterprise.) * Both the commercial and industrial capitalists operated primarily with their own money; financial capitalists operate and secure control primarily with other people's money.

The

financial

oligarchy,
capitalist

speculative,
class.

adventurous, wholly parasitic,

is

dominates the
capitalism.
*

This

the stage of the

decline

of

Andre

Citroen, the

Henry Ford
financial

of France (with, however,

more general

interests),

was overwhelmed by
to

troubles engendered

by the depression. After slashing

wages and juggling with the

social insurance

funds of his employees, Citroen was forced

beg aid of the banks, whose reorganization of the automobile company took control

away from him.

New York

Times, March

4,

1934.

Monopoly and Finance

The
ical

Capital

399

three stages overlap, elements of one appear or persist in the

other, yet they are distinct,

and the

differences are of

immense

histor-

importance. Commercial and industrial capitalism were identified

capitalist production, the progres-

with the emergence and upswing of

sive

transformation of industry, performing the historical task of

socialist, order.

developing the objective forms of a new, the

capitalism
is

Monopoly

identified

with decline, and with

capitalist

manipulation

of the forms of a new social order to maintain the old a manipulation whose only result, until the revolutionary intervention of the working class, must be social-economic decline and decay. The growth of industrial capitalism and its transformadon into monopoly capitalism were accompanied by the growing magnitude and importance of money capital, which is separated from the function of capital itself. There is both an increase in the capital needs of largescale industry and in the social wealth, which increasingly assumes the form of money capital. This capital is concentrated in the banks. Its sources are the funds of money capitalists and of industrial or commercial enterprises and the scattered savings of all classes of society. The bank's money capital is enormously augmented by credit, which
. . .

is

of constandy greater importance in whether based on savings or not, is a

capitalist production.

(Credit,
it

command

over social labor;

reveals clearly that appropriation of surplus value, of unpaid labor,

is

the source of profit, for credit represents neither the "saved" capital
of the capitalist nor,

much

of

it,

the savings of anybody, but merely

command

over labor. At the same time, credit becomes the basis of

speculation, fraud, intensified competition,

and overproduction,
social

creatis,

ing disturbances and maladjustments.*

The

nature of credit

however, one form of the objective transition toward a

production,

new mode

of

toward

socialism.)

Industry

becomes

constantly

more

dependent upon the money capital under control of the banks.

Industrial capital itself increasingly
capital. Industrial capital is
* Credit outstrips savings; this

assumes the form of money

the person of the industrial
it

bound up with
is

necessarily a disturbing factor, as

to savings

encourages an
solve

unbalanced output of capital goods. But limiting credit

lems. For then the output of capital goods
prosperity.

would

would be

smaller, restricting

no probemployment and
still

And

if

new

capital

were based only on savings, there would

be malad-

justments and disturbances, because the capital must yield profit, a deficiency in con-

sumption would be created, and planlessness, competition, and speculation would

prevail: inevitably, for the final source of
talist
all

still

maladjustments and disturbances

is

the capi-

drive for surplus value and

its

realization as profit

and

capital.

Hence government

"control" of banking and credit merely alters the forms and combinations of maladjust-

ments and disturbances.

400
capitalist.

The Decline

of

American Capitalism

But he is now replaced by stockholders, non-participating absentees, whose dividends are not essentially different from interest, except that they are more subject to fluctuations. (Even these fluctuations are considerably "smoothed" by the policy of corporations to pile up surplus and pay dividends when there are small or no profits.) Industrial capital in the form of stockholdings is almost as mobile as money capital: it moves from industry to industry and enterprise to
enterprise; this
cial capitalists,
is

particularly true of the stockholdings of great finan-

whose inside information tells them where the profits and losses are. There is a fusion of industrial and money capital; the forms merge into one form, finance capital, which is mobilized by the banks and the financial oligarchy.''^ Banking is transformed. Originally the primary function of banks was to make payments, to supply industry with the "commercial" capital to finance the distribution of goods (whence the name commercial banks). This type of bank was dominant when industry was small-scale and the merchant capitalist was the chief entrepreneurial factor. But even the earliest commercial banks carried on some investment operations, and during the nineteenth century these operations grew with the growth of large-scale industry and its fixed-capital needs. In England, direct investment banking tended to become a specialized function; on the Continent, however, commercial and investment banking was combined in the same institution. American investment banking arose in the i83o's-5o's out of the import of capital, mainly to finance the construction of canals and railroads. As industrialism de-

veloped, the commercial banks, at

operations,

first

exclusively limited to mercantile

growing needs for fixed capital. In the i88o's arose the trust company, whose phenomenal expansion paralleled that of corporate enterprise. The trust company combined commercial and investment banking with ordinary trust functions; it
began
to supply industry's
*
it

"With the development

is

of large-scale industry

money

[financial]

capital, so far as

appears on the market,

not represented by some individual capitalist, not by the

owner

of this or that fraction of the capital

on the market, but assumes more and more

is

the character of an organized mass,

representatives
Capital, v.
a small
Ill,

which

far

more

subject to the control of the

is."

of social
p,

capital,

the

bankers, than actual production

Karl Marx,

433. "In proportion as banking develops and becomes concentrated in

of institutions, the
at their

number

banks grow from modest intermediaries into

all-

powerful monopolists having

capitalists

command

almost

all

the

money

capital of all the

and small businessmen,

as well as the greater part of the

means

of production

of a given country or in a
all

number

of countries.

... A handful

of monopolists controls
.
. .

the operations, both commercial and financial, of capitalist society,

is

This transcapitalist

formation

one of the fundamental processes of the growing of capitalism into

I.

imperialism." V.

Lenin, Imperialism, the Highest Stage of Capitalism, pp. 30, 34.

Monopoly and Finance

Capital

401

acted as fiscal agents for corporations and performed other services for

them. (By acting as investment expert for non-active investors in

company emphasized the separation of ownerand management and the growth of parasitism.) After the 1890's, the commercial banks engaged more and more extensively in investment operations, led by the National City Bank, under control of the Rockefellers. Private investment bankers, particularly the Morgans, did some commercial banking business and acquired control of commercial banks on a large scale to facilitate their underwriting operacorporations the trust
ship
tions.

And

all

the great banks, commercial, investment, or trust, ac-

quired control of insurance companies in order to manipulate their

process

which were mercilessly exploited and plundered. This was accelerated after the World War. Whatever the theoretical or primary function of the commercial bank or trust company may be, their major operations are in fact of an investment banking character:
vast resources,

indirectly,

by investment in corporate

securities, loans for fixed-capital

purposes, and loans

by the investment by the operations of security affiliates which engage in all sorts of investment banking. While the Banking Act of 1933 compels commercial banks to separate from their security affiliates,
issues not yet absorbed

on new

market;

directly,

the stock of

affiliates is

sold to the banks' stockholders; interlocking

directorates are prohibited, but

community

of interest

is

maintained.

Moreover, the separation does not

tions of

affect the indirect

investment opera-

commercial banks. This integration of function

is

paralleled by

concentration

and

combination. Banks have

grown

in size by concentration, by reinvest-

ment of

profits, and inner expansion of business. They have also grown by combination, by absorbing other banks or merging with them. Industrial monopoly is accompanied by banking monopoly. By 1912, thirty-four banks had one-eighth of total banking resources under their

control. Concentration

and combination were enormously augmented An unprecedented number of failures and mergers reduced the number of banks from 30,812 in 1921 to 24,079
in the post-war period.

in 1930; in the following year another 2,000 disappeared.

The

large

seems to indicate existence of a "democratic" banking system in comparison with other highly developed capitalist
still

number

of banks

countries, in

Canada, Britain, Germany,

Italy,

and France, where a

itself

handful of monopolist banks control banking and industry

Europe, the banks, by
binations,

(in

command

of

credit,

participation

in

com-

and interlocking

directorates, institutionalize the centraliza-

tion of financial control over

industry). But of the 24,079 banks.

402
20,000

The Decline

of

American Capitalism
capital of only $40,000.

were in small towns and had an average

In 1930, sixty-nine banks had resources of $25,900 million, and another seventy-one banks had resources o $5,100 million; these 140 banks, only 0.58% of the
total,

had 48.9% of

total

ing savings banks). Five of the giants

Guaranty Trust, and National City had resources o $9,073 million, 14.3% of commercial banking resources: a concentration probably six
times as great as in 1912.

including

banking resources (excludChase National,

Many

"independent" banks, moreover, are

members

of chain systems; in 1929, 273 chains, organized by

means

of

the holding

company

device (requiring a

minimum

of investment)

controlled 1,858 banks with resources of $13,000 million.

There was

concentration within the chains: twenty-eight of them were in control

of $5,538 million in resources, nearly one-half of the chain total. Final was still greater. Chains are interlocked with

centralization of control

the financial oligarchy. So are the giant banks. In 1929, three

Morgan

banks, Bankers Trust, Guaranty Trust, and First National, and the

National City and Chase National had control or influence, by means

of stock ownership

and interlocking

directorates,* over other

banks

with resources of nearly $20,000 million, almost one-third of total commercial banking resources. In addition, the five monopolist banks were
interlocked with insurance companies with assets of $12,500 million,

and fire insurance companies.* These monopolist combinations of banking capital, with enormous control over the money capital of society, are no longer mere interthree-fifths of the assets of all life

mediaries serving industry, they are the masters of industry.

tery
is

The mas-

strengthened by industrial combination, with

its

separation of

ownership, management, and control. Monopolist banks become the

dominant force
by the

in the centralization of financial control over industry,

command

of credit, the operations of security

affiliates,

and the
of

interlocking of directorates. This appears clearly from the

number

interlocking directorships held by banks in other financial, industrial,

and

utility corporations.

Fifteen

New

York

City banks held 1,762 such

1929, the three

directorships in 1899,

and

5,324 in 1931. In

Morgan

banks. Bankers Trust, Guaranty Trust, and First National held directorships in public utility companies with assets of $8,000 million. (In
addition,
*
J.

P.

Morgan and Company were

trust"

in direct control of

United

The "money

investigation of

191 2 led to the Clayton Act's prohibition of

interlocking

directorates

among

banks,

and

particularly

forbade

private

investment

bankers to hold directorships in commercial banks. These prohibitions were generally

disregarded, and later officially
prohibition of commercial banks

became

dead

letter.

similar fate awaits the

1933

owning

security affiliates.

Monopoly and Finance

Capital

403

Corporation, dominant holding company of underlying power companies with $5,000 million in assets.) After its merger with the Harris Forbes Corporation in 1930, the Chase Security Corporation, affiliate of the Chase National Bank, held directorships (as well as owned stock)
in utility

companies with

assets of $5,105 million.

Some

or

all

of the five

banking house, Radio Corporation, and American Telephone and Telegraph, which in turn had their own directors in most of the power companies. This is a tremendous unification of control over electrical manufacturing, the power and light industry, and electrical communications. The system is widespread. Thus, in 1930, the Irving Trust Company of

institutions held directorships in General Electric, Westing-

New

York held 346 interlocking directorships in other corporations, the First National Bank of Boston 754, the Mellon National Bank of Pittsburgh 179, the Philadelphia National Bank 348, the Continental Illinois Bank and Trust Company of Chicago 368, and the Union Trust Company of Cleveland 278.'^ The Morgan oligarchy and its allies
represent the greatest centralization of financial control, as appears

from
J.

their 1929 interlocking directorships:

P.

Morgan and Company held

directorships in industrial, utility,

and financial corporations with assets of $20,000 million.

The Morgan

banks. Bankers Trust, Guaranty Trust, and First

Na-

tional held directorships in corporations with assets (less duplication)

of $52,000 million.

Chase National and National City, held directorships in corporations with assets (less duplication) of $45,000 million. The Morgan-Chase-City oligarchy, composed of 167 individuals, held over 2,450 interlocking directorships in corporations with assets (less
allies.

The Morgan

duplication) of $74,000 million,

22%

of total corporate assets.

This enormous

centralization of financial control, infinitely greater

than that revealed in 1912 by the "money trust" investigation, is an institutional mechanism; it operates through the banks, which are the fly-wheel of capitalist enterprise. Control of the mechanism is usurped

by the financial oligarchy. There are the Morgans. And the du Ponts, who have far-flung industrial interests, and control, among other banks, the Irving Trust and Chemical National of New York. The Rockefellers, with personal wealth estimated in 1929 at from $500 million to $1,000 million, merge industrial and financial control; long dominant
Bank, they shifted in 1929-30 to the enlarged Chase National Bank. The Mellons own two banks with resources of $488 million, direct interests in corporations with assets of $9,718
in the National City

million,

and interlocking

directorships in scores of other corporatons.

404

The Decline

of

American Capitalism

handful of financial oligarchs control the monopolist combinations

of industrial

and banking capital, the most decisive portions of social one concentrated institutional mass, the use of savings and credit, the mobilization of investment capital, and the great corporations in v^hich most of the capital is invested. It is the
capital; they control, in

dictatorship of finance capital.

The

basis of the dictatorship of finance capital is the constructive

socialization of production

and the

"social

bookkeeping" performed by
is
it

banks, the "organization" of capitaHsm. But this "organization"

entangled with

all

the social

relations

of capitalist

production;

necessarily develops into contradictory

financial oligarchy exploits

and antagonistic forms. The the socialization of production and the

its

"bookkeeping" of the banks for

own

purposes.

The

constructive

developments of capitalism are converted into their predatory opposites, provide new means for exploiting the producers, the workers and
farmers. Monopolist combinations intensify the exploitation of labor,

maintain high
synthesis).

ture to industry (instead of

and crush the farmers by subordinating agriculmerging them in a new social-economic Banks encourage overexpansion, speculation, and risky
prices,

enterprises, convert their constructive

"bookkeeping" function into a

source of maladjustments. Financial capitalists

to enterprise, industry to industry,

move from

enterprise

and country
is

to country, seeking

and extorting higher

profits.

All this

both result and negation of the

arises the

constructive achievements out of

which

predatory dictator-

ship of finance capital.

it

Marx

clearly

foresaw the development, although

was merely emergent

"This
is

in his day

the abolition of the capitalist

mode

of production within
contradiction,

capitalist

production

itself,

self-destructive

which
of pro-

represents

on

its

face a
its

mere phase of

transition to a

new form

duction.
a

It

manifests

contradictory nature by

its efifects. It

establishes

monopoly

in certain spheres

and thereby challenges the interference

aristocracy of finance, a

of the state. It reproduces a

new

new

sort of

and merely nominal directors; a whole system of swindling and cheating by means of corporation juggling, stock jobbing, and stock speculation. It is private
parasites in the shape of promoters, speculators,

production without the control of private property."

^^

Monopoly and
onisms of
dustry
is

finance capital multiply the contradictions and antag-

production. More thorough organization of inaccompanied by more competition and disturbances. The
capitalist
is

primary purpose of monopoly

prices

to suppress competition, to control

is

and markets. Competition

suppressed, but only partly, tem-

Monopoly and Finance

porarily. It does not disappear, but

Capital

405

assumes higher and aggravated

forms.*

The most
is

effective

form of

price control, short of complete

monopoly,

the cartel. "But such control," one bourgeois economist admits, "is

the most closely organized syndicate where competition prevails; this marginal competition delimits the area dominated by the syndicate and aflFects its policy. In the majority of cases the cartels cannot go beyond a rather slight mitigation of the competitive struggle. And yet a price war and the grievous losses which it entails in industries with large fixed capital investments can be avoided only by combination. Karl Marx was right beyond doubt in insisting that a tendency toward monopoly
scarcely ever fully achieved.

Even

must

leave a marginal field

is

inherent in

forerunners of

modern technology. All loosely organized more rigid forms of combination." ^^

cartels are the

Monopolist combinations seldom exercise complete monopoly.

gigantic United States Steel Corporation controls only

The

40%

of the

industry; competition flares

up

periodically, although four monopolist

is

combinations are dominant. Competition

particularly effective in

the case of smaller concerns using the newest

ment: a higher rate of profit is Motor Company dominate the automobile industry, yet they wage ruthless war upon each other, and competition is aggravated by the sniping of independents. Ford once had a monopoly of the low-price
field,

and most efficient equip"earned." General Motors and the Ford

but competition forced his

in 1932;

50%

share of the total market

down

to

20%

went to independents, General Motors got most of it.^^ In addition to waging war on Ford, General Motors organized an aviation subsidiary and "cashed in" on the profits of newer enterprises and competition. In spite of its dominant monopof the business
*

some

"As
size

capitalist

production develops, the minimal size of the individual capital growls;

requisite
to

the

that

is

carry

on business under normal

conditions.
large-scale

The

lesser

capitalists,

therefore,

crowd

into spheres of production w^hich

fields

industry has

not yet fully

annexed. In these

competition rages in direct proportion to the

magnitude of the competing

capitals."

Marx, Capital,
it

v.

I,

p.

691.

"When monopoly
chaos proper to

appears in certain branches of production

capitalist

increases

and

intensifies the

production as a whole.

Monopolies, which have sprung from free comit

petition,

do not eliminate

it,

but exist alongside of

and over

it,

thereby giving rise to

number
is

of very acute and bitter antagonisms, points of friction,

to
is

and

conflicts.

Monop80.

oly

the transition from capitalism

a certain branch of industry

higher order." Leniji, Imperialism, p.

"When
and

monopolized, competition with outsiders and

rival cartels
sales

and

trusts at

home
is

does not cease, and a struggle for shares in production

goes on within the

out monopolies, so there

say that as there is no competition withno monopoly without competition." R. Piotrowski, Cartels
cartel. It is safe to

and Trusts (1933).

P- 365*

4o6
olist position,

The Decline

of

American Capitalism

America must share part of the market with independents, and competition is intense. The Standard Oil monopoly did not endure; in spite of renewed concentration and
the Radio Corporation of

many savage competitive battles have been waged in Not even a complete monopoly like the Aluminum Company of America is immune. When Andrew Mellon was secretary of the Treasury, efforts were made to produce alunite aluminum, which might have broken the Aluminum Company's monopoly of
combination,
recent years.
bauxite.

While "Mellon succeeded, by devious means,

in completely

throtthng alunite competition," the threat

possible to

may

revive.^^ It is rarely

monopolize a whole industry; all the combinations can dominate by strategic strength and agreements. The resulting control of competition, markets, and prices is unstable. For it depends upon conditions which are frequently upset by inner contradictions and antagonisms, by the tendency of the rate of profit to fall. Then competition breaks out savagely and agreements become scraps of paper. Combinations now use the same tricks against each other that

do

is

they use against independents: denial of supplies, price cutting, and

banking pressure,
higher profits.

all

means

to get a larger share of the

market and

To overcome

these

limitations

of

monopolist combinations, the

of interest

financial oligarchy develops

community

among them by
must show

interlocking directorates and the centralization of financial control.

This

is

only partly successful.

particular combination

profits,

by aggressive competition if necessary: the rate of profit is an inexorable driving force. When bankers reorganize a company (bankruptcy does not force large concerns out of business, because of their

great masses of fixed capital) they undersell competitors: by scaling

down
is

capital claims, the reorganized

company's competitive strength

invigorated. Financial oligarchs, moreover, while they cooperate, are

split

up

into rival groups. In 1931, the

Morgans and Rockefellers

Standard Oil

inter-

locked some of their

utility interests: the

Company

of

New

Jersey acquired a

30%

interest in the gas-pipe lines of the

Co-

lumbia system, dominated by United Corporation. Yet two years later, the Chairman of the Chase National Bank, both the bank and himself parts of the Rockefeller oligarchy, urged bank reforms which struck directly at the Morgans. (When }. P. Morgan and Company "crack the whip too much,'' according to one commentator, there is a little
revolt.)^*
bility

The

oligarchs encourage competition,

profits,

if it

means

the possi-

of higher

and the formation of new

This
is

enterprises in fields

where monopoly

profits are inviting.

stimulated by the ad-

Monopoly and Finance

venturous and
of profit to
speculative

Capital
capital

407
the
super-

character

of

finance

abundance and surplus o available capital, the tendency of the rate fall, and the fact that new enterprises may have the advantage of higher technical-economic efficiency and lower overhead costs. Monopolist combinations only relatively and temporarily suppress
competition; there

may be

comparative peace for considerable periods,

flares

but eventually competition

up

in the destructive battles of giants.

While
dustry.

1,300 monopolist combinations

dominate American industry,

there are 475,000 other corporations in control of roughly

40%

of in-

Among them
is

competition rages continuously and furiously.

The

competition

aggravated by the prevalence of monopolist com-

binations.

They

exploit small-scale industry

by forcing

it

to

pay high
invest-

prices for supplies or

by invading
fields

its

markets. Monopoly Umits in-

vestment opportunities in the

ment

is

open only

to large capitals.

it dominates; in any event, This forces large masses of

capital
is

into non-monopolist fields of enterprise.

Monopoly
relatively

capitalism

ac-

companied by accelerated accumulation of

surplus capital,

pressing for profitable investment; this capital flows particularly into

dominated by monopolist comand there intensifies competition. In 1919, only thirty producers were in the radio field; in the two years 1921-22, 5,000 new producers went into business, most of them being wiped out in a few years.^^ The drive to capture markets by enlarging output and lowering costs led to a condition of acute excess capacity: in 1929, one producer could have supplied the whole market demand. In order to
industries or into fields not yet
binations,
survive, smaller concerns increase their capacity,

new

made
more

possible

by the

superabundance of

capital; the inevitable increase in excess capacity

sharpens competition, a competition

made

all

the

destructive

by

the greater size of the concerns involved.

The

upflare of the

"new

competition" in 1923-29 was coincident with an unusually rapid growth of concentration and combination.

The

advantages of large-scale enterprise are obvious

higher produc-

tivity of labor, standardization,

elimination of waste and production of

by-products, large financial resources, organized research, planning for

long-time expansion, control of markets and prices, reduction of

fluctuations in profits.

But there are many serious disadvantages. The

is

superiority of large-scale production itself

neither progressive nor

mere size becomes inefficient and unprofitable, unless offset by monopoly prices. But monopoly means combination beyond the limits of industrial concentration, and this tends to aggravate inefficiency. Since monopolist combinations are under the
absolute;
certain point

beyond a

4o8

The Decline

of

American Capitalism

control of finance capital, which is interested in the production (and concentration) of financial profits, not in the production of goods,

combinations tend to exceed the most efficient size. In some cases the disadvantages are overcome by the holding company device, w^hich
decentralizes plant
cial control.

and local administration while centralizing finanResulting gains in efficiency are offset by competition and

predatory monopoly practices, particularly the overcapitalization of combinations, which tends to produce a fictitious but still disastrous fall
in the rate of profit. In other cases, moreover, the holding

company

"unites" a hodge-podge of enterprises wholly regardless of efficiency,

merely to secure promoters'

financial control.

profits, strive

toward monopoly, or insure

competition

The

disadvantages of large-scale enterprise invite

limits, the frequently successful

and make

possible,

within

however, only in relation to the giant combinations. Recent technological changes {e.g,, electric power, higher productivity based on qualitative rather than quantitative ele-

of smaller concerns

small,

ments

in

machinery) provide the means for smaller concerns to realize

many

of the advantages of large-scale production with lower overhead

costs and a higher rate of profit; in addition, they are more flexible, more adaptable to market changes, and they can increase their size

where necessary because of the superabundance of

concerns redouble their efforts to get "a bigger
dollar"
their output.

capital.

The

larger

slice

of the consumer's

by forcing the sale of old products or adding new products to Alongside of these contradictions and antagonisms, comis

petition

again aggravated by the growth of production for variety

demands and markets.

capacity, reacts

Finally, competition, itself aggravated by excess and increases excess capacity; since markets are restricted by the restriction of mass consumption, competition becomes worse. The rate of profit moves downward. Desperately, capitalist enterprise tries all sorts of devices to limit production and competition in order to raise prices and profits. Trade associations and trade institutes tried to do legally what the anti-trust laws forbade, but they were not very successful. One of the main objectives of state capitalism,
especially as expressed in the NRA, is the attempt to realize the primary aim of monopoly to secure a higher, or at least a more stable, rate of profit, by means of restriction of production, limitation of
:

competition, higher prices, and higher profits.

The

NRA

cartellization

promotes both concentration and combination and the of industry. But competition is not eliminated, it is
It

merely transformed.
before the

crops

up

NRA

codes, rayon

in the most unexpected manner. Thus, competed with cotton textiles on a style

basis;

Monopoly and Finance Capital minimum wages raised the costs of one more
more
compete with cotton on the

409
than the other,

making and price/^ The NRA tends to inflame the "new competition" which was so disastrous in 192329, while simultaneously making it more difficult
because cotton manufacturing needs
possible for rayon to

labor than rayon,

it

basis of style

for the smaller producers to survive.

been thus described by the financial expert of the Tribune.

This aspect of the situation has New York Herald

"The

NRA cartel idea may finally nullify itself because the cartellizamore
with others in the
effort to capture increasing por-

tion of all industries merely serves to bring each industry into

direct competition

tions of the national income. It cannot be stressed too emphatically

under the NRA as before. and instead of being between units of an industry it will be between whole industries. With mercantile groups organized, manufacturers will meet organized resistance in any effort to advance prices at the expense of wholesale and retail outlets. Producers of basic materials will meet the same sort of resistance from manufacturers. Gains in income can only be made in other directhat competition will

remain

just as strong

It

will merely take another form,

tions."

^'

This competition of industry against industry becomes

greater under the conditions of capitalist decline, of

all

the

mass unemployit

ment, restricted markets, and lower

industry, in different but

profits.

Nor

will

be limited to

industry against industry: competition will also flourish within an

more savage forms, stimulating concentration

under monopoly capitalism
It
is

and combination. What happens

competition
is

to competition

is

this:

transformed, assumes higher forms.

no longer
and

primarily the competition of small individual capitals, but of combined

million-capitals.

The

area of competition

is

restricted, its intensity

destructive character sharpened.

The

capitalism of free competition,

whose economic and class characteristics were petty individual enterprise and a comparatively independent class of small producers, was "free" only within the charmed circle of the possessors of capital and
capitals.

was limited by the unequal distribution and sizes of the competing Monopoly capitalism, whose economic and class characteristics
and
im-

are large-scale corporate enterprise, the decline of small capitalists,

the rule of finance capital, limits competition only by

possible for small capitals to arise

making

it

and compete independently except

in unimportant fields,

and by limiting (but not eliminating) competi-

410
tion

The Decline
among
is

of

American Capitalism
free

the larger enterprises.

competition; there

There never was any "pure" no "pure" monopoly.

Monopoly

capitalism practically destroys the economic significance

of the old middle class o small producers (and small merchants).'*^

This destroys the material conditions underlying the petty-bourgeois

ideals of

economic individualism. "The

field

of operations for the

independent owner-manager," according to an engineer economist,

"will be steadily restricted

... he

will continue

throughout to be a
^*

subordinate worker in a large corporate organization."

persist

Ideals

may

beyond

their

economic
still

basis,

and the petty-bourgeois

it is

ideal of

economic individualism
* It is frequently

survives; but

now

merely an ideolog-

argued that industrial concentration and monopoly create an eco-

nomic
class
all

by destroying the small producers, the most important section of the middle market. Until recently, however, this market tended to expand, not contract. Not
crisis
is,

small producers defeated in the battle of competition were proletarianized, that

all

deprived of

property and forced to become wage-workers.

Some
of

sold

out to the

larger enterprises
tive

and went into other businesses or

retired,

while others became execuindustry,

or managerial employees in corporations.

The expansion

moreover,

permitted

new

batches of small capitalists to arise. At the same time the middle class
its

market grew because of growth among

managerial employees in corporate

other elements: technical, supervisory, and

storekeepers,

industry,

and professionals

(not

to

mention the multiplication of

all

parasitic occupations).

Thus

the

"new" middle

class, i.e.,

groups, exclusive of farmers, between the workers and the upper bourgeoisie, con-

stituted a constantly greater part of the market, scoring, particularly in

tively

1923-29,

rela-

much

larger gains than the

working

class.

That was, however,

is

in the epoch of

the upswing of capitalism; in the epoch of decline the situation

materially different.
are

With the curve

of production

moving downward, defeated small producers

while the chances of

much

more
they

likely to be proletarianized,

new

producers arising are slight:

now

decrease in

numbers

as well as in

economic

significance.

But the small pro-

ducers are not the most important section of the middle class market, which shrinks
primarily because the working class market shrinks, although not necessarily in the same proportion. The working class market shrinks because of disemployment and lower

wages. Disemployment means a decrease in the production and realization of surplus

value.

Lower

production

throws

many

technical,

supervisory,

and

managerial

employees out of work. Disemployment and lower wages

small storekeepers, whose customers are mainly workers.
restriction

affect adversely the business of

serious fall in

income and

of

opportunity

occur

among

that

considerable

part

of

professionals

who

answer

calls for services

from the workers. The economic

crisis lessens

school and college

appropriations, resulting in widespread

unemployment and
there

salary cuts

among

teachers.
class

Most of the members, the lower incomes,

are dependent
interest,

of the functional groups in the

is

middle

not

among the workers: antagonism. (That is why the promise of

upon
prosperity
the class as a

an economic identity of

fascism to improve, at the expense

of the workers, the conditions of the middle class can benefit only small groups: conditions

among
is

whole must become worse.) Shrinkage in the middle

it

class

market
rectly

not produced directly by destruction of small capitalists;

capitalist decline

is

produced indiclass

and primarily by

and shrinkage of the working

market.

Monopoly and Finance

ical

Capital

411

lag protecting the predatory financial capitalists,

who

suppress

economic individualism and free competition and increasingly exploit

labor.
. .

Monopoly can never be complete because monopoly is profitable only if it is limited. "The monopoly price of certain commodities," said
Marx, "merely
transfers a portion of the profit of the other producers

of commodities to the commodities v^ith a

monopoly

price.

They

leave the boundaries of surplus value itself untouched. If a

vi^ith

commodity

monopoly
it

price should enter into the necessary

consumption

would ... be paid by a deduction from the real wages (that is, from the quantity of use values received by the worker for the same quantity of labor) and from the profits of other capitalists."^^ The limits of monopoly are thus described by a bourgeois
of the w^orker,

economist of to-day:
"In a capitalist system monopolist industries reap their profits as
parasites

on

free industries,

i.e.,

on

industries that are not given to

.

trustification or organization in cartels or syndicates.

Only such
in
his

proportion of the monopoly profits can be ploughed back as will

enable the monopolist to retain his
privileged field; investment of
free industries."
^

maximum
profits

differential

monopoly

must take place

in

In addition, monopolist combinations exploit "free" industries (only

relatively free, in process of

development toward concentration, hence

of
is

absorbing an increasing

amount

capital

monopoly

prices.

The

exploitation

direct if the
is

tions sell supplies to the "free" industries. It

by means of monopoHst combinaindirect if the monopoly

goods)

consumption goods, for that limits the demand for nonmonopoly goods. Thus complete monopoly would nullify itself, ma\e impossible monopoly prices and profits. This is one reason why
prices are for

monopolist combinations are active in the export of capital and imperialism, for in economically undeveloped countries the "free" indus-

numerous. The Hmits of monopoly appear also from the profits may be reaped at the expense of other monopolist combinations. The General Motors rate of profit rose from
tries are still

fact that

monopoly

about

Ford rate fell from from about 5% in 1922 to 16% in 1927, while the rate of other large chemical companies was below that of 1920; the rate of profit of Goodyear Rubber and Tire rose considerably from 1922 to 1929, while the rate of General Tire and Rubber fell disastrously.^^ The masters of capitalist industry must prey upon one another. Hence the intensification of
in 1922 to

about

13% 30%

31%

in 1926-27, while the

to a deficit; the

du Pont

rate of profit rose

412

The Decline
capitalism.

of

American Capitalism

competition, the aggravation of maladjustments and disturbances by

monopoly

The
it

limits of

expresses enormously

speculative

monopoly and the general conditions of decline which increase the importance of financial and profits in the capitalist economy (Table III). In 1923-29,

TABLE

III

Distribution of Financial, Non-Financial,

and Speculative

Profits,

192^-29
FINANCIAL CORPORATIONS

OTHER CORPORATIONS

SPECULATIVE PROFITS

AMOUNT
YEAR
1923 1924 1925
(millions)

AMOUNT
INDEX
lOO.O
(millions)

AMOUNT
INDEX
lOO.O
79.3
(millions)

INDEX
lOO.O
129.2

$879
1,061

$4,948
3,927
5,361

$1,172
1,513

120.7 183.2
166.0 I9I.9

1,610

108.4

2,932 2,378

250.6
203.2

1926 1927
1928
1929
Source:
:

1,459 1,687

5,315 4,193

107.4
84-7

2,894

247.4

2,444 2,438
!

278.0
277-3
I

5,192
5,645

104.9
114.
reports in
J

4,807
4,684

410.8
400.3

Revenue,

Statistics of

Computed from corporation and personal income Income for the respective years.

Bureau of Internal

while the profits of non-financial corporations were almost stationary,

the profits of financial corporations

were 177.3% higher in 1929 than in 1923, and speculative profits 300.3% higher. It is because

of these conditions that the financial oligarchs use other people's

to speculate, to promote, to get control of combinations.

money
little

One

method
sell

of

making money used by

the

Morgans and the

Insulls

was

to

the stock of newly formed combinations to "friends"

financial)

(political

and

below the offering price: in one

case, $12

while the

public paid $27,^^ which yields an automatic profit of large dimensions. That is why the holding company * is so beloved of the oligarchs. For
the holding company, used to concentrate control of banks
dustrial corporations, needs only a small investment to secure

and indomin-

is done by piling holding company upon holding company; one, a utility holding company is eleven times removed from the underlying properties it dominates, whose

ion over vast properties. This

The holding company,

They
are

of course, by massing industrial

is

and

financial power,

is

tremendous weapon against labor. This

writers.

seldom,

if

ever mentioned),

by American

tions represent the

to the
p.

more outspoken in England: "Do not big holding company organizameans by which employers are going to provide a unified opposition more extravagant demands of labor?" A. J. Simons, Holding Companies (1927),

12.

CONTROL OF

\jNDOsrRy

MOO
37 5"

350

n
ZX5
300

SPECULATIVE
PROFITS

J75-

2S0

XXS
ZOO
115

I50

\X5

NON- FINANCIAL
PROFITS

/OO

IS
IS23
*12<f

\^Z5

iSife

IU7

l*U

\<\2F{

XVII.

THE DYNAMICS OF FINANCE

CAPITAL.

414

The Decline

of

American Capitalism
by an investment of
$8,000,000.

assets of $1,200 million are controlled

makes its gains by extortionate service charges; the profit of one company from such charges ranged from 157% to 269%, while another company v^as disallowed "supervisory fees" of $500,000 by the Federal Power Commission.^^ Sweet are the uses of monopoly control!
in addition to other profits,

The holding company,

Increasing monopoly, under the conditions of capitalist decline, is accompanied by mass disemployment, lower production and realization of surplus value, a
capital.

downward movement

in the accumulation of
factors:

Larger

profits

now depend upon two

The

an immense

lowering of mass standards of living and a more systematic plundering of one capitalist group by another.
state capitalism

struggle for a larger

share of a diminishing mass of profits definitely affects the policy of

and, especially, fascism. For while fascism protects

its

the system of private property as a whole,

origins

and

state policy

(notably in

Germany)

are identified with the struggle for

more

profits

and power of particular groups of capitaHsts, who use state power, including murder, to overcome their rivals. Monopoly is the form of expression of the "organization" of capitalism. This "organization" assumes the same contradictory and antagonistic forms and has the same limits as monopoly itself. Yet the old revisionist socialists, led by Eduard Bernstein, insisted that capitaHsm was being "organized," imposing controls on cyclical fluctuations, modifying if not abolishing the class struggle. But "organized capitalism," which was monopoly capitalism and imperialism, led inexorably to the catastrophe of the World War. In the post-war period the theory was revived by another German socialist, Rudolf Hilferding; he argued that finance capital "means the transition from the capitalism of free
competition to organized capitalism," with a "diminishing" of the
instability of capitalist

producton, "milder

crises, at least in their effects

on the workers," and "less threatening" unemployment.^* The answer was an increase in unemployment, in the surplus population, an unprecedently disastrous depression, and fascism. Both Bernstein and
Hilferding merely repeated the arguments of bourgeois economists.

One
the

of them, in 1928, declared the cause of cyclical fluctuations

was

by competing capitalists, and concluded: "Innovation is not any more typically embodied in new firms, but goes on within the Progress becomes big trusts. It meets with much less friction. ^automatized,' increasingly impersonal and decreasingly a matter of leadership and individual initiative. The only fundamental cause of
older

type

of

"innovation,"

of technical-economic

change,

individual,

Monopoly and Finance

instability inherent in the capitalist

Capital
is

415

system

losing in importance as
. . .

Capitalism even be expected to disappear. stable and ever gaining in stability."""^ These arguis economically ments v^ere especially plentiful in the United States in 1923-29. They

time goes on, and

may

were answered by the worst depression in American history. The fundamental causes of capitaUst instabiUty are the antagonism between production and consumption and between old and new forms
of production.

Under

the conditions of

the

decline of

capitalism,

they are aggravated by the

downward tendency

in the production

and

absorption of capital goods, the basis of capitalist prosperity.

instability

Hence

must

increase.

And

Niraism? Monopoly

state capitalism?

They aim
less

to unify, to

organize capitalism, but their efforts are hope-

because of the underlying relations which impose limits upon

state

monopoly. All that

capitaUsm does

is

to strengthen concentration

and combination, to merge finance capital and the state, monopoly capitalism from collapse. The fundamental contradiction of monopoly capitalism

to preserve

is this: it is

Hence monopoly capitalism retains most of the contradictions of free competition and generates new ones of its own. Most fundamental among the new contradictions is the retention, by monopoly (and state) capitalneither free competition nor complete unification of industry.
ism, of the older social relations of production while the forms of a

new, the

socialist,

mode

of production are objectively fully developed.

Hence monopoly

capitalism

and the

dictatorship of finance capital

multiply the contradictions and antagonisms of capitalist production

and engender an economic decline. Capitalist production is the exand antagonisms on an enlarged scale, national and international, until they reach the breaking point.
tension of contradictions

CHAPTER

XXII

The Dynamics of Imperialism

HE enormous development of monopoly and finance capital in the after the World War was marked by an upswing in the export of capital and imperialism, which are inseparably interlocked with the underlying relations of monopoly capitalism. While an economic decline appeared in European imperialism (and capitaUsm), American imperialism strengthened its economic basis, sank its roots deep into the national economy, and spread its predatory interests and power throughout the world. The dynamics of imperialism are an intensified, concentrated, more violent expression of the dynamics of capitalist production itself, whose economic law of motion is the accumulation of capital. This involves efforts to prevent a fall in the rate of profit, to raise the rate. Both accumulation and the tendency of the rate of profit to fall are identified with the increasing concentration of industry and the centralization of
Ji

United States

financial control, the aggravation of competition in spite of monopolist

combinations, and the sharpening of contradictions arising out of the

antagonism between production and consumption. Accumulation of capital, the production and capitalization of surplus value, depends

upon the expansion of industry and markets, and is inevitably accompanied by the growth of industrial concentration and monopolist
combination.
of production,

The

basis of concentration

is

which greatly augments the output of goods.

an increase in the scale If markets

the rate tends to

grow
fall

sufficiently, the rate of profit

may

rise; if not,

because of the results of excess capacity and competition.

New

markets, foreign markets, become imperative, particularly as limitation

of mass consumption
is

aggravated by disproportionate development

of separate branches of industry.

The scramble
raw

for foreign markets

includes the scramble for foreign sources of

materials.

Both require

an investment of

capital.

The

export of capital, as distinguished from

the export of goods, acquires constantly greater importance, as direct

investment in foreign enterprises grows.

The

synthesis of these develop-

ments

whose driving force is behind attempts to monopolize markets, raw materials, and investment opportunities. As concentration and combination grow, there is an exhaustion
is

monopoly and finance

capital,

416

The Dynamics
(on a
capitalist basis)

of Imperialism

417

of the inner long-time factors of expansion,

capital goods. Mass and surplus capital mount. The rate of profit threatens to fall disastrously. The outward thrust toward foreign outlets is strengthened.* Speculation becomes

resulting in a decreasing output

and absorption of

markets are

still

more

limited. Excess capacity

more international. Capitalist production and foreign trade are more and more entangled with the economics of the export of capital and
the politics of imperialism, with exploitation of the outer, the international, long-time factors of expansion.

exploitation of economically

Monopoly capitalism and the backward peoples are inseparable.

The export of capital and imperialism emphasize both the importance and the changing character of the world market in relation to the origin, development, and decline of capitalism. Foreign trade and colonialism were vital factors in the commercial revolution of the
sixteenth

and seventeenth

centuries.

Toward

the end of the eighteenth

century, however, the intrenched bourgeoisie began to revolt against

coloniaUsm, which was identified with feudal-mercantilist restriction

of free enterprise
industrial

and

trade; for free competition

was

the basis of

capitalism.

One

expression of this reaction

was the not

waged against the embattled colonists American revolutionary war. As Britain became the world's workshop, with a practical monopoly of the world market because of
very vigorous struggle Britain
in the
its

highly developed industrial capitalism, the interest in colonialism

textiles;

waned. The major exports were consumption goods, especially

the major

aim was merely

i84o's-5o's,
*

and buy cheap. By the the dominant national sentiment, voiced even by future
to trade, to sell dear

"To

the extent that foreign trade cheapens partly the elements of constant capital
necessities of life for

[equipment and materials] partly the

[wages]
is

which the

variable capital

exchanged,

it

tends to raise the rate of profit by raising the rate of surplus

It

value and lowering the value of constant capital.

exerts itself generally in this direction

.
.

by permitting an expansion of the scale of production.

Capitals invested in foreign

trade are in a position to yield a higher rate of profit, because they

come

in competition

with commodities produced in other countries with lesser

that an advanced country
sells
is

facilities

of production,

so
it

enabled to

sell

its

goods above

their value

even when

them cheaper than the competing

exploits a
sells

countries.
it

...

In the same

way
is

a manufacturer,

who

new

invention before

has become general, undersells his competitors

to say,

and yet

his

commodities above their individual values, that

he exploits

the specifically higher productive

power

of the labor

employed by him
other hand,

as surplus value.

By

this

means he

secures

surplus

profit.

On

the

capitals

invested

in

colonies, etc.
profit is

may

yield a higher rate of profit for the simple reason that the rate of

higher there on account of the backward development." Karl Marx, Capital,

v. Ill, pp.

278-79.

4i8

The Decline

of

American Capitalism
was
that colonies

aggressive imperialists like Disraeli,

were a millstone

around Britain's neck. Developments within the

ing the basis of a

capitalist

economy, however, were preparthe scale of production

necessarily

new

colonialism.

Not only was

growing and multiplying the output of goods, but the

duction.
terials,

larger masses of fixed capital forced a constantly larger scale of pro-

terials

The output of means of production, of equipment and mabecame increasingly important. Many of the newer raw macould be secured only overseas; many older materials began to
(e.g.,

be imported as inner supplies approached exhaustion

copper, lead, zinc,
tin,

English

and iron) or because foreign supplies were cheaper. As industriaHsm is a metal economy, and abundant sources of metals were mainly in economically undeveloped regions, the tendency was to get control of both ownership and production, which meant an export of capital. The production of industrial equipment was limited, tending to force down the rate of profit, by exclusive dependence upon home demand: foreign demand and industrialization were stimulated. This was particularly true in the case of railroads, whose materials and construction made great demands upon capital equipment and capital investment. Railroads played as great a part
in the export of capital as they did in the inner accumulation of cap-

was in the railroads and exploitation of mineral resources went hand in hand. The export of capital was different, however, from the mere export of goods, for returns on the capital invested in economically undeveloped countries depended upon their political stability. Hence political control was necessary. Industrial penetration, by destroying the older industries and expropriating peasants (or tribesmen) from the soil, aroused antagonisms and revolt. The tendency toward the monopoly of foreign markets and raw materials made the necessity of political control all the stronger, including non-colonial regions, emphasized by the increasing competition of the newer industrial nations. Instead of colonialism being abandoned, control of existing colonies was tightened and a scramble for new colonies ensued. (It was significant of the new colonialism that Spain could not hold on to its American colonies, primarily because of an inability to supply industrial products and capital. Portugal held on to some of its colonies only because of an imperialist alliance with Britain.) In addition, finance capital and monopoly penetrated also the more economically developed but still relatively backward nations, where it secured control of basic enterital:

most of the

British capital invested overseas

of the six continents. Construction of railroads

The Dynamics
prises

of Imperialism

419

and raw

materials, plundered the "free" industries

and

distorted

industrialization.

European capitalism after the i86o's, and particuwas bound up with the export of capital and imperialism. Export pf surplus goods and capital stimulated the output and absorption of capital goods, the basis of capitalist expansion. By
of
larly after the i88o's,

The upswing

as 25% of the national wealth of Britain and 15% was represented by foreign investments. The three major imperialist powers had a foreign stake of at least $35,000 million; Britain, $20,000 million, yielding a yearly income of $900 million; France, $10,000 million and an income of $400 million; Germany, $5,000 million (some estimates are higher) and an income of $250 million.^ The rate of profit tended to move upward. During the prewar years, the rate of interest on British home investments, roughly an indication of the rate of profit, rose probably 30%, the most im-

the 1900's, as

much

of that of France

portant cause being the export of capital.^ In particular, the heavy

export industries "earned" surplus profits, while the financial oligarchy,

in control of the banks

and monopolist combinations

its later

identified

with

imperialism, reaped an even richer harvest. But the elements of decline

in imperialism appeared very clearly in
stages.

The

higher rate

becomes all the more marked in the epoch of the decline of capitalism, was accompanied by a downward movement in the curve of production, an increase in unemployment, stationary real wages, and more unequal distribution of the national income. Income from foreign investments increased much more rapidly than other forms of income. The heavy export industries were disproportionately developed in Britain, while other fields of home industry were neglected
of profit,
this

and

in favor of the surplus profits of overseas investment; in France, the

national

economy was
it

practically stagnant.

The upward movement

less

in

technical-economic efficiency began to flatten. (If this was

true in

Germany,

dustriaHzation

was only because imperialism developed while inner inwas as yet not complete.) But these results, according to

one bourgeois economist, writing early in 1914, are "no conclusive reason for a country trying to check the export of capital, because the injury to the amount of home output is likely to be more than compensated by the higher return presumably obtained on capital invested
abroad."^

The

rate of profit // the

compelling power of

capitalist

production.

became increasingly an export of the interest on existing foreign investments, the elements of decline assumed more definite shape for export of interest represents no home
the export of capital
(or profits)
:

As

420

The Decline

of

American Capitalism

production, employment, and wages, it merely piles up the capital claims of ownership. "To a larger extent every year," wrote A. HobJ.

son in 1902, in his pioneer study of imperialism, "Great Britain is becoming a nation Hving upon tribute from abroad, and the classes

who enjoy this tribute have an ever-increasing incentive to employ the public policy, the public purse, and the pubHc force to extend the field of their private investments and to safeguard and improve their existing investments."
istics
* Economic stagnation and parasitism are charactermonopoly capitalism and imperialism. They were accompanied by the multiplication of rentiers and an increase in luxury production and in the occupations serving the well-to-do. Whole nations, especially

of

France, acquired the character of rentiers. Just as a handful of monopoHsts exploited the nation, so a handful of monopolist nations exploited

the world.

They spoke much of progress everlasting. But it was an illusion. It was based on the profits of imperialism, on the merciless exploitation of colonial and other economically backward peoples, the majority of the
world's population. Financial oligarchs feasted on the profits.

The
work

middle

class received

some of the

juicier

crumbs, especially in the form

officials

of an export of technical, managerial, and clerical employees to

in foreign imperiaUst enterprises,
colonies.

and of minor
to the

to

govern

A bone or two was thrown

and the

upper layers of the working

class, particularly

the trade-union bureaucracy.*

For

imperialists like

Joseph Chamberlain and Cecil Rhodes, seeing the aggravation of imperialist rivalry social base for

possibility of war,

aimed

to create a

broader

imperialism by "doing something" for the workers,

which in

practice included only certain groups of workers. It

meant

making

the working class the defender of imperialism, with colonial and other economically backward peoples paying the price. All reformist programs, liberal and socialist, consciously or unconsciously depended upon the "progress" of imperialism for the gradual transition
to "higher" things, to a
*

"new"

social order,

including socialism
capitalists of

itself.

"The
them

receipt of monopolistically high profits

by the
etc.,

one of numerous

branches of industry, of one of numerous countries,

for
to bribe individual strata of the workers,

makes

it

economically possible
fairly considerable

and sometimes a

minority of them, and win them to the side of the bourgeoisie of an industry or nation,
against
all

the others.

The

intensification of antagonisms

between imperialist nations for

so there
itself
first
is

the partition of the world increases this tendency.

And
of

created that

bond
in

between imperialism and opportunism, which revealed

England,

and most

clearly

owing

to

the

fact

that

certain

features

imperialist
I.

development

were

apparent there

much

earlier

than in other countries." V.

1

Lenin, Imperialism, the

Highest Stage of Capitalism, pp.

13-14.

The Dynamics

of Imperialism
in
its

421

beginnings in 1900, Franklin H. Giddings, the sociologist, identified imperialism with progress, democracy, civiHzation, the interests of labor, and social reform, and concluded:
the
"If,
is

Although American imperialism was merely

by any mistaken policy,

denied an outlet,
it

it

[the "energy" of
itself

American people]

may

discharge

in

anarchistic, socialistic,

and other destructive modes that are

likely to

work

incalculable mischief."^

But imperiaUst antagonisms became sharper and sharper, exploited older sentiments of national interest, and exploded in the catastrophe of the World War. Liberalism and moderate socialism rallied to the
support of "their

own"

national imperiaUst governments.

The

illusion

of progress everlasting

was

irretrievably shattered.

American imperialism lagged behind the European, although conand finance capital were on the whole more highly developed in the United States than in Europe. This is one of the significant peculiarities of American capitalism. It was primarily due to what may be conveniently described as an inner imperialism; or, in other words, to conditions whose economics resembled those of
centration, combination,

the export of capital.

The economic
the

relations of colonialism

measurably existed between

more highly developed Northeastern regions and the inner continental areas. (The conquest of Texas and California had some of the political aspects of colonialism, although there was also an element of
the slavery "imperialism" of the South.)
stage,

In the earlier "colonial"

from the 1820's to the 1850's, the inner areas absorbed mainly settlers and industrial consumption goods in exchange for foodstuffs and raw materials: it was essentially a trading relation. In the later "colonial" stage, especially after the i86o's, the emphasis was on the absorption of capital goods and on industrialization, for the great areas
could not be limited to agriculture.
states

The

highly industrial Northeastern

and economic development, with Britain and Northwestern Europe, which exploited other areas) exported capital and means of production and transport to the Western regions and seized their natural resources. This was not simply the earlier, more or less limited and general industrialization as it appeared in the nations of Europe: it was on a vastly greater scale, making it possible for more than one particular industrial center to arise, was dominated by finance capital operating from the Northeastern states, and assumed sectional forms and gave a sectional twist to class struggles and ideology, which are of real importance in American history. The struggle between agriculture and industry appeared as a struggle
(comparable,
in

resources

422

The Decline

of

American Capitalism

between West and East; Western debtors,

the Populist revolts,

who were most

and

active in
investors,

owed money

to Eastern financiers

who
fall

also

owned

the railroads exploiting the farmers. Export of surplus

to the inner continental areas

goods and capital

capital goods.

prevented a decided
their

in the rate of profit,

made

possible a constantly greater output of

Monopolist combinations extended

control over

inner markets and resources, and invested surplus profits in American

branch plants as

new

industrial regions arose. Exploitation of

immi-

workers was an aspect of these developments, roughly comparable to the British, German, and French importation and exploitation, after the 1890's, of large numbers of immigrants from
grant (and Negro)
Russia, Poland, Austria, Spain,

and

Italy.''*'

The

real outer

imperialism
it

was only emergent

consolidated in the

at a

time when, from the i88o's to 1910,

was being

economy of

the highly industrial nations of Europe.

The

inner "export" of capital had general results similar to those of

the outer variety. Highly industrial nations export goods

to colonial

and other economically undeveloped

regions.

and capital But these

industry

regions develop their

own

industries, either native or

branch enterprises

of foreign combinations. Markets are restricted and

home

adversely afiFected.

The

New

England boot and shoe industry tended

to decline because of the competition of

new

centers of production in

the West. This

was prevented,

in the case of iron

and

steel,

by the

control of monopolist combinations.

The

Lancashire cotton

textile in-

dustry declined because of the competition of

new

foreign centers of

production; the

New

England industry began

of the
rise,

to decline, before the

World War, because

after the
states.

1890's, of

an indigenous

cotton textile industry in the Southern

No

comparable develop-

ments appeared within the nations of Europe, they appeared only as between these nations and aggravated the antagonisms of imperialism. The relative economic decline of New England and imperialist Britain
(in both regions there was, in addition, a decline of agriculture) is

extremely significant.

But these

peculiarities of

when
in

a real outer imperialism

United
States,

American development were over by 1910, was definitely and aggressively in opera-

* "In the

immigrants from Eastern and Southern Europe are engaged

the

most poorly paid occupations, while American workers provide the highest

percentage of foremen and of the better-paid workers. Imperialism has the tendency to
create privileged sections even

among

the workers, and to separate

p.

them from the main

of
this

proletarian

masses."

Lenin,

Imperialism,

96.

The

earlier

manifestations

tendency

were

enormously

strengthened

by

monopoly

capitalism.

To-day,

because

of capitalist decline

and the increase in the surplus population, the doors are slammed

shut in the faces of immigrants.

The Dynamics
tion.

of Imperialism

423

did they prevent the appearance, in the earUer years, of the substantial beginnings of imperiahsm. They were scattered, the expression primarily of particular combinations

Nor

and

enterprisers, but they

moved
i88o's,

inexorably toward larger institutional expression. ... In the

an emergent imperialist policy was manifest: the Samoan advenrule of the island by the three

and Germany in war; was accompanied by the usual atrocities of colonial warfare. Congress was agitated by demands for a more aggressive foreign policy and a larger navy, and by opposition (including President Hayes) to the French building the Panama Canal. Most important of all, the emphasis on relations with Latin America changed from political to economic, expressed in proposals for a customs union directed against Europe, in line with the larger interests of capital in the United States, and eventually transformed the Monroe Doctrine. ... By the 1890's, American capitaUsts were promoting railroads in Mexico and other Latin-American countries in competition with the British and the French; William R. Grace, the "Pirate of Peru," was exploiting that country's mineral resources, railroads, finances, and politics; and Minor C. Keith was creating the economic and political empire of the United Fruit Company in the Caribbeans (the blood of exploited native workers fertilized the bananas consumed
ture almost involved the United States, Britain,

combined

in the United States).

Standard Oil spread

its

tentacles over the

world, while another Rockefeller company, the Lake Superior Consoli-

dated Mines (acquired by ruthless trickery and later absorbed by the United States Steel Corporation), owned iron mines in Cuba. So did Carnegie Steel and Bethlehem Steel. American mining interests in

Cuba included manganese and

State

nickel.

asphalt concessions in Venezuela;

Department acted

to protect

American capitalists secured these were threatened, the "American rights." The Ameri.

when

can Sugar Refining Company, the Sugar Trust, controlling 90% of the refining output in the United States, held substantial interests in Cuba

through a subsidiary and the personal holdings of its master, H. O. Havemeyer. Mechanization of the sugar industry in Cuba compelled the import of American capital, which in 1896 amounted to $30,000,000. American capitalists, including Standard Oil interests, organized the American China Development Company to exploit coal mining The war began and railroad concessions and industrial franchises. American and British capital for control of international combetween
.

munications;

it

has since aroused extremely sharp antagonisms. After

spreading a network of telegraphs and cables over Latin America in competition with the British, the Mexican Telegraph Company, organ-

424
with the

The Decline

of

American Capitalism

ized and controlled by Americans, planned a Pacific cable to compete

British. The House of Morgan became identified with the which secured Congressional support. One vice-admiral said: "It can easily be seen what an advantage this freedom of communication would prove in the great race for supremacy in China." ... By 1900, $500 million of American capital was invested abroad, including government loans (particularly Mexican) .... An imperialist ideology was definitely being shaped, although it emphasized commercial more than financial interests, which was also true of the earlier beginnings of imperialism in Europe. In 1895, Henry Cabot Lodge said: "For the sake of our commercial supremacy in the Pacific we should control the Hawaiian Islands and maintain our influence in Samoa. Our immediate pecuniary interests in Cuba are very great. Free Cuba would mean an opportunity for American capital invited there by signal exemptions. But we have also a broader political interest in the fate of Cuba. She lies athwart the Hne which leads to the Nicaraguan Canal." ^

project,

Out of these beginnings of imperialism arose the Spanish-American War. Some historians argue that the war was not an imperialist one, because "our" immediate economic stake in Cuba was not very large. But that is mere economic determinism, a vulgarization of the materialist conception of history. For immediate economic interests seldom bulk very large and may even be violated in the interest of policy. It is the general drift and necessity of underlying class-economic forces which are decisive, and the ideology they create. Ideology is itself a social force. An active imperiaHst ideology was developing under the minor pressure of immediate economic development and the major pressure of the division of the world among the European powers, clarifying the aims of emergent American imperialism and preparing it for the future. This was the decisive factor in the Cuban intervention and the acquisition of a colonial empire in the Caribbean and the Pacific, while the war itself shaped imperialist objectives and ideology.* One sociologist urged American conquest and control of the tropics for The war with Spain, according to their "economic possibilities." Brooks Adams, who also identified imperialism with progress and reform, was "a link in a long chain of events which, when complete, would represent one of those memorable revolutions wherein civilizations pass from an old to a new equilibrium. Competition has entered a period of greater stress; and competition, in its acutest form, is war.
'^

Another element in the Spanish- American

farmers in the 1890's.

ruling class

may

resort to

American

victory

was a contributing

factor in

the unrest of workers and war to stifle social discontent. The the overwhelming re-election of McKinley.

War was

The Dynamics
America has been
surplus.
irresistibly

of Imperialism

425

impelled to produce a large industrial

Upon

the existence of this surplus hinges the future, for the

United States must provide sure and adequate outlets for her products or be in danger of gluts more dangerous to society than many panics
such as 1873 and 1893.
flow where
it

The laws

of nature are immutable.

Money

will

and investments once made are always protected."* And the Bankers Magazine said in 1900, driving home the logic of the Spanish war and of American participation, with Euroearns most return,

pean imperialist powers, in the suppression of the Boxer Chinese revolt "Nations whose citizens have large interests abroad must necessarily
encounter
difficulties,

which may sometimes be

settled

by diplomacy,

but which frequently can be overcome only by force of arms.

The em-

ployment of armies naturally drifts into what is called conquest. The United States, having become a lender of its surplus resources, must follow the methods which such development requires, and it has the advantage of the experience of other nations."^ From 1900 to 1910, monopoly and finance capital tightened their grip upon the American economy, resulting in an accelerated growth Because of of imperialism, although it did not become dominant. the backwash of inner imperialism and the absorption of surplus capital by the recapitalization of industry through trustification, which absorbed large masses of investment capital, the export of capital in the form of American purchase of foreign securities was almost negligible, although loans were floated for many Latin-American countries and for Britain, Japan, and Russia. But direct investment abroad by
.
. .

monopolist combinations
to
.

is

also
it

primary importance, because

an export of capital; in fact, it is of is most closely identified with efforts

monopolize markets, profitable enterprises, and natural resources. Steel companies acquired mines in Chile and Brazil, and forced an agreement on world markets with European steel interests. The United Fruit Company spread itself all over the Caribbeans, acquiring natural resources, building railroads and docks, making its General Electric invested capital in own loans to governments. many parts of the world, competing with the British and the Germans in the creation and control of markets; it acquired large interests, particularly in Latin America, in light and power plants and in elec.

trical

Harvester and the meat packers.

communications. ... So did, in their own Morgan-Hill

.

lines,

International

efforts to

extend the

power of

their

Northwestern railroad system to Canada provoked

charges that they were trying to get control of the country's railroads

and mines.

American

capital

secured

railroad

concessions

in

426

The Decline

of
.

American Capitalism
.

The Guggenheims and other mining interests got increasing control o foreign mines, particularly in Mexico, Bolivia, Peru, and Chile. Edward H. Harriman's aggresMexico, Panama, and Bolivia.
.

sive struggle, in direct competition

perialist interests, to secure railroad

with European and Japanese im-

and mining concessions in China was actively backed up by the State Department. Standard Oil, assuming greater international dimensions, fought bitterly with the British for control of world sources of petroleum. Discovery of petroleum in Mexico led to more aggressive American penetration by the 1910'sand another embittered clash with the- British, involving Mexican poHtics and revolutions. The monopolist combinations engaged in these imperialist struggles were associated with the great banks, which in many cases direcdy participated, particularly the National City Bank, whose acquisition of the National Bank of Haiti was followed by American military intervention. Most significant of the role of finance capital in imperialism was the organization, in 1902, of the International Banking Corporation, which later became a subsidiary of the National City Bank. The International was a concentration, for imperialist purposes, of the most important factors in monopoly and finance capital: the National City Bank, Standard Oil, Harriman, and the Guggenheims, including a working alHance with the House of Morgan in the later struggles for loans and concessions in China. By 1910, the International had sixteen branches, in China, Japan, India, the Philippines, Mexico, Santo Domingo, and Panama. It was the most conscious financial force in stimulating the export of goods and capital, in securing control of foreign sources of raw materials, in unifying the scattered elements of developing American imperialism. Still more conscious and unified was the political expression of imperialism, for the American government adopted an aggressive imperialist policy. President Theodore Roosevelt definitely transformed the Monroe Doctrine into a weapon of imperialist aggression in Latin America; it was now intended to prevent economic, not merely poHtical, penetration by the European powers. Construction of the Panama Canal, an expression of imperialist policy, was accompanied by ruthless disregard of Colombian rights: "I took the Canal Zone," Roosevelt boasted, "and let the Congress debate." (Fraud tainted the purchase of the Canal rights from the French company, which was paid $40,000,000 by the American government through the Morgans and other financial capitalists. The question was asked at
. . . .

the time:

"Who

got the

money?"

It

has never been answered.)

Roosevelt used the Big Stick to enforce American financial and political

The Dynamics
and the imposition of
bittering the
protectorates.

of Imperialism

427
to convert

"rights" in the Caribbean repubUcs, including military intervention

.

The tendency was

Latin America into the colonial basis of American imperialism, emclash with
British,

German, and French

capital.

As

the antagonisms

of imperialism

sharpened, they converged on

force. After

China, which was bludgeoned into submission by the most brutal use
of financial, diplomatic,

and military

making

the

Monroe

Doctrine a means of limiting the penetration of European capital in

Latin America, the American government insisted on realization of the "open door" in the plundering of China. Trade was emphasized in
the original "open door" doctrine of Secretary
to the 1900's, the tion of goods,

Hay. From the

with
its

i88o's

growth of

large-scale industry,

multiplica-

made

foreign markets increasingly necessary. This

was

urged by
(James
J.

all

the great capitalists, the Carnegies, Rockefellers, Hills

Hill wanted American domination of Asiatic markets so Western railroads might have more goods to transport). But foreign trade becomes, under modern conditions, entangled with the export of capital and imperialism. Markets are not free, they are under measurable control. "Spheres of influence," said Thomas W. Lamont, one of the Morgan partners, "served to divide up China commercially into almost water-tight compartments, and the nations like the United States which had no compartments could not do much trading." So the "open door" doctrine, its emphasis shifting from trade to investment, became the form of expression of American imperialist policy in China. ... In 1909, an offensive was launched by the Taft Administration, which asked and received the cooperation of the House of Morgan, of the financial oligarchy. The government made demands upon the governments of China and the five powers for an equal share in Chinese loans, mining concessions, and railroad construction. The Morgans made similar demands upon the bankers of the powers. American "dollar diplomacy" won a substantial victory, resulting in a truce and a financial protectorate over China. President Wilson made the bankers withdraw in 1913, but at the same time he strengthened imperialist policy in Latin America, opposing, e. g., the granting of oil concessions to non- American interests as a menace to the Monroe Doctrine. ... By 1913, American foreign investments amounted to $2,500 million, mainly the direct investments of dominant combinations. While comparatively small, the investments represented new capital, not an export of interest; without them the relative economic decHne in the period 1900-14 might have been more marked.^* American imperialism came into its own during the World War
that his
.

428

The Decline

of

American Capitalism

and the post-war period, the development of an inherent tendency accelerated by the mishaps of European imperialism. Under pressure of a direct economic stake in the victory of the Allies (the v^^ar loans) and a larger imperiaHst stake in the issue of world power, the United States was thrust into the war. The war augmented industrial concentration and combination and the centralization of financial control. It also opened new foreign markets to American goods and capital, and geared industry to the export of capital on a large scale. Finance capital mobilized for world action. Shortly after the war, the House
of

Morgan organized

the Foreign Finance Corporation, a concentra-

tion of financial interests including four

Morgan banks, the National City Bank, and the Chase National Bank. Another concentration of
of Central

was the formation by the Morgans, in 1922, of the and South America, with twenty-two branches. By 1926, eight American banks owned 107 foreign branches in the world's strategic centers, mainly in Latin America, of which the National City Bank owned seventy-three, including twenty-two owned by its subsidiary, the International Banking Corporation.^^ The struggle for control of markets and investment opportunities was waged everywhere, anyhow. American foreign investments (excluding inter-governmental loans) rose from $2,625 million in 1914 to $17,967 million in 1932, of which more than one-half represents the direct investments
financial forces

Bank

of monopolist combinations; foreign investments yielded, in 1920-29, an

income of $9,896
the

million.^^

The United

States

became the world's

chief

exporter of capital, imperiaHsm a dominant and inseparable aspect of

American economy. Germany's foreign investments were wiped

at $20,000

out (including expropriations by the Allies), French investments rose only slightly, those of the British remained stationary

milHon,

and only Japan scored a marked increase. World power was practically thrust upon the United States, and it was not rejected. The upswing of American prosperity in 1923-29 was invigorated by the export of capital, which, except for the later years, was mainly an export of new capital. But it simultaneously intensified the instability of capitalist production and prosperity. For the export of capital, the financial mechanism of imperialism, is both an expression and aggravation of the contradictions and antagonisms which assume extraordinarily acute forms under monopoly capitalism and imperialism: I. Limitation of markets, because of the increasing disparity between production and consumption, accompanied by depressed standards of living among the masses. This reflects the inability of capitalism to balance production and consumption and to develop fully all the

The Dynamics
forces of

of Imperialism

429

mass consumption. Competition is aggravated, prices may fall to unprofitable levels, and the rate of profit move downward. An increasing export of surplus goods becomes necessary. The instability of capitalist production is intensified. For the constant increase of exports makes the national economy dependent more and more upon fluctuations in the world market, and trade is inevitably entangled with imperialism because of colonial monopoly, spheres of influence, and other devices for the imperialist control of markets. The export of goods, moreover, tends to become subordinate to the export of capital and of interest on existing foreign investments; this is accompanied by a downward tendency in home production, which limits employment, wages, and mass consumption and makes markets
still

more

limited.

2.

Excess capacity, both cause and effect of limited markets and

aggravated competition.

The

increasingly higher composition of capita]

wages necessarily limit the mass markets for consumption goods. Excess capacity is augmented, as the disparity between production and consumption grows and limits the and the
relative or absolute fall in

demand
tends to

for

consumption goods and

It

capital goods.

The

rate of profit

move downward.

was estimated,
at capacity .^^

in the pre-1929 days of

prosperity, that

American cotton

mills should export

20%

of their

output to permit them to run

The

production of auto-

mobiles was marked by increasing excess capacity, yet the industry

exported an average of 15.2% of
10,000,000 tons of steel
its

output in 1924-29.^^

An

average of

was

available yearly for export, but only

20%

was exported, making

"excess capacity a continuous threat to the do^^

mestic price structure and to profits."

This condition was most

threatening in the basic heavy industries, which were particularly

aggressive in the drive for foreign markets.

The

drive becomes an

aspect of imperialism because of the imperialist division of the world.

But exports are merely an evasion of the problem of excess capacity, which can be solved only by balancing production and consumption, by the planned economy of socialism. As exports rise the scale of production
is

enlarged; the resulting changes in the composition of capital

still

and

their effects create

more

excess capacity, particularly as

is all

new

foreign centers of production arise. This

the

more

disastrous as

world markets change suddenly under the influence of competition or break down more than home markets under the impact of depression.
3.

Surplus

capital,

which becomes increasingly

larger as capitalist

production approaches exhaustion of the inner long-time factors of

expansion. In the decisive class-economic sense, surplus capital
is

an

430

The Decline

of

American Capitalism

mass consumption, for it represents capital which and cannot use without disturbing results^ Hence it is the most fruitful source of capitalist instability. Surplus capital produces more excess capacity, more competition, more downward pressure on the rate of profit. If surplus capital is "distributed" in the form of higher wages, it is consumed and does not become capitalist claims upon wealth and income. If it is exported, it becomes capital or capital claims regardless of whether, and this is the beautiful thing from the capitalist angle, the importing country spends the money on consumption goods or capital goods: in either case the foreign owner of the capital receives his claims upon future production and income. Thus capital export makes possible a larger accumulation
absolute deprival of

industry does not need

of capital, while

it

relieves the pressure of surplus capital

on home
is

industry and tends to raise the rate of profit. But this development

assumes an antagonistic form: in the measure that the pressure

relieved

and the rate of profit moves up, relative wages fall, markets are limited, and surplus capital arises anew, augmented by the income on foreign investments (which produces no corresponding home income). Export of capital becomes still more necessary. But as this is increasingly an export of interest on existing foreign investments, which is not identified with export of goods because it is not new capital, home production moves downward and the problem of surplus capital becomes more acute. 4. Monopoly, whose surplus profits are threatened by excess capacity and limited markets. Monopolist combinations are not immune to a
serious fall in the rate of profit, because of the enlarged scale of pro-

duction and monopoly competition. Combinations struggle aggressively for foreign markets. All industries need these markets; but in practice,

owing

to the barriers of tariffs

and similar measures, only monopolist

combinations as a rule are able to invade foreign markets. Exports

are concentrated in the basic heavy industries.

Where

the barriers are

insurmountable, combinations
tries.

start their

own

plants in foreign coun-

(In addition, foreign plants are established to take advantage of

to raw materials and markets.) In American corporations owned 1,819 foreign branch plants,

low-wage labor and of proximity

1932, 711

representing an invested capital of $2,178 million (out of |8,500 milHon

of direct investments)
:

$1,033 million in manufactures

and

$1,145 ^il^'

lion in the production of

raw

materials.

Limited
still

as the

number
:

of

companies was, the limitation of industries was

lion, or

greater

$529 mil-

more than

half the capital in manufactures,

was invested in

The Dynamics
plants

of Imperialism

431
machinery,

making automobiles,
is

electrical apparatus, industrial

dominated by monopolist The outward thrust of combinations is not simply a search for new markets to absorb surplus goods, but also to absorb surplus capital. For reinvestment of the profits of monopoly within its own field is limited, it must invade nonmonopoly fields and exploit the "free" industries. Both results are
industries

and other metal products/^ All are

combinations; and this

also true of

mining.

accomplished by means of the direct export of capital:

tion, electrical

it

is

invested

in strategic enterprises like mining, metal manufactures, transporta-

communications, and light and power, whose monopoly

domination permits the exploitation of "free" industries. The inflow of surplus profits from abroad tends to raise the rate of profit of
monopolist combinations. Moreover, precisely because of their monopoly character, these combinations break through national barriers

and

monopolize the world's markets, sources of raw materials, and investment opportunities. But they are merely interested in profits: anywhere, anyhow, independently of the needs of the national economy. Their direct investments in foreign enterprises usually yield profits without any export of goods (for
international,
striving
to

become

direct investments increasingly represent reinvested foreign profits or

and only new capital is identified with export of goods) emphasizing that, as the export of capital grows, it becomes more important than the export of goods. 5. Exhaustion of the inner long-time factors of expansion, the most
interest,

fundamental aspect of the export of capital and imperialism. Only expansion can overcome (temporarily) the contradictions and antagonisms of capitalist production, permit an increasing accumulation of
capital,

and prevent a disastrous

fall

in the rate of profit.

This means

an increasing output and absorption of

of surplus value into capital,

capital goods, the conversion

capitalist claims

and an augmenting of
It also

upon production and income.

means an

increase in

employment,
is

wages, and mass consumption. But monopoly capitalism

identified

with measurable exhaustion of the inner factors of expansion, with a

downward tendency
long as capitalism
duction,
is

in the output

and absorption of

capital goods.

As

on the upswing, with rising accumulation, pro-

for goods.

and consumption, foreign trade may be an- exchange of goods But when the tendency is downward, imports in general wages and
this

are restricted, because they can be absorbed only by raising

mass consumption;
is

means higher wages and lower

unprofitable for the capitalist.

The

export of

and surplus goods must

profits,

432

The Decline

of

American Capitalism
of capital, that
is,

more and more become an export

their future production

they must be paid

for by foreigners not with other goods, but with capital claims

upon and income. The downward tendency in the inner absorption of capital goods must be compensated by an upward tendency in the outer. In other words, the export of capital and imperialism exploit the long-time factors of expansion in economically

undeveloped countries
industries in

(or the

expansion

possibilities

of

particular

more

fully developed countries).

quickly to exhaust the outer long-time factors

But imperiaHsm tends of expansion by hamper-

ing their free and

growth, even on a capitalist basis. It forces a upon countries under its control, for imperialism is interested in quick and surplus profits and not in the economy as a whole. Agriculture and mining are overdeveloped to make profits on railroad construction and lower the prices of foodstuffs and raw materials; this results in overproduction, disastrous price falls, and the ruin of whole peoples. Monopoly controls, disturbing as they are in a highly industrial economy, are still more disturbing in a relatively undeveloped one, for they are more powerful because of the prevalence of small-scale enterprise and their foreign affiliations. The "free" industries are mercilessly exploited. Low wages, which are general and very low, and the export of profits depress local mass consumption and restrict balanced economic expansion. These conditions limit the absorption of capital goods. The non-imperialist countries are tied hand and foot to the interests of the imperialist powers, and their unbalanced economy is affected with the most destructive force by the maladjustments and disturbances of monopoly capitalism. Thus the decline and decay of capitalism thwarts economic progress where it might still move onward. This reacts upon and aggravates the decline of capitalism: the home economy becomes stagnant and parasitic, while development of the outer long-time factors of expansion, which might give capitalism a new lease on life, is hampered by monopoly and imperialism.
full

lopsided development

6.

The

dictatorship of finance capital, of the financial oligarchy,

which dominates both the monopoHst combinations making direct investments abroad and the monopolist banks originating and selling foreign securities. The most perfect fusion of industrial and banking capital appears in the export of capital and imperialism. Ownership, management, and control are separated on a colossal scale. By subordinating the export and import of goods to the production of financial and speculative profits, finance capital emphasizes that its primary interest is not the production and sale of goods. To Ivar Kreuger and

433 match industry was merely a pretext for the construction of a world monopoly for financial and speculative purposes. Enterprises are plundered, whole peoples mercilessly exploited, stock exchanges and governments manipulated, colonial wars instigated. (American capitalists, who have invested $40,000,000 in the government bonds and $73,000,000 in the tin mines, petroleum fields, and other industries of Bolivia, are encouraging and financing that country's war with Paraguay over the Chaco, which would give Bolivia access to the sea. "American interests now sufferhis

The Dynamics

of Imperialism

American and

British associates, the

ing financial losses in Bolivia will save millions in transport charges

if

Bolivia captures the Chaco.") ^^ Finance capital, adventurous, specuinternational,

is
is

lative,

the driving force behind imperialism;''^

and

finance capital

the

form of expression of monopoly

insists:

capitalism, of

capitalist decline

and decay.

A
. .

bourgeois economist

"The moving

force in

American

capital exports is large-scale industry,

.

mass production
is

at its height.

The

leaders of expansion are not in the realm o finance capital,

^^

but of big industrial business."

theory. Nearly half of
directly

This

a confusion of both fact

and

American

capital

exports are not identified

with monopolist combinations.

Who,

moreover, dominates

"big industrial business"? Finance capital, the financiers, the financial

oligarchy operating by control of both monopolist combinations and

monopolist banks.

The whole amalgam

General
fly

is

under control of a small

United States
Steel,

group of giant

oligarchs.

Electric,

Radio
the

Corporation, and General Motors

the flag of the

Morgans and

du Fonts; Standard Oil and other corporations, of the Rockefellers and the Chase National Bank; the most important American mining
abroad are identified with the Guggenheims and the Mellons, and both of these with the National City Bank and the Morgans, who are also identified with Anaconda Copper and the foreign interests of American Telephone and Telegraph. As in Europe, so in the United States, the great banking houses are the most active promoters of
interests
*

Of the foreign bond

issues floated in the

United States in 1920-30,

J.

P,

Morgan

and Company originated $1,807 million; the Guaranty Company, security affiliate of the Morgan Guaranty Trust Company, $540 million; the National City Company, affiUate of the National City Bank, $1,072 million; Chase Securities Company, affiliate
of the Chase National Bank, Equitable Trust

Company
by

(absorbed by Chase National),

Securities),

and Harris, Forbes and Company

Dillon,

(absorbed

Chase

$1,300

million;

Read and Company, $1,491 million, U. S. Senate, Hearings Before the Senate Committee on Finance, Sales of Foreign Bonds or Securities in the United States (1932),

pp. 419, 501, 902, 1,263.

434

The Decline

of

American Capitalism
J.

the export of capital and imperialism:

P.

Morgan and Company,

the Chase National Bank, and the National City Bank, which, in
addition to control or influence over the most powerful monopolist

combinations, have direct investments in the banks and industrial

corporations of a score of countries, particularly in Latin America.

Undoubtedly American combinations are more directly active in the export of capital than in England and France; but there also the most powerful factors in the export of capital and imperialism are the metallurgical, electrical (both manufactures and power), mining, communications, and chemical combinations. This was as true in pre-war Germany as in the United States to-day, and the German combinations were closely bound up with a few dominant banks.

The
capital.

activity of

monopolist combinations proves, moreover, that the

export of capital and imperialism are not "merely" a "policy" of finance

of the

Monopoly and finance capital are inseparable, are the result same underlying changes in capitalist production, they grow out of and dominate a definite stage of capitalism.* This is the stage where capitalism revolts against its basis, free competition, begins to decline and decay, is rotten-ripe for change. To avoid the change, which can be nothing else than socialism, monopoly capitalism turns to the export of capital and imperialism. The theory that imperialism is a "policy" of finance capital or of monopolist combinations and not a
stage of capitalism itself implies that imperialism

may
as

be "reformed"
trusts,

out of existence by "curbing" the international financiers or the

by means of struggle against

contradictions

their "excesses."

But

monopoly and
all
its
is

imperialism arise out of capitalist production and intensify

and antagonisms, the problem of

itself.
.

their
.
.

abolition

interlocked with the aboHtion of capitalism

The
is

export of capital in the form of loans to foreign governments

frequently accompanied by thievery and corruption.

Only part

of

the profits appear in the bankers' commissions.

One Latin-American

government received $190,000 on a loan of $3,800,000, another $3,200,000 on a loan of $10,000,000. Loans are forced upon weak governments by means of financial and political pressure, they are often for the most sinister purposes (including provocation of war), and they are made
"Imperialism
of monopolies
is

capitalism at that stage of development in which the domination

capital has taken shape; in

and finance

which the export of

capital has

acquired pronounced importance; in which the division of the world by the international trusts has begun,

and

in

which the

partition of all the territory of the earth

. . .

by the

greatest
this

capitalist

countries

has

been completed.

Imperialism,

as

understood in

sense,

undoubtedly represents a special stage in the development of capitalism."

Lenin, Imperialism, p. 81.

The Dynamics
when bankers know
Dehberately
ican bankers in
false statements are

of Imperialism

435

the governments are

on

the verge of bankruptcy.*

made

in advertising the loans.

Amer-

Cuba gave

"easy" jobs to Machado's favorites, includ-

Bank made personal Cuban dictator, and loans to other prominent government figures. (Machado was for years president of the Cuban subsidiary of the Electric Bond and Share Company.) In connection with a loan to Peru, the American bankers paid a "commission" of
ing his "perfectly useless" son; the Chase National
loans of $400,000 to the
$415,000 to the dictator's son, Juan Leguia, $250,000 to $300,000 a year; this,
it

who

lived at the rate of

is

was explained,

"customary."^

and peasants, pay. Loans to foreign governments are seldom simple financial transactions. They are interwoven with imperialist economic and political objectives, the struggle for concessions and spheres of influence. This is amply clear in the series of loans made to the Chinese government, which was plundered of both its finances and its economic resources,
people, the workers

The

with the help of the diplomatic and military pressure of the lending

way a government and diplomacy were used to secure an immensely valuable oil loan concession in Colombia. This was the Barco concession, sold in 1917 to the Carib Syndicate, a company controlled by H. L. Doherty, of the Cities Service Company, and J. P. Morgan and Company. Gulf Oil, a Mellon corporation, bought the Doherty interest in 1926, when the Colombian government was threatening cancellation. The concession was cancelled. The State Department protested sharply against the violation of "American rights," but to no avail. Colombia was denied loans, apparently with the approval of the American Government. In
powers. Another, an American, illustration was the
1930, the

new

president, Olaya, asked the National City

Bank

for a

loan;

its

grant was urged by the State Department, which acted as

to

intermediary. According
* In 1933, $1,400 million of

Olaya,

Mellon,

then

Secretary

of

the

of the total, while

is

Latin-American government bonds were in default, 60% European government bonds suffered tremendous depreciation. This nothing new. According to Max Winkler, Foreign Bonds: An Autopsy (1933), p. 135,
of all foreign

54%
profit
ties

government obligations

listed

default in 1880. Losses have been tremendous. But the losses

on the London Exchange were in do not affect the bankers'

nor the direct investments of monopolist combinations. Investors in

is

home

securi-

suffer similar losses. It

part of the plunder extorted by the financial oligarchy.

The losses, moreover, help new investments possible,

to

to

keep capitalism going by destroying capital and making

as

precisely

the

losses

of competition

and depression help

Crazy?
It
is

maintain or restore

"normal" investment and productive

capital.

relations.

capitalist production.

The

losses of British investors in foreign securities did

not prevent

an increase in the export of

436

The Decline
him

of

American Capitalism

Treasury, advised

Colombia's recovery."

agreed to extend a credit

problem to hasten formed by the National City Bank of $20,000,000 payable in instalments and upon
to "settle the petroleum

syndicate

condition that the petroleum controversy w^as settled.

The

Mellon-

were granted a fifty-year concession on the Barco oil fields. Telegrams from the American minister in Colombia were shown to representatives of the National City Bank, whose officials were in constant touch with the State Department. A Senate committee investigating the affair was refused one of these telegrams except "in confidence." The following discussion between Senator Johnson and Francis White, Assistant Secretary of State, is illuminating: Johnson: When you received a telegram from the minister at Bogota, it was read over the telephone to Mr. Lancaster [of counsel for
interests

Morgan

the National City

Bank]?

White: That
Johnson:

is right.

Do Do

White:

will

Johnson:

you refuse to produce that telegram? have to take the matter under advisement. you mean to say that your policy is that you

will read

a telegram over the telephone to a representative of

New York

bankers,

and

yet

you will deny that same telegram

to the Senate of the

United

States?

White: I do not deny it to the Senate of the United do deny it to the press of the country. Johnson: You deny it to the press of the country?
White: Yes, sir. Johnson Yet you thought
:

States.

But

it

very proper to read

it

to the representa-

tive of

bankers in

New

York.^^

Independent foreign corporations ican market on a purely investment

of

may

float securities in the

Amerunder

basis. Usually,

however, flotations
corporations

foreign corporate

securities

represent

either

American

control or in alliance with an

American combination. The

is bound up, directly or indirectly, with the efforts become international. of monopoly to Monopoly capitalism and imperialism reproduce, on a world scale, the conditions of domination within the national borders. Power fuels and metals and the industries they sustain, including machinery, are basic in the modern economy; their control means supreme power. Giant monopolist combinations are in mining, iron and steel, oil, light and power, electrical manufactures, chemicals, and transportation. This is the dominant inner zone, in which the Morgans, Rockefellers, du Fonts, Guggenheims, and Mellons move and have their

export of capital

The Dynamics
capital, yields

of Imperialism

437
is

being; or rather, control of which, through the relations of finance

them

their

power.

An

intermediate zonfc

of variegated industries,

some approaching monopoly

character,

composed most

monopoly. The outer zone of agriculture and even by the intermediate. In the world economy there is an inner zone of major industrialimperialist powers, an outer zone of producers of agricultural staples (mainly colonial), and an intermediate zone of countries approaching
"free" industries exploited by
is

a limbo, exploited by the inner zone

monopoly and imperialism, but dominated mainly by

industries of the outer

agriculture

and
to

"free" industries.^^ In addition to exploiting the agriculture

and

"free"

and intermediate zones, imperialism aims

all

get control of the strategic resources and industries of

countries,

and thereby make monopoly international. The nature and objectives of the export of
necessarily

and imperialism few basic industries and enterprises. Of $2,178 milUon American capital invested in branch plants abroad, $1,145 million was in the production of raw materials, and that is independent of the investment in mining properties; of the capital in manufactures, more than half was in four basic industries. Over $1,000 million is invested in foreign power enterprises, whose control makes possible an exploitation of industry in general. In 1927, of $1,265 niihion American capital invested in Mexico, $911 million was in railroads, mining, oil production, and smelting. From 1914 to 1929, $5,113 million of foreign corporate securities were floated in the American market, the major groups being as follows: Public utilities, $1,206 million; railroads and ships, $1,004 million;
capital

mean

a concentration of foreign investment in a

banking, $700 million; mining, $646 million; manufacturers (mainly machinery, chemicals, textiles, and automobiles), $460 million."^ Most
of the corporations

were owned or controlled by American

interests

or in alliance with them.

Minerals, which provide the metals for the construction of machines

capital

and the power to run them, are a decisive aspect of the export of and imperialism. (Some non-minerals, e.g., cotton, rubber, and raw sugar, are also important; the one afiFects British imperialist policy in Egypt, the other British, Dutch and American policy in Malaysia, the East Indies, the Philippines, and Liberia, the third, American policy in Cuba, Porto Rico, and Hawaii.) While no nation is selfsufficient in minerals, some have a larger resource endowment than others, and they are the highly industrial and imperialist nations. The world struggle for control of minerals has for its purpose either to
supplement existing reserves or reserves approaching exhaustion, as

438

The Decline

of

American Capitalism
and France, or to make up and

in the case of the United States, Britain,

for a natural scarcity of essential minerals, as in the case of Italy

transformed into
of

Japan. These purposes, under the influence of finance capital, are efforts to secure monopoly control for the mere sake

monopoly profits. Disproportions in the world economy created by the uneven distribution of mineral resources are made still greater
by the monopoly controls of imperialism.*

Monopoly

controls

affect,

in

general,
It
is

only non-reproducible raw

materials, especially oil

and metals.

more

profitable to exploit
.
.
.

"free" agriculture in the production of other materials.

British

American

interests control the world's oil reserves,

70%

of

and which are

located in economically

backward

countries.

The

ruthless struggle for

supremacy, waged

all

over the world by one British and three or four

.

Three naAmerican combinations, involves diplomacy and war. tions and a handful of combinations control the world's iron ore reserves. Two American corporations, which in ten years may need large imports of ore, own mines in Cuba, Brazil, Chile, and the PhiHppines; British interests own mines in Africa, Spain, and Canada, the French No steel proin North Africa, and the Japanese in Manchukuo. ducing nation has sufficient resources of ferro-alloys, and they are important stakes of imperialist politics. American interests own manAmerganese mines in Brazil and Cuba, the French in Morocco.
.
.

ican interests control 38,000,000 tons of the world's copper resources

(20,000,000 tons in Latin America), the British 27,000,000 tons all in

foreign countries, the Belgian 7,000,000 tons in the Congo, and the

Japanese 4,000,000 tons. Part of the British reserves in Canada are

owned by American
States, control the

capital.

Ten

combinations, two in the United

copper industry. American efforts to acquire copper

interests in Africa

were repulsed by the

British.

One

British

com-

bination has a practical

in the Malaysian colony.

monopoly

of the world's tin, based

States has

on mines

The United

no

tin,

but one Amer-

ican corporation controls the tin mines of Bolivia, the only serious

competitor of the British. ... In alliance with two European groups,

the

Aluminum Company
Some
of the disproportions

of

America controls the world's bauxite

one world
trust, the

reserves; the Mellons

*

also control the

AUiance

and monopoly controls are being broken by synthetic

they are as yet limited and their production
Synthetic materials introduce
its

raw

materials, but only partly, because

requires large
stability

amounts

of capital.

new

elements of in-

by

their effect

on

prices; in the case of Chile,

national economy,

which had

come

to

depend upon the production of

nitrates

owing

to the pressure of imperialist

capital,

was disrupted by the competition

of synthetic nitrates.

The Dynamics
Aluminium Company, with
. .

of Imperialism
of

439
production.

monopoly

aluminum

Zinc production is dominated by three American and five EuroThe International Nickel Company of Canada, pean companies. in which American interests acquired the majority stock in 1930, is a monopoly with a capacity in excess of the world's needs.^^ Monopoly controls of raw materials, actively supported by governments, arouse bitter antagonisms among nations. The situation is
.
.

made worse by
the complaint

the fact that finance capital pursues a policy of

monopthus

oly profits independent of the interests of the

is

home economy;

made

that,

because of the world interests of the

copper combinations, "a program primarily designed for the American

copper industry as such

is

impossible to conceive."^
is

The

struggle to control the world's natural resources

interlocked

with the struggle to control markets and investment opportunities in

general.
perialist

The most thorough form

of control

is

colonial. All the

im13,-

powers have acquired large colonial empires:

Britain,

616,000 square miles, population 417,000,000; France, 6,400,000 square

miles, population 59,000,000; Belgium, Holland, Italy, 3,436,000 square miles, population 72,000,000; miles, population 25,000,000

and Portugal,

Japan, 478,000 square

The "mother" which has risen more in recent years than foreign trade in general, ranges from 33% in the case of Italy to 71% in the case of Japan. Manchukuo is a perfect colonial monopoly:
(including Manchukuo).
country's share in colonial trade,
it

has absorbed more than Ji,ooo million of Japanese capital,

75%

of

1933 imports of $419 million were from Japan, its large resources of coal, iron, and shale oil are wholly under Japanese control, and its
its

economic policy

is

decided

Colonial controls are being tightened.

become
from
its

self-sustaining,

Manchuria Railway.^^ Empire is trying to a "closed economic system." France is pursuby

the

South

The

British

ing a similar policy .^^ Japan excludes other nations as

colonial possessions.

much

as possible

These measures constitute acts of aggression against both the colonies and other nations, and are especially resented by imperialist powers with small colonial domains. Although the United States started late to fight for colonial empire,
it

has acquired a substantial share in the territorial division of the

world.

The

share includes:

Colonies with 910,000 square miles and a population of 25,000,000

in Cuba, the Philippines, Alaska, Liberia, the Caribbeans,

and Central

America.
Financial and disguised political protectorates, with a semi-colonial

440
status, in

The Decline

of

American Capitalism

2,950,000 square miles

Political

Mexico, Colombia, Bolivia, Venezuela, Ecuador, and Peru: and a population of 35,000,000.

of Latin

and financial overlordship in the balance (and the whole) America through economic power and imperialist interpre-

tation of the

Monroe

Doctrine.

Latin America constitutes in general the colonial basis of American

imperialism. Direct colonial control and
as possible;
its

costs are avoided as

much

dependence is upon economic power and political overlordship. This policy may change as imperialist antagonisms sharpen. British, French, and other "alien" interests are being inexorably
driven from Latin America, an enormous market for goods and capital,

rich in natural resources.

The American government may

veto

any other power on the ground that it violates the Monroe Doctrine (which is a national doctrine of the United States and is rejected by Latin Americans). It means bolting the door against imperialist competitors. At the same time, American imperialism insists on the "open door" in China and elsewhere. While
a concession to the nationals of
this policy

appears to be one of "liberal" principles and "equality of

it

opportunity,"

is

in fact

an imperialist challenge

to

redivide the

world, to abrogate the controls of colonial monopoly, protectorates,

and spheres of
competitive

influence,

whose abrogation might

easily

mean
its

the

victory

of American

imperialism because of

enor-

mous

industrial

and

financial resources.

The

"doctrine" formulated by

Secretary of State Stimson

and affirmed by President Roosevelt, that violation of the "open door" in China would force the United States to adopt more aggressive measures to maintain its "rights," was an

openly imperialist threat of war.

Colonial enterprise yields large surplus profits. The major reason is low wages, the sweating of labor in the most merciless manner, including forms of forced labor indistinguishable from slavery. In 1933, when world copper prices were unprofitable, the British-Belgian copper mines in Africa made high profits: unskilled native labor was paid 15c a day, skilled labor $10 a month, with even lower wages in many cases.^'^ These are the conditions in an American economic colony: "How did the American tin magnates in Bolivia manage to make a profit in the face of extraordinary shipping costs? Wages were barely enough to live on, so that the Indians remained permanently in debt to the mining company. Over 50% of the population is living in peonage. Labor laws of Bolivia provide for the 8-hour day, but the 12-hour day is practiced. The 7-day week is common, while in one mine a continuous shift of thirty-six hours was the regular routine. The

<

u S

<:

442
controls

The Decline
80%

of

American Capitalism

Patifio mines, a National

Lead subsidiary (an American company which

of the tin output), operated at a production cost

. .

20%

beliv-

low the world average and declared 15% dividends. ing in this land of wealth are poverty-stricken. Only
budget
is

The

people

9%

of the national

is

devoted to education;

85%

o the people are illiterate. Bolivia

States;

virtually a colony of the

United

American

investors

own

or hold mortgages

on the whole land."^^

in colonial

These conditions are general

and semi-colonial

countries.

The inhuman
wages
react

exploitation of labor yields a higher rate of profit.

Low

and eventually produce low wages in the home country, while limited consumption limits exports and imports as financial profits grow, a tendency which is enormously strengthened by capitalist decline. The main result is an increase of capitalist parasitism and
luxury.

Coloniahsm
gle
is

is

only one aspect of the imperialist struggle for control

of markets, natural resources,

and investment

opportunities.
it

The

strug-

limited to no particular part of the world;

includes agrarian

and industrial countries. Imperialist capital is active wherever there are markets to control, natural resources to seize, strategic industries to monopolize, or "free" industries to plunder. French imperialism was
strengthened (and a group of financial capitalists enriched) by seizure
of the

mining and metal

industries of Alsace-Lorraine

and the

Saar,

while

German

imperialism aimed to seize those of Belgium and

Northern France. Where new or comparatively new industries are developing, such as electric power, aluminum, and rayon, imperialist capital penetrates even highly developed countries to secure monopoly control. British and American imperiaUsm struggle desperately in Latin America, Canada, India, Australia, and Africa. American capital invades Britain, and measures have been taken to prevent its control
of British combinations.
British
capital
retaliates

United

States; the

Royal Dutch

strikes at

by invading the Standard Oil in its own

Oil,

market by forming an American company. Shell Union

assets of nearly $500 million.

with

Neither national nor colonial limits or

hamper finance capital in its world operations, in the thrust monopoly profits. The American Allied Chemical and Dye Corporation struggles aggressively for markets with its German and British rivals; yet, the Corporation complains, American financiers invest capital in both the British and the German chemical combinations.^ In 1930 American and British interests formed the General Telephone and Electric Corporation to compete with the International Telephone and Telegraph Corporation, subsidiary of the American Telephone
interests

for

The Dynamics
and Telegraph Company
capital.
.^^

of Imperialism
profits

Monopoly

443 become more important

than the export of goods. Tariff barriers

The

may keep out goods, but not general situation appears clearly in the distribution of
1932:^^

American foreign investments in Latin America $6,094 million,

direct investments,

which $3,361 million represented mainly in mining, railroads, smelting, oil, light and pov^er, and electrical communications; about $2,500 million was invested in Mexico and Cuba. Europe $5,765 million, of which $2,500 million was invested in inof
dustrial

of

and power enterprises, including $629 million in branch plants American combinations; six large combinations alone had an in-

vestment of $164 million in branch plants. Canada $4,601 million, more than half direct investments, of which nearly $600 million was in American branch plants and another large
part in mining;
foreign,

35% of the capital invested 20% American and 13% British.

in

Canadian enterprises

is

and Asia, $1,507 million, including China, the and Liberia; the African investment represents mainly the Firestone interests in Liberian plantations, where native labor is
Australasia, Africa,

Philippines,

mercilessly exploited with the benevolent approval of the native gov-

ernment and the American State Department.

In the struggle for control of the world's markets, natural resources,

and investment opportunities American monopolist combinations meet

the competition of foreign combinations, with a consequent intensification of international competition

and antagonisms. Even more than

in the
in

home markets monopolist combinations aggravate competition world markets. Attempts are made to limit competition by division
and
interlock-

of markets, stock interests in competing combinations,

ing directorates.

The

Alliance

Aluminium Company

unites

aluminum

I. G. Chemical Corporacombines American and German chemical interests; the French and German chemical trusts make an agreement; General Electric, through its subsidiary. International General Electric, acquires substantial interests in German and French electrical manufacturing com-

producers into a world trust; the American

tion

the Electric Bond and Share Company, with interests throughout the world, becomes a factor in British and International Utilities and in the Adriatica-Volpi power group.^^ These are merely
binations;

monopoly interests. In addiformed for steel, zinc, copper, rayon, nitrates, tin. But the cartels are engaged in perpetual internecine warfare over prices and quotas, the same warfare that goes on within national cartels.
a

few

illustrations of the interlocking of

tion, cartels are

444
Agreements,
for

The Decline
and monopoly control and
alliances,

of

American Capitalism
only armistices in the struggle

cartels are

profits; they are repeatedly violated, espe-

cially in depression.

All international cartels have been weakened or

a source of

dissolved since 1929. Competition assumes

operation becomes

itself

Railway, one of the causes of the

six

more savage forms. CoAt the head of the Bagdad World War, were fifteen Germans,
strife.

Frenchmen, and three Belgians, who were perpetually struggling and intriguing for a larger share of the enterprise.^^ International
finance capital prepares imperialist war.

world among monopoUst combinations imperialist powers drives fatedly to war. Imperialism resorts to the arbitrament of the sword to maintain its "right" to exploit the world's peoples and resources, to overcome
division of the

The economic

and

its territorial

division

among

American and American "liberal" imperialist concludes: "Either the supremacy of America will be recognized by
competitors. After analyzing the bitter struggle between
British capital throughout the world, an

Britain in peace, or that supremacy will be asserted in battles of

In other words: "Yield! The world is ours." But there is no such simple yielding. Now a world power, the United States is aggressively and insolently aware of its might. It stands athwart the
blood."
^*

imperialist ambitions of Britain in Latin America, of Japan in China.

struggle looms for control of the Pacific. Conferences are held.

The

League of Nations invokes peace where there is no peace. The "agreeparallel the maneuvers of the European powers prior to the World War. Meanwhile antagonisms multiply and the powers prepare war against each other, against the Soviet Union, an incalculable revolutionary force, whose overthrow might
ments" and "understandings"

yield imperialism a
tarily

new

lease

on

life.

The war danger becomes momen-

more

threatening.

For imperialism must aggravate international contradictions and

antagonisms, precisely as monopoly does within the national economy.

Monopoly defeats its own purpose if it includes all industry: there can then be no monopoly profits. Combinations must plunder each other and the "free" industries. So imperialist nations must plunder each other while they plunder the economically backward peoples. But these peoples, even if on a lower level, develop their own industrialism,
with excess capacity, surplus goods, and surplus
capital.

These torments

of capitalist production are aggravated within the imperialist nations.

As

the surplus of goods and capital mounts, markets are limited, and

the international long-time factors of expansion are exhausted, im-

The Dynamics of Imperialism 445 must compete more aggressively with one another, in the same manner as combinations within the nation are forced to compete more aggressively. Monopolist combinations, moreover, are
perialist nations

under pressure of the general capitaUst needs of the national economy; and however much they pursue a policy independent of those needs,
is still there, with frequently explosive results. There can be no unity of imperiaUsm, no agreement to cease competition and

the pressure

warfare.

And
it

if,

temporarily, an "ultra-imperialism" were possible,

It

non-imperialist peoples, stagnation,

would mean more ruthless exploitation of low wages, and unemployment in the home economy, an accumulation of underlying contradictions and antagonisms which would inevitably explode into new wars. As the basis of imperialism narrows and the decline of capitalism becomes more acute, an intensified struggle ensues for the redivision of the
what would
world.

mean?

imperiaHsm writes: "Backward countries and expanding capitalism. Fundamentally, economic imperialism is a symptom of overgrown production and excessive profits. But the lag between consumption and production may be reduced either by diminishing production, or, more comfortably, by increasing consumption. This means more wages and more spending and less profits and less investing.^^ Exactly! It is, however, precisely to avoid "less profits and less investing" that monopoly capitaHsm resorts to the export of capital and imperialism. And the "lag" or antagonism between production and consumption is an inherent contradiction of capitalism, an inseparable aspect of the
liberal student of

colonies are not necessaries but luxuries for

accumulation of

capital.

Imperialism

is

means

for accumulation

an ascending

scale.

The

liberal prescription asks capitalism to

suicide. In theory, the

demagogic spokesmen of the

NRA

on commit want to
and

"adjust" consumption to production; in practice, they encourage profits,

stimulate exports, fight for

American

"rights" in Latin America,

prepare for war.

The Nazis
territory,

forget AutarJ{ie, the "closed economic

power to force exports, cast hungry eyes and prepare for war. Mussolini, in 1934, formulates a sixty-year program of imperiaUst expansion in Africa and Asia, "after which Italy will have the primacy of the world," and prepares for war.^^ State capitalism and fascism aggravate the antagonisms of imperialism by measurably merging industry and the state, by making the state more "planfully" an organ of finance capital: the struggles of monopolist combinations to control the world become more quickly "national" issues and more easily lead to war.
system," use government

upon undeveloped

446

The Decline
capitalism

of

American Capitalism
as well as

Monopoly

and imperialism breed reaction

war.

Imperialism exploits a country partly in alliance with

feudal-agrarian groups; or rising capitalist groups,

its

most

reaction-

ary social groups, against the workers and peasants.

They may be
are afraid that

who

an aggressive struggle for national liberation might

peasant revolutions.
the policy of

result in

workeris

The

historic policy of British imperialism

also

American imperialism. Financially and politically the United States upholds the most reactionary forces in the Philippines, the unspeakable dictatorship of Gomez in Venezuela and of other Latin-American tyrants. (American capital, both loans and direct investments, were of enormous service in the consolidation of the fascist dictatorship in Italy.) The counter-revolutionary forces in Mexico were encouraged by the American government. It upheld the Machado dictatorship in Cuba; except for the American threat of intervention, according to one bourgeois commentator, "the people of Cuba would long since have driven Machado out of power. The State Department
has uniformly thrown
its

influence against any revolt."

its

^^

And when

the revolt took place, the State Department and

against the

agents intrigued

governments and helped to restore a regime from Machado's.* Imperialism has consumed the not much liberalism of American pre-imperialist international policy. Imperialist repression and reaction in colonial and other "backward" countries react and intensify repression and reaction in the home country. For monopoly capitalism and imperialism revolt against both free competition and its Hberal ideology. "The substitution of monopoly

more

radical

different

for free competition," according to a bourgeois scholar, "has assimilated the views of the

commercial

classes to those held

formerly by

feudal aristocracies."^*

Imperialism and fascism, which merge into

one violent reactionary and aggressive force, are the most perfect expression of monopoly's retrogressive tendency. At the same time imperialism strengthens the tendency toward eco-

nomic stagnation and

parasitism.

The

increasingly parasitic nature of

of the Piatt

The gesture of the Roosevelt Administration to "free" Cuba ment is practically meaningless. This is admitted in an editorial of

AmendTimes,

the

New York
. . .

May

31, 1934: "It remains true that, with or without a treaty, the
to protect
its

American governMore-

ment may lawfully intervene

own

nationals or their property.

is

over, the retention of the naval base at

Guantanamo
to the

a clear indication that

its

embraced within the plans of the United relation to the Panama Canal and also
largely sentimental.'*

States for national defense.

Monroe Doctrine.

Cuba is Guantanamo has All this must

.

be clear to intelligent Cubans. Their rejoicing over the abolition of the Piatt

Amend-

ment

is

The Dynamics
capitalist

of Imperialism

447

ownership

is

revealed most strikingly by imperialism.*

handful of investors in

six imperialist pov^ers

own,

directly or indirectly,

foreign investments of probably l55,ooo million, yielding an income of

at least $3,000 million yearly.

Ownership

is

almost wholly impersonal

foreign investments
nearly $1,000 million

and

institutional.

of $18,000 million

More than half the American are owned by combinations and

by banks, in addition to other institutional holdings. The income is received by a handful of investors, who know nothing of the source of the income. Another handful own the personal holdings: $1,250 miUion
of

German government and

corporate bonds are

owned by

200,000

American

investors; five foreign

government

issues in 1923-25, totaUng

$380 million, were bought by only 104,713 investors.^^ (Yet the Foreign

Bondholders Protective Council makes the

coextensive with those of the
tion
is

interests of its

members

American people;

government corpora-

urged

to protect the interests.) *^

is

To

insure the tribute of these

parasitic rentiers, foreign labor

mercilessly exploited, governments

and wars are waged. accompanied by a tendency toward stagnation in the home economy. While colonialism and the earlier imperialism emphasized the export and import of goods, later imperialism makes
increase their armaments,

This parasitism

is

the export of capital

more important than

the export of goods. For

finance capital

is

interested primarily in profits, not in goods or the

independently of the

home economy. Branch plants in foreign countries yield profits mainly home economy. Mining combinations produce minerals abroad, even if it hurts the home industry, and sell the output in any market. The bitter struggle between American and British
communications, latent with

capital for control of the world's electrical

the threat of war, involve only small profits

(although this

is

a factor)

of the export of

on the export of equipment main profits are "earned" independently goods. The American electrical manufacturing com:

the

binations. General Electric and Westinghouse, own or control light and power systems in Latin America, Europe, and Asia. These interests were originally acquired to provide and control markets for machinery and apparatus, but that purpose is now subordinate to the profits secured from operating revenues. The capital with which combinations

operate in foreign countries

profits,

is

increasingly derived

and tends

to separate international finance "capital

from reinvested more com-

Imperialism
state,

is a "social parasitic process by which a moneyed interest within the usurping the reins of government, makes for imperial expansion in order to

fasten

economic suckers into foreign bodies so

J.

as to drain

them

of their wealth in order

p.

to support domestic luxury."

A. Hobson, Imperialism (1902),

389

44^
pletely

The Decline
from
its

of

American Capitalism

contacts with the

home economy. Thus

in

Cuba, in

1928, of the

American

capital investment of $1,140 million, not

more
in-

than $500 million represented an export of

new

capital; ^^ the balance

was

capitalized profits.

The

interest received

on American foreign

vestments in 192829 was almost as great as the export of capital in

World War the income from become more important than the net gains from foreign trade. According to the Board of Trade, the British income from foreign investments in 1933 was 155 million, the profit on the export of goods only about 35 million.^^ American exports and imports in 1920-30 amounted to $102,000 million.*^ Assuming a profit yield of 10%, the total profits from foreign trade were $10,200 million, only slightly more than the foreign investment income of $9,896 million. In 1930, the income from foreign investments was greater than the profits from foreign trade, nearly $1,000 million compared with $730 million. The income from foreign investments, which
those

two

years. In Britain before the

foreign investments had already

increasingly represent the export of interest on existing investments,

not the export of

activity within the

new capital or goods, is derived from no economic home economy, produces no employment, wages,
It

or mass consumption.

merely augments the income and strengthens

:

the parasitism of the financial oligarchy, of rentiers

sion of the tendency of

supreme expresthe production

monopoly

capitalism to

make

more important than the production of goods. The workers "gain" only from greater demand for luxury goods and servants. The parasitism of imperialism strengthens the tendency of monopoly capitalism toward economic stagnation and decay. Monopoly acts as a relative check upon production, emphasized by the exhaustion of the
of financial and speculative profits

inner long-time factors of expansion. This

of capital

is

partly offset by the export

and imperialism, in their earlier stages; but the later stages intensify stagnation and decay. One aspect of these developments is the necessity for an imperialist nation to increase its imports; for not all the interest on foreign investments can be reinvested, part of it must be consumed. Since 1900 the British excess of imports over exports has risen enormously, tribute wrung from "backward" peoples. A similar necessity is developing in the United States. But the imports will be limited to a few categories. Monopolist combinations will not permit the import of goods which threaten their own markets. They must be primarily goods produced by the "free" industries, whose chaos and decay are aggravated. Above all, they must be goods produced by agriculture (and mining products, because monopoly can recoup itself in

The Dynamics
foreign markets).

of Imperialism
crisis

449
acute,

The

agricultural

becomes more
into

the

farmers

thrust

more

rapidly

downward
is
it

the

peasant

class.*

As

the income

from foreign investments

of foreign origin and con-

centrated in a handful of investors,

represents

no home employment,
Local production and

wages, and mass purchasing power; only this income, therefore, can

buy the "excess" imports (or

the conditions of decline,

their equivalent).
fall,

goods are displaced. Employment and wages

low

colonial

particularly as, under wages exert a greater downward

on home wages. Thus the export of capital and imperialism, and intensify the decline of capitalism. This economic undermining is accompanied by political undermining; for colonial revolts against imperialism tend to become struggles against capitalism itself, a phase of the same struggle in the "mother"
pressure

an

effort to escape decline, react

country.

All these contradictions and antagonisms, mass disemployment, lower

standards of living, and the threat of
violation of the imperative

more mandate of

destructive wars result

objective conditions

from which

demand new

social relations of production.

Monopoly and finance

capital exploit the objective socialization of production, they prevent

the forces of consumption developing commensurately with the enor-

mous

forces of production of

modern
exploits

society,

prevent a

new

society

from emerging. Imperialism

the increasingly

international

character of industry, the constantly greater economic interdependence

*

"We

are

now

in that blessed state of being a creditor nation.

at least

The

rest of the

world

must every year produce

local

$i,ooo million of goods and services over and above

It must be axiomatic that more important, be in a position

needs to pay us our pound of flesh in interest charges.

is

our debtors neither will be able to pay nor, what

to

borrow further unless they are permitted

It is

to

produce those commodities they are

capable of most easily.

foolish to expect that

American finance capitalism in the

choice
imperative, for the world

long run will at once subsidize American commercial agriculture and encourage other

commercial agricultural economies

to

expand.

is

market for foods

because
it

is

contracting.

The

course England followed in the 1850's and i86o's,

is

was

dictated by necessity,

the

same round we must embark on. ... To

capital: to build railroads,

keep South America and China open for American

wharfs,
public

and power transmission

construction programs;
enterprisers

lines; to finance

governments so that they

oil

may embark on
forests;

to

open mines, dig

erection

wells,

cut

down

to

lend local

money

for

the

United States

^must be permitted to

of factories: the world-^and that includes the buy Manchurian (and eventually Mongolian) wheat
beef, Argentinian wheat, corn,
is

and soy beans, Uruguayan and Brazilian jerked

and
chilled beef.
.

mutton,
of clair-

American commercial agriculture

foretell that the future of the

doomed.

No
is

gifts

voyance are required to

istic

American farmer

the characteris

one of

Louis

whom, in our M. Hacker, The Farmer is Doomed

all

peasants for

present system of society, there

no hope."

(1933), pp. 29-30, 31.

450
of nations,

The Decline
which
is

of

American Capitalism
is politi-

economically distorted to yield profits and

cally converted into a source of conflict

and war.

Thus imperialism is the final expression of the decline and decay It is marked by wars and revolution. For as war comes, communism issues its call to transform the imperialist war into a civil
of capitalism.

war
ism.

o the oppressed against the oppressors

. . .

a
new

struggle for social-

In the national economy, there

is

no going backward
the

to small-scale

production:
plicit in

we must go onward toward

social relations

im-

of
to

economy socialism. In the international economy, there is no going backward small-scale national units of production we must go onward toward
the socialization of production, toward the planned
:

the

new

international relations implicit in the economic interdepend-

ence of nations, toward the planned economy of world socialism. Both

these measures necessitate abolition of the profit motive, of capitalist

production. There must be a cooperative, rational, planned distribution

of the world's natural

and

industrial resources: regional (not merely

national) planning as the basis of unified international planning.

Both internationalism and

large-scale industry

(which does not

ex-

clude the largest possible measure of decentralization, especially the

unity of industry and agriculture) must be accepted, released from the
fetters

petition, of industrial capitalism,

The internationalism of free comwas progressive in spite of its predatory aspects; it thrust the world onward to a new order. The imperialist internationaUsm of monopoly capitalism is wholly predatory, it thrusts the world backward to reaction and war, the strangling of progress.
which destroy
their promise.
Socialist internationalism, arising out of objective

economic necessity

and the conviction

scale, is

that complete socialism

is

possible only

on a world

wholly progressive, the expression of an economy of abundance

and peace: an internationalism which does not exclude national and makes a finer world symphony.
regional differences in culture, for the merging of the strains

Summary

'uT of capitalist competition arises the concentration of industry.

For the competitive struggle, waged primarily by cheapening costs, develops the imperative to produce more and sell more. This involves the necessity of enlarging the scale of production, emphasized by the
pressure of technological change, with
for fixed capital
its

constantly greater
efforts to

demands
fall

and raw

materials,

and the

overcome a

in the rate of profit by increasing its mass. Thus capitaUst expansion and accumulation are accompanied by the gradual but inexorable rise to power of large-scale industry. Small individual producers are replaced by giant corporate enterprises, utilizing the most efficient methods of production and distribution, including inner planning and the control of raw materials and markets throughout the world. Concentration is interwoven, both as cause and effect, with a complex system of interdependent institutional arrangements: economic activity becomes more and more collective, more social in its forms. A fundamental change occurs in the objective relations of capitalist production. Ownership and management are separated by the multipHcation of stockholders. Ownership is vested in stockholders who own but do not manage and merely receive dividends. Management is vested in employees who manage but (as a functional group) do not own. The stockholder, beyond the pieces of paper which represent ownership, is

unable to say "this" or "that"

enterprise in

is

"mine."

He knows

nothing of the

whose ownership he has a stake, except its dividend yield and stock market quotations. Corporate industry is institutional or impersonal, an immense objective socialization of production; but the older relations of private or personal ownership and appropriation persist within the newer economic forms. Industrial concentration represents an essentially new mode of production developing within the older social relations of capitalist pro-

But which are a negation of its progressive aspects, the forces of monopoly and finance capital. Socialization of production makes monopoly possible, and monopoly tends to sacrifice efficiency and output in favor of higher prices and
duction, the objective basis of a
social order, of socialism.

new

industrial concentration also develops forces

452
ship

The Decline

of American Capitalism

surplus profits, of speculation and financiering. Separation of owner-

and management permits seizure of control by the financial which imposes its dictatorship over industry. The industrial capitalist combined predatory and constructive functions; the financial
oligarchy,
fied

wholly predatory. Where industrial capitaUsm was identiwith economic progress and upswing, monopoly capitalism is identified with retrogression and decline.
capitalist is

accompanied by measurable exhaustion of means an absolute or relative fall in the output and absorption of capital goods, the basis of capitalist accumulation and prosperity. Restriction of employment in the capital goods industries restricts the creation of mass purchasing power. Consumption moves downward. But the industrial concentracapitalism
is

Monopoly

the inner long-time factors of expansion. This

monopoly capitalism represents an enormous increase Hence both excess capacity and surplus capital mount. These conditions limit the realization of surplus value as profit and its conversion into capital. The rate of profit tends to fall, and sets in motion efforts to overcome the fall. Competition flares up in new forms. It is intensified in the non-monopoly fields; and, since monopoly is seldom complete, monopolist combinations alternate between cooperation and competition, with competition tending to become more destructive. The situation is aggravated as monopoly enlarges its field of control, for monopoly thrives only when it is comparatively limited, only where there is a mass of "free" industries to exploit. As contradictions and antagonisms are aggravated, monopoly capitalism seeks a way out in the export of capital and imperialism. Monopoly, by its very nature, strives to become international, to control foreign markets, sources of raw materials, and investment opportunities. This is not merely a policy of monopoly and finance capital,
tion underlying
in the productive forces of society.

but the expression of a

capital

new

stage of capitalism. In the epoch of up-

when the output and absorption of goods moved upward, the emphasis was on the export of goods; in the epoch of decline, of monopoly capitalism, when the outswing, of industrial capitalism,

put and absorption of capital goods moves downward, the emphasis

on the export of capital to offset limitation of inner investment opporand capital accumulation. But, as in the case of monopoly, there are definite limits to the export of capital and imperialism. They
is

tunities

thrive only

when restricted

to a small circle of highly industrial nations;

widens and expansion contracts, the imperialist nations must plunder one another. Hence war inevitably results from the struggle for the economic and territorial division and domination of
as the circle

Summary
the world. Imperialism
is

453
efforts

the

violent expression o the

monopoly capitalism to overcome the limitations upon accumulation, and the resulting tendency toward economic decline, by exploiting the
outer, the international long-time factors o expansion.

These

eflForts

are only partly

and temporarily
interest

successful,

and they

eventually strengthen the elements of decline.

The
on

export of capital

becomes more and more an export of

markets with reinvested
profits,

existing foreign in-

vestments. Imperialist finance capital increasingly operates in the world

independently of the needs of the

no longer stimulated by an export of capital identified with the export of goods. Dominated by an alien monopoly and imperialism, the development of economically backward countries is distorted and hampered by the mere fact of domination and by the
is

home economy, which

pressure of the decline of capitalism.

The

outer long-time factors of

This reacts and aggravates inner decline, sharpens imperialist antagonisms, and multiplies the burdens of armaments and the dangers of war. Underlying the decline of capitalism, and the desperate imperialist eflforts to overcome it, is the objective clash between older and newer relations of production. From a social-economic viewpoint, monopoly capitalism and imperialism are the transition to a new social order; from a class-economic viewpoint, they are an effort, by the dominant capitalist interests, to prevent the birth of that order. This sharpens both economic contradictions and class antagonisms. The clash between the old and the new, under the conditions of capitalist decline, is no longer "softened" by the upswing of capitalism and prosperity. Class lines become more rigid and class differences more acute. The mass of the farmers, exploited by monopoly capitalism and imperialism, are thrust downward to the level of an American peasantry. Large elements of the middle class, particularly small businessmen and proexpansion are quickly exhausted (on a
capitalist basis).

fessionals, are objectively proletarianized,

deprived of their occupations

force
is

and property. The working

class,

whose driving

the industrial

proletariat, the specific creation of capitaHst production, is

tormented

by disemployment and lower standards of

living. Class struggles be-

come more violent, develop new forms and objectives. As capitalist decline makes it impossible to adjust class antagonisms peacefully, by balancing one interest against another, a struggle for power arises, for the power to decide what shall be done with the economic order. The
interests of the capitalist class are identified

with repression of the

new

relations of production,

The

interests of the

moving backward to reaction and stagnation. working class are identified with liberation of the

454

The Decline

of

American Capitalism

new

relations of production, moving onward to progress and socialism. Incapable of an independent historical policy, the farmers and the

exploited groups of the middle class must accept either the reactionary pohcy of the capitalist class or the revolutionary policy of the working
class.

PART EIGHT
The
Struggle for

Power

Introductory

JtLcoNOMic
with the

forces

institutions

and

their

ideology

are

interlocked

class relations of society.

In any society based on private

property the relations of production

mean

the domination of a par-

ticular class ruling over other classes.

Economic contradictions and

antagonisms, and economic development in general, are expressed in

class interests
is

and
its

class struggles.

The

focal point of the class struggle

the state, for

force

is

necessary to realize class interests.

Thus

the

power: to maintain or secure control of the state to decide the issues created by class-economic contradictions and antagonism. Neither economics nor politics are intelligible without reference to class relations and the balance of class power. In "normal" times the class struggle is comparatively peaceful and
class struggle is a struggle for

the struggle for

power mainly
state,

potential.
all

The
It

ruling class

is

solidly

entrenched in the

supported by

the institutional

and

ideologi-

cal relations arising

out of the existing order.

this is

may

be forced to

make

temporary or minor concessions; but

tinuance and consolidation of
its

compatible with the con-

power
its

for three reasons: the ruling

class still represents at least the possibility of

economic progress and,

by and

large,

still

"delivers the goods,"

its

concessions blunt the edge of

opposition and strengthen

institutional

the ruled classes are neither desperate

to initiate a revolutionary struggle for

and ideological supports, and enough nor conscious enough power. When American capi-

talism was on the upswing, the struggles of the agrarian, middle class, and labor radicals were easily smothered by a policy of concessions and suppression and the hope of better things. But this has its limits. While the ruling class is strengthened, it is at the same time undermined by social-economic forces which eventually produce a decline and crisis of the system. Dominant institutional and ideological relations begin to crumble. The ruling class no longer represents even the possibility of economic progress: it no longer "delivers the goods." Hope of better things is replaced by bitter disillusion. Concessions are more difficult to make and do not satisfy, for they are limited by economic decline and the interests of the ruling class. Class struggles become more intense and explosive, more conscious of goals and means. As classes

457

458

The Decline
it is

of

American Capitalism
The
struggle for
clear that the real struggle

mobilize and fight, issues are

the order of the day, for
the old order

clarified.

now

power becomes is between

and the new, and their class representatives: i^., in conand socialism, the capitalist class and the working class. This struggle absorbs all other issues and classes. The emerging struggle for power is being shaped by three major
temporary
society, capitalism

developments:
1.

The

cyclical crisis: its

unprecedented

severity,

bound up with an

important qualitative change in the character of depression, profoundly

disturbed institutional and ideological relations.
2.

The

crisis

of prosperity: the inability to restore prosperity

its

on any

considerable scale, with

terrible

consequences in disemployment,

lower standards of living, and the resort to imperialism and war, means

and ideological disturbances of the depression and more conscious class struggles. 3. The crisis of the capitalist system: Both the severity of the depression and the inability to restore prosperity on any considerable scale are aspects of the decline of capitalism. Capitalist relations are no longer compatible with the development of the forces of production, they now mean an absolute limitation of production. This clearly reveals
that the institutional
will be transformed into sharper

the transitory, the relative historical character of the capitalist

mode

of

production.

It is

a crisis of the system

itself,

whose only

possible out-

come

is

socialism or economic
crisis

and

cultural decay.

This

of the system compels the intervention of the state

the

state of the ruling class.

terest," for

Although it claims to act in "the public inthe people, society, and nation, state capitalism is really an
it

expression of the class struggle, of the efforts of capitalist interests to

maintain their rule and the system

of the
state

represents.

One

liberal apologist

NRA

unwittingly gave the case away in justifying the resort to

capitahsm:
old economic forces
still

"The

work and
to

they do produce a balance

it

after a while.

and they crush so many on the social system becomes intolerable. Leaving economic forces to work themselves out as they now stand will produce an economic balance, but in the course of it you
But they take so long

do

men

in the process that the strain

may have
to death."

half of the entire country begging in the streets or starving

^

Consider the significant words: the strain on the social system be-

comes

intolerable. It does,

endangering the

capitalist system:

hence the

intervention of the state. But why, in the past, did not "leaving eco-

nomic

forces to

work themselves out" produce an

"intolerable social

Introductory
strain"
?

459

Because capitalism was on the upswing, had not yet exhausted the possibiHty of economic progress. Now, with capitaUsm on the deit means milUons "begging in the streets or starving to death." Only an economic balance on a lower level can be produced, in spite of state intervention. For the measures of state capitalism are not in-

cHne,

tended, as other

NRA

apologists claim, "for the primary purpose of

providing

employment with adequate purchasing power," " but to bolster up the old order, aid it to function on a profitable basis, maintain capitalist domination: precisely the factors which are responsible for the crisis. Because of economic decline and the class
full

nature of the state, any possible "economic balance" is necessarily accompanied by disemployment and lower standards of living. Behind the compromises, concessions, and pretenses of state capitalism is the ruthless determination to maintain capitalist supremacy. This aggravates the crisis of the system and arouses constantly greater opposition. The capitalist struggle to maintain power is answered by the revolutionary struggle of the working class to conquer power.

CHAPTER

XXIII

Prosperity and Capitalist Decline

EcovERY and prosperity must be on a lower level. From an economic viewpoint, this means the exhaustion of the progressive forces of production on a capitalist basis; from a class viewpoint, it means that capitalist domination prevents a reorganization of industry which would insure an upswing of production and consumption. The resulting class-economic crisis is an expression of the decline of capitahsm. This depression (and all the European post-war depressions) is quantitatively different from its pre-war predecessors in greater depth and duration: in the unprecedented decrease in production and employment and in the agonizingly slow and incomplete character of recovery. The quantitative difference is determined by a qualitative

utmost historical importance: former depressions were an aspect of the youth and upswing of capitalism; depression now is an aspect of its old age and decline. The qualitative difference expresses itself in two major developments:
difference of the
1. The cyclical factors of recovery, while still working, no longer work freely and efficiently: they are now hampered by all the "controls" of "organized" or monopoly capitalism, intensifying the depth

of depression
2.

and postponing recovery.

economic expansion are measurably exhausted (within the relations of capitalist production)
non-cyclical factors of long-time

The

they no longer
prosperity.

contribute

to

quick recovery

and an upsurge of

In every depression a combination of cyclical and non-cyclical factors

is

necessary to initiate recovery and invigorate prosperity.

They permit
react

the revival of production by providing the conditions for the accumulation of capital

on an ascending

scale.

Although they

on one

another, the

two

factors are independent.

They

are,

moreover, affected

by structural economic changes and the prevaiHng stage of capitalism. And where the factors do not combine in the right proportions, accumulation is limited and recovery and prosperity are incomplete.

The

cyclical factors of recovery

depend primarily upon the

free play

of economic forces. This restores (on a lower level) the equilibrium

whose disturbance engendered

crisis

and depression. The

process, as

we

460

Prosperity

and

Capitalist Decline

461

have seen, takes the form of liquidation, which "eases" the disproportions created

by excessive capital and capital claims, production,

is

prices,

and

profits.

Most important

the depreciation o capital

and

capital

claims: their multiplication during prosperity determines the

of crisis

coming

impose upon purchasing power, prices, earnings, and accumulation cannot be supported by production and consumption. Depreciation of capital and capital claims eventually sets in motion the cyclical forces of recovery.* The weaker

and depression,

for the burdens they

enterprises

values. Limitation of production

capital claims; this
efficient survivors,

go bankrupt and the stronger write down capital assets and and depreciation of values reduce

makes more

profitable operation possible for the

within the restricted limits. Prices, particularly the

prices of materials

and
fall

labor, fall to a level

ing and producing.

lated partly

The output
in prices

of capital goods

by the

where they encourage buymoves upward, stimubut mainly by the pressure of unpostoffset the

ponable replacements and the efforts to increase the productivity of

labor with

more

efficient

equipment to

lower level of prices

and

profits.

Production, employment, purchasing power, and consump-

tion begin to rise because accumulation

stage

is

set for

and the an upsurge of prosperity.

rate of profit rise.

The
if

The working

of the cyclical forces of recovery

was

substantially,

not wholly, free in the epoch of competitive capitalism. But capitalist

production, which needs flexibility to "solve" contradictions and re-

spond
bility.

to

new

conditions, increasingly develops elements of inflexi-

These elements are interlocked with industrial concentration and monopoly: with large-scale industry, increasing specialization and
immobility of productive
capital, constantly

higher fixed

costs, control

over markets and output, comparatively rigid and disproportional price

* "Crises are always but
tions, violent eruptions

momentary and

forcible solutions of the existing contradic. .

.

which

restore the disturbed equilibrium for a while.

less

The
it.

equilibrium

is

restored:

by making more or

capital unproductive or destroying

its

The

principal

work

of destruction
. . .

would show
fall

most

dire effects in a slaughtering

of the values of capitals.

The

in prices

and the competitive struggle would

have given

to

every capitalist an impulse to raise the individual value of his total

its

product above

average value by means of

new

machines,

new and improved working

The

methods,

new

combinations, which means to increase the productive power of a certain

quantity of labor, to lower the proportion of the variable to .the constant capital.
depreciation of the elements of constant capital [in addition to

wage

reductions]

would

be another factor tending to raise the rate of

profit.

The

stagnation of production

would prepare an expansion would be run once more

292, 299.

of production, within capitalist limits. In this

. .
.

way
v.

the cycle

under expanded conditions of production, in an exforces." Karl

panded market, and with increased productive

Marx, Capital,

Ill,

pp.

462
structures,

The Decline

of

American Capitalism

and the accumulation o reserves to offset the vicissitudes of the market. The capitalist system becomes both less responsive to changes and more sensitive to disturbances under the "controls" identified with the growing elements of inflexibility. They intensify the
instability of prosperity

(particularly as they are involved with the

higher composition of capital, which lowers the ratio of labor and

wages

to capital

and output, and aggravates the antagonism between

production and consumption). They tend to deepen and prolong

depression because the "controls" interfere with the free play of the
cyclical forces of recovery,''^ prevent the "easing" of disproportions

create

new

ones.

As accumulated

financial reserves permit

and payment

and even dividends, monopolist combinations are able and they resist the fall of prices because of control over competition and markets. Where monopolist combinations go bankrupt, the enormous fixed capital inof fixed costs
to resist the destruction or depreciation of capital;

vestment prevents their going out of business.

Its

control of markets

makes monopoly measurably independent of the compulsion to increase productive efficiency, and lessens the demand for capital goods. As monopoly maintains artificially high prices for materials used by other producers, it hampers their resumption of production on
and
prices

an enlarged

scale.

The

price policy of

monopoly, while

it

does not inintensity of

crease production

and employment

in its

own

field,

tends to decrease

them

in other fields. "Unquestionably the duration

and

the cyclical depression

was

effectively

and

essentially unfavorably in^

fluenced by these [monopolist] organizations."

Prices

may, even where

no monopoly

exists,

lag behind necessary readjustments under the

influence of other forces.

And where prices do move freely, their fall (and the destruction or depreciation of capital) is all the greater and
disastrous because of the lag in other fields.

more

Thus

prices,

which

once were, unevenly and within the limits of more decisive underlying
forces, a "regulator" of production,

now no

longer perform that func-

tion or perform

it

more unevenly. In

this, prices

respond to the limita-

tion and transformation of competition under monopoly capitalism.

The

result

is

that the cycHcal forces of recovery are checked

and

dis-

torted; liquidation goes on, but incompletely

and disproportionately.

Depression
*

is

deepened and prolonged. The forces which sustained

economists
insist

Many
other

bourgeois
relief

that

"fixed"

union

wages and unemployment

with recovery. Unlike
decrease

insurance or
the

are elements of inflexibility

which
instead

interfere

elements,

however,

they
profits

increase

of

consumption

and

production.
opposition,

But they eat into

and the income of the well-to-do. Hence the

which becomes most brutal under fascism.

Prosperity
capitalist

and

Capitalist Decline

463
its

production

now

turn into their opposites and become

antagonists.

During

depression, the

downswing

of production, prices,

and earnto

ings tremendously increases the burden of debt and interest, one of the

elements of

inflexibility.

(In agriculture, where

it

was impossible

burden of interest became insupportable.) The Roosevelt Administration in March, 1933, resorted to inflation to lighten the monstrous load of debt and to stimulate recovery by raising prices. This created new disproportions. While the value of the farmers' interest payments was reduced, industrial
prices
freely, the

limit production

and

moved most

prices rose

more than

agricultural prices.

An

inflationary rise of prices

tends to raise the rate of profit by increasing

money

earnings and de-

creasing the value of interest payments, of other fixed costs, and of

result, however, is mainly a transfer, as earnings mount, payments from one type of investor to another. Prices and profits rose, real wages fell. Price disproportions were not destroyed; relations between one group of prices and another were changed, but prices in general tended to become more disproportional. The inevitable result was reaction and relapse. Production rose in anticipation of higher prices; but, with the exception of automobiles, the larger output was mainly in semi-finished goods. By July the inflationary upswing in

wages.

The

of corporate

production reached
spite of the

its limits; then production moved downward, in and manipulations of the gold content of the dollar, until by November more than 50% of the "recovery" gains had been wiped out.*^ Inflation feeds on itself: if stopped, reaction ensues; if continued, it holds the menace of a social-economic crash. Rising prices,

NRA

inflationary or otherwise,

may

stimulate production for a time, but

substantial

recovery
forces.
. .

and prosperity depend upon more

.

economic

Restoring the "free" play of competition and prices

is

impossible. It

would, moreover, make the situation worse because of the highly complex and delicate relationships of capitalism to-day. Unrestricted liqui* Production

moved upward again from November,

1933

to

March,

1934,

but

regained

less

than half the losses of July-November,

1933. Profits rose, employment

and wages
1926

In March, 1934, employment in manufactures was only 76.4% of the and wages only 59.4%. Even the small gains from November to March were made possible only by the fact that the government poured money into industry
fell.

level

at the rate of

started in the fall of

money.

New

$470 million monthly: exacdy as, in Germany, the small revival which 1932 was almost wholly in industries aided by grants of public York Times, April 19, 1934; John T. Flynn, "Other People's Money,"

New

Republic,

May

9,

1934, p. 364; Robert Arzet, "Hider

20, 1934.

Economy

Calls for

Low

Price System,"

New

York Herald Tribune, May

464

The Decline

of

American Capitalism

dation, always destructive, might now prove catastrophic. In fact, in a prolonged depression, liquidation may, in spite of "controls" and

where dangers multiply. So there form of state capitalism. But the effect of state "controls" is almost wholly negative. While they may temporarily prevent a more serious breakdown, they also hamper recovery by aggravating the disproportions created by the "controls" of monopoly capitalism. State intervention helps to maintain artificial prices, interferes with the destruction or depreciation of capital by granting loans and subsidies to tottering or inefficient enterprises, and insures, in one way or another, interest payments and higher profits.
partly because of them, reach a point
is

a resort to

more

"controls" in the

Thus

the state strengthens the interference of private "controls" with

and property and claims out of line with the existing level of production and consumption. The state's vast resources, financial and compulsive, make it possible to adopt measures which stimulate industry; but, as in the case of the NRA, the stimulus is short-lived and ends in nervous reaction. Nor was this a result of the NRA's incomplete state capitalism. The "controls" of state capitalism in Germany were, up to 1933, the most
the cyclical factors of recovery.
capital

The

structure

income are protected, resulting

in

an "inflation" of

capital values

highly developed in the world, but they did not prevent the depression
or bring about recovery. Fascist "controls"? Conditions
in

became worse

Germany under
offset

fascism; a small revival in production, due to

Hitler continuing the state capitalist measures of former governments,

was

by a decrease in wages and an increase in forced

labor,

with an economic catastrophe

consolidation, Italian fascism

as the final result. After five years of

was

helpless

when

the cyclical storm

burst in 1929-30; conditions afterward were at least as bad as in

other countries (with

more

of the burdens thrust

upon

the workers,

deprived of the right of independent organization and action).

The

"controls" of monopoly, state capitalism,

results,

and fascism do not

work, or produce disastrous

because they are a compromise

between the old and the new. They represent a departure from the
relations of capitalist production within the limits of those relations:

one interferes with the other. set forth by Sir Arthur Salter

An

aspect of this contradiction is thus

"We
of both

have, in our present intermediate position between these

lost

two

systems ["competitive" and "planning"],

many

of the advantages

and

failed to obtain the full benefits of either.

Without securing
official

the advantages of deliberate planning,

we have enough

control
adjust-

and private privilege and monopoly

to

impede the automatic

Prosperity
ments.

and

Capitalist Decline

465

From

this

worst of both worlds

we must

certainly escape."^

Salter recognizes the contradiction without realizing its implications.

Something much deeper than "competitive" and "planning" systems are involved: an objective clash between two economic systems, capitalist individualism and socialist collectivism. The cyclical factors of recovery depend upon economic individualism, the basis of capitalism; but industrial concentration means economic collectivism, an implicit
aboHtion of capitalist production within the relations of capitalist production itself. Hence the old factors no longer work freely and efficiently; repressed

by economic collectivism, they are distorted by the

monopoly and state capitalism, which are merely classeconomic efforts to overcome the contradictory and antagonistic results of the clash between old and new forms of production.* More than
"controls" of
*

Depression

is

class-economic
capitalism.

efforts

deepened and prolonged also by imperialism, another expression of to overcome the contradictions and antagonisms of monopoly

Imperialism

makes prosperity more unstable by making

it

increasingly

dependent upon the world market, which becomes more unstable because of imperialist
disproportions and antagonisms.

The

cyclical crash of

industrial nations, concurrently in the United States

1929-30 came first in the major and Germany. It reacted upon the

world economy, particularly the agrarian lands. Where the prices of agricultural and
mineral products had been falling steadily but slowly before the crash, they
sharply.

now

fell

The world
its

agricultural crisis

became worse. This

crisis

was a

direct result of

imperialism, for
of agricultural

drive to earn profits

on exported

capital stimulated the production

as

and mineral products beyond balanced needs, particularly

industrial

synthetic

raw materials were making highly

lands.

nations

less

dependent upon agrarian

The

disastrous fall in the purchasing

power of

these lands limited their imports.

losses

Foreign trade experienced the greatest absolute and relative

"controls"

in

history.

Import

made

the situation worse. Industrial production

moved more
were
In
hit

rapidly

downfor

ward, particularly in the export industries. Countries which had been borrowing money
to

pay for imports, particularly from the United

1930 the American export of capital
crisis
fell

States,

most

severely,

after

to

zero.

1931

the depression

was

aggravated by the world financial

resulting

from agrarian countries suspending

off the

payments on foreign obligations. Britain was forced

temporarily

gold standard; and while

crisis

overcome in the United

States,

the

financial

burst

with

all

the

greater fury in the spring of 1933, forcing the closing of banks and suspension of gold

payments. Underlying
the

all

these developments are the disproportions

set

among

nations in

world market. One

of disproportions

exist

and develop between the highly

between industry and industry):

industrial nations (analogous to the inner disproportions

they force production and exports regardless of one another.

second

set

of dispro-

portions exist and develop between the imperialist industrial nations and undeveloped

agrarian lands

(a magnified

expression of the inner disproportions between industry

are

and agriculture). These disproportions

greater,

not

new,

but

they

become increasingly
political
crisis

more

acute

and dangerous; they aggravate the economic and

crisis

an-

tagonisms of imperialism, and deepen not only the cyclical

capitalist

but the

of the

system.

Capitalism

is

now
forces
its

threatened

by the world market,

capitalist

with

whose
turn

growth

it

was

interlocked.

The

which sustained

production

now

into their opposites

and become

antagonists.

466

The Decline
or

of

American Capitalism
economic forms calling for
pressure

the problem of complex

collective

"planning" are involved in industrial concentration and monopoly.

For

industrial concentration, with

its

downward

on the

rate

of profit because of the higher composition of capital and

its results,

tends to

ma\e

capitalist

production unprofitable.

The new

collective

forms of production are not merely a negation of

vidualism, they are a negation of profit
itself.

capitalist

indi-

Capitalist "controls"

"planning"

are,

however, an

effort to insure profit

and and accumulation,

Their purpose
is

whose limited conditions

vent transformation of the

are the cause of the

crisis.

not to liberate the forces of production and consumption, but to pre-

new economic forms

. .

into a socialist society.

This

is

the crisis of the capitalist system, a direct result of the forces

.

underlying accumulation and concentration.

Recovery

is

not necessarily quick and prosperity substantial

"controls" interfere with the cyclical factors. Comparatively

trols" existed in 1873-79, Y^^

if no few "con^he depression was both deep and proif

longed. Recovery

may

be slow

the previous overexpansion, the accu-

mulation of
liquidate
tion.

was unusually great: it takes so much longer to disproportions and create new opportunities for accumulacapital,

But the

decisive element

is

the action of the non-cyclical long-time

factors of expansion,

which

affect recovery

and decide the character

all

of prosperity.

Whether

it

takes a longer or shorter time,

that the cyclical factors

an "equiUbrium" and set the stage for an upsurge of prosperity. But the upsurge is not inevitable. For the equilibrium produced by the cyclical factors is necessarily on a lower
of recovery can

do

is

to restore

level

than the preceding prosperity.

It

revives the

demand

for capital

goods, but mainly for replacements. This increases production and the

on a small scale, however, as it does not permit of an asceryling accumulation of capital, the indispensable condition for substantial prosperity. Production, employment, and wages still remain
rate of profit only

low, particularly as the productivity of labor

is

rises.

What

is

necessary

an increasing output and absorption of capital goods made possible by the development of old and new industries: an upswing in the longtime factors of expansion.
of capital goods creates purchasing power (wages, part and profits) which is spent on consumption goods. Production moves upward. This permits of an increasing production and capitalization of surplus value, the making of profits and their conversion into capital. In all pre-war depressions (and in the United States up to 1923) there was always a large potential demand for new capital goods

The output

of salaries

Prosperity

and

Capitalist Decline

467

in the unexhausted possibiHties for expansion o old

tries:

mechanization

handicrafts

or

and new indusincompletely mechanized

agricultural

industries,
electric

building construction, railroads,

machinery,

power, telephone and telegraph, aluminum, rayon, and

many

These industries needed large masses of capital goods, whose production created purchasing power and demand for other goods while they threw no goods of their own upon the market or did so only eventually. (Where goods were thrown upon the market but were wholly new they did not compete with other goods, for their production itself created purchasing power. Where "new" goods supplanted goods formerly produced by handicrafts, the resulting diversion of buying was more than offset by the purchasing power created in producing the necessary capital goods.) The demand for new capital goods was stimulated, in the case of the highly industrial nations of Europe, by the export of capital, /. e., capital equipment, to economically undeveloped regions; and, in the case of the United States, by the large masses of capital goods absorbed in developing the inner continental areas, particularly in urban construction, railroads, and agriculture. As the output of new capital goods began to rise, its creation of purchasing power and demand quickened the cyclical factors of recovery by encouraging the older industries to invest in more replacements; as the output rose still higher, creating more purchasing power and demand, the older industries were forced to invest in new capital goods to meet the needs of larger markets. The resulting expansion of industry as a whole was greater than the rise in the productivity of labor, and was accompanied by higher employment and wages (often, but not always, including higher real wages). More workers employed meant more production of surplus value; more markets meant more reaHzation of surplus value as profit; more output and absorption of capital goods, which embody capitalist claims to ownership and income, meant more conversion of profit into capital. Accumulation was active and prosperity surged upward. The decisive part, accordingly, was played by the non-cycHcal factors of long-time expansion. These factors are identified with the upswing of capitalism. But neither capitalism nor its upswing is eternal, for they develop conditions which exhaust the long-time factors of expansion, limit the accumulation of capital, and set in motion the forces of economic decline. A minor aspect of capitalist decline is the cyclical limitation it imposes upon replacements. In American plants, in the spring of 1934, 20% of the equipment was in a condition of primary obsolescence, but
others.

468
there

The Decline
was no urge
to replace

of
it

American Capitalism
as the

unused capacity was

still

larger,

because of the depth of the depression, the previous overexpansion, and

the disproportions created by incomplete liquidation
recovery. "Until business
until all

becomes much

better," said engineers,

and postponed "and

equipment of a plant needs to be called into production, the new machinery will lag."^ The productivity of labor rose, but mainly as a result of the intensification of labor. Nor was the situation much improved by NRA loans for the purchase of equipment (a repetition of European experience). Replacements may start
installation of

independently of the non-cyclical factors, but only these can

the
substantial

initiate

recovery which

makes

possible

increasingly

larger

replacements.

The major

aspect of decline involves a scarcity of those long-time

factors of expansion

which alone stimulate an increasing output and

absorption of capital goods. This seriously limits the accumulation of

capital.

And

if

the conditions of accumulation are limited, recovery

must be incomplete and prosperity must be on a lower level. Development in the older industries? But the possibilities are restricted by two conditions: the low level of production and consumption and the existing excess capacity. All industries are overequipped,
particularly those with the largest masses of capital equipment.
.
. .

The automobile

industry, in 1932,

had a capacity of

9,000,000

cars and

an output of 2,000,000; * it may reach the 1929 peak, but the industry cannot become the great force for expansion it was in the preceding
years. try
is
.

Nor can
its

electric

power repeat

its

192229 expansion: indusprevents

is

almost completely

electrified, the crisis in agriculture

realization of

electrical

needs, electrification of the

railroads

remote, and an excess capacity already exists of at least 25%, which will be greatly increased by three power projects now nearing completion.^
.
. .

Railroads, one of the mightiest forces of expansion

still

from
in

the 1840's to 1900, were

developing up to the World

War; but
cars

1929 their mileage and the

number

of locomotives

and

were

smaller than in 1919, absorption of capital goods being limited to re-

Nor is there any hope of expansion in the telephone Conditions are worse in the consumption and telegraph industry. goods industries which depend upon mass demand, for this demand can rise only if purchasing power is created by an increasing output and absorption of capital goods and the resulting industrial expansion. Agriculture offers small prospects for any large absorption of
placements.
.
.

capital

equipment, because of the

essential

and limitation of output:

downward movement in exports demand will be limited to more

Prosperity
efficient

and

Capitalist Decline

469
prevented

replacements.

An

upswing

in building construction, in
is

spite of the

low

level of activity in the depression years,

by overexpansion, in relation

to the level of business, in industrial

commercial
could be
.

structures, including

moving

picture theatres

and and garages^

and by the low income of the masses (whose housing needs, if they satisfied, would stimulate construction for years to come). Serious limitations, moreover, are imposed upon expansion in the older industries by the slowing down, if not exhaustion, of industrialization in new or economically backward regions. Development in the newer or wholly new industries? But the possibilities are small: no wholly new industries are in sight, most of the newer industries are comparatively highly developed, and those which are not are either unimportant or are hampered by general economic Radio was already overdeveloped before the depresconditions.
.
.

sion; television

is still

a thing of the future, nor does

.
.

it

ofFer

much

demand
ators

for capital goods.

aircraft in 1929

The

production of mechanical refriger-

employed only 31,590 workers, who received is apt to develop on a large scale. And the development of air transportation can never absorb as much capital equipment as railroads and automobiles. The airconditioning industry, usually considered the most promising, manufactures a product whose use depends primarily upon a high level of prosperity. Factories and commercial buildings will not install the equipment if business is depressed and profits low. "The market in

and

$48,096,000 in wages.'^ Neither industry

the residential field

is

not very promising. Initial costs constitute too

high a percentage of

total

apartment rentals or
to

home

values except in

the highest price classes.

The

industry appears to contain no inherent

it

advantages which might cause

of business during the next

run counter to the general trend

.

few

years." *

Teletypesetters represent

only a small capital equipment; the

is

number

of compositors displaced

greater than the workers

employed in

their production,

and

this is
.

not likely to be ofJset by an upswing in the printing industry.

Factory-built dwellings, in addition to standardizing
ugliness

monotony and
result in
.

and creating large areas of potential slums, will enormous displacement of workers in the building trades.
tralization of industry

an Decen-

makes

is limited by entrenched vested interests; it and reduces railroad freight haulage, and would, moreover, result in a lower demand for capital equipment than the Not only are the prospects meagre of existing industrial set-up.

plants obsolete

new

industries arising,

it

is

very unlikely,

if

they do, that they will

tele-

absorb such large amounts of capital equipment as railroads,

470

The Decline
capital

of

American Capitalism
is

phones, electric power, and automobiles. This

a decisive factor, for

upon the amount of

goods absorbed by new industries depends

the scope of the resulting industrial expansion.

These conditions, imposing serious limitations upon the accumulaany real upsurge of prosperity. Nor can the limitations be overcome by mere technological change. While some urge a moratorium on invention, others urge more invention of capital, exclude the possibility of tion as the

means

to restore prosperity

contradictory counsels to escape

is

contradictions! Indignantly denying that science

crisis,

responsible for the

and ignoring the

social relations of capitalist

its

may

turn beneficent science into

production which malignant opposite, two great

scientists stake their

hopes upon invention. "Science has

made

jobs,

not taken them away," says Karl T. Compton, with Robert A. MilUkan

emphasizing the point: "Every labor-saving device creates in general as many, oftentimes more, jobs than it destroys."^ This was measurably true (allowing for the increase in normal unemployment) only
in the

epoch of the upswing of capitalism, when technology completely

revolutionized the structure of old industries or created gigantic

industries.

new

The

great

demand

for

equipment stimulated the accumula-

tion of capital

and

industrial expansion, with a resulting increase in

employment because production rose more than the productivity of labor. There are no immediate prospects of technological changes developing which might create gigantic new industries requiring large masses of capital equipment. This appeared clearly from reports at a conference of capitalists, scientists, and educators, where the theme
was: "This country
is

not about to pass into a period of stagnation

for "science will liberate

mankind." ^^ But the anticipated technological changes were all minor and in the nature of refinements or gadgets: airplanes powered from ground stations, moving pictures in color, and radio-tape newspapers with "road maps, fashion designs, comic strips for the children, and no end of things, for whatever a pen can portray facsimile radio will handle." Where fundamental changes were anticipated in the technological basis of

which means decay,"

older industries, they would, unlike similar changes in the past, absorb

fewer capital goods than existing equipment, fewer even than mere replacements. This difference between the older and the newer technology profoundly
alters
its

economic significance: technology no

longer tends to revolutionize the basis of old industries or to create gigantic new industries, with their great demands for new capital goods

and the resulting industrial expansion and accumulation. For the immediate future, at least, technological change will mainly

Prosperity

and

Capitalist Decline

471

express itself in piecemeal replacement o old equipment with

efficient

more

This must necessarily mean disemployment. more efficient and profitable only if it is labor saving, if its use displaces more workers than are employed in its production. Displacement was mainly relative in the epoch of the upswing of capitalism because the curve of production and accumulation was upward: displaced and newly available workers were absorbed by
equipment.
is

Equipment

expansion in the output of capital goods and, consequently, the ex-

pansion of industry in general. Displacement

of decline because the curve of production

is

absolute in the epoch

and accumulation is downward: displaced and newly available workers are no longer absorbed by expansion in the output of capital goods, which are now limited to replacements. A prosperity based upon replacements means that depression levels of production move upward, but not much: industry
tends to contract, not to expand.
the productivity of labor rises

The

result is

disemployment, for

more than production.*

What happens when technological progress is not accompanied by an increase in output while the productivity of labor rises, is graphby the flour milUng industry: value output in 1923 and 1929 was the same, but workers decreased from 35,194 to 27,154 and wages from $41,704,000 to $35,409,000, while profits and overhead costs (value added by manufacturing) increased from $162 milHon to $188 million.^^ Technological progress and the productivity of labor
ically illustrated

moved upward during

steel

the depression.

The chemical
number

industries strik-

ingly reduced labor costs; replacement of obsolete equipment in the

industry

means

installing a
oil

smaller

of

more

efficient

machines; a Diesel

locomotive reduces hourly labor costs from

$2.75 to 99c, or 64%.^^

New

equipment increasingly tends to become

ratio of

apparatus and automatic machinery: the resulting higher composition

of capital lowers
costs.
it

still

more the

wages

to profits

and overhead

While, in 1929, the ratio was 36% for manufactures as a whole, was only 26% in blast furnaces, 19.6% in the chemical industries

and 11.6%
capital

(11.1% in alcohol), 19% in gas manufacture, 18.8% in flour milling, in tobacco products.^^ Industry moves toward the lowest
* Agriculture

also

is

limited

to

more

efficient

replacements,
itself.

adversely affecting the

results of the

goods industries and the farming population

Formerly the

intensive

development of agriculture

higher
territory
is

productivity of labor and displacement

were

offset

by extensive expansion in

and markets. The slowing down of

by
the
deliberate

this

expansion and increasing productivity in

1920-30 displaced nearly 1,000,000 persons

accelerated

from the farms.

the burdens.

Now

displacement

or

"planned"

limitation of output.

The

small and poorer farmers, the American peasants, must bear

472

The Decline

of

American Capitalism
to profits

ratios of labor to capital

and of wages

and overhead

costs.

The

other aspects of this movement, of the constantly higher compo-

sition of capital, is the absolute

displacement of labor on a large scale

in-

unless

it

is

offset

by an accelerated accumulation of capital and

dustrial expansion, in

which the

and absorption of capital by the conditions of capitalist

an increasing output goods. Accelerated accumulation is excluded

basic factor
is

decline.

The

situation

is

aggravated,
scientific

moreover, as industry lowers costs more and more through

management (mainly the intensification of labor) and rationalization. This means that a smaller quantity of labor and wages sets in motion the same quantity of fixed capital and a larger quantity of raw materials resulting in

a higher composition of capital without the com-

pensation of an absorption of
labor rises

new

capital goods.

The

productivity of

more than production. Disemployment must increase. Efforts to stimulate the output and absorption of capital goods were largely unsuccessful, in spite of government loans for equipment and

NRA
it

ballyhoo to create credit expansion by forcing bankers to lend and producers to borrow. (As if ballyhoo can overcome the iron pressure of economic conditions!) The NRA, moreover, contradicted itself:

urged modernization of plants, yet

many

of the codes provided for

the prevention of excess capacity. This "planned Hmitation of out-

put" policy, characteristic of the

ism, necessarily

NRA and other forms

of state capitalIt

means

a lower output of capital goods.

may

yield

a higher rate of profit, but at the cost of lower production,

employment,

and wages.

More important were

works make
capital

the efforts to stimulate building construction

by means of a program of public works. All the arguments for public

their starting point the fact that the curve of
is

demand
its

for

goods

downward and

that industry cannot revive by

own

efforts: clear indications of capitalist decline!

"The

policy of public

works," according to one economist,

"is

in

accord with economic

laws, except that the initiative of private enterprise for long-term in-

vestments

is

replaced by an act of the stater But he simultaneously

points out the limiting conditions:

^*

"The

public investments must

first

be supported and later replaced by private investments, or the recovery

of prosperity. In the past construction

Accumulation of capital is the basis was an important factor in the upsurge of prosperity because it represented an accumulation of capital and was identified with long-time factors of expansion. Public works are not, however, essentially an accumulation of capital; this makes
will not develop into prosperity!'

them objectionable

to

the

capitalists,

particularly

if

they are

self-

Prosperity and Capitalist Decline 473 and compete with existing facilities. If the costs of public works are met with issues of bonds, they represent a piling up of capital claims, which are a burden upon government revenues, production, and profits; if with immediate taxation, the situation is worse from a capitalist angle, for not even capital claims are piled up. And inflation as means of payment is dangerous. Public works can aid recovery only if the stimulus they create is invigorated by the working of long-time factors of expansion. But it is because these factors are not working that governments resort to public works. A program of public works might serve useful economic and social ends. But they increase taxation hence the opposition. The opposition is most bitter where the projects are self-liquidating, and particularly if they are dwellings for the masses. Yet at least half the people need better housing, even on the basis of existing low standards of
liquidating
:

"decency."
depression.
tion,

It is

an accumulated deficiency, not simply a result of the

since the period of industrializa-

"American housing, ever

has never reached the lower half of the income groups except

in the

form of low-grade,
^^

inferior dwellings, slums in conception as

well as final result."

The

Public
it

Works Administration

low-cost

housing program, inadequate as

was, was virtually abandoned be-

cause of bitter opposition by realty interests.

Two

conditions

are

necessary to insure better dwellings for the masses: a substantial gov-

ernment subsidy or a substantial rise in wages, or both. Subsidy is realty and other property interests: it would mean more taxation and make existing "homes" obsolescent and unprofitable. And wages are sinking, not rising: embattled capitalist interests ruthlessly oppose substantial wages because they lower the rate of profit. The situation is hopeless: if the workers were unable to secure "decent" housing in the epoch of the upswing of capitalism, the chances are
opposed by
worse than negligible in the epoch of decHne. Where there is some slum clearance, the new houses are beyond the paying capacity of the
workers.
Public works degenerate into mere reUef schemes and are whittled

down to a minimum. Cash relief is replaced by low-paid forced labor. The Civil Works projects were mainly waste: private business interests objected to the competition of useful projects. Of the money voted for
public works, $238 million

was diverted

to naval construction (in ad-

dition to direct naval appropriations in 1929-33 of $235 million), ^^ while housing for the masses was neglected. The Civilian Conservation

Corps enrolled 290,000 persons to work in the national forests at nominal wages: an American equivalent of the German "labor

474
armies,"

The Decline

of

American Capitalism
keep but
little
is

whose workers "get

their

or no wages."

^^

In both cases, moreover, definite miHtarization

tion of the youth for

involved: prepara-

coming slaughters. Actual public works tend to become public buildings and "luxury" highways. This assumes its most revealing and brutal forms under fascism. Of Italian developments one bourgeois observer says: "Fascism has to its credit no great housing schemes to relieve congestion and provide better homes for the working classes. Slum areas have been cleared in order to make room for grandiose conceptions such as the great boulevard running from the Capitol to the Coliseum in Rome or the new park at Santa Lucia in Naples, but no
.

real provision has

In this respect fascist history

brutaHty.
. .

been made for rehousing the population displaced. is one of unrelieved indiiference and

Fascist architectural achievements are to be found in such things as exhibition buildings, palaces for the industrial and other
.

corporations, squares in the principal cities

where the

fascist leaders

can have an auditorium

able post-offices
istic
. .

sufficiently large for their eloquence,

.
. .

innumer-

railway stations

decoration to the material^^

and brutally
is

imperialistic system of fascism."

Nor

this the devil's

work

of lesser breeds outside the law of an

it

"exceptional"
clearly in its

American civilization: ominous implications,

Administration.
.
.

appears clearly, and

still

more

in the policy

and

activity of the

Public

Works

The

decreasing

demand

for capital

goods
in

is

strongly afifected by the

slowing
regions

down
and

of industrialization in new, economically undeveloped

the

downward movement

population growth.

The

importance of the extensive expansion of

dent in the enormous
agricultural

capitalist

production

is evi-

demand for railroad, building construction, and equipment created by development of the inner continental areas of the United States. Population growth provided an increasing mass of exploitable workers and consumers. Development of

new

regions absorbed increasing masses of capital goods, created

new

purchasing power and markets, and stimulated expansion in the older

industries.

Accumulation and production moved upward. Now the in population growth limits the number of exploitable workers and consumers. The slowing down, if not ex-

downward movement

haustion, of industrialization in

new

regions restricts the

movement

of expansion, particularly in the construction

and service industries which absorb large masses of capital but throw no goods upon the market. The result is a falling output of capital goods. Accumulation
is

Umited. Prosperity

is

depressed.

Prosperity

and

Capitalist Decline

475

This slowing

down

of extensive expansion represents an exhaustion

of progressive economic forces.* But only

are regions in the United States,

on a

capitalist basis.

and

still

more

in the

For there world at large,

which lag woefully behind economically: another expression of the uneven development of capitalism. They need construction, electric light and power, transportation facilities, industrial plants. These developments are now hampered, however, by the conditions of intensive capitalist expansion, involving the inner relations

under which

surplus value

is

produced and realized.

The

extensive expansion of capitalist production stimulates the develof large-scale industry

its

opment

and wider markets. Large-scale

in-

dustry, with

higher productivity of labor, permits an increasing

production of surplus value. Wider markets permit an increasing

realization of surplus value as profit.

The

result is

an intensk>e ex-

pansion of
of capital,

capitalist production,

/. e.,

a constantly higher composition

which constantly lowers the ratio of labor to capital and of wages to output, overhead costs, and profits. The gap becomes greater between production and employment and production and consumption. For capital claims mount. An increase in production absorbs fewer and fewer workers, until displacement is absolute. Relative
wages, the share of labor in the proceeds of industry, become smaller.

Markets and output shrink, excess capacity mounts. The production

and

realization of surplus value

Under

these conditions

it

move downward. may be unprofitable to

industrialize par-

ticular regions or to establish particular industries in those regions.

Such development was

composition of
capital,

easier in the past,

when

industry had a lower

with lower capital claims, greater labor needs,

and higher means only

tion of

relative wages.

Now

the higher composition of capital

and only a small distribumass purchasing power. The creation of markets may be ina small

employment

of workers

Exploitable workers

and consumers are further limited by the mass disemployment

is an ironical comment on the Malthusian "law" unemployed and unemployable workers assumes increas-

characteristic of capitalist decline. It

that the surplus population of

ingly larger proportions precisely

ture
is

when
is

population

is

moving downward and

agricul-

choked by

its

own

surplus. It

not a problem of the pressure of population

a

upon
means
prices

limited

means

of subsistence. It

is

problem of the pressure of comparatively

profit.

unlimited means of subsistence upon production, price, and

of subsistence, a result of the higher productivity of labor, tends to force

The abundance of down

But
in

and

profits:

hence production

is

limited

and disemployment and the surplus

its

population increase. Every

mode

of production has
capitalist

own law

of population.

no mode of production except the

does the development and productivity of

industry create a surplus population.

47^
sufficient

The Decline
and

of

American Capitalism

excess capacity prove disastrous. (Industrialization

it

may

be hampered, moreover, by the fact that

to the older regions.)

offers ruinous competition

to

These limitations apply

many undeveloped
to colonial
is

regions in the United States.

They apply

still

more

other economically undeveloped lands: industrialization

and backward

and disproportional
o

partly because of imperialist exploitation, partly

its

because the high composition of capital, with

insufficient creation

employment and mass purchasing power, prevents the development of many large-scale industries on a capitaUst basis.''^ (The limitations are overcome, in the case of construction and service enterprises, by making payment on capital claims with exports o foodstuffs and raw materials; overexpansion results, however, and not only creates a disproportional economy, but
culture
is

responsible for the world crisis in agricapitalism, ex-

and mining.) In the epoch of the upswing of

stimulated intensive expansion;

tensive expansion

they react upon

and

limit

one another in the epoch of decline.

in capitalist expansion

The downward movement

increasing output.
pressed.
falling in
It

means

a decreasing

output o capital goods. But capitalist production depends upon an

Hence accumulation

is

limited. Prosperity is de-

The

results are

lower production, mass disemployment, and

wages

for the workers, a sharpening of the

permanent

crisis

agriculture,

contraction of opportunities for professional people.

means lower standards of living for the majority of the population. While recognizing the importance of capital goods, some bourgeois
insist that

economists

a decreasing
says:

demand may be

offset

by a new

equilibrium.

One

of

them

"There
duction

is

danger of overstressing capital formation and o reaching

the erroneous conclusion that full

is

employment

of the factors of pro-

quite impossible without forever elongating the process o

If it

production.

should turn out that

new
is

investment on any con-

siderable scale should not be in the picture for

may

expect revival to be delayed. But there

if

some years ahead, we no reason to doubt that

drawn
more

* These conditions,

Russia had not overthrown capitalism and had been

within the orbit of capitaUst decline, would have severely hampered industrialization.
Instead,

under

the

dictatorship
case

of

the

proletariat,

industrialization

proceeds

rapidly than

was the

in capitalist

countries

(emphasized during the depression

because of the socialist relations
profit

by falling
of

capitalist

output and rising Soviet output)

of private

production:

abolition

ownership and
free,

and the resulting planned

economy. Only socialism can assure

colonial

rapid,

and proportional industrialization in

trans-

and semi-colonial countries, where imperialist domination, moreover,

forms the struggle of workers and peasants into a struggle against capitalism.

Prosperity
the shift can eventually be
[capital]

and

Capitalist Decline

477

made

to a

new

balance in which production

goods industries would be relatively less significant." ^^ What is, however, the "overstressing o capital formation" but an admission that the accumulation of capital is the driving force of
capitalist

production? Accumulation on an ascending scale

is

possible

only by "elongating" the process of production: more production and

more conversion of profit into capital by means of an increasing output and absorption of capital goods, the embodiment of capitalist claims to ownership and income. The contradictions, antagonisms, and crises produced by an ascendrealization of surplus value,

ing accumulation of capital are

all

aggravated by a descending ac-

still: it must move up or down. What becomes of the unemployed workers under the conditions of a "new balance in which the capital goods industries are relatively less significant"? According to one bourgeois observer: "The manufacture of machinery and industrial equipment and the construction of new plants of all sorts have always employed so large a proportion of the American population that no ordinary reduction in hours could get them reemployed." ^^ Capitalists oppose any real reduction in hours and increase in wages, for that would decidedly lower the rate of

cumulation. For capitalist production cannot stand

profit.

(In spite of

all

the ballyhoo, the

NRA

codes reduced only the

very longest hours, precisely as they "raised" only the very lowest wages.

Of

393 codes,

all

fifty-four.^^

The

but 29 call for weekly hours of forty or more, up to average was probably forty-five hours up.) If the

workers are unemployed, they produce no surplus value. Nor do they consume much. This means a contraction of employment in the con-

sumption goods
surplus value.

industries,

with smaller production and realization of

The

rate of profit

moves downward. Within

offset
still

the

"new

balance in which capital goods industries are relatively

the falling rate of profit
is

less significant"

no longer

by an increasing accumulagoes on, resulting in a con-

tion of capital; as intensive expansion

stantly higher composition of capital

and more downward pressure on

the rate of profit, conditions arise

tending to abolish profit altogether.

The tendency

of capitaUst production to abolish profit arises out of

itself,

under which surplus and converted- into capital. It is value is produced, interlocked with the higher productivity of labor and the abundance it
the accumulation of capital
in the conditions

realized as profit,

creates or is capable of creating.

Accumulation, the making of profit and

the driving

its

conversion into capital,

is

force of capitalist production. Profit is realized surplus value.

47^
Surplus value

The Decline
is

of

American Capitalism

unpaid labor, the appropriation of a surplus product for

which the workers get no payment. Capital is profit converted into capital goods, whose ownership embodies capitalist claims to income. More surplus value is produced by increasing the amount of unpaid
labor of the workers,

more

surplus value
is

is

realized as profit by the

in-

expansion of markets, and more profit

converted into capital by

creasing the proportion of workers engaged in producing capital goods.

Observe, however, the contradictions and antagonisms inherent in the

process of accumulation

An increase in
is

surplus value (other than by exploiting

its rate, i.e.,

more workers)

achieved by raising

lowering the amount of paid labor, or

wages, incorporated in a commodity. This means a higher productivity

of labor, involving a higher composition of capital: relatively fewer

workers receiving smaller

tity

of

relative wages set in motion a larger quanequipment and raw materials and produce a greater output of

commodities.

The
profits.

expansion of markets, necessary for an increasing realization of

is

surplus value as profit,

accompanied by lower prices and higher

of labor incorporated in a

This

is

accomplished by lowering the values of commodities,

decreasing the total

amount

commodity
is

while increasing the unpaid labor, or surplus value. But one result
a relative limitation of
cally

consumption among the workers,

who

numeri-

become

a constantly

more important

factor in the market.

The

conversion of profit into capital means an increasing output and

absorption of capital goods. This throws a constantly greater mass of

commodities upon the market. As the productive forces of society move upward, however, the forces of consumption move relatively downward.

An

excess capacity

is

created,

bound up with

the higher

compofall.

sition of capital,

and

results in the
is

tendency of the rate of profit to

overcome by an accelerated accumulation of capital, involving an increase in the rate (and mass) of surplus value, a lowering of the values or prices of commodities, and an expansion of the market. But as this means a still higher composition of capital, the final result is an intensified downward pressure on the rate
falling rate of profit

of profit.

The movement
antagonists.

is

sustain capitalist production to turn into their opposites

animated by the tendency of the forces which and become its

There are recurrent cyclical crises and depressions, economic breakdowns which represent a relative inability of production to develop further on a capitalist basis. The breakdowns are overcome by accumulation on an enlarged scale. But the moment comes when

Prosperity
this is

and

Capitalist Decline

479

no longer
a
still

possible: the conditions of accumulation are increas-

ingly limited, as every recovery

and upward movement of prosperity

mean

higher composition of capital and an aggravation of the

contradictions of accumulation.

The

relative inability of production to

develop further on a capitalist basis tends to become absolute.

This is the basic contradiction: The more productive labor becomes and the more abundant the commodities it produces, the more important are the workers for the market. But the higher productivity of labor, because of the higher composition of capital, is accompanied by constantly lower relative wages and the displacement of labor: the consuming power of the workers shrinks as the output of industry mounts. The contradiction was partly and temporarily overcome as long as there was an increasing output of capital goods and the accompanying industrial expansion. A constantly larger proportion of workers was engaged in the production of capital goods, the capitalization of surplus value and profit. The consumer demand of these workers created other demand and stimulated the consumption goods industries. Accumulation moved upward and the fall in the rate of profit was measurably overcome. But this is altered by the decreasing output of capital goods, resulting from exhaustion of the long-time factors of expansion, the limitation of mass consumption, and a highly developed industry which cannot profitably use all its existing capacity. Production, realization, and conversion of surplus value are limited. Accumulation moves downward and the rate of profit tends more sharply to
fall.

Now

the

movement assumes

catastrophic forms. Displacement of

labor becomes absolute

and the surplus population grows. The falling rate of profit was overcome by an accelerated accumulation of capital; this involved an increase in the rate of surplus value, or raising the degree of exploitation of the workers, and an increase in the mass

of surplus value, or exploiting constantly

more workers. As industry

employs fewer workers the mass of surplus value must decrease, for there are limits to an increase in the rate of surplus value. Disemployed workers produce no surplus value and limit the accumulation
of capital.

The tendency

of the rate of profit to

fall is

no longer overvalue.
but,

come by more production and realization of surplus does the rate of profit move downward disastrously,
the

Not only
worse,

still

mass of profits tends to shrink. Underlying the whole process of accumulation, with its increasingly abundant output of industry, is a lowering of the individual values of

480

The Decline

of

American Capitalism
is

commodities, as a decreasing amount of labor

incorporated in their

production because of the higher productivity of labor. Prices tend to

become unprofitable, a result of the capitalist drive to increase output, sales, and profits by lowering values and prices. Output, actual or potential, becomes so great that it can be absorbed only by a great increase in consumption, particularly among the workers. But the workers are largely excluded because the abundance is a creation of the higher productivity of labor, which is interlocked with higher capital claims, lower relative wages, and the displacement of labor by mechanical equipment. The whole tendency of capitalist production is to displace workers who consume with mechanical equipment which does not consume. But who is to consume the abundance? The equipment does not. The workers cannot, because of low wages and disemployment.* For the workers to consume more is unprofitable: it means more employment and higher wages, and offsets the "economy"
of displacing labor with equipment.
capitalist

By

its

greed for surplus value

production develops the conditions which increasingly

ma\e

surplus value unrealizable as profit.

or potential, breaks
rate of profit
acts

The

pressure of abundance, actual

down prices and makes them unprofitable. The moves downward disastrously. Capitalist production reagainst abundance and resorts to "planned limitation" of output.

This is the crisis of the capitalist system, arising out of its economic law of motion: the accumulation of capital. For the more it proceeds
the

more accumulation

limits the conditions of

its

being.
its

The more
production

capitahst production drives after surplus value the

more

becomes limited. The more capitalist production drives after profit the more it becomes a will-o'-the-wisp. The more capitalist production drives after the realization of surplus value as profit and the conversion of profit into capital, the

more accumulation tends

to

move

downward.

It is

the final expression of the fact that the forces which

sustained capitalist production

now

turn into their opposites and be-

come

its

antagonists.

As, from the viewpoint of distribution, the

crisis

of the capitalist

system appears as a

crisis

of consumption, the

liberals cry: "Release

the forces of consumption! Let the people

is

consume!" Their argument

thus tersely expressed:

*

The workers

are the fundamental factor in this

is

problem of consumption,
useful

precisely

as production itself

fundamental. Only a release of the forces of consumption

the

among

the

workers can release these forces among the farmers and

class.

functional

groups of the middle

of the

This

is

the direct opposite of the situation in the epoch

upswing of

capitalism.

Prosperity
"It

and

Capitalist Decline

481

seems self-evident that under the set-up of large-scale industry, more is to be gained by the community through low prices, high
wages, and a large production at a small profit margin than by the
contrary policy."
^^

Undoubtedly. But

who

is

"the

community"?

It is

an aggregation of

antagonistic classes dominated by the capitalist class,

are not identical with those of "the

whose interests community." They clash on all

fundamental issues. Production itself creates purchasing power, but it can do so under capitalism only if it also creates profit and permits its conversion into capital. Where the output of capital goods is decreasing and the output of consumption goods is increasing, the policy of "low prices, high wages, and a high production at a small profit margin" works in the direction of abolishing profit altogether. For,
at a particular

moment

in the development of capitalist production, a

condition arises where

profit

it is

no longer

possible to offset a smaller rate of

with a greater mass of

profits, for

the

mass

itself

begins to

shrink.

The

theoretically.

ment

of

to solve

do not Hence the enraged opposition to the "convincing" argumore mass purchasing power and consumption. Liberals want the problem on the basis of the relations of distribution, of
capitalists realize this empirically, if the Hberals

consumption, but these relations are a function of the relations of production: under capitalism, consumption is permissible only if it yields
a profit. In order to maintain profit, capitalism represses not only the

prevailing abundance,

it

represses

still

more

the potential abundance

inherent in industry.
tion
is

The

struggle to release the forces of

consump-

necessarily a class struggle against the class-economic relations

upon private ownership and profit. abundance" involves a struggle between an old and a new social order: capitalist individualism and socialist collectivism. While consumption under capitalism is still individual, production has
of production based

For the

"crisis of

become collective. But collective or social production has so enormously increased the productivity of labor and of industry that its output can be absorbed only collectively, by the socialization of consumption. This is the objective basis of socialism. Only a practically "free" distribution of products, made possible by the abolition of private ownership and profit, can absorb the abundance of which industry is capable
only production for use, not
profit.

The

alternative

is

limitation of
so highly de-

production, mass disemployment, and starvation.

And

veloped are the social forces of production that they not only
tion of products

make
would

comparatively simple the transition to socialism, under which distribuis

in accordance to one's labor, but socialism

482
speedily

The Decline
move
into

of

American Capitalism
distribution
is
is

communism, under which

accord-

an economy where labor has become a minimum in comparison with the mechanical equipment of production, with the resulting abundance and leisure freely and fully consumable by all the people. Capitalism and its class representatives will not release the forces of abundance and abolish profit. They can be released only by socialism and its class representative, the revolutionary proletariat, mobilizing
.

ing to one's needs.* For the basis of

communism

its

own

for the

forces and the forces of the other exploited elements of society overthrow of capitalism. So capitalism resorts to the "planned

limitation" of output to preserve

some measure
is

of profit.

ism, the historical creator of abundance, becomes the

dance. Limitation of production

Thus capitalenemy of abunin

the fundamental objective of the

"planning" of
the

state capitalism

(and fascism). This appears clearly

NRA,

which permits, in the words of the Cotton Textile Code,

"appropriate steps to keep production in reasonable balance with de-

mand." ^^ Every now and then the mills close down to maintain prices and profits. There is no poHcy to stimulate and realize demand. Workers are thrown out of work because of the abundance their labor
creates.

The

results of

"planned limitation" of output are disemployment,

Discontent

falling wages,

and mass misery.

Repression
is,

and

class

action

are

aroused
allies

among

the workers (and other exploited elements, potential

.

of the workers)

accordingly, another fundamental

:

objective of state capitalism (and fascism)

its

to prevent class action

and

development into a revolutionary struggle for the overthrow of capitaHsm. This appears clearly in the NRA, which started with the most liberal pretensions and proceeded to deflate labor: to permit the
imposition of

company unions and

of a

more

centralized authority of

the capitalists over the workers, to prevent and break strikes,

and to

prepare for compulsory arbitration. These developments, and their

promise of sterner repression to come, are aspects of the struggle for

power

arising out of the crisis of capitalism.

is

Nor

a potential revolt of the masses the only danger.

is

tion of production

a desperate shift
United
States,

and

results in

For limitaan enormous

* Socialist construction in the

after the

conquest of power, would be

much
upon

easier

than in the Soviet Union, which inherited a very backward economy.

History thrust a twofold task upon the Bolsheviks.

industrialization (accomplished

by capitalism

They were compelled to concentrate itself in the more highly developed

countries)

simultaneously with the development of socialist relations. This enormously

socialist construction.
states.

complicated the problems of

The

other great complication

is

the

Union's isolation in a world of capitalist

Prosperity and Capitalist Decline

483

aggravation of the contradictions and antagonisms inherent in the

capitahst

economy. Conflicts within the bourgeoisie become sharper-

over prices and competition, over foreign trade poHcy. Agriculture and industry clash more sharply. The limited conditions of production and

consumption, and of profit making, exclude the possibiUty of

itals

all

cap-

surviving. Destruction

and depreciation of

capital proceeds

on an

unparalleled scale: an essential condition of a higher rate of profit

where the mass of profit tends to shrink. The smaller enterprises are hit hardest, and concentration and monopoly grow, but the larger enterprises do not wholly escape. A new equilibrium is created, a depressed prosperity with lower production and mass disemployment.
an extremely unstable equilibrium. The rate of profit tends to fall, as it is maintained primarily by price-fixing and other measures which limit production and consumption. Because of its pent-up forces the capitalist economy becomes more explosive.
It
is

more sharply

Strangling in the abundance of which

capitalism struggles
to

its

productive forces are capable,

more desperately absorb surplus goods and capital.

for expansion in foreign

markets

It is
its

the pressure of abundance inherent in large-scale industry and

tendency to aboHsh profit which force capitaUsm to expansion in

all

foreign markets. This disposes of

the arguments for a "closed

economic system" or AutarJ^ie. As capitalism is strangling in its own abundance, it must export goods and capital to preserve profit and the
rate of profit, to survive as a system.

"closed"

economy would

ag-

gravate

all

the contradictions

and antagonisms of

capitalist production,

tend more strongly to abolish

says an

profit. ("There are no reasons to think," American advocate of Autarkic, "that the world will not get

along

at least as well

under such an economic system as

in the standards of life of vast

it

did under

international capitalism, although the transition will probably be ac-

companied by a lowering

numbersTY^
within the
is,

"closed" system, moreover, under the conditions of the world toif it

day, particularly
British

takes the

form

of, e. g., self-sufficiency

Empire,

is

an

act of aggression against other nations. It

finally, as reactionary as limitation

of production, the alternative to

capitalist "inter-

socialization of

consumption: for the alternative to

nationalism"

is

not an impossible or stagnant Autarl^ie, but the co-

operative, creative internationalism of sociaHsm

and communism. But a "closed economic system" is incompatible with capitalist expansion, and expansion is imperative. So the nations resort to an
.

intensified struggle for foreign markets.

Fascist Italy forces lower

living standards

upon the masses

of workers

and peasants (and lower

484
bourgeoisie)

The Decline
is

of

American Capitalism
While the people
rejects

to stimulate exports.
. . .

eat less bread,

wheat

exported.

Fascist

Germany

Autarkic and struggles

is

desperately against economic isolation.

up, exports are stressed

foreign trade council

set

and subsidized, and living standards among

.
. .

the mass of the people are forced down to stimulate exports. Both Italy and Germany prepare for imperialist conquests, which are urged as indispensable to national well-being. Britain and Japan engage in an open trade war, with the active participation of the governments; other trade wars go on, become fiercer, create the conditions of resort to arms. The struggle for foreign markets is accompanied by more protection of the home markets: capitalist na. . . .
.

tions

want

to sell

more than they

buy.^^

The United

States pursues a similar policy.

... At

first

the measures

of the Roosevelt Administration, concentrating

on

the

home

market,

were greeted as steps toward the "new era" of a "closed" system. But these hopes were rudely shattered when depreciation of the currency was used to strike at Britain and France, the most brutal form of

The next stage was marked by concentration waging trade wars. on Latin America and the Montevideo Conference, directed primarily against Britain. It was a conference of economic vassals dominated by the United States: protests by the Cuban and Mexican delegations were disregarded. This stage was marked by adoption of NRA codes exempting exports from the provisions for "fair" competition, by the demands upon Congress to protect "American manufacturers from the more intense competition of Japan in Latin-American markets and in the PhiHppines," by the recognition that limitation of output in agriculture is no compensation for foreign markets and the American demand for larger wheat export quotas under an international agreement, by more protection of the home market and measures to strengthen the powers of the President for waging tariff wars.^^ The third stage in the development of the Roosevelt Administration was the emergence of a sharper imperialist policy, marked by a challenge to Japan over the exploitation of China and the deliberate use
.

of the

NRA

to strengthen

war
is

preparations.
is

Expansion in foreign markets to-day

imperialism.

necessarily entangled with

circles,

The

conviction

prevalent in reactionary

and

it

may
that

yet develop the "liberal"

and

"labor" ideology of social imperialism,

imperiaUsm

is

the only solution of the

American
crisis

crisis,

the only

and decline of means of restoring prosperity. But the general development of American imcapitalism must necessarily limit the perialism. Other capitalist nations are imperialist and rivalry is in-

Prosperity

and

Capitalist Decline

485

tensified in the struggle for a redivision of the world, while the inter-

national long-time factors of expansion are restricted by imperialism

itself.

International

communism and
a

the Soviet

Union

are

world
of the
seri-

powers, thrust across the path of imperialism.

The magnitude

American economy requires

Britain exported
its

tremendous imperialist expansion

ously to affect prosperity under the conditions of decline. Pre-war

to 50% of its capital and derived nearly 10% of from overseas investments; the United States, in 1923-29, derived not much over 1% of its national income from foreign investment and exported less than one-sixth of its capital.^^ Considering the world situation, it is impossible for the American export of capital, particularly as it becomes mainly an export of interest, to develop on a scale sufficiently large to stimulate an upsurge of prosperity. All imperialism can accomplish is to raise the rate of profit of some

up

national income

monopolist combinations, to aggrandize the financial oligarchs, to prolong the agony of a dying

new

order.

The

price?

social order and prevent the birth of a Mass disemployment and starvation, if on a

lower level, the oppressive burdens of increasing armaments, and the barbarism of a new and greater world war: all strengthening the elements of economic and cultural decline and decay. The decline and decay of capitalism do not exclude a revival of prosperity. For the cyclical movement goes on and contradictions are still "solved" by the alternation of prosperity and depression. But on a lower level: prosperity is more incomplete than formerly, accompanied
slightly

by limitation of production and disemployment, developing swiftly toward a new crisis, while depression is more prolonged and grinding. As in post-war Germany, the upswings are shorter and the downswings longer.
"irritate"

The tendency
by

is

toward a condition of chronic depresof prosperity. Cyclical fluctuations

sion, interrupted

fitful revivals

and exhaust
the decline

capitalism, intensify the crisis

system

for cycles are

now an

aspect of decline

and decay of the and not of growth.

all

Nor do

and decay of capitalism exclude

possibiUty of

growth. There were elements of decline in the upswing of capitalism, but the general tendency was upward; there are elements of growth
in the decline of capitalism, but the general tendency
is

downward.

Decline and growth do not exclude each other, said Lenin in 1916: "In the epoch of imperialism, now one, now another of these tendencies
is

displayed, to a greater or less degree by certain branches of

industry, by certain strata of the bourgeoisie,

tries.

this

and by individual coungrowing more rapidly, but not only is growth becoming more and more uneven, the unevenness is also

As

a whole capitalism

is

486

The Decline
itself in

of

American Capitalism

which are England) ."^^ The forecast is more than fulfilled, with changes which emphasize its truth. Now capitalism is declining more rapidly, with growth becoming more rare and uneven. Now decline and decay are most clearly manifested by American capitalism, the mightiest in the world, which in the pre-1929 post-war period experienced an upsurge of prosperity (with, however, the elements of decline developing on a potentially large scale, most clearly apparent in the absolute displacement of labor and the growth of normal unemployment). More than ever is it a case of dog eat dog. Expansion in particular industries is primarily at the expense of other industries: the eventual result is an intensification of the inner crisis
particular in the decay of the countries
richest in capital (such as

showing

of the capitaHst system, because of the limited conditions of production

expense of other countries: the eventual result

tions of imperialism to-day.

and consumption. Expansion of particular countries is primarily at the is an intensification of the world crisis of the capitalist system, because of the limited condi-

The lower

level of prosperity
It

wages, and standards of living.

ples"

means lower levels of employment, means an increasing misery for the

is

masses. This conception of Marx, abandoned by his reformist "disci-

and ridiculed by the bourgeois economists,

it

a dialetical, not

an

absolute tendency:
torily

does not

move

in a straight line, but contradic-

(among them
misery
is

and unevenly. Marx himself analyzed the opposing forces the labor movement). The tendency toward increasing
interlocked with the surplus population;
it

is

inherent in

capitalist

production

itself,

and

arises

out of the conditions created by

the higher composition of capital, particularly the absolute displace-

ment

of labor

The

industrial revolution

and the lowering of wages. was accompanied by increasing misery

for

the workers because the productivity of labor rose

more than

pro-

was absolute, hours rose while wages and a surplus population was created. In the epoch of the upswing of capitalism the tendency toward increasing misery was checked because production rose more than the productivity of labor. Displacement of labor was primarily relative, wages rose while working hours fell, and some of the worst industrial abuses were wiped out. An offset, however, was the growing surplus population and increasing misery in countries being industrialized and
duction. Displacement of labor
fell,

in colonial lands.

The tendency toward

epoch of

increasing misery resumes

its full

force in the

capitalist decline,

because expansion

is

limited

and the pro-

Prosperity
ductivity o labor

and

Capitalist Decline

487

moves upward while production moves downward. Displacement o labor is now absolute. Disemployment and the surplus population grow. Wages and standards o living fall. Starvation mounts in the midst of abundance. Imperialist wars draw in larger masses of people and become more destructive and agonizing. Out of decline, decay, and misery arises the scourge of fascism, which is capitalism using its vilest elements and means to preserve its mastery. Increasing misery is now not only on a larger scale than in the
earlier stage of capitalism, there are qualitative differences of the ut-

most class-economic importance.

The

increasing misery of the industrial revolution

was accompanied

by economic progress: liberation of the productive forces of society. It was an increasing misery limited to the industrial and agrarian
masses, and
classes.
it

was compatible with

rising standards of living in other

The increasing misery of the decline of capitalism is accompanied by economic reaction: repression of the productive forces of society. It is an increasing misery not limited to the industrial and agrarian masses, for it draws within its orbit large groups of the lower bourgeoisie, the "white collar" workers, and the professionals: technicians, teachers, physicians, intellectuals. Unlike the situation in earlier stages of capitalism, their fate
is

now bound up

with that of the directly productive

workers.

Under the impact of all these developments, dominant institutional and ideological relations break down. The class-economic crisis becomes a class-ideological crisis. Old and new clash more consciously and aggressively. Depressions are now a revolutionary force, for they

mark another
mental
issues,

shattering of the hopes aroused by incomplete

and

short-

lived prosperity.

Thrust into action for elemental rights and on elethe proletariat and its aUies broaden their action under
itself
is

and the opposition of reactionary forces. thrown the ideological influence of the Soviet Union, where socialism is being built up while the capitalist world sinks deeper in the mire of economic and cultural decline and decay. As the crisis sharpens in all its aspects the struggle for power becomes sharper: evasions and compromises avail not, it is either communism and progress or fascism and reaction. Imperialism makes the crisis and the struggle for power international. For the crisis of the capitalist system in the highly industrial nations affects the economically backward lands under their control. More and more the interests of colonial lands clash with those of the
pressure of the struggle

Into the arena of social war

488

The Decline
is

of

American Capitalism

"mother" country. This

particularly apparent in the British empire,

a disproportion of the first magnitude, within whose limits is the monstrous disproportion of the hegemony of Britain, which is shrinking economically and politically. India struggles for independence,

Canada and Australia

nations

increasingly lean

toward the United

States.

Disintegration of the empire arouses the imperialist appetites of other

and prepares

new

struggle for the world's redivision.

As

capitalism declines the ruling class increasingly turns to Caesarism

(whose modern form is fascism), a system which merely levies class independent of economic function or progress: the Caesarian or tribute aspects of imperialism are emphasized and it becomes a major sustaining force of the new reaction. So the struggle against
tribute

capitalism

is

necessarily a struggle against imperialism. Colonial peo-

ples revolt against their imperialist oppressors:

the "race" war, an

class

ideological screen for imperialism,

is

transformed into a

war.

Colonial revolts become part of the struggle for power in the "mother"

country: they react upon and invigorate one another, both aspects of
the world revolution.

The
place,

revolutionary struggle

is

international, as socialism itself

is

in-

ternational.

The immediate forms

of the struggle vary in time and

colonial liberation movements to the direct proletarian power and intermediate forms determined by the stage of the crisis and the balance of class power; but all forms of the struggle are unified by international communism into one offensive for the annihilation of capitalism and imperialism, and for socialism, the only alternative to economic and cultural decline and decay.

from

struggle for

CHAPTER XXIV

State Capitalism, Planning,

and Fascism

>L4APiTALisT production

itself creates

the objective basis of socialism,

It

within the old class-economic relations.

comprises three factors: two

economic and one

class.

The economic
is

factors are the collective

of production (both industrial and, increasingly, agricultural)

forms and the

abundance modern industry

is

capable of producing.

The

class factor

the industrial proletariat, a propertiless class in physical possession

of production

and the

carrier of socialism.*

The

objective forms of socialism are everywhere apparent in the

modern economy. Cooperative mass organization

dustry, collective corporate enterprise
tion

of labor within in-

and its far-flung interests, separaof ownership and management and the collective performance of
all

managerial functions by hired employees:

priation.
scale

these are objective forms

of socialism within the old relations of individual ownership and appro-

This is emphasized by chain stores in distribution and largefarms in agriculture, whose collective forms of activity are undermining what were considered the impregnable strongholds of petty

individual enterprise. Collective enterprise everywhere beats

down

the

individual enterprise

upon which

rest the social relations of capitalist

production.

The

older and the newer economic relations of production are

antagonistic,

an objective clash between two

repressed because
it

social orders.

This clash

appears most clearly and tragically in the abundance, actual or potential,

which

is

threatens to abolish profit. Collective

and their accompanying technical-economic changes, result in an enormous increase in the productivity of labor and the creation of abundance. The abundance makes possible and
forms of production,
necessary the collective or socialist distribution of goods, a socialization
*

The

proletariat

is

the typical functional class created by capitalist industry. Small

producers disappear. Industrial capitalists are replaced by financial capitalists

who

are

wholly predatory and by multitudes of stockholders

function.

who perform no

socially

useful

The
to

increasing industrialization of agriculture undermines the class of farmers

the day

and points

when

the farmer,

as

farmer, will disappear. Another typical

creation are the technical, supervisory, and managerial employees in corporate industry.

But they are not a

masters, will

class,

merely functional groups which,

now dependent upon

capitalist

merge

into the

working

class

under socialism.

489

490

The Decline

of

American Capitalism
mean
its

of consumption

to correspond with the objective socialization of pro-

duction. Capitalism rejects this possibility and necessity: they

own

abolition.
release of the forces of

For
profit

consumption,

its

socialization, requires

expropriation of private ownership and replacement of production for

with production for use new social relations of production. This alone permits full utilization of the productive forces of society, their
:

development unrestricted by
antagonisms they

class interests
is

and the contradictions and

managed as a whole, not as scattered parts disregarding and clashing with one another. Concreate. Industry

integrated,

siderations of private interest or profit interfere neither with production nor consumption. Rational planning of industry
is

possible,

with

aim of meeting community needs. The abundance of industry is released on an immensely enlarged scale.* As this means the abolition of capitalism, it is forcibly resisted by the dominant class interests. There is no mechanical, gradual, peaceful transition to a new social order. The objective clash of the old and the new becomes a struggle of classes, a struggle for power between the classes representing the old and the new.
the exclusive

The
class,

older relations of production are represented by the capitaUst

rallies to itself all

which

the elements of the old order.

To

mainsocial-

tain

its

ascendancy, the capitalist class must repress the forces of pro-

duction and consumption and their onward

limitation of output,
It

movement toward

ism. This throws the whole of society into convulsions, accompanied by

mass disemployment, and lower standards of means economic and cultural decline and decay. The newer relations of production are represented by the industrial proletariat, which rallies to itself all the elements of the new order. Its propertiless condition and collective forms of existence, and the class exploitation with which they are identified, thrust the proletariat
hving.
*

Edwin G, Nourse, America's

Capacity to Produce (1934), p. 429, estimates that in

1929, by utilizing the

labor, the national

19%

unused productive capacity and unused, or unemployed,

distributed,

income might have been increased by $15,000 million; this, if equally meant adding $1,000, or over 50%, to the income of every one of 15,000,-

000 families receiving the lowest incomes

enough

to save

all
its

of

them from poverty.

still
it

But the abundance industry

greater,

is

capable of creating,

if

freed of

capitalist fetters, is

(i)

Nourse's estimate of unused capacity

larger.

is

an absolute minimum, and

is

now, moreover, much

most
efficient available

(2)

Only

a small part of industry was,

is

and

is,

using the

equipment. (3) Equipment

fuller

capable of

still

greater efficiency
science.

by liberating and more planfully directing the technological application of

(4)

Abundance, or

its

purpose,

and more

creative

living,

may

be augmented

by

eliminating the capitalist production of useless, meretricious, and injurious products in

favor of their opposites.

State Capitalism, Planning,

into objective opposition to capitalism.

and Fascism

491

Among

the earliest conscious

manifestations o this opposition

is

the trade-union struggle for im-

proved working conditions and the imposition of minor controls upon the employer in the workshop. It becomes increasingly clearer, particularly as the pressure of capitalist decline

weighs more heavily upon

by

the proletariat (and

its

potential

allies,

the other exploited elements of

society) that the class interests of the proletariat are realizable only

destruction of the older relations of production. This

of

means sociahsm,
is

which the

proletariat

is

the carrier: for the proletariat

the typical

class creation of capitalist production, its propertiless condition deprives

it,

although in physical possession of production, of any property stake

forms of existence are potential But the proletariat cannot reaUze socialism without abolishing itself as a class and along with this the transitional state of the proletarian dictatorship: both are replaced by
in the existing order,

and

its

collective

of the collectivism of socialism.

the

community
Like

of integrally organized producers.

The

struggle for

power aims

to get control of the state or to retain

is

control.

all states,

the bourgeois state

an organ of

class rule

and

suppression, under capitalist control,

enmeshed

in all the class-eco-

nomic and exploiting

control of the state
of the state
:

relations of the existing order.

No

it

must be

forcibly dispossessed.

class gives up Wresting control

from the

capitalist class

tionary proletariat to overthrow capitalism

class,

to destroy

the old

social

makes it possible for the revoluand suppress the old ruling relations and create the new. The
means, of an increasingly forcible
its allies

dominant

capitalist interests use all

nature as the struggle sharpens, to retain control of the state for a

twofold purpose: to suppress the proletariat and

gle for power,
collective

in the strug-

and to augment the economic activity of the state, using economic means to prevent a complete breakdown of the

outworn, decaying, wholly reactionary relations of capitalist production based upon individual ownership and appropriation. Although its ideal was "that government is best which governs
least," capitalism

constantly enlarges the scope and use of state power.

In addition to suppressing the masses and carrying on war, those

indispensables of the class society
state

which

is

capitalism, the bourgeois

More and was required by the coinplex relations and problems arising out of capitalist expansion. The governments of most industrial nations began to "protect" the home market and newly developing industries. Such gigantic enterprises as the railroads called for state intervention in the form of financial aid or government
augments
its

intervention in purely economic affairs.

more

collective state action

492

The Decline

of

American Capitalism

ownership. Ownership came to include other enterprises for various

reasons: their unprofitable character, lack of private capital, as a source
of

government revenue,

in the interests of the

e. g.,

economy

as a whole, or

for reasons of political expediency (as,

municipal ownership of

certain service enterprises). State intervention

was often mandatory

to
if

"reconcile" or suppress,

if

necessary, conflicting capitalist interests,

their embittered clash threatened the class.

The
of

state

intervened to
capitalism:

"regulate"
either

and "coordinate" the

relations

monopoly

by legislation adjusting monopolist combinations to one another and the whole of capitalism, as in the United States; or by promoting
the formation of cartels, as in
state intervention,

Germany. Imperialism meant increasing

profits. Inter-

including the purely economic, to promote capitalist

expansion in world markets and the making of higher

vention was also

demanded by

the increasing complexity of world

economic
enterprise

relations, for capitalist

production thrust

itself

tional barriers.

As

individual enterprise was limited

beyond naand collective

necessary,

began

to predominate, as expansion in particular industries

or in general slowed down,

either

more

state

intervention
to sustain

was

government ownership or regulation,

production and

the accumulation of capital.

In the United States, which started with the most limited of gov-

ernments and

is still

(in spite of developing state capitalism) considis

ered free of the "statism" of benighted Europe, the reality

the defeat of the Jeffersonian idea of

expressed in

government by the Hamiltonian. Agrarian democrats objected to state aid for industry and finance, but not for agriculture and development of the public domain. The American Plan of the 1820's urged legislation and public money to aid capitalist enterprise. Government built canals and aided commerce
with other internal improvements. As industrial capitalism consoli-

powers were enlarged. Class state needed more repressive powers. Congress was absorbed by the tariff and the grants of public money to railroads. An economic foreign policy began to develop, for large-scale industry needed exports. It also needed the breaking down of state lines and concentration of power in the Federal government. From the i88o's on, legislation concerned itself more and more with the trusts and railroads, with "reconciling" warring groups of capitalwith government commissions to "regulate" the increasingly ists, complex forms of economic activity and the class-economic antagonisms it created. During and after the 1900's the economic or "dollar" diplomacy of imperialism flourished like the green bay tree. The
dated
itself

after

the Civil

War,

state

antagonisms became more acute and the

State Capitalism, Planning,

and Fascism

493

Panama

Canal, for which private enterprise clamored, was built by

the public enterprise

and money o the Federal government. Theodore

Roosevelt proposed "administrative control" of industry by the Presi-

NRA!), the merging of monopoly capitalism and the state. The Jeifersonian Woodrow Wilson reaUzed his "new freedom" in the form of more state intervention in economic affairs. During the World War the government "went into business" with a vengeance; after the war, it gave increasing subsidies to shipping and aviation and "aid" to agriculture. Only social legislation and government ownership were neglected in these fields "rugged individualism" insisted state intervention meant "the end" of the republic. "Statism" expressed itself in an enormous bureaucracy increasingly performing economic functions. The term state capitalism was originally used to designate only the government ownership of economic enterprises. But its meaning is much wider and more significant. Government ownership is the least developed form of state intervention in industry, particularly in the United States, where, however, other forms of intervention are highly developed. State capitalism includes all forms of government intervention in economic activity to aid capitalism to overcome the contradictions and antagonisms which increasingly torment its being. The intervention is always within the relations of capitalist property and exploitation, of the subjection of labor to capital. It was necessary, in the epoch of the upswing of capitalism, primarily because the newer coldent (anticipation of the
:

lective

state to "regulate" the increasingly

forms of production called for the more collective action of the complex and sensitive relations of

industry.

The

collective action of state capitalism is

still

more

necessary
itself

in the epoch of
is

decUne because a

crisis

of the capitalist system

collective

engendered by the sharper clash between the newer

forms

and the older relations of individual ownership and and all forms of state capitalism are animated by the necessity and use of the collective action of the state to "strengthen" capitalism and "compensate" the anarchy of production. (But this is, of course, of a limited and predatory nature, as the state is
of production

appropriation. Both stages

itself

entangled in the class-economic relations involved in the anarchy

of capitalist production.)
State
capitalist

capitaUsm had some

upswing.

It

progressive aspects" in the epoch of encouraged and permitted more rapid economic

development. Petty-bourgeois and labor pressure forced the adoption

of reforms: the

minor concessions

of social legislation to "placate" labor in the interests of capitaUsm itself

opposition,

many economic measures

494

The Decline

of

American Capitalism
liberals

but bitterly opposed by the more stupidly reactionary forces. These

aspects of state capitalism

were greeted by many

and the

re-

formist socialists as the progressive unfoldment of a

new

social order.

In

reality, the result

was

a strengthening of

monopoly capitalism and

imperialism, for the progressive measures were merely one small part

which consolidated the newer forms of capitalism and augmented the powers of its state. Many liberals and the reformist socialists still consider state capitalism the progressive unfoldment of a new social order. The theory envisages an "organized capitalism" which leads from monopoly to state capitalism and socialism: the theory of a gradual "growing into" socialism on the basis of the capitalist state. If state capitalism, in the epoch of upswing, had some progressive aspects, it was because capitalist society was still capable of progress and had need of it to maintain itself. But monopoly state capitalism is wholly reactionary, for in the epoch of decline capitalism is capable only of reaction and has need of it to
of a development

maintain
State

itself.

capitalism

develops alongside

of

industrial

capitalism,

not as a separate

subsequent stage.

and monopoly Where, moreover,

monopoly arose out of the underlying progressive integration of industry, monopoly state capitalism arises out of the reactionary necessity of preserving the decaying old relations of production and crushing the new. Production and consumption are repressed. Technological
progress
is

limited

if

not rejected. Public

money

is

wastefully poured

into corporate industry.

(The continuity

of development in state cap-

italism appears in the fact that the Reconstruction

Finance Corporation

was created by the "reactionary" Hoover, not the "liberal" Roosevelt; by December 31, 1932, after eleven months' operation, it had advanced $1,315 million to corporations, mainly banks and railroads.)^ If Congress in the i86o's-7o's

poured public money into the private pockets

of the railroad buccaneers, the country at least got railroads;

gets a small

now

it

and a much larger measure of decline and decay. The tendency of monopoly state capitalism is more thoroughly to merge industry and the state, to make more direct the control of the state by monopoly capitalism. The Iron and Steel Institute was made the code authority under the NRA. "There is no mystery about this code," said one magnate. "It just means that the steel industry is going to be run as it has always been run, only more so." ^ According to the president of the United States Chamber of Commerce, the NRA makes industry "in some measure master of its own fate." ^ But this is accomplished by the intervention of the state, whose powers and
measure of
relief

State Capitalism, Plahning,

and Fascism

495

bureaucracy tend toward the monstrous and all-devouring.

As

eco-

nomic decline
tighter

is

not overcome, an increasingly important aspect o the

of

amalgam

monopoly capitalism and the

state

becomes the

preparation for imperialist aggression and war. This includes erecting

more

barriers

riers of others: in

around one's own nation and breaking down the barFrance they call these efforts a form of "directed
state capitalism, that sturdy old liberal,

economy"!^ Of this aspect of John A. Hobson, says:

as units of

"Staple industries will be organized with state assistance to operate

production and of marketing within an empire which shall

is

be as self-sufficing as

practicable. Tariffs, subsidies, control of in-

vestment, joint industrial councils, and

arbitration

boards will be
it
. .

adapted to

this end.

An

isolated British

Empire, were
.

economi-

cally feasible,

would not be

tolerated by other nations.

The
use,

dis-

crimination
perial

now

practiced against foreigners, the earmarking of imfor

raw materials and markets

exclusive

imperial

are

already arousing indignation in foreign trading circles accustomed to

free access to these resources.

Our empire

possesses something like a

raw materials tungsten, for example which are essential to the efficiency of machine industry. It is inconceivable that foreign nations on the same level of industrial development as Britain should acquiesce in the proposed policy of imperial monopoly or dismonopoly
of certain

crimination."

Thus monopoly state capitalism is wholly reactionary. It means more deliberate and sharper aggression against the newer relations arising out of the collective forms of production and the international character of modern industry. The dominant class interests use a bastardized socialism to prevent the coming of socialism, to "stabilize" the disintegration of the old order. State capitalism is not a form of transition to socialism but the direct opposite.* It is a form of the capitalist
struggle to retain power.

As

a necessary consequence of

its

reactionary nature, state capitalism

develops measures for the "better" control of labor. Government intervenes

more
is

consistently, directly,

and sharply in labor disputes: an

nature of the
exploitation

* Centralization of the proletariat

capitalist

means

of production in the state by the dictatorship of the

not state capitalism.

The
its

class class

state

is

wholly different,

ownership of industry and

to socialism
its

are

abolished,

and
is,

society

moves onward
over,

and communism. State centralization of industry

depending
primarily

more-

temporary,

duration

on

the

dictatorship's

economic

heritage and the speed of socialist construction. Socialism decentralization

means

the utmost of economic

within the limits of unified planning, eventually replacing the state

with the community of the integrally organized producers.

49^
tures to labor.
strikes. It

The Decline
more
It

of

American Capitalism

old policy grows

teeth.

The

NRA

began with "friendly"

ges-

quickly became a means of preventing and "settUng"

strikes,

warned labor against

sanctioned

company

unions,

and government or "corporate" unions akin to fascism. This was the result after nearly one year, according to a liberal exponent of what the NRA "might" be: "The position of organized labor is more uncertain and stands in greater jeopardy than at any time since the Recovery Act became law. Labor may be forced to accept compulsory arbitration within the NRA code machinery. Compulsory arbitration means the abrogation of the right to strike for any purpose. How could it come to pass that a policy admittedly favorable to labor and the rights of collective barthe liquidation of labor
. .
.

moved toward

gaining could result in leaving those rights without effective

safe-

guards?

had no firm labor policy. It has vacillated constantly and has abandoned one principle after another. Early in his term of office. President Roosevelt declared that 'there should be no discord and dispute the workers of this country have rights under this law no aggression is
trouble
is,

The

of course, that the Administration has

now

necessary to obtain those rights.'

if

It is

now
is

quite clear not only

its

that strikes are frequently necessary that the

labor

to gain

rights,

but
. . .

government cannot be expected

to bargain for labor.

The

indecision has already given reactionary industrialists too

much

support. They, too,

want

labor disputes brought under the jurisdiction

of the

NRA code machinery. Undoubtedly this will be the beginning of

itself

a concerted assault

mediately asserts

on organized labor unless the administration imand backs up the rights of collective bargaining and expect

promised labor."

To
class

attribute the reaction against labor to "indecision"

the government to back

up

labor, is a total

misunderstanding of the
itself.

nature of both state capitalism and the state

They must

act against labor. State capitalism proposes to save the old order. It
tries to

"unify" the nation and "balance" class-economic antagonisms

(to "stabilize" capitalist

aggression); the
state, are for it

breakdown and for purposes of imperialist means adopted, because of the class nature of the to merge with monopoly capitalism more tightly, substill

ordinate

all

other classes, and "institutionalize" the subjection of labor.

prevails.

Formal democracy

So

state capitalism

may make minor

concessions to labor, within the limits of capitalist decline, engage in

maneuvers, give "legal" recognition to the rights of labor, speak of

class collaboration.

But the aim

is

increasingly to limit the concrete

strike, to

democratic rights of the workers: the right to organize and

State Capitalism, Planning,

and Fascism

497

act as an independent class, to struggle for a new social order. This is done by government control o labor, creating a whole network of for the (as in pre-Hitler Germany) institutional arrangements

compulsory settlement of industrial disputes and the limitation of independent labor action. The labor policy of state capitalism is an
expression of the capitalist struggle to retain

power

to

prevent labor

developing

its

own

struggle to seize

power.
is

State capitalism's "recognition" of labor

restricted, tends to

put

unions under control of the

browbeating of labor's ingly browbeaten, because only conservative labor leaders are recognized). This appeared clearly in a discussion between William Green,
President of the American Federation of Labor, and General

accompanied by "democratic" representatives (who are easily and even willstate,

is

Hugh

Johnson,

NRA

Administrator, at a session of "critics" where 2,000

in policy;

businessmen were present:

Green: There must be a change

are approved.

minimum wages must

be established through negotiation with employees, before the codes

Johnson

[sharply]:

Have you
:

ever proposed that to

me?

Green

[hesitantly]: I think I did.

Johnson [more sharply] I don't remember it. Isn't it a fact that all codes have been passed on by the Labor Advisory Board and most of them approved? Green [flustered, backing down]: Well, I don't want to get in a controversy over it, but if you said approved by the chairman of the Advisory Board I'd say you were right. What I meant was that, in the primary formation of codes, employers and NRA deputies met with no labor men present. Businessmen's Chorus [belligerently]: No! Johnson [peremptorily]: Each deputy has a labor advisor. Businessmen's Chorus [delightedly]: That's right. Green [wea\ly]: He may be some man employed by the Labor
Advisory Board, but

we

don't regard

him

as speaking for labor.

Businessmen's Chorus [laughing uproariously]:

Why

'^

not!

The courage of the labor representative: "I don't want to get in a controversy"! The contempt of General Johnson and the businessmen! This
is class

collaboration in action.
of
state

...

of the

determine the character economic "planning" with which it is identified. The planning consists merely of more state intervention under the pressure of deepening contradictions and antagonisms, of artful dodges here and there to
class

The

purposes

capitalism

49^

The Decline

of

American Capitalism

prevent the capitalist system from completely breaking down. The fundamental element of the planning of state capitalism is the "planned limitation" of output: it must be that, because the immediate form of expression of the danger which threatens the capitalist system is the abundance which modern industry is capable of creating. Yet this aspect of the problem is wholly overlooked by the most intelligent and
persuasive of the liberal exponents of national planning:

"The
level,

true objective of planning

It is

is

not stabilization at any

in order that

static

but regularized growth.

the full utilization of our powers

of production,

our conend the purchasing power of the masses must be maintained and must expand. Viewed from the other side, then, the objective is the progressive raising of

which are continually growing,

correspondingly.

sumption

may grow

To

this

power and the standard of living of the people to the which our powers of production make possible. Increased production and a raised standard of living must go hand in hand; neither end can be gained without the other." ^ "Neither end can be gained without the other." Exactly. But it is
the purchasing
full extent

extremely naive to expect capitalist planning to accept that as

objective. It

its

"true"

means the suicide of capitalism. For it is precisely the prevention of an upward moving balance between production and consumption, to save the rate of profit from falling disastrously, that causes the crisis and decline of capitalism.
State capitalism resorts to "planning" to save the old order, to prevent

a collapse of capitalism.

The

Hberal ballyhoo for planning urges

it

in

the interest of higher standards of living, the stabilization of production

and employment, and the elimination of

that otherwise capitalism will collapse.

cyclical depressions,

arguing

the purpose

is

the same: save

The approach is different but capitahsm. The Hberal "planners" accept

"though looking forward to a

the fundamental relations of capitaHst production. "Strangely enough,"

observes one

bourgeois economist,

top,' such analyses are by way of showing how the capitalist system can be made to work under appropriate currency and investment controls."^ The liberal

coUectivist organization

with 'control from the

ballyhoo not only accepts capitalist relations but confuses the whole

Thus Dr. Charles A. Beard tries to prove that and inherent in capitalism: "Of inner necessity technology is rational and planful. The engineer must conform to the inexorable laws of force and mechanics. ... As
of planning.
is

meaning

planning

capitalist

technology advances there will be a corresponding contraction of the

spheres controlled by guesswork and rule-of-thumb procedure. This

State Capitalism, Planning,

and Fascism
it is

499

means, of course, a continuous expansion of the planned zone of

economic
even
it.*
.

activity.

Planning
It

is

already here;

inherent in our

technological civilization.
if
. .

would have gone forward inexorably, the Russian Revolution had not borrowed it and dramatized

Our

giant industrial corporations, though harassed by politics,

^

bear witness to the efficacy of large-scale planning."

Technological planning within the workshop

industry. "Technology
tion as a
is

is

as old as

machine

rational

and

planful," but capitalist produc-

whole is economically irrational and socially unplanful. The planning within the workshop is accompanied by the anarchy of production in general. This is also true of large-scale planning within the corporation, which is limited and stultified by profitmaking and monopoly abuses. The contradiction between technological-corporate planning and the socially unplanful character of the capitalist economy becomes another unsettling factor in capitaUst production. The enormous development of American large-scale corporate

most

scientific

planning in 192229 was accompanied by an upflare of unplanful eco-

nomic warfare
* Dr.

in the shape of the

"new

competition," by a sharpening
"There
to
is

Beard drives

home

this

point

about

planning:

nothing Russian

about

its

origin. Indeed, planning of

economy was anathema

to

the Bolsheviks until,

facing the task of feeding enraged multitudes, they laid aside Marx, took

up Frederick

Winslow Taylor, and borrowed foreign technology

the liberal ballyhoo for planning arose out of

save their political skins." But

two

significant, contrasting facts: develop-

ing socialism in the Soviet Union, with

its

planned economy, and the most catastrophic

its

depression in the history of capitalism, aggravating

decline and decay. Dr. Beard,

moreover, cannot

cite

chapter and verse for his assertion that "planning of economy

was anathema

to the Bolsheviks,"
social

which

is

equivalent to saying they rejected socialism.

Lenin spoke of the

planning of production in 1916, before the Bolshevik confirst

quest of power; the Soviet Union from the

limits

began economic planning within the

until the realization

and requirements of the prevailing stage of the revolution,

economy. Nor can Dr. Beard
"laid
cite

of a fully planned that

chapter and verse for the assertion

the

Bolsheviks

Marx

aside."

The

Soviet's

planning

an abandonment of
an unreal free

Marx!

Yet Marx,

while

bourgeois

political

economy was
of
socialism.

idealizing

competition, analyzed the increasing concentration and socialization of production and

scientifically

projected

the planned
to national

economy
its

Where, moreover,
exploitation.")

is

there

any reference by Taylor

aspects of

economic planning? (Lenin accepted the

"refined
cruelty

scientific
is

Taylorism but rejected

of

It

simply
States

malicious to say that the Bolsheviks "borrowed foreign technology."

The United

was once an agrarian nation: it borrowed foreign technology. Cultural borrowing is a universal phenomena. Does Dr. Beard imply that the Bolsheviks, before they began
to

borrow, expected to build socialism without modern technology? Or that socialism

scrap
the

should
forgets

prevailing
continuity.

technology
Socialism

and

start

from scratch? The historian here

of

historical

develops

out
it

capitalism,

builds

upon the

technical-economic basis of capitalism, to which

forms.

imparts

new

purposes and higher

500

The Decline

of

American Capitalism
movement
of

of the contradictions of accumulation, of the antagonistic

production and consumption, profits and wages, by an aggravation

of the socially unplanful character of capitalist production

which en-

gendered the worst depression in American history. The conditions, limitations, and contradictions of technological-corporate planning em-

body the necessity and possibility of unified "national" or social planning of industry. But this, in turn, is an expression of the collective forms of production, of the incompatibility of the socialization of production with the relations of individual ownership and appropriation. Social planning is realizable only by releasing the newer collective forms from the fetters of the older relations, which means sociaUsm. Hence technological-corporate planning cannot, under capitalism, develop into larger unified planning.

Planning

is

proposed to prevent

cyclical depressions;

but these are

inherent in the relations of capitalist production, and the relations

are retained by planning.
cited to prove that "planning"

The American War Industries Board is often may prevent depression. But the Board
It

did nothing and could do nothing in that direction.

tained the economic

merely

ascer-

war

needs, decided

what

constituted "essential"

and "non-essential" industries, determined allocation of raw materials and transportation, and controlled the prices of certain commodities. Profit-making was not interfered with: it was encouraged. The war provided an enormous and insatiable market, which paid largely with paper claims upon future generations, and postponed the coming of the cyclical crisis inherent in the accumulation of capital. But the crisis and depression appeared two years after the peace. State capitalism and its planning were most highly developed in pre-1929 Ger-

many. But they sharpened instead of moderated the

tions
:

cyclical fluctua-

"The two
and

post-inflation cycles appear to

have been most exceptional

first

in their amplitudes of rise

and

fall,

in the shortness of the

. . .

cycle

in the long phase of contraction of the second.

Partial con-

trol of the price

system

may have
^^

accelerated the cyclical

of prices that

were not regulated, and even of

movements the physical volume of

production and employment."

Cyclical disturbances are a condition of accumulation, interlocked

with dl the relations of

capitalist

production. But state capitalism

merely intervenes piecemeal. The

liberal

planners either offer magic

their proposals are

keys, "control" this or "plan" that; or,

when

more

comprehensive, they fight shy of the crucial

issues.

Ten

points are basic

State Capitalism, Planning,

in

and Fascism

50

any program to abolish the economic maladjustments underlying

1.

cyclical disturbances:

Maintain the balance between production and consumption on

Control
profits,
i.e.,

a progressively ascending scale.

2.

determine the amount of the proceeds of

industry needed to produce capital goods (equipment, construction,

public improvements) .*
3.

Control prices, not in the sense of price-fixing or of stabilization,

but to

make

the abundance of industry available to

all

and insure

pro-

portional economic development.

4.

Prevent disproportionate expansion or contraction in the different

spheres of production, in order not to thrown

them out

of gear with one

another; this includes "balancing" industry and agriculture.

5.

Adjust, according to plan, the output of capital goods and con-

sumption goods.

consumer purchasing income of all functional groups and production; abolition, course, of unemployment arising from technical-economic causes. of 7. Make the distribution of income more equal, which means re6.

Increase the

on the

basis of the increase in productivity

leasing the forces of consumption.

8.

Abolish speculation of
Control investment,
its

all

kinds.
flow, according to plan

9.

amount and
all

and

balanced economic needs.

10.

Control and planfully regulate

other phases of the national

* Profit

disappears under socialism. This does not mean, of course, a disappearance

of the production of
tion.

machinery and apparatus, transportation equipment, and construcfactors cease

But these economic

being capital, which

social wealth.

is

merely a

social
is

relation

yielding the

power

of exploitation,
is

and become

What happens

that the

creation of "capital"

transformed into a conscious social apportionment of the labor

necessary to produce the machinery and ipparatus, transportation equipment,

struction in accord with the needs
is

and conand objectives of the planned economy. The process

of
all

stripped of

all

its

exploiting relations,

those

antagonistic

and contradictory
fact

aspects

which produce social-economic disturbances and disguise the

that capital

goods come into being simply by assigning so

"If

much

social

labor to their production.

we assume
The

that society

were not

capitalist,
it

but communist, then the

disguises

money
into

capital

would be
actions.

entirely

eliminated
is

and with

the

which

it

carries

trans-

question

then simply reduced to the problem that society must calculate

labor,

beforehand
utilize

how much

means
lines

of

production and means of subsistence

as,

it

can

without injury for such

of activity

for instance,

the building of rail-

roads,

which do not furnish any means of production or

social production.

subsistence,

or any useful

thing, for a long time, a year or more, while they require labor

and means of produc-

tion

and subsistence out of the annual

But in

capitalist society,

where

social

intelligence does not act until after the fact, great disturbances
II,

will

and must

occur under these circumstances." Karl Marx, Capital, v.

pp. 361-62.

502

The Decline
this

of

American Capitalism

economy which might

create disturbances, including foreign trade.

clear, is abolition of the social relations of

What
capitalist

means,

it is

production to insure creative planning and the ending of

cyclical disturbances.

For

all

the forces of maladjustment

which must

be controlled arise out of the production of surplus value, its realization as profit, and the conversion of profit into capital. Real planning

means
resists.

control of profits in the sense of eliminating them. Capitalism

The

NRA

has become an apparatus for

making higher
prefer

profits.

In England capitalists (particularly the coal barons)

tion

stagna-

and decline

to control of profits. In

Germany and
So the

Italy capitalism

resorted to fascism in defense of profits.

liberal

exponents of

planning dodge the issue of control of profits and investment. Stuart Chase recognizes that control of investment is vital to planning, but
admits that not

much

control can be imposed "without, one suspects,

reaping a whirlwind," and throws up his hands.

casting" information

He

suggests "broad-

on which industries are overbuilt or underbuilt, urges "more careful" allocation of bank loans, and piously insists that "stock values must not pitch up and down like a canoe on the heaving level of market quotations." No more! He drives the point home: "It will be a long day before a planning board can tell a man what
he
shall

do with

his surplus

funds in

this republic,

but his sturdy

individualism might not be outraged if there were an authority to tell him where his money had a chance of securing earning power

over a term of years, and where

would be simply thrown away." ^^ Thus "planning" comes to depend upon making investment more secure and profitable. Investors unite, rally to planning and make more
it is

money! Nothing
secure

accomplished, in the sense of planned prevention

of depression, by telling a

man where

his investments

may

be more

and
is

profitable. Cyclical disturbances are not caused by investors

"throwing away"

their

money. In

fact, in

the welter of contradictions

which

capitalism, unprofitable investment contributes to maintaining

the balance between production and consumption by decreasing profits

or wiping out capital claims but

increasing consumer

purchasing

power.

There are four

distinct,
I.

stages or types of

economic planning, separate and

although merging in one another. They are:

Technical-economic planning within the workshop, either in an

independent plant or in plants under the same corporate control.

This, the most thorough planning under capitalism,
cruelty to workers
is

accompanied by

and

is

hampered by the

profit system.

State Capitalism, Planning,

2.

and Fascism

503

Corporate planning, of which there are three forms.

The

first is

planning within independent corporations: deciding relations

subsidiary plants, determining
sale or

among

and assigning output, organizing the

is

purchase of commodities in far-flung markets, planning ex-

pansion in old or

new

fields.

Another form

planning by the holding

company
is

in control of

many

subsidiary corporations.

The

third

form

the planning involved in the relations of the banks to industry. All

these forms of planning are limited by the conditions of their origin and development. Corporate planning is accompanied by the output of useless goods, excess plant capacity and competition, the ruthless struggle for profits, and the wastes of merchandising. The holding company is primarily an agency for the exploitation of subsidiaries. Banking houses "plan" the flow of capital on a profit-yielding basis, and upset the economic equilibrium by encouraging overinvestment and speculation. Finally, the most highly developed corporate planning is an aspect of monopoly capitalism, which has other aspects intensified exploitation of labor, predatory control by the financial oligarchy, decline, imperialism, and war. 3. National economic planning, all forms of which recognize the limitations of corporate planning. The state, in one way or another, intervenes to aid industry. It is aid, not planning; and it is the capitalist state and capitalist industry. National economic planning assumes difiFerent forms in different countries and in different stages of development. But it is always aid, never unified planning; it becomes all the more necessary the more highly developed is the corporate planning of monopoly capitalism, which is identified with economic decline and decay, forcing greater aid and intervention by the state. There is no attempt to plan the whole national economy, merely piecemeal aid to supplement private capitalist enterprise where its resources or powers are inadequate or it is in a desperate condition. The state cannot plan, for it is enmeshed in the social relations of capitaUst production, and it acts to preserve those relations. Under the conditions of decline, when it becomes more desperately necessary to use collective state action to preserve the relations of individual ownership and
:

appropriation, the planning of state capitalism includes limitation of

output, the lowering of wages,

and

a planned offensive against labor.

Capitalism uses a bastardized socialism to repress the productive forces

of society, to oppress the

working masses,

to prevent the

emergence
release of
capitalist

and
4.

realization of socialism.

the collective forms

Planned economy, the necessary accompaniment of the and forces of production from their

504
fetters,

The Decline
of socialism
is

of

American Capitalism

and communism. In a system of planned economy on the new social relations of production, the socialization of production and consumption. All phases of economic activity are under planful regulation and control, including the unity of industry and agriculture. Production is for use, not profit. A planned economy is possible only after the state power is forcibly wrested from the dominant bourgeois class, only after the dictatorthe emphasis

ship

of

the

proletariat
set in

has

destroyed

the

old

sodial

relations

of

motion the creation of the new. Liberals insist "we should learn" from the planned economy of the Soviet Union, but they separate it from its class-political accompaniments: they want "democracy" and peaceful change, they object to dictatorship. But
production and

planned economy functions in the Soviet Union only because of the

dictatorship of the proletariat, only because the dictatorship has over-

thrown
activity.

capitalism, crushed the exploiters

and prevents

their reappear-

ance, only because the dictatorship permits socialization of all

economic
is

The

Hberals object

^and accept capitalism, which, of course,

disemployment and
Liberals depend

sweet, reasonable, democratic {cf. exploitation, forcible suppression of

strikes, denial of civil liberties,
sults,
all its terrible re-

fascism and

its

suppression of the concrete democratic rights of

.

the workers, imperialism, war)

upon

capitalism, have

faith in capitalism, fly to the defense of capitalism in its

moments

of

danger.

The economic argument

Capitalist industry
is

for national planning

is

overwhelming.

complex, dependent upon the balanced function-

ing of innumerable parts; production and distribution are collective and require collective control. These are the objective conditions of planning. But every major economic development has two aspects, the economic and the class-political, and they are inseparable. The class-political aspect of the objective socialization of production and the
necessity of planning
is

the threat to the property relations of the

dominant

class interests.

So the planning of

state capitalism

proceeds

within the limits and purposes of capitalism.

In addition to planning, state capitalism ornaments itself with the plumes of reformism. The Roosevelt Administration pretentiously proposes a whole series of reforms to realize nothing less than "security"! But when the NRA got into action they talked much about the reforms unemployment and health insurance, better housing, old age pensions, higher wages. Nothing was done. So Roosevelt talked some more about them one year later. Rugged individualism scorned the reforms when capitalism was well; now it is sick, and they talk

State Capitalism, Planning,

and Fascism

505

about them to impose upon the masses. But the conditioning factors
of reform have changed. In the epoch of capitalist upswing, reforms

were necessary and possible because of economic growth; under the

conditions of capitalist decline, they are unnecessary and impossible.

For reforms, with

consciousness
politically.

profits moving downward and mass discontent and moving upward, threaten capitalism economically and
it

Capitalism in decline reacts against reform, as

it

reacts

against progress in general:

and its model dwellings, built by a socialist administration. This monument to reform was battered down by the cannon of the capitaUst state in
its

moves toward the abolition of reform achievements. The workers of Vienna were proud of their

The dwellings were patched But the workers were thrown out. The scum of reaction moved in. State capitalism limits reform to relief, represses the concrete democratic rights of the workers, and prepares their destruction by fascism. It took Mussolini several years to wipe out the workers' gains; it took Hitler several months. Progress under fascism! The fascist overlords no longer speak of reform after they get in power; they speak of the necessity of lower standards of living, of the masses living on Ersatz,
efforts to crush the militant workers.

up.

or substitute, products.

Both the planning and the reformism of state capitalism must fail. But that does not make socialism "inevitable" in the vulgar meaning of the term. Capitalism does not "grow into" socialism, it merely determines the necessary historical conditions, which provide the proletariat and its most conscious, revolutionary elements with the opportunity for
creative action. State capitalism
is

not the transition to socialism but

a reaction against
act,

it,

which,

if

the revolutionary proletariat does not

becomes

a transition to fascism.

No

crisis

of capitalism

is

hopeless,
out''

unless the proletariat

makes

it so.

For capitalism can find a "way

if it

in more oppression of the masses, in war, in decline, stagnation, and

decay, for these do not matter to the bourgeoisie

can cling to power.

will not forever

Socialism

is

inevitable in the long run:

humanity

endure the oppression and decay of capitalist decline, and socialism is the only alternative. But socialism is not inevitable in the short run,

and

of the workers.

and struggles problem Lenin, who combined a passion for scientific analysis of objective forces and possibiHties with a passion for dynamic action, strategy, tactics, and will, said:
this
is

decisive in the practical revolutionary politics

On

this aspect of the

"Capitalism could (and very rightly) have been described as

torically

'his-

worn

out'

many

decades ago, but this in no

way removes

the necessity of a very long and very hard struggle against capitalism

5o6

The Decline
. .
.

of

American Capitalism
is

at the present day.

The

scale of the world's history

later

not reckoned
the point of

by decades. Ten or twenty years sooner or

from

view of the world-historical

of

scale
is

makes no difference; from the point

trifle,

view of world history

this

it

which cannot be even approxiit is

mately reckoned. But

is

just

why

a crying theoretical mistake

^^

in questions of practical politics to refer to the world-historical scale."

The

vulgar conception of the inevitability of socialism merely cloaks

the reformist
capitalism.
proletariat

and opportunist refusal to struggle for the overthrow of Only the revolutionary consciousness and action of the and the understanding, strategy, and tactics of its cominevitabiUty, in theory,
is

munist party maJ{e socialism inevitable.*

Behind the vulgar conception of

to understand the differences

a failure

between the proletarian and the bour-

geois revolutions. Merely the similarities are stressed. (Although, suggestively, not the bourgeois use of revolutionary force

and

dictatorship.)

The development
*
like

of the forms of a

new economic

order,

and

its class

"The

socialist republic will

is

not leap into existence out of the existing social loom,

a yard of calico

turned out by a Northrop loom.

class

architect,

the

working

proletariat

that

is,

the

wage-earner,

figure in the process as a mechanical force

is

Nor will its only possible wage slave, the modern moved mechanically. In other
or
wires.
.

words, the world's theatre of social evolution

the
actors

not a Punch and Judy box, nor are

. .

on that world's stage manikins, operated with

only;
it

The
not

socialist

republic
clearness

depends not upon material conditions

of
vision
to
assist

depends
It

upon

these

^plus

upon a knowledge of scientific socialist economics and sociology alone. It depends upon that and, hand in hand with that, upon an accurate knowledge ... of what I may call the strategy and tactics of the movement." Daniel De Leon, Two Pages From Roman History (1902), pp. 7, 54, 88-89. In spite of much sectarianism and some practical and theoretical shortcomings, De Leon, whose Two Pages Lenin considered a masterpiece, was a great Marxist, creative in his approach to American problems. He
the

evolutionary

process.

...

depends,

stressed the role of a conscious, highly disciplined party as the spearhead of revolution,

and waged ruthless war upon reformist socialism and opportunism. Although he did not originate the idea of industrial unionism as projecting the "government" of the

new

socialist order,

he provided

it

with a thorough Marxist approach and application,

of

insisting

that Engels'

"administration

things,"

after

socialism

abolished

the

state,

could only be the community of integrally organized producers. While Lenin condemned
the idea that the revolution depends

upon organizing
unionism
as

the workers the

basis

100%

industrially
society,

under capitalism, he accepted industrial

"Left"

of

socialist

Communism, An

Infantile Disorder

(1920), p. 31: "Trade unions, very slowly

rather than
trades,

and
craft

in the course of years, can

and

will develop into broader industrial

organizations

(embracing whole industries

and not merely

crafts,

and

professions).

These industrial unions

to

will, in their turn, lead to the abolition of division

of labor between people,

will be able to

the education, training, and preparation of workers

who

do everything."

State Capitalism, Planning,

carrier,

and Fascism

507

transformed the old feudal order and thrust the new class power with an almost mechanical inevitability. While this process goes on within capitalism, inevitably preparing the objective basis of socialism, there are some differences which profoundly afiFect strategy and tactics.
into

The bourgeoisie was tied. From one angle,

a propertied class, the proletariat

this

is

non-proper-

means

that,

while the bourgeoisie merely

replaced one form of property

with another, the proletariat will

abolish property and, consequently, class rule

and

exploitation.
its

But

property was a source of strength to the bourgeoisie,

of weakness to the proletariat.*

lack a source

The

bourgeoisie

owned

the

new

forces of production,

ship piled

up wealth and power

its

for the

maintained
*

political control, the

whose ownerEven while it still new class. nobility came to depend upon the
was the possession
all

"The

distinctive
to
its

mark

of the bourgeoisie

of the material

means
of
. .

essential

own economic
is

system;

on the contrary, the

their

distinctive

mark
.

the

proletariat to-day
sign, the

the being wholly stripped of

such material possession.

The

symptom, the gauge of bourgeois ripeness was

to

ownership of the physical

the contrary,
of the
to

materials essential
proletariat
is

their

own economic

system;

the sign, on

a total lack of all material

economic power

a novel

accompaniment

a revolutionary class. Does this difference establish a difference in kind between the
proletariat

and the old bourgeoisie

as

a revolutionary class?

It

does not. But

it

does

establish a serious difference in the tactical quality of the

two
fire,

forces, a difference that

imparted strength to the former revolutionary forces under

ness to the proletariat.

while

it

imparts weakfor instance,

There was nothing imaginable the feudal

it.

lord,

could do to lure the bourgeois from the path marked out to

Holding the economic

might

power, capital, on which the feudal lords had become dependent, the bourgeois was
safe

under

fire.

All that

was

left

to feudalism to

maneuver with was

titles.

It

bestow these hollow honors, throwing them as sops to the leaders of the bourgeoisie.
. . .

The

self-reliance.

by

social

arm was bound to come down. Wealth imparts strength; strength Where this is coupled with class interests, whose development is hampered shells, the shell is bound to be broken through. The process is almost autostriking
is

matic. Differently with the proletariat. It

to
fill,

a force every
fill,

atom of which has a stomach

with wife and children with stomachs to

and, withal, a precarious ability

to attend to such urgent needs.

Cato the Elder said in his usual blunt way: 'The belly

has no

ears.'

At times

this

circumstance

may

be a force, but

it

is

only a

fitful

force.

Poverty breeds lack of self-reliance. Material insecurity suggests temporary devices. Sops

and

lures

become captivating

the present ruling class to

ing out between the

baits. And the one and the other are in the power of maneuver with. Obviously the difference I have been pointbourgeois and the present, the proletarian, revolutionary forces

shows the bourgeois

powerful by
its

to

have been sound, while the proletarian, incomparably more

afflicted

numbers, to be

with a certain weakness under

fire,

a weakness

that, unless the requisite

measures of counter-action be taken, must inevitably cause the

course of history to be materially deflected."

pp. 58-60.

De

Leon,

Two

Pages

From Roman

History,

5o8

The Decline

of

American Capitalism
to recognize

concessions to

economic power of the bourgeoisie, compelled new economic forces and their

and make
In

class representative.

"balancing" the conflicting interests of nobility and bourgeoisie, the

monarchy represented an increasingly ascendant bourgeois class might compromise with the nobility and the monarchy and yet accomplish its essential purpose, because the possession of the new form of property, which irresistibly became the dominant form, strengthened the bourgeoisie and weakened the feudal class. Thus its ownership of the new forces of production almost automatically made the bourgeoisie the ruling class. But the non-propertied proleabsolute

power.

The new

tariat

does not

own

the economic forces of the

new

social

order.

These are implicit in the

collective character of industry, the basis of

socialism, but industry itself is in the ownership of the capitalist class. Where, under the conditions of monopoly capitalism, ownership is separated from management, the managerial employees and small stockholders are overwhelmingly identified, economically and ideologically, with the dominant property and class interests. The proletariat is in physical possession of the means of production, the source of its revolutionary significance, vigor, and power, but the assertion of this possession is possible only by an ideological transformation and a

revolutionary

act.

There are other

differences.

The

peasants, artisans,

and wage-workers

necessarily accepted the leadership of the revolutionary bourgeoisie in

must carry whole campaign to win over or neutralize the farmers and elements of the middle class. Every revolutionary class must wage war on the cultural front. The university, science, technology, and learning were in general manifestations of bourgeois development, under bourgeois control, waging the bourgeois cultural struggle against the feudal order. But now all these forces, in their dominant institutional forms, are opposed to the proletariat; its revolutionary culture, while it includes many concrete achievements, is necessarily and mainly potential, a culture of revolutionary criticism and ideological struggle, interpreting, clarifying, projecting, capable of becoming dominant only after the revolution, where bourgeois culture measurably conquered while the old class-political forms were still in power. The proletarian revolution, moreover, is much more fundamental than the bourgeois revolution. Where the one replaced older forms of property and exploitation with newer forms, the other annihilates all forms of private property and exploitation. There can be no compromise between capitalism and socialism. Compromise between feudalism and
the struggle against feudalism; the revolutionary proletariat
a

on

State Capitalism, Planning,

capitalism

and Fascism
Capitalism

509
developed

revealed

their

exploiting

identity.

monarchy after whose make-up was transformed by the "new men" who rose to power as a result of the upsets created by bourgeois development, was enriched, particularly in England and Germany, by industrial exploitation of mineral resources on the great landed estates; some of the nobles were even pioneers of capitalist enterprise. An older class adapted itself to the rule of the new, was measurably absorbed into the new system. But capitalists cannot be absorbed into the new sociaUst order; hence there can be no compromise between socialism and capitalism. Capitalist resistance to socialism is necessarily more violent and enduring than feudal resistance
irresistibly in

England

in spite o the restoration o

nobility,

the Puritan revolution.

The

to capitalism.

Proletarian organization, in a sense, corresponds to the bourgeois

ownership of property. The

of capitalist production

proletariat,

organized by the mechanism

itself,

imposes limitations upon the absolute

sway of

capital

by means of organization. But labor organizations turn

action for larger purposes,

into fetters

upon

become entangled with

class,

the limited aims of the aristocracy of labor, are influenced by the eco-

nomic, cultural, and

political

weight of the ruling

develop the

vested interests of a bureaucracy frightened of "disturbing" actions.

an inescapaand conservative leadership of the older organizations of labor, which is a struggle to transform quantity into quality. "Proletarian revolutions," said Marx,
dialectics of the proletarian revolution indicate that
is

(The

ble phase

the struggle against the limited aims

"criticize themselves constantly; constantly interrupt themselves in their

order to

to what seems to have been accomplished in anew; scorn with cruel thoroughness the half measures, weaknesses, and meannesses of their first attempts; seem to throw

own

course;

come back

start

down

their

adversary only in order to enable

strength from the earth,

and again

to rise

him to draw fresh up against them in more

gigantic stature; constantly recoil in fear before the undefined monster

magnitude of their own objects until finally that situation is created which renders all retreat impossible, and the conditions themselves cry out: "Hie Rhodus, hie salta!")^* The proletariat must strike ruthlessly when the moment is favorable; otherwise
its

forces
is

may

break apart, temporarily but

still

disits

astrously, as capitalism

favored by the institutional weight of

if

economic, cultural, and political domination. For

the proletariat,
if it

where the conditions are

favorable, does not seize power,

it

comin

promises with capitalism instead of destroying

(as in

Germany

510
1919), there
is

The Decline
an inevitable

of
if

American Capitalism
temporary renewal and consolidation
is

of capitalist supremacy.

The

proletariat

susceptible to the lures

wiles of reformism, prone to weaknesses

by the conservatism of its avoid and betray revolutionary struggle.

and organizations and

half measures,
their

and hampered bureaucracy, which

offset

But the complicated conditions of proletarian revolution are

by an increasing awareness of purposes and means, which becomes itself a social force.* They are, moreover, dangerous only if they are

They are fatal to moderate and laborism, because these movements are dominated by, instead of dominating, the complex class-economic relations, and reject
not properly understood and evaluated.
socialism

the necessity of creative revolutionary action in favor of the reformism

merges into capitalism because of the economic, weight of the capitalist class. The complications of the proletarian revolution demand the creative initiative and awareness of Marxism. They demand a policy of inflexibility and no compromise on fundamental issues with the class enemy, of balancing immediates and ultimates, of an indissoluble unity of theory and practice. But at the same time the utmost flexibility is necessary in approaching the workers, of moving with them even when their actions are characterized by half-measures and weaknesses, of compromising on issues which do not involve fundamental objectives, of maneuvering in the midst of complex class relations, of combining the immediate needs and struggles of the workers with their larger class interests and purposes. These apparently contradictory but dialec-

which

inevitably

cultural,

and

political

tically

complementary

factors

impose the necessity of an

inflexibly

and disciplined party of the most conscious and militant workers, a communist party which, precisely because it is inflexibly agreed on fundamental purposes and means, can flexibly approach the complex conditions under which the proletariat operates, be both participant in and vanguard of the struggle of the masses, until they rally to the party's final revolutionary program and struggle for power. Monopoly state capitalism cannot work. It merely tries to "stabilize" the conditions of capitalist decline, and makes things worse. The proletariat enlarges its action, becomes more aware of means and purposes, moves toward the revolutionary struggle for power. Capitalism
revolutionary

answers with counter-revolution.

State capitalism
is

itself

a struggle against the proletariat

and

its

potential revolutionary action.

* This subject
is

But

state capitalism

still

clings to formal

more

fully discussed in

Chapter XXVI, "The American Revolution."

State Capitalism, Planning,

and Fascism
and
strike,

511
repres-

democracy; the workers

sion, the concrete

still

possess, in spite o limitations

democratic rights to organize and

openly to

act independently as a class

social order.

As

the economic

and to engage in the struggle for a new and political crisis becomes more acute,

and potential revolutionary action o the workers becomes more threatening. Capitalism reacts by destruction of the conthe immediate
crete democratic rights of the workers: destruction of the unions, of

the right to strike, of the political organizations of labor.

It is

no longer

merely a question of destroying the revolutionary, the communist vanguard of the working class. For the situation is so acute that revo-

on the order of the day; the conservative worker of to-<la\y the revolutionary worker of to-morrow. So capitalism destroys all labor organizations, economic and political, attempts to deprive the worhjng class of all possibility of initiative and independent action. This makes both necessary and possible a united labor struggle. The immediate form of this struggle against the capitalist reaction, which grows out of the underlying conditions of state capitalism and increasingly becomes fascism, is a struggle to protect the concrete
lution
is

may become

class

democratic rights of the workers, to preserve their organizations and independence. Upon this issue the workers are mobilized and

thrown
beyond

into action against the capitaHst offensive.

But

this struggle

must go immediate purposes, must become a revolutionary struggle for power, for the workers' rights are dangerous to capitalism in decline and must be destroyed. Out of the immediate defensive action arise the conditions and necessity of larger offensive action, of the final struggle to overthrow capitalism.
its

of the workers to protect their concrete democratic rights

The

ruling capitalist class

is

a small oligarchy. Its rule needs a social

base in wider mass support.

state capitalism thrusts the

other classes are set in

the oppressive weight of monopoly working class on to more aggressive action, motion by their own oppression. The farmers

As

and middle

class revolt.

Fascism

is

an attempt to use the petty-bour-

geois masses (including the agrarian) as the upper bourgeoisie has

always done, in other forms, to act as a counter-revolutionary mass

force.

But these are

essentially plebeian masses, the decline of capitalism

upon them, and they are desperate. So fascism masks its purposes with anti-capitalist and radical phrases. But the moment it comes to power fascism reveals itself as the dictatorship of monopoly capitalism. All along fascism is financed and supported secretly by the big capitalists; now they step forward and take power, while the pettypresses mercilessly

bourgeois masses are assigned the role of butchers of the opposition.

512

The Decline
resort to fascism
is

of

American Capitalism

The

capitalists

would

prefer to rule by the old

an expression of capitalist desperation. The methods of bourgeois democ-

demand payment and may go beyond "legitimate" purposes, become locusts devouring profits. But bourgeois democracy breaks down. Its concrete democratic rights offer the workers the opportunity for organization and action. The petty-bourgeois masses, the carriers of democracy and formerly held in leash by it, can now be made a mass support of capitalism only by the annihilation of democracy precisely as capitalism now clings to power by reacting against all its progressive forces only by diverting the petty-bourgeois from a struggle against capitalism to a struggle against democracy. This is an important symptom of capitalist decay. Another symptom is the degeneration of the ruling class itself, emphasized by its fascist mobilization of the scum of society, adventurers, gangsters, and degenerates, in a struggle against the new social order. For fascism draws to itself the worst social elements, it makes a cult of cruelty and reverts to Caesarian barbarism.
racy, for while the fascists are their hirelings they

From
1.

a class-political angle, fascism

is

distinguished by three

main

characteristics:

Fascism suppresses the organizational and

class

independence of

the workers.

The "Charter

of

Labor" of Fascist

Italy forces the

workers

into "unions" under complete control of the state, deprives the workers

of the right of collective bargaining, prohibits strikes and other forms

of independent class action.^^ So does Fascist

Germany. But the Nazis

have improved upon the technique of their Italian brethren. The only
"unions" permitted are in isolated company plants, completely separated

from the "unions" in other plants; and all labor relations, including the fixing of wages, are under control of the employer, the "leader" whose "honor" alone limits his actions.^^ Class collaboration!
2.

The

petty-bourgeois masses, the social support of fascism, are

used to secure power and are then increasingly thrust

the level of the workers. Italian fascism weighs heavily

downward

to

upon the pettybourgeois masses. One of Hitler's first acts after coming to power was to abolish independent middle class organizations. Testimony is that "the professional classes are poorer now than before," and "the small bourgeoisie, formerly the most ardent Nazi supporters, are
beginning to resent interference by the
state

in

their private
^^

lives,

while economically their position has not improved."

In

fact, it

has

become worse.
3.

tighter

amalgam

of finance capital and the state, for purposes

State Capitalism, Planning,

and Fascism

513

of aggression against the workers and petty-bourgeois masses and

against other nations. Fascism monstrously inflates nationalism.

war
to-

Underlying these
gether,
cratic
is

characteristics,

and attempting

to bind

them

another: the creation of an ideology to replace the demo-

ideology which

was formerly the moral source

ideology
is

of capitalist

domination. This

new

a complete reaction against the

old, rejecting progress

and deifying reaction. It is an expression of the complete moral collapse of capitalism, one of the most important

symptoms
Fascism
capitalism
(as

of a dying class.
is

not a

new economic

system. Its whole economic policy

is

merely that of
still

state capitalism,

with one important difference: As state clings to formal democracy, it must make concessions

few

as possible, of course) to other classes, to "balance" class in-

terests. Fascism may disregard this necessity because it suppresses democracy and class independence. Contrary to its claims, fascism imposes fewer "controls" upon finance capital than state capitalism,

because finance capital merges more completely into the

this,

state.

Beyond

fascism pursues the state capitalist policy of aiding private enter-

prise, of trying to

onisms of

capitalist

overcome the multiplying contradictions and antagproduction by the collective economic action of

the state, of trying to "freeze" the disintegration of capitalism.

The

"corporate state"

is

merely a disguise for reactionary

state capitalism.

Fascism cannot create a

masses do not represent a

new economic order. For the petty-bourgeois new order, but an older one which monopoly
mode
of produc-

capitalism has destroyed; in so far as they are small producers, the

petty bourgeois are entangled with the survivals of a
tion

which must completely disappear. Fascism, in fact, strengthens monopoly capitalism. The petty-bourgeois masses behind fascism accept the relations of private property, and these relations inevitably produce monopoly capitalist control. Fascism is merely the old order, only more so and without the progressive features which that order
formerly possessed.
It is

capitalism brutal, reactionary, wholly preda-

ideals

power by revival of political forms and which it once opposed with revolutionary vigor. Once in power fascism ruthlessly disposes of the elements within itself which may have taken seriously its anti-capitalist and radical
tory: capitalism clinging to

phrases. It combines openly with the old reactionary forces

repressive apparatus of the state.

and the

depending largely upon the

crisis

More movement
its

or less rapidly but surely,

of the cyclical

and general
Bourgeois

of capitalism, fascism loses

plebeian support in the pettydictatorship.

bourgeois masses, and becomes a

military

514

The Decline

of

American Capitalism

democracy provided a mass support because capitalism was on the upswing and by and large "delivered the goods." Fascism cannot provide a real mass support because capitalism is in decline and no longer "delivers the goods." But as its social support crumbles, including its promises and ideology, and fascism relies more openly upon mere miUtary force, conditions ripen more quickly for a revolutionary
upsurge of the masses.
Fascism, and
Cassarism.

many What was

way

of

its

apologists agree,
It

is

modern form

of

Caesarism?

was

the expression of

Roman

philosophy and a

and decay (which made conquest and rapine a of life). Progressive class-economic forces were exhausted. The ruling class was decadent, unable to rule any longer by the old methods. No new revolutionary class appeared on the social scene. But Caesarism operated in a society which was predominantly agricultural and static, where no class was capable of revolutionary struggle, and no new forms of production thrust insistdecline, stagnation,

ently against the shell of old social relations (except the small begin-

nings of serfdom, a result of slave agriculture becoming increasingly

unprofitable).

The

despairing masses

turned to the other-worldly

it

resignation of Christianity.

Thus

Caesarism could long endure. But

operates in a

eventually crashed.
society,

insistently for release, where a and the revolutionary proletariat and Marxism are organizing, striving, acting. These forces can prevent the coming of fascism, with
its

The Caesarism of fascism new economic order presses

dynamic

threat to civilization

itself.

Fascism

may

temporarily suppress but

cannot destroy them.

the
application to

It is

another challenge to creative Marxism, to

of purposes

communist awareness

and means and

its

purposive

new

problems.

CHAPTER XXV

The

Crisis

of the American

Dream

ILJ NDERLYiNG the class-idcological crisis created by the decHne of cap-

itahsm
crisis

is

a crisis of faith in the old order.

More

concretely,

it

is

of the constituent ideals

which animate the

crisis

faith.

The

ideals of

the

American dream

were
Now

the

trinity of liberty, opportunity,

and progress

becoming, long before the

of the capitalist system, inin practice.

creasingly restricted in scope

and unrealizable

They

lin-

gered on primarily as a cultural lag: for ideals

the

may

social action after the material conditions of their

and aflfect origin are no more.

persist

breakdown

of the ideals

is

startlingly revealed

by the decline

of capitalism.

The

faith of the million-masses begins to crumble.

The
ican

stubborn cultural lag identified with the ideals of the Ameris

dream
it is

proof of their former vigor and measurable

reality.

They

were,

true, ideals

forged in the

fires

of the bourgeois revolution

in Europe, but they acquired greater scope and realization in the American scene because of the frontier and the absence of feudal hangovers, resulting in more favorable social-economic relations for the practice of Uberty, opportunity, and progress. The American dream assumed definite shape and flourished most vigorously in the 1820's50's. An enormous mass of settlers was absorbed by the frontier, creating an agrarian democracy whose independence and rebellious spirit strongly colored American life. Industry developed rapidly, and it was in the small-scale stage which made it "open to all the talents." Restrictions on the right of labor to organize were overthrown. Remnants of semi-feudal tenure in the colonial land system were destroyed. The older aristocracy was breaking down, the new not yet entrenched in power. Free public education was enacted into law, and it measurably included higher learning. The ideals of the American revolution and of Jeflersonian democracy seemed wholly realizable. One bour-

geois historian thus describes the situation:

"Neither an extreme of individualism nor uniformity. Class

tinction

dis-

became less obvious than in earlier days, but it did not quite disappear. There was absent the later bitterness of class feeling. American aristocracy was not a closed caste, and it was everywhere There was so close an approximation firmly linked with the mass.
.

5i6
to

The Decline

of

American Capitalism
political

economic equality to match the

that effort

and

ability

fundamental element of a living was liberty, and all Americans were expected to look forward to becoming their own masters. The agency of the national government was reduced to a minimum. ... To deny that the American system of government would be immediately beneficial if adopted in China was to commit democratic treason; heredity availed not opportunity plus effort would produce anything at once. Free
. . . . .

could raise anyone to the top. ...

men

could be trusted to want what was right and to get

it.

The

dominant and simple belief in equality, the vast demand for labor, and the individualistic conception of government, all reinforced the sentiment that the United States was a refuge for the oppressed as ^ well as an example to the world." The dream had many tawdry elements. Underneath it all, moreover, were many serious abuses. There was the extermination of Indians and the slavery of the Negro. In the South the American dream was
excluded, for slavery prevented
whites."
evils.
its

appearance even
itself,

among
its

"poor
typical

The

factory system

was consolidating

with

Vile

slums disfigured the larger towns.

Political

corruption

and was generally considered an element of "opportunity." Already there was prejudice and enmity against immigrants, whose labor sustained much of the liberty, opportunity, and progress of the older Americans. But the faith was that these abuses would be destroyed, as others had been agrarian radicals and Abolitionists testified to the faith. The hope was, in this new world, that a new social order was being created, moving irresistibly onward to higher things. Of the measurably plebeian democracy impatient, rebellious, against the old and for the new the plebeian Whitman sang:
flourished,
:

The democratic

masses, turbulent, wilfull, as I love them.

Ones-self I sing, a simple separate person, Yet utter the word Democratic, the word En-Masse, It alone is without flaw, it alone rounds and completes
I

all.

swear nothing

is

good

that ignores individuals.

Do

you see who have

left all

feudal processes and

poems behind,

and assumed the poems and

processes of democracy?

Without extinction is Liberty, without retrograde is Equality (Not for nothing have the indomitable heads of the earth been
always ready to
fall

for Liberty).

The
Resist
I leave in

Crisis of the

American Dream

517

much, obey little. him revolt (O latent right of insurrection!

quenchless,

indispensable fire!)
I will

make a song
the

full of

weapons with menacing

points.

My

call is

call of battle, I

nourish active rebelliom.

You who

celebrate bygones

I project the history of the future.

America because you build

for

mankind

I built for you.

But where Walt Whitman beUeved he was singing the future democracy (some "radicals" still do), he was really celebrating an age already passing away in his own lifetime. For the social-economic relations which sustained the ideals of the American dream arose out of the prevalence of small independent property and the comparative ease of its acquisition. The middle class was ascendant; it was not restricted by survivals of feudal aristocracy, ideology, and political power. The workers were few and largely composed of skilled artisans; if they owned no property, they were convinced it was within their reach. The farmers were the largest class, independent, impatient of restraint, animated by a definite, if parochial, spirit of revolt. It was essentially the petty-bourgeois democracy of early capitalism, invigorated by the absence of feudal hangovers and the constant rebirth of the frontier (the small independent farmer is himself a petty bourgeois). But the development of capitalism is conditioned by the annihilation of independent property: an objective socialization of industry which assumes the capitalist form of concentration of ownership in a small predatory class. Whitman saw this development without appreciating its significance; in fact he greeted "the almost maniacal appetite for wealth, the immense capital and capitalists" as "parts of amelioration and progress, needed to prepare the very results I demand." The makers of the American dream, by and large, crudely admired material progress, possessions, wealth. Yet these forces destroyed the conditions of petty-bourgeois democracy, limited or altered

the ideals of the

American dream, and strengthened

its

more tawdry

elements.

The onward sweep of industrial capitalism, which consolidated its power during the Civil War and after, transformed social-economic relations. Out of the middle class arose the great industrial capitaUsts;

5i8
the class

The Decline
was
thrust

of

American Capitalism
a "class" of small business-

downward, becoming
and

men

struggling for survival, functional groups dependent

parasitic elements nourished

upon

large-

scale corporate industry,

by the purely

speculative

and predatory aspects of

jobs,

capitalism.

The workers became

Agriculture was

industrial serfs; instead of independent property, the great objective

now was

higher

wages,

and

lower

hours.

mastered by industry; the farmers were steadily deprived of their classeconomic independence, ground down by capitalist exploitation, land speculation, and an increasing tenancy which gradually lost its character of climbing

up

the agricultural ladder.

The
1880,

frontier

began slowly
1900.

but inexorably to close: measurably by

Before
this,

completely by
its

a fundamental change in the frontier altered

really

significance.

There were built up an

two

frontiers.

The

older frontier, before the 1850's,

agricultural

essentially

self-sufficing

economy;

it

was a

driving democratic force, destructive of class stratification, creating an

way of life.* The newer frontier, after the was increasingly dependent upon the economy of market and price; it was essentially a force in the extensive expansion of capitalist agriculture, mining, and industry, resulting in conditions destructive of the old ideology and way of life and consoUdating a new class stratification. For agriculture sustained the development of capitalism in the Western regions, which made farming a business, destroyed its independence, and converted the new regions into provinces, if not direct
ideology and representing a
1850's,

domains, of industrial and finance capital.f

Developments
of the
tice,
*

after the Civil

War

constantly restricted the reality

pracspirit

American dream: its ideals disintegrated, were limited in or assumed a different character. Most of the libertarian
still

They

talk, to-day, of
is J.

farming

as a

way

of

life,

although

it

has long since been

a business

and

being ruined by the decline of capitalism.

t Frederick

Turner was the

first

historian

to

analyze

the

significance

of

the

American

frontier.

But Turner, The Frontier in American History (1920), oversimplified

is

the picture by neglecting the conditioning class-economic relations. This

his analysis of sectional struggles,

also true of

which

at

bottom were

class

struggles.
it

The
is

frontier

and
of

sections

were important

peculiarities of

American development, but

to class relations

impossible

to grasp their full significance

without relating them

and the onsweep

the

industrial

and monopoly capitalism. The

it

frontier
to the

contributed

to

shaping

of

the
ture

American dream;

contributed

still

more

development of
temporary and
life

capitalist agricul-

and industry, which reacted against the dream. Turner and

animating American

his successors
past,

were not

satisfied to consider the influence of the frontier as

it

but projected

into the future as a "spirit"

still

and creating a new national

of

unity.
its

But the frontier and the dream passed on; monopoly capitalism remains, with
stratification,

class

economic decline and

crisis,

and reaction against the

ideals

the

American dream.

The

Crisis of the

American Dream

519

was increasingly replaced by insecurity. Class lines began to harden and government to usurp more repressive powers. Individualism was submerged, except for the freedom granted to capievaporated. Independence
talist

buccaneers, as a constantly greater proportion of the population

direct

became

employees or general dependents of large-scale corporate

to survival or slightly

industry dominated by the financial oligarchy. Opportunity for the mass

was more and more limited

within the
faith in

improving one's

lot

new

institutional set-up.

The dream became

primarily a

mere material progress; its old cultural promise was destroyed. But the dream was still vigorous and profoundly affected American life, mainly because of cultural lag, partly because there was still progress in many directions and capitalism, by and large, still "delivered
the goods."

is stubborn. But it now any in the past. For former crises did not shatter the dream; they merely destroyed some of its ideals, increasingly limited the realization of others, and gave still others new, if vulgar and unsatisfactory, forms of expression. Material progress and reform helped to sustain the dream's cultural lag; but these very forces

The American dream

lingers on, for the lag

experiences a crisis

more

serious than

(the one ending in

monopoly capitalism and imperialism, the other

which turns the American dream

making them

acceptable to the mass of the people) prepared the con-

ditions of the decline of capitalism,

into a nightmare.

of the

For now capitalism is not merely limiting or vulgarizing the ideals American dream. It is in direct revolt against them. They must
if

be destroyed

capitalism

is

to

endure in the epoch of decline.* This

appears clearly from an analysis of the dream's constituent ideals.

*

This

is

a world development.

The

ideals

of the

American dream

are

essentially

the democratic ideals of the bourgeois revolution. In

Europe they appear in the rem-

nants of liberalism, and particularly in moderate reformist socialism. For this move-

ment, in

spite of its claims

to

Marxism,
of

is

really built

on a

faith

that the

bourgeois
realization

democratic
as

ideals

are

capable
the
a

peaceful,

gradual
of

transformation

and

socialism.

This

forgets

scientific

prophecy
its

Marx

that

capitalism
forces

would
ideals.

break
In
all

down and become

the
capitalist

reaction
of

against

own
as

productive

and

nations

Europe

the

attack

upon democratic

ideals

grows.

They
sary.

are completely destroyed in Italy

and Germany
all

wholly pernicious and unneces-

The Spanish
workers did
ideals
is

revolution embodied

the democratic ideals,

socialist

substantial radical coloring by

the strong labor and

which were given a movement; but now, as

the
reaction
reaction,

the

not

completely

overthrow

the

ruling

classes,

against
for

democratic
bourgeoisie
cally

grows

not

merely, feudal-clerical

but

capitalist

the

afraid of revolutionary action

lands,

by the workers and peasants. In economistruggle

backward
or

imperialism hampers the development of bourgeois democratic

against

ideals

distorts

them. For while, in their

imperialism,

the

local

520
/.

The Decline
Liberty:
(of

of

American Capitalism

The

right of the individual to live his

earlier expression
life.

own

life in his

own

way

which an
limited,

was freedom

of conscience); toler-

ance as a way of

Always
identified

and necessarily in a class society, this ideal was with the possession of property. It was in its cruder aspects

an expression of competition and too often merely the liberty and individual right of the worker to starve (and is now increasingly becoming that). But the ideal, even in its limited realization, marks a great achievement of civilization. Although it arose out of bourgeois necessity, out of the struggle against feudal restrictions and the need for free labor, and was accompanied by barbarous exploitation of workers and
expropriation of peasants, the ideal of liberty acquired
its

meaning: the right

to

doubt and

act, to revolt, to create

it

own loftier new forms of

of the

living in preference to the old. In this sense

was an upthrust

human spirit. One aspect of liberty and individualism, particularly in the new world of the American scene, was the right to move freely in an economic and social sense. The petty bourgeois fairly easily went into business or the professions. The worker as easily changed his job, with some chance of becoming a master. The dissatisfied and adventurous migrated to the frontier, creating a pervasive agrarian democracy.

These conditions invigorated independence and the "right to revolt" by Jefferson and Whitman. A great change was wrought, however, by industrial capitalism, whose institutional set-up destroyed, without developing an alternative, the earlier relations of liberty and individualism based upon the possesglorified

sion of independent property or the ease of acquiring

it.*

The

factory

and the farm know little of them. They have been whittled down to a minimum by large-scale industry, although they offer the material means for an infinitely greater and finer realization of liberty and indibourgeoisie accepts the democratic ideals,
effect
it

does so gingerly because of a fear of their

upon

the masses of workers and peasants.

Only the revolutionary movement of

workers and peasants accepts the ideals and gives them, under communist inspiration,
the significance of a struggle for socialism.
revolutions

As

in Russia, the historically belated bourgeois

merge into the proletarian revolution. Walter Lippmann, The Method of Freedom (1934), urges an extension of independent property to insure freedom and democracy, as "private property was the at a time when indeoriginal source of freedom" and "it is still its main bulwark"

pendent property

is

anachronistic,

the

ownership of

essentially

collective

property

is

highly concentrated, and fascism annihilates freedom and democracy to preserve the
"rights"
of

property;

he urges making workers

members

of

the

middle
at a

class

and
the

strengthening that class in the interests of freedom and democracy

time

when

middle

class

is

disintegrating
after

and

is

used to suppress freedom and

democracy. Rip

Van Winkle awoke

twenty years; Walter Lippmann sleeps on.

The
vidualism.

Crisis of the

American Dream

521

Monopoly suppresses them. They have been Umited and

all sorts class,

degraded by

of institutional pressures in the interest of profit

whose "rugged individualism" is merely a screen for predatory practices and disregard of the masses' needs. (The widening gap between the ideal and the conditions of its realization is the major cause of that reactionary, poisonous ingrown individualism of the esthetes, with its contempt of the masses and life itself.) Now the decline of capitalism makes things worse. The disemployed where is their liberty and individualism, or that of the employed worker, more fearful than ever of being fired ? Liberty and the right to revolt, freedom of conscience and its right to doubt and act against the old order, become dangerous revolutionary ideals in the midst of a class-economic crisis. The old order no longer "delivers the goods." Discontent must be suppressed, the masses isolated from the influence of subversive ideas, the individual (and the class) yoked to a new slavery. State capitalism limits with innumerable fetters the scope of liberty and individualism; fascism murderously tramples them underfoot, while elevating the Hberty and individual right of the masters to plunder and destroy. Tolerance as a way of life? It was never very real, limited by the strain of competitive living and class and institutional pressures. Now tolerance breaks down as class-economic antagonisms flare up in social war. Fascism makes / tolerance its ideal, a system and 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 creati<ve initiative and action of free men and women. Bourgeois democracy, an incomplete form of democracy because identified with class domination, was itself always incomplete, particularly where it compromised with feudalism. Its American form was the most fully developed, primarily because of an agrarian democracy unknown in Europe. But the class-economic basis of bourgeois democracy is small independent property and petty-bourgeois rule: both are annihilated by monopoly capitalism. Hence the decay of the democratic spirit while the forms and ideal persist. Now the mere ideal is dangerous to capitalism, and it is the object of a growing offensive. "Democracy," according to an influential American educator, "mini-

and the ruling

mizes distinctions of worth, idealizes the mass, flatters the man in the street. With the degradation of power, as the center of gravity moves
to the

lower

strata of the population, there is a

^

corresponding degrada-

tion in the values of civilization."

fied

by ascribing

evils to

His contempt of the masses is justi"the psychology of the crowd itself," as if "the

522

The Decline
is

of

American Capitalism
That
is

crowd"
fascism.

an independent
its

historical category.

the ideology of

Even in

incomplete bourgeois form, democracy has enriched

the values of civilization, particularly the possibility of enriching

still

them

more. Capitalism in decline, not democracy,

now

revolts against

civilization

and degrades

its

values, for

it is

a revolt against the ideal

of a creative democracy of free

men and women.

American democracy encouraged revolutionary demoapproved the French Revolution and the democratic revolts in Latin America, demanding "hands off" from monarchical Europe. Now the form of expression of that demand,
early
cratic struggles in other countries. It

The

the Monroe Doctrine, is used to impose our imperialist domination upon Latin America. Imperialism pursues a wholly reactionary foreign policy. It works with the most barbarous feudal-bourgeois elements in economically backward lands. Finance capital, with loans and other means, supports fascist reaction in Italy and Germany. Monopoly capitalism and imperialism replace democracy with domination and

tyranny. Nor is this limited to alien lands: for at home democracy becomes increasingly the democracy of repression, disemployment, and
misery.

Bourgeois democracy at the beginning practically

workers,

excluded

the

who had

to fight
is

hard and long to secure democratic

rights.
strike,

Their concrete form

to act politically as

the right of the workers to organize

and

an independent class, to struggle for a new social These rights were available to the workers, although always order.

and ideological terrorism of the and on condition that they were not used for revolutionary ruling class purposes. They did not endanger the existing order, as the capitalist upswing induced the workers to use their rights in peaceful struggle for reform and piecemeal social change. Now the decline of capitalism makes the concrete democratic rights of the workers dangerous. For the old order is breaking down; reforms and piecemeal social change are excluded. Strikes now tend to become more aggressive and threatening, class action more conscious of final objectives and means, the struggle for a new social order a more pressing necessity and an immelimited by the economic, political,
diate

revolutionary

issue.

Bourgeois democracy, in the "rights"

capitalist rule

it it

"grants" the workers,

now undermines
it

where once

was sustenance and

strikes,

support. State capitalism increasingly restricts the

democratic rights of the workers:

moving toward

their abolition,

where it These measures tend toward the suppression of

of revolutionary parties

and "arbitrates" and invigorates the persecution does not drive them underground.
"regulates" unions
all

independent organ-

The
ization

Crisis of the

American Dream

523

and action by the working class and the aboHtion of all democratic rights by fascism, whose ideal is no democracy. 3. Equality: The right of all to an equal share in the fruits of progress regardless of origins; differences of racial or biological inheritance

do not

justify social inequality

and

class oppression

or exclude any

people from the highest forms of civilization. The revolutionary bourgeoisie waged a vigorous struggle against
its coming to power; the imperiaUst more vigorous struggle against equality as one condition of retaining power. Equality was always limited, of course, by the class-economic relations of capitalist society. It had much of brutal hypocrisy the poor man and the rich man, the small thief and

inequality as one condition of

bourgeoisie wages a

still

all "equal" before the law. But within the limitawere substantial achievements, particularly those secured by the struggles of the labor movement. The ideal of equality was a real force in the America of the i82o's-5o's, and still more a real faith:

the big thief were

tions, there

invigorated by the

new

non-feudal world,

its

great agrarian democracy,

and the prevalence of small independent property. As, however, the institutional set-up of capitalism hardened, inequality became more marked. Now the decline of capitalism sets in motion forces opposed
even the limited realization of equality. Decline and repression threaten the gains of the labor movement, the workers are to become a lower caste, and their limited right to organize
to

and

act

is

limited

still

more,

if

not destroyed.

The Negro, who

life,

has

struggled agonizingly to secure a place in American

is

to

be deis

prived of his small gains: the increase in jim-crowism and lynching

under constantly greater pressure, from more discrimination on jobs and wages to consigning them again to a medieval condition. Hatred of foreign-born workers is inflamed; they are repressed, discriminated against, deported if engaged

ominous

of the future.

Women's

rights are

in strikes or revolutionary activity, denied the "equal" rights of the

American. (The great "melting pot" is now described, in the gracious words of two reactionary American educators, as "a very convenient garbage pail for Europe.")^ Capitalism moves toward a system of caste privileges for the "elite" and an equality of misery for the masses. For under the limited economic conditions of decline the workers (and
constantly larger groups of the farmers and lower bourgeoisie)

must
order

be thrust
that the

downward "elite" may

in

an absolute, not merely

relative, sense in

flourish.

Underlying these developments is an ideological drive in favor of inequality, whose "scientific" justifications acquire an increasing cur-

524

The Decline

of

American Capitalism
its

rency. Inequality, according to

apologists, is conditioned

by the

germ-plasm, both in races and individuals. "Innate superiority," according to two American educators,
of the business
"is

the secret of the greater productivity

and professional

classes
. . .

[who have]

a higher ratio of

biologically superior individuals.

The

degree of achievement has

[not] been conditioned to any considerable extent by the environmental factors." * Not the decline of capitalism, which has outlived its historical utility

and now survives only by repressing

germ-plasm may "cause
civilizations.^
is

progress, but degenera-

tion of the

society to collapse

and usher

in a

return of barbarism," as in the case (this

mere

apologetics) of

Rome
"elite"
is

and other ancient

The masses
fit

are the masses because

fit.

they are unfit, the "elite" are the "elite" because they are
are to breed only with

The

one another, the

with the

fit.*

Inequality

erected into a biological-caste system in the interests of the existing

order and

its

ruling

class.

Concepts of inherent racial inequality, buttressed by the most brazen

distortions of biology, anthropology,

and

history, are used to justify

imperialism.

The

whites are the superior race. So they can plunder

colored peoples, butcher them,

reaction

commit

the most hideous crimes, impose

The
*

brutes

upon them and prevent their progress to a higher civilization must pay for being born of the wrong germ-plasm! But
American
exponents of
this

Two
F.

"cultural"

policy,

Ellsworth

Huntington

and

Leon
the

Whitney, The Builders of America (1927), are really monomaniacal and obscene on the subject. They cast (p. 120) longing eyes upon the feudal right of
first

night,

"which gave the lord

his estate

of the

manor

the right to

demand

that every

young

girl

on

spend the night with him before her marriage.

barbarous

custom? Certainly, but biologically good. The children would possess a better average
inheritance."

They

say (p. 115) of the feudal aristocracy's whoring:

"As a

rule they

took only the unusually attractive

similar

women.

letter

from the King

of France, or

some

man, thanks

his

noble host not only for the high quality of the food and

drink, but for the attractiveness of the

the leading
(p.

men

are joined with the best stocks

women. Thus among

[The

the high inherent qualities of the lower classes."

is

They

offer

113)

an apology for polygamy:

"When polygamy
to prevail.
first

highly developed a

much

better biological condition

would seem

above that of their neighbors. One of the

are put
is
. .

uses to

fit] acquire wealth and power which such wealth and power

almost always to acquire a number of wives, almost certainly above the

.

average.

Put yourself in the place of a powerful

prettiest,

chief.

Would you

be content
if

with anything but the

free choice?

most charming and most

professor,
10,

intelligent wives

you had
Lore,
life
is

The numerous
repeated
Cables,"

children inherit fine qualities from both parents," These

fascist

sentiments

are

by a German

according

to

Ludwig
for

"Behind

the

New
One

York

Post,

April

1934:

"Monogamy
of

unnatural and harmful to the species. There are in every community willing and industrious

men and

youths.

lusty fellow could

become the mate

from ten

to

twenty

young women,"

The

Crisis of the

American Dream

525
capitalist profit,

precisely as imperialism has its class aspects

promote

prevent the objective forms of a

socialism

new

social

order developing into

its

so

the "racial" justification of imperialism has

definite

class aspects.
class.

Both, in final analysis, are directed against the working

are considered the superior race, they are in

While white peoples

turn divided into superior Nordics and inferior Mediterraneans, with

the Alpines in between.
of a wholly unscientific

Now

observe the ingenious class application

and unhistorical theory: Within each white nation there is a mingling of races. The upper class are the superior Nordics, the middle class are the in-between Alpines, while the masses of workers and poorer farmers are the inferior Mediterraneans. "The cramped factory and the crowded city," according to one American exponent of the theory, favor the "little brunet Mediterranean" and not the "big blond Nordic." So the workers are condemned to biological-racial-class inferiority and subjection. These ideas are fantastic, unscientific, brutal. That does not, however, lessen the menace, for they meet the reactionary needs of capitalism in decline. State capitaUsm increasingly accepts them; fascism erects them, and other reactionary ideas, into a monstrous system of oppression. Both within the nation and in lands under imperialist domination the mere idea of equality becomes dangerous: it has revolutionary implications and must be destroyed. The masses of workers and farmers are to become helots with a small middle class as slave-drivers, while a still smaller upper class reigns and
enjoys.

Other races? Objects of war and plunder;

filement" (Jews in

if

within the nation,

objects of subjection approaching extermination to prevent racial "de-

Germany, the American Negro).

Women ? They
4.

are to breed

men

for the wars, as cattle are bred for

the slaughter pens.

Mass

ticularly the right of the

ingly, in

right of all to the good things of life, parmass of the people to share, and share increasthe conquests of industry and civilization; the abolition of

well-being:

The

poverty.

Mass well-being has become the most important

resulting
not,

ideal of the

Ameri-

can dream for the workers, because of their occupational

inflexibility

from constantly more

rigid class stratification.

it

The

ideal

was

however, of bourgeois origin;

was

created primarily by the up-

thrust of the masses

and the ideology of the labor movement arising

out of the conditions of capitalist development. Bourgeois revolutions

called the masses to action but suppressed

them

after the

conquest of

526

The Decline

of

American Capitalism

power, disregarding their well-being. The industrial revolution was accompanied by increasing mass misery; improvement o the workers' lot in the epoch of capitalist upswing was offset by increasing misery

newly developing industrial nations and in colonial lands. Yet capiby and large, raised considerably the level of mass well-being as a by-product of economic expansion and necessity and in response to the struggles of labor. Not as much, of course, as among other classes; not as much as was possible in view of the immensely augmented productive forces of society. There were recurrent depressions when mass well-being was submerged, and periods of prosperity when the workers did not share in the gains of material progress or saw
in

talism,

their relative share decreased.

its

Nor was

poverty abolished, although

years.

abolition has been possible these

if

many, many

ency was upward,

slowly, interruptedly, agonizingly,

But the tendand there was

always the hope of better things to come.

decline of capitalism

Now the hope is killed by the and its crisis of the system, by mass disemployment, lower wages, and lower standards of living.
mass well-being mass of workers have increasingly interpreted the American dream in terms of improvement on the job. Now jobs become scarce and working conditions worse. Mass wellbeing is replaced with mass misery, the ideal of the abolition of poverty with a new and wholly unnecessary poverty. Capitalism returns to the
shattering of the ideal of continuously greater
is

The

of the utmost significance, as the great

epoch of increasing misery. State capitalism gives lip-service to mass well-being with mass relief and promises, for it clings to the old ideology in words. Fascism brutally and cynically discards the ideal of

mass well-being. Mussolini

geoisie)

categorically declares the

will not return, that the nation (workers, peasants,

"good old times" and lower bour-

must accustom itself to lower standards of living.^ Recompense? The glory of fascism and war, of the prison and concentration camp!
cal opportunity,

The right to an equal share in economic and politiwhose perpetual rebirth was assumed, unrestricted by origins; in its more subtle forms, an aspiration after higher things. This is the most bourgeois ideal of the American dream. It was
5.

Opportunity:

rooted in the

demand

for bourgeois opportunity to exploit the workers,

in preference to feudal exploitation. It

meant

essentially the opportunity

to acquire property
earlier years of the

(and to plunder others of their property). In the

easy to acquire
frontier.

American republic, property was comparatively no other way, then by staking out a farm on the Opportunity was measurably an element in a way of life. Its
:

if

in

The
ment
in a

Crisis of the

American Dream

527

most important causes were the enormous need for material develop-

new

world, the great increase in population, primarily be-

cause of immigration, the perpetual rebirth and expansion of the

frontier,

and the swift tempo of

capitalist

development.

The

resulting

unusual social-economic growth, both in time and place, and the

fluidity

the

it created, multiplied opportunity and the chances offered more enterprising among the mass of the people. The onward sweep of industrial capitalism provided new forms

to

of

opportunity while limiting the acquisition of independent property to

an increasingly smaller

class.

But

for propertiless workers, opportunity

now meant
becoming

getting a job and improved working conditions; for a con-

meant getting a mortgage or was sustained by its new forms resulting from the upswing of capitalism, mainly technical, managerial, and professional. It became more and more a matter of "rising" within the institutional set-up of industrial and monopoly capitalism. Immigration was again a factor, for older Americans "rose" because of the influx of aliens into the poorer-paid occupations. But the
stantly greater

number

of farmers

it

tenants. Opportunity in general, however,

great majority of workers were practically excluded. viduals born around 1870 and represented in

Of

18,400 indifor 1922-23,

Who's

Who

only 1,259 or 6.8% were the children of workers.^

The

son of a skilled

worker had one chance of worker one chance out of

lottery

an unskilled This has more the appearance of a 37,500. than of opportunity. Conditions in 1870, moreover, were comrising out of 1,250, the son of

among sons of the mass of the people; some groups of the farmers, who furnished 23.4% of the persons in Who's Who, prospered because of the continuous expansion of agriculture, the growth of cities in the newer regions in which their farms were, and the chance of making money by the discovery of minerals in their lands. As expansion in general slowed down, opportunity became more and more a monopoly of the intermediate and upper bourgeoisie. This is confirmed by a bourgeois study of the origins of Amerparatively favorable to "rising"

thus

ican business leaders:

"Contrary to an American tradition of long standing, the typical

figure

among

present-day business leaders in the United States

. . .

is

neither the son of a farmer nor the son of a wage-worker.

The

proportion of farmers' sons

to decrease

among

successful businessmen

is

tending

and that of businessmen's sons

is

(specifically, the sons of

major executives)
the sons of

tending to increase.
is

The

slack created

creasing proportion of farmers' sons

being taken up not at

by the deall by

manual workers.

The

representation of sons of major

528
executives
is

The Decline
on the

of

American Capitalism

increase. If this tendency continues for

many

dec-

and upper bourgeoisie] will be contributing the major share of business leaders, and the middle classes [lower bourgeoisie, including farmers, clerks, and salesmen] but a minor share." First opportunity was limited for the working class. Then it was increasingly limited for the farmers and lower bourgeoisie. Now the
ades, the well-to-do classes [intermediate

further limitation of opportunity, an inescapable result of capitalist

means that the existing possessors of money and power will augment their control of diminishing opportunity. For the workers, it means a tremendous restriction of their only opportunity: to get a job and improved working conditions. Fascism tries to "freeze" this situation for all time, and with the most brutal sort of repression.
decline,

Aspiration?

It

can only be the other-world aspiration of medieval

Christian submission
order, for socialism.
6.

or the revolutionary aspiration for

new

social

Education: The right to an education and faith in education as

the

means
is

problems; the creator of

This

improvement and progressive solution of social new and finer ways of life. one of the most cherished ideals of the American dream.
for personal
its

And

in truth, after the technical-economic, capitalism has scored

greatest achievements in education.

(Particularly in terms of their

contribution to the possibility of developing a

new

social order.)

revival of learning arose out of stirrings created after the tenth

century by the accumulation of technical-economic and social-economic

The revival was conditioned by the emergence and development of the bourgeoisie. But it was a revolutionary class. The ideals and the martyrs of the new learning and of science, moreover, went measurably beyond mere bourgeois class necessity. They stormed the heavens. They stressed learning or education as Enlightenment: the
changes.
light of reason, the human and the rational, the freedom to break down mental and social barriers and create new ways of life and thought opposed to the medieval. The university, even where it was enmeshed

in the

Church, was a center of resistance to feudal tyranny. Science,

technical and experimental approach and the new vistas it opened up, invigorated the ideal of learning as change and mastery of the world and of life. Underlying the ideal of education was a sense of the perfectibility of man. (The cynic and the reactionary sneer. But

with

its

is

not perfectibility a creative ideal?

is it

Its

horizons recede, but they

beckon:

not inspiring to march toward them?)

it

The

revolutionary
of solving

pioneers of bourgeois education envisaged

as the

means

The
social

Crisis of the

American Dream

529
of
life.

problems, of creating and realizing

the 1800's, the revolutionary vigor

By

new ideals and ways was no more. But the

of transforming

earlier
Its

ideals of learning

appeared in the philosophy of mass education.

pioneers insisted that this

society.

was

the

means

man and

i82o's-5o's. It

This ideal was a passionate faith in the America of the was embodied in the onward sweep of free public school

many institutions of higher learning. Emerson and others expressed their conviction that education meant the perfectibility of man, which was identified with the perfecting of democracy. But this democracy turned against itself. The perfectibility of man degenerated into practical "self-improvement" and the crotchety perfection of the crank and sectarian reform. Bourgeois education was stultified by its class nature and crass utiHtarianism. A great educational plant was built up, but its scope was limited. The public schools provided competent workers and clerks. The institutions of higher learning provided competent technicians and professionals and ideological defenders of the existing order; on a smaller scale, they provided the cultural gilt indispensable to a ruling class. Nor was higher learning freely open to the mass of the people. In 1927, only 24% of American college students were the children of wage and clerical workers ^^ (who
education, including
constituted nearly

70%

of the gainfully occupied).

Yet, in spite of limitations, the educational achievements were great.

Now

they are threatened by the decline of capitalism.

serious

There was a

breakdown
in

in educational facilities during the

depression. In the winter of 1933-34, at least 250,000 certified teachers

were unemployed, while

$400 yearly.

many

states the teachers

earned

less

than

The

rural school system approached collapse, with over

5,000 schools closing in 1933.

Over

3,000,000 children of school age

were not in

school. Because youngsters could not get jobs, they swelled

the enrollment in high schools, but this was a mere makeshift of no permanent consequence. Universities, with lower appropriations, cut staffs and salaries and limited the number of students. Public libraries were almost crippled by a tremendous shrinkage in staffs and books. The public school situation was most serious. "Our claim," according to one observer, "that the sons of the farm hand and the factory owner through our public schools have the same chance to make good fades
daily further into the realm of theory."
^^

Higher education is afflicted by a crisis of overproduction, as in initself: by educational excess capacity. Already before 1929 the number of trained people technicians, professionals, intellectuals was greater than the market could absorb; and this was true also in the
dustry

530

The Decline

of

American Capitalism
sell-

case of collegians

whom

education prepared for the noble job of

ing bonds and other merchandise.

that of

The

curve of output was upward,

created the
off its

demand downward. Educational mass production

its
it

conditions of

doom. Higher education increasingly sloughed

cultural values;

merely prepared the student for a "better" job, for "rising" in the world. Most of them were disappointed. Now the situation is much worse: overproduction mounts as demand still falls.
College students are prepared largely for disemployment, for the sur-

plus population.* Yet there

There are great

physical, mental,

talism answers with a

tremendous need for professional services. and social wants to be satisfied. Capigrowing reaction against higher education, with
is
is

restriction of educational opportunity.

Underlying these developments

creating

a crisis of education as Enlighten-

ment, a faith in reason, a revolutionary force transforming old and

and realizing new ways of life. These magnificent aspirations were not fulfilled. They could not be fulfilled because of the class
its earlier

nature of bourgeois education: the bourgeoisie turned against

revolutionary ideals and became reactionary.

The

university

moved

and domination by the millionaires who endowed it. Now and then the issue of "academic freedom" was thrust across the march to safe and sane learning: the unavailing protest, ruthlessly suppressed, of a scholar with some sense of the rebel tradition of the university. It was a liberal protest. Now it takes another form and becomes revolutionary. Communist and other rebel elements among students and faculty increasingly demand the "academic freedom" to think, organize, and act independently on the vital issues of
crassly utilitarian

toward the more

the day.

They

are the carriers of the early revolutionary ideal of educa-

tion as Enlightenment, as the solver of social problems, as the creation

and

realization of

new ways

of

life.

But the rebels are

told to shut their

mouths.
*

The

police are used against them.

is

They
of

are

thrown out of
Tennessee
Valley

The

desperation of the college graduate's plight

college

indicated by the suggestions of

the

Dr.

Arthur E. Morgan,

president

and

now head
17,

Authority, who, according to the

to

New

York Times, June

expert
in

1934, urged the graduate

is

"open up new

fields

beyond the ranges of custom." What? "There

room

for a

thousand young

men

to

make

themselves

preventing

soil

erosion

Another career

is

that of irrigation.

... A young woman might

[This was a favorite device of

build

up

[With agriculture strangled by its own surplus.] a good business by training herself in child
during the depression: the
expert
in

care and relieving parents of the charge of their youngsters at certain hours of the day.

women

field

is

overcrowded

and pays almost nothing.]

people and open up a

Or she might become an kind of community centre with

entertaining

young
of

the cooperation of her town.

for a

Another opportunity for a

small towns." This
is

man might be that of director of safety what education and opportunity have come to!

number

The
college.

Crisis of the

American Dream
hitherto

531
for

Forcible

means

of

suppression,

reserved

the

workers, are

now

used against college rebels. (This objective identifica-

tion of students with the

working

class

must become

subjective
its

and

active, for the proletarian revolution liberates class fetters.)

education of

bourgeois

The

crisis

of education as Enlightenment appeared in

the inability to solve social problems in terms of reason, repressed by

ruling class interests and necessity. Now this aspect of the crisis appears on an overwhelming scale in the conditions created by the decline of capitalism. Of what avail is education in this social-economic breakdown? Of what avail against the furies of class interest, which condemn millions to disemployment and misery? Of what avail against imperialism and war? Of what avail against fascism, which conjures up the most malevolent passions of reaction to trample upon education, upon civilization itself? Liberals still cling to education, to enlightenment and reason in general. But the faith becomes more hopeless,

assumes the degrading forms of ballyhoo, turns into a prop of reaction

because
In
it is

now

a flight

from

reality

and

struggle.*

moves toward fascism, which completes the state capitalist tendency toward the "planned limitation" and final degradation of education. It is a starveling and a hireling in Fascist Italy. After fascism came to power in Germany, the number of yearly admissions to the universities was cut from 40,000 to 16,000; education is now "based on brawn, instinct, tribal customs, and morals, the aim to produce loyal, strong, and obedient members of the herd called the Nazi state." ^^ Education is limited. It becomes more and more narrowly national, negating the earlier international
this, as in

other things, capitalist decline

character of bourgeois learning.

What

is left is

deprived of

all spirit

and

initiative, of all progressive aspects: it is thrust

down

to the level of

black magic, to

make
is

the world safe for reaction. For the fascist

war

against the masses

war

against enlightenment.
social problems? That is danupon which capitalism now depends;

Enlightenment for the solving of

gerous, a negation of the reaction
*

similar crisis exists in science. Alongside the great theoretical advances of recent

years in science has developed

an increasing

restriction

of

its

social

application.

The

reaction of capitalism in decline against technical-economic progress

affect science, if for

must profoundly

no other reason because to-day

in

it

depends upon the use of large

Yet

material means.

As

the case of education,

moreover, the faith in science as the

its

means

of solving great social problems

has completely demonstrated

futility.

scientists still cling to the faith,

its

but

it

now

leads to the acceptance of religion

and not

challenge.

The

bourgeois revolution created

it.

modern

science;

only the proletarian

revolution can liberate

532
it

The Decline

of

American Capitalism
and
fascism, for socialism

means struggle communism.

against capitalism

and

Storm the heavens? Education now becomes training for storming and destroying them. 7. No class stratification: The right to move freely from one class to another, including a disregard of class distinctions which colored Amerthe strongholds of civilization
ican life

and made

it

impatient of traditional restraint.

in the i82o's-5o's,

Yet American society classes were fluid, distinctions not great or fixed, movement from one class to another freer than before or since. There was no feudal class, the older aristocracy was breaking down, and the agrarian democracy was almost universal. But the "classless" ideal of petty-bourgeois democracy is dependent upon the possession of property, which germinates the seeds of self-destruction. Universal ownership of capitalist property is impossible, as it arises out of a class mode of production and the expropriation of producers. Classes were fluid, but they were there, interlocked with the class-economic relations of capitalism. The very factors of class fluidity the extensive expansion of agriculture and the speed of industrial development moved toward class stratification for out of them arose large-scale industry with its propertiless proletariat and "new" middle class, and capitalist farming with its propertiless laborers and tenants. Class fluidity diminished after the Civil War, although still sustained by the capitalist upswing. But fluidity was lim-

There never

w^as, of course, a classless society.

it

appeared measurably near

when

ited to "rising"

within the limits of increasingly rigid

class lines.

The

becoming the largest class, were definitely consigned to the lower depths. Most of the fluidity was within the "new" middle class and on top, where the new moneybags intruded upon the resentful older possessors of wealth. Farmers were still able to rise, but decreasingly so. Class stratification appeared more definitely and rigidly after the 1900's, with the slowing down of industrial and agricultural expansion and the consolidation of monopoly capitalism. Some measure of fluidity reappeared in the 1920's, but it was almost wholly within the middle class, and class stratification was not in the least
propertiless workers,
altered. Capitalist decline has its

own

class fluidity, in reverse: large

groups of farmers and the middle

class are objectively proletarianized,

and millions of workers

disemployed.

are thrust

downward

into the

"new"

class of

Impatient of restraint ?
plied by state capitalism:

The
it

restraints of class stratification are multi-

cannot tolerate impatience with things as

they are under the conditions of capitalist decline. Fascism converts

The

Crisis of the

American Dream
caste, for that is the

533

class stratification into a

system of

"principle" of hierarchy. Impatience becomes treason

ideal.
8.

meaning of the and restraint an

Limited government: The right

to

minimum

interference by the

state

and

faith in the creative action of the people: opposition to bureau-

cracy as a heritage of monarchy.

This was the bourgeois ideal of "that government

a product of bourgeois development. It

is

best

which govitself

erns least," created in the struggle against the absolute monarchy,

was never

a very vigorous ideal,

must have unlimited was most cherished in the America of the pre-1850's, primarily because of an independent agrarian democracy and of a society in rapid motion over large, thinly settled areas. But as the motion slowed down and more complex social-economic relations arose, government acquired greater powers. For while the bourgeoisie might object to monarchical state interference against its interests, it demanded state aid in its favor. Strikes and labor revolts had to be crushed. Legislation was necessary to eHminate abuses which threatened capitalism itself. Monopoly capitalism and imperialism enormously enlarged the scope of state power and action. One revealing aspect of these developments was the increasing limitation of "state rights" in favor of the Federal
power.
It

for as an organ of class suppression the state

government.

Now

Already before 1929 the ideal of "limited government" was a farce. it becomes tragedy, as the decline of capitalism makes necessary

capitalism

an increase in the bureaucratic and repressive forces of the state. State must prop up the capitalist economy, repress discontent
action, prepare for intensified imperialist competition

and labor

and

new
state

wars. Fascism completes this development with the "totalitarian"

:

a metaphysical conception of

all

within the

state

which masks the most brutal

reality of the state as

and for the state, an organ of class

suppression. Bourgeois society starts with an ideal of "limited govern-

ment" and ends with the

practice of the state as

all.

Apologists of capi-

coming slavery." Behold it in fascism! Creative action by the people ? Always limited, it is limited still more by state capitaHsm and annihilated by fascism. For creative action by the people now means transforming the objective forms of a new social
talism branded socialism as "the

order into socialism.

9.

Peace:

The

right to peace

and the peaceful settlement

of disputes;

monarchical tyranny means war, while democracy moves toward universal peace.

This

is

the most hypocritical of the bourgeois ideals.

Not merely

is

534

The Decline

of

American Capitalism

peace excluded in a class society, but capitalism has enormously augin the

mented the destructiveness of war. The ideal o peace was most real America of the i82o's-5o's (although it did not prevent aggression against the Indians and war with Mexico, or the Civil War, the
that

greatest slaughter since the Napoleonic era). It arose out of a conviction

war was

the result of monarchical tyranny,

it

and should not scourge

the Americas. But

also in
talist

did.

The

ideal of peace acquired great strength

upswing

Europe, in spite of the Franco-Prussian War, during the capiafter the i86o's. This was particularly true in Britain,

it sat on top of the world. It was, however, the epoch of imperialism, antagonisms sharpened, and both peace and

"peaceful" because

peace, the

war became instruments of policy. The older imperialist nations wanted newer considered peace an aggression. Small attention was
"little

paid to the

and were not

these "little

wars" against colonial peoples, for they yielded profits But the conditions underlying wars" prepared the great catastrophe of 1914 1918. The
particularly disturbing.

more feverish the war preparations and the nearer catastrophe loomed, the more passionate became the belief in universal peace. The United States was drawn in by the war, in spite of its isolation in the "democratic" new world. The "war to end war" was followed by more wars, and by the greatest war preparations in the history of mankind. Imperialist antagonisms are sharpening, because of capitalist decline, and are driving toward another and more destructive world war. Production
is

prostrate, but the

munitions industry

is

active; technological

progress in general lags, but

are perfected. In
social order
its

new and more murderous weapons

of

war

struggle to prevent the objective forms of a

new

emerging into

socialism, capitalism threatens the destruc-

tion of all civilization.

One
is

of the objectives of state capitalism, clearly revealed in the

NRA,

to

augment war

preparations, to "unify" the nation economically

politically for imperialist aggression

lip-service to peace,

still

and and war. State capitalism still pays considers war essentially as an instrument of

poUcy. But fascism, the final desperate resort of capitalism in decline,

it makes an ideal of war. War, according to Hitler, is to replace the vile ideals of democracy and progress; it must become the great mission of life: "Once more we want weapons! For the reawakening of the slumbering life-will of the nation. Then everything, from children's
.
. .

not only augments war preparations,

primers to the

latest paper,

every theatre, every cinema, every bulletin

board and every empty fence wall, will be placed in the service of this single great mission, until the fear-prayers of our present pseudo-

The
patriots, 'Lord,

Crisis of the

American Dream

535

make

us free!' will be changed, even in the brain of

the smallest boy, to the glowing appeal: 'Almighty God, bless our weapons for the future; be just as you have always been just; judge now whether we are worthy of freedom. Lord, bless our struggle!'" War, according to Mussolini, is a biological function and the supreme
creative force:

"War is to man what maternity is to woman. From the philosophical and doctrinal viewpoint I do not believe in perpetual peace. Only a sanguinary effort can reveal the great qualities of peoples and the
qualities of the

human

soul."

^^

These reactionary and barbaric ideas

are not

new. But

until

now

they were primarily the psychopathic ravings of small groups, useful

war as an instrument of policy. For the fascist, however, war is not merely an instrument of policy, it is an ideal, a thing of beauty and a joy forever. Unlimited powers of coercion are used to impose the ideal upon society. Fascism means war upon the masses, war upon other peoples and cultures, war as a way of life. To what end? That dying capitalism may writhe a bit longer in
on occasion
as ideological for

trimming

States paid at least lip-service to peace.

its

death agony.
10.

To
The

prevent the birth of a

right

new

social order.

Progress:

and

possibility of

unlimited progress, the

synthesis of all the preceding ideals; a steady, inevitable

upward move-

ment to new and

finer fulfillments.

The

bourgeoisie wrought the idea of progress, a concept of the utmost

creative significance. It arose out of the struggle

waged by
economic,

the

new

bourgeois class against feudalism on

cultural. Social relations

all

fronts:

political,

But not mere motion:

it

had to become different, to change, to move. was a concept of development, of continuous

objeciives.

upward movement
thrust
ress
its

to

new

As

the bourgeois revolution

beyond immediate class objectives, so the idea of progsoared beyond its class-economic origins. It released the forces of
ideals
will, created a

the

human

new approach
fate.

to the world,

made man

feel

himself capable of mastering his

Faith in progress was particularly vital in the American dream.

It

was invigorated by

new world

taking shape in the wilderness, by an

progressive accompaniments.
is

almost complete shattering of the fetters of the past, by an extraordi-

nary economic development and

its

The

ideal arising out of these conditions

thus expressed by Dr. Charles

A. Beard: "Underlying

all is

a beUef that the lot of

mankind can be continuis

ously improved by research, invention, and taking thought. This

the

536
individual

The Decline
. . .

of

American Capitalism
all

philosophy of progress.
efiFort

All legislation,

community

action, all

founded on the assumption that evils can be corrected, problems solved, the ills of life minimized and its blessings multiplied by rational methods, intelligently applied. Essentially by ^^ this faith is American civilization justified." This ideal was always limited and distorted in practice. It is now, in its bourgeois form, a mere pitiable echo of what has been and a tragic ignoring of what might be. For Dr. Beard speaks (in 1932!) as if the ideal was now in action: but what a mockery of progress, of the rational and intelligent, is the social-economic breakdown created by the crisis of the capitalist system! Dr. Beard speaks as if capitalism is
are
identified with progress everlasting: but capitalism, limiting progress

even in the epoch of upswing,

progress and
all its

now

in its

decHne openly revolts against

works, because they undermine the existing order.

The
forces.

revolt against progress originates in the

movement

of economic

Capitalist

progress

emphasizes the material. While crudely

mere money-making by the bourgeois, material progress transformed the old world and set in motion forces of ideological change which reacted on the general movement of social progress. But this was conditioned by class-economic factors. It was a response to the needs of the bourgeois economic order, whose upthrust and development destroyed old relations and created new ones. The underlying driving force was the self-expansion of capitalist production: the production and reaUzation of surplus value, the development of larger
interpreted as

markets, the industrialization of

new
is

regions.

however,
talist

when economic
itself.

progress

limited by the

production

Production and realization

The moment comes, movement of capiof surplus value move

downward

because of the increasingly higher composition of capital

and mass disemployment. The productivity of labor creates an abundance which presses upon contracting markets and endangers profit. IndustriaHzation of new regions is either completed or prevented by the contradictions of monopoly capitalism. Capitalism is undermined
by the very productive forces
tive
it

called into being.

The

formerly rela-

self-destructive character of capitalist

production
a

now becomes
:

absolute. It resorts to limitation of output

on

the productive forces of society.

capitalist revolt against

Out

of decline

mass scale repression of and decay arises the

economic progress. economic progress becomes an ideological revolt. Progress means the continuous upward movement of society. But capitalism is not eternal; it is not immune to the law of social succession. Basing himself on the idea of progress and its manifestations in the

The

revolt against

The
dialectical

Crisis of the

American Dream
Marx saw

537
the relations

movement

o capitalist production,

of a

new

social order

developing within the shell of the old. CapitaUsm

created collective or social forms of production, the objective basis of

socialism.

The

capitalist bourgeoisie

moved and had

clearly,

its

being by creat-

ing the industrial proletariat, the objective carrier of socialism.

dialectical

As

this

movement appeared more

threatening the old order,

the bourgeois idea of progress began to change.

Where

formerly

it

included the revolutionary transformation of an old social order by

the new, progress

was now limited

to

mere change and pedestrian

small but important intel-

reform within the existing order.

lectual

Among

groups a whole philosophy arose embodying a reaction against progress: limiting, scoffing, rejecting, mobilizing all the resources of
the

human mind

to

prove that progress was a delusion and a snare.

Now

is seized upon by the capiFor capitalism has outlived its historical utility. It is in the epoch of decline and decay. Progress is now realizable only in a form which endangers capitalist rule, by socialism releasing the creative social-economic forces of society, by the revolutionary struggle for power of the proletariat and its allies. Hence capitalism reacts against progress on all fronts: economic, political, cultural. Progress now again

the philosophy opposed to progress

talist class.

means
tice?

the necessity of revolutionary change.

State capitalism clings to progress in words.

But where

is it

in prac-

The
it

real job of state capitalism

is

to prop

up

the old order, to

make

more

resistant to progress, or socialism. State capitalism

merely

tries to

"freeze" the

breakdown and decay

itself
all

of capitalist decline. This

eventually manifests

in the fascist repudiation of the idea of

progress. Fascism fuses into a system

the old reactionary ideas

and deliberately moves backward to revival of a mixture of Caesarism and medievalism, which was emphatically rejected by the revolutionary bourgeoisie. Reaction becomes a faith and
opposed
to progress

retrogression

its

works.

New

and

finer fulfillments?

They

are

doomed by

capitaUst decline

and decay.

New

and
is

finer fulfillments of progress are potential only

in the revolutionary struggle for power, for socialism

and communism.
all

Thus

capitalism

driven to revolt against progress and

the other

American dream and of the bourgeois revolution. Now, in ideological form, the forces which sustained capitalism turn into their opposites and become its antagonists. For the ideals, seizing upon great masses, are an historical force. The masses beUeve in them and want them realized, having measurably identified them with their own
ideals of the

mixed, groping, yet definitely plebeian aspirations. Cultural lag

is

iden-

53B
tified

The Decline

of

American Capitalism
ideals,

with the bourgeois form of the

with faith in the

possibility

of their realization in the existing order.

As

capitalist decline increasingly

limits their already incomplete realization

and moves toward

it is

their

destruction, including destruction of the concrete democratic rights of

the workers, the ideals

become dangerous,

for

impressed upon the

in a

masses that they are realizable only in

order.

new forms and

new

social

This

is

the crisis of the

American dream, underlying the

class-

by the decline of capitalism. The crisis prepares the subjective conditions of fundamental social change. For the objective clash between the old and the new order must become a conscious class struggle, which transforms the quantity of accumulated socialideological crisis created

economic changes into the quality of revolutionary action for the new
social order.

A class, in this case the proletariat, cannot become revoluand perform its historic task, cannot carry on the struggle for power, until it has broken the ideological fetters of the old order: it must replace the old faith with its own consciousness and ideals, and make the new world they express acceptable to the other exploited
tionary

elements of society.

The

ideals of the

American dream,
middle
class

of the bourgeois revolution,

is itself

become an

ideological factor in the struggle for power. Ideology

wants to "save" the ideals by "more generous" distribution of small independent property, clinging still to a petty-bourgeois world which monopoly capitalism and imperialism have destroyed. Moderate reformist socialism wants the peaceful, gradual development of the ideals toward a new order, and
a social force.
liberal
is,

The

along with them, annihilated by fascism.

to retain

The

capitalist bourgeoisie

and "revive" the ideals as ideological trimming while increasingly limiting them in practice, or completely destroying them by resort to fascism and its "ideal" of negating progress. The communist proletariat wants to transform and realize them in the newer and finer fulfillments of socialism, precisely as it wants to transform
wants

and more
This
is

fully realize the material

promise of

capitalist production.

possible only after the conquest of

power by the revolutionary

proletariat

and the overthrow of

capitalist rule.

The "self-movement"

of the progressive forces of capitalism, particularly in the epoch of

decline,

does not lead, as petty-bourgeois radicalism and moderate

socialism believe,

toward a new

social

order:

for

state

capitalism

tramples upon the progressive forces and fascism suppresses them.

This

is

inevitable as long as capitalism holds the repressive

:

powers of
forcibly

the state

it

will not yield

up the powers peacefully but must be

The

Crisis of the

American Dream
this,

539
only the dic-

deprived of them. Only revolutionary action can do

tatorship of the proletariat can uproot upsurge of reactionary elements, and
set in

capitalist relations, suppress

any motion an uninterrupted

movement toward

the

new

social order of socialism.

Unlike fascism, which makes dictatorship an ideal and eternal, communism considers the dictatorship of the proletariat as wholly temporary and functional, necessary only to consolidate the revolutionary power and create the relations of the new social order. UnHke fascism, which repudiates progress and all its ideals, communism accepts them
as historical forces in transition (bourgeois society tional of all social systems)
is

the most transi-

toward new forms and

fulfillments, cleans-

the elements and limitations identified with class Liberty and individualism are deprived and property. of all meaning in terms of economic individualism and the liberty of one class to exploit another. No ingrown class forms of either which deny them to the mass! Economic collectivism liberates the human and cultural forces of liberty and individualism and makes them accessible to all. Democracy is proletarian democracy, embracing the immense majority of the people; made complete and habitual by socialism, it becomes the freedom of communism. The abolition of classes makes possible the abolition of social inequality: first the enormous inequality of capitalism, then the lesser inequality of the socialist transition period. Differences of individual endowment do not give the right or the power to exploit others, but are merely the source of variations in the human and cultural symphony of society. Mass well-being: it is the primary objective, no longer limited by class rule Opportunity ceases to be identified with rising over and profit. the masses or the acquisition of property: it is a mass opportunity to Education, its class fetters broken, share in life fully and greatly. creative mass preparation for a way of life, the union of labor and is culture. Its scope grows immensely; with abundance and leisure mass participation in higher learning moves on until it is universal. Socialism is mastery of the world and life: hence the emphasis on education. There is no class stratification, as classes are abolished. Where capitalism starts with the "ideal" of limited government and
of
exploitation
.

ing them

ends with the all-devouring "totalitarian"

starts

state of fascism, socialism

with the dictatorship of the proletariat and ends with the

disso-

lution of the state into the

community

of integrally organized proa state only so long

ducers,

manual and mental. For sociaHsm needs

is

as there
. .
.

capitalist reaction to suppress, national

and

international.

Peace ceases being merely

an aspiration;

it is

fully realizable

when

540
freed of

The Decline
its

of

American Capitalism
.

class-economic antagonisms are wiped out on a world scale.

ress,

Prog-

class limitations and antagonisms, acquires a

new

becomes the object of deUberate aspiration, planning, and ment. Culture, always limited and exclusive and now threatened by capitalist decline, experiences an immense quantitative and qualitative
spirit,
fulfill-

upsurge.

That
It is

is

the promise of the proletarian revolution and

communism.

a promise

whose elements already

exist,

alongside their reactionary

opposites, within capitalist society, repressed by the old order but potential

of the

society

new: they need only of the free and equal.

to be released to

move onward

to the

CHAPTER XXVI

The American Revolution

Jl

HE

set in

decline of American capitalism and its class-ideological crisis motion the forces preparing a new American, the coming cominsist

munist, revolution. Apologists

traditions of the

that revolution

is

alien to the

That means simply this: revolution is now alien to the exploiting and decaying capitalist class whose interests are rationalized by the apologists and menaced by revolution. Revolution has played a decisive part in American development.
American
people.

Colonial migrations were thrust forth by the developing bourgeois

revolution in Europe and
its

transformation of the old feudal order.

most fundamental and uncompromising aspects of the revolution were represented by the Puritan settlers. Their ideals of individual and social freedom, created in the struggle against the old order, were progressive in spite of their theological forms and class limitations. Many Puritan sects broke through the limitations and urged equalitarian democratic reforms, including in some cases ownership of property in common. Colonial class struggles produced several minor revolts. The bourgeoisie secured its independence of Britain by means of revolution, and sounded the tocsin for the French Revolution of 1789. The revolutionary American bourgeoisie organized itself as a practical dictatorship. Nor was it bothered by the fact that it repreof the

Some

sented a militant minority only, for roughly two-thirds of the people

were either indifferent or

lently coerced,

actively antagonistic: the opposition

where

necessary,

was vioand Loyalists were expropriated. Tom

Sam Adams were professional revolutionists who deliberand consciously planned the revolution through years of agitation and organization.'*'' The Committees of Correspondence were really a
Paine and
ately
*

"Two

Samuel
his

Adams and Thomas

alone employed
of
in

Paine

may
his

almost be

called

professionals,

save that their interests

illuminates our
lected,

them. Emerson's explanation of great

men

knowledge

these two:
his

'Every master has found his materials col-

and

power

lay

sympathy with
for their use

people and in his love of the

a

materials he

wrought
fifty

in.'

At hand
restive

were the accumulated discontent of

control,

hundred and
forces creating

years'

development under English

the

turbulent

the inchoate Americanism they perceived, and

to

the

eighteenth

century

compact philosophy that was

hope, to vitalize that

make them free. To unite all America in one pulsating hope with the new philosophy, this was their task. They could

541

542

The Decline

of

American Capitalism

revolutionary party measurably aware of purposes and means, includ-

ing the extra-legal. Shays' Rebellion, an agrarian revolt against reaction-

new government's policy, led Thomas Jefferson hope there would be a rebellion every twenty years, because "the tree of liberty must be refreshed from time to time with the blood of tyrants." After independence was secured, the French Revolution became an ideological rallying force in the American struggle between "the masses" and "the classes." The new republic encouraged revolutions in Latin America, declared it would oppose European efforts to restore or extend colonial rule, and became the refuge of political
ary class aspects of the
to
exiles.

In the essentially revolutionary struggle of the Civil War, the bourgeoisie

completed

its

revolution by destroying the slave power, indus-

trial capitalists

acquired control of the government, and the conquest of

power was implemented by the ruthless dictatorship and expropriation of Reconstruction. Then the dominant capitaHst class set itself as flint against revolutionary ideas (which, in the case of the Civil War, had been forced to break the barriers of an inept, cowardly policy of compromise with the slave South). The dominant class increasingly rejected the older ideals of liberty and democracy, while imperialism

made
tion,

the United States an international reactionary force instead of a

progressive one.

Sam Adams,

the organizer of the

American Revoluthey "reinter-

had long

since been thrust into obscurity.

Now

preted" Reconstruction, which offers the proletariat an example of

dictatorship

and

force,

and blackened the character of Thaddeus

slavery.

Stevens, the

most revolutionary and implacable enemy of

Yet

they cannot alter the indisputable historical fact: the American bourgeoisie rose to

power by means of one revolution and consolidated that power by means of another. Revolutions are inevitable. That is the conclusion of a bourgeois
. . .

student of the "natural history" of revolution. Social-economic and class

forces develop to a point

where a sharp revolutionary break becomes

is

necessary.

The

conclusion

thus amplified:

"This country, in

common

with

all

others in which the industrial

feared,
its

succeed, for they had a secret

knowledge of what the people thought, wished,

'its

and hated, and the power

consciousness'
of

to interpret for the public

own

conscience and

own

therein lay their strength." Philip

G. Davidson,
April,

"Whig
p.

Propagandists

the

Revolution,"

American Historical Review,

1934,

443.

These are

the background and the course, under other class-economic relations

class

and with other

purposes,

of

the

communist

agitators

and organizers who prepare the coming

American proletarian revolution.

The American Revolution

revolution has developed,
is

543

destined to evolve through capitalism into

some
is

sort of social control of industry.

still

a person

insignificant

... A laboring man of to-day compared with the capitalist. But through
is

the agency of his organization he

superior to the farmer.

. .

The
.

labor-

seems destined to be the ruler of the future. We may take it for granted that revolutions, even violent revolutions, will occur periodically for a long time to come. We hear some talk of substituting
ing

man

peaceable evolution for violent revolution, but such talk

the theologians call pious opinion'

is

only what

laudable, but imaginative. No tech-

nology
action."

is
^

being developed for the purpose of translating this talk into

The

bourgeois student of revolutions portrays their characteristics

in meaningless social-psychological terms: the Puritan revolution

"pious," the

was American "mild," the French "ferocious." But all three were manifestations of the onward sweep of the bourgeois struggle
power.

for

The

piety of the Puritans did not prevent the execution of

a king nor the use of dictatorship and force to crush the opposition,

while the two American revolutions were far from mild in suppressing and expropriating their enemies. Revolutionary force is conditioned almost wholly by the scope and intensity of the old order's resort to
violence to regain
its

power.

In terms of history and sociology the "natural history" of revolutions

must include:
1.

The

general character of revolutions, the aspects which determine

and means. This unity indicates that they and succeeding another out of the same general conditions as an inescapable determinant of
their unity in cause, purpose,

are an historical series, one revolution arising

social progress.

which determine and means. This diversity expresses the differences distinguishing one revolution from another in class make-up, purposes, and operating conditions.
2.

The

specific character of revolutions, the aspects

their diversity in cause, purpose,

The

general unity of revolutions appears in the fact that they are a

the development of

completion of fundamental social-economic changes. At the basis of

revolution
is

new forms
The
clash

of production

and

their

increasing clash with the old, not merely in their technical-economic

but in their class-political aspects.

of necessity

might be resolved in terms

technology and economics were the only conditioning factors and not themselves conditioned by a series of other
efficiency if
factors.

and

The

technical-economic foundations of the clashing forms of

class,

.production are interwoven with definite

cultural,

and

political

544
relations
is

The Decline
and and
institutions.

of

American Capitalism

resolved socially, by

means

Consequently the clash between old and new of the class struggle and its economic,

and new forms and redominant culture and ideology represent the older relations of production, class interests, and class rule, against which arises the cultural and ideological revolt of the
cultural,
political impacts.

Economic,

as old

lations of production clash; cultural, as the

class representing the class struggle, the

new

relations of production; political, as the

purposive or "subjective" factor in social change and

revolution,

is

directed toward the retention or conquest of political

power.

Two

general sets of factors underly the revolutionary struggle

The

long-time factors of revolution

the accumulation

of economic,

and political changes arising out of the development of new forms and relations of production, a new social order, within the shell of the old; this increasingly saps the foundations of the old order and prepares the objective, or class-economic, and the subjective, or classcultural,

ideological, conditions for a revolutionary overthrow.

The

short-time factors of revolution

the accumulation of economic,

which aggravates contradictions and antagonisms arising out of an intensified clash between the old and new forms and relations of production; this results in decline and decay, and, as the ruling class fails to "deliver the goods," mass faith in the old order breaks down and provides the revolutionary class with the
ideological,
political changes,

and

opportunity to strike for the conquest of political power.

But within the general unity of revolutions there

in the purpose, the conquest of political

is

a diversity
it.

which
is

does not contradict the unity but historically complements

of the

Unity

new

order; diversity

is

in

power and the consolidation the means adopted to accomplish the

purpose and in the forms of the

social relations, in class

new

order.

Means change because

of
its

changes in the technical-economic foundations of production and

alignments and
acter of the revolutionary class; the

political forms, in the char-

in the means, force change in their bases, application, and class objectives. The most fundamental difference in means is determined by the fact that the bourgeoisie was a propertied class, the proletariat is a nonpropertied class.* The fundamental difference in forms of the new

two constants

and

dictatorship,

rise to power of another and a new system of class rule and exploitation: capitalism represents partly and only for a time the progressive forces of society, stifles new progressive forces, and eventually reacts

order

is this

Bourgeois revolution meant the

propertied, exploiting class

This subject was discussed in Chapter XXIV,

"State

Capitalism,

Planning,

and

Fascism."

The American Revolution

against progress to maintain
its

545

rule. Proletarian revolution

the rise to

power

of a non-propertied, non-exploiting class

means and the

cdl

and exploitation: socialism represents and continuously the progressive forces of society, and liberates the forces of the onward movement toward the higher social system of
resulting abolition of class rule

communism. While the major

tions

aspects of diversity are determined

by differences in

the successive revolutionary classes and the

new

social-economic condi-

under which they operate, there are minor aspects of diversity in

the revolutions of a particular class.

The

classical

bourgeois revolutions

were marked by considerable

tial

diversity within the limits of their essen-

unity.

belated bourgeois democratic revolution in Russia

was

succeeded almost immediately by the proletarian revolution. In colonial

and semi-colonial lands, the bourgeois democratic revolution is now bound up with the anti-imperialist struggle for national liberation and the independent revolutionary upsurge of the workers and peasants. National differences in class-economic development, traditions, and
ideology also impart diversity to the proletarian revolution, although
it is

much more unified than One of the most important

its

predecessors.
is

aspects of the diversity of revolutions

an acceleration of the revolutionary process, progressively shortening the intervals between one revolution and another. This is the joint
result of differences in the technical-economic foundations of society

larger awareness of purposes

and of an increasingly purposive character in revolution involving a and means.* The revolutionary process was extremely slow, almost non-existent, in the ancient world. A commercial bourgeoisie arose, but it was unable to break through the barriers of the old order (this was also true later, and on a much larger scale, in India and China). CiviUzation after civilization stagnated or collapsed because of the slow growth of new social-economic forces. The class struggles which rent the Roman Empire for 500 years resulted in "the common ruin of the contending classes," ^ in spite of the economic beginnings of serfdom which anticipated feudalism the Empire broke down under the weight of its inner
:

* Cultural

borrowing and diffusion are important factors in the increasingly pur-

posive character of revolutions. France secured

many

of

its

revolutionary ideas from

England,
ideology

vv^hich

in

turn had borrowed from the Italian and Dutch bourgeoisie.

The

American Revolution was imported bodily from Europe. Yet the bourgeoisie to-day objects to "foreign" ideas of revolution! While cultural borrowing and diffusion were present in the bourgeois revolutions, they appear most clearly and
of

the

creatively in

the proletarian

revolution,

particularly

the Russian.
lands.

They

are

of

excep-

tional creative significance in economically

backward

54^

The Decline

of

American Capitalism

decomposition and the outer impact of the barbarian invasions (the

Although feudalism had a it endured nearly i,ooo years before a revolutionary process began v^ith the rise of the bourgeoisie, whose free towns and free wage labor upset feudal-serf relations. Within 300 years in England and 400 years in France, the bourgeois revolution was triumphant; 100 years later, capitalism, dominating the world, began to decline and decay. Acceleration was marked in the bourgeois revolution and its social changes. It is still more marked in the proletarian revolution. Capitalism was challenged in 1848, by a small insignificant group of communist exiles who issued the Communist Manifesto. The proletariat was a small class, isolated,
social revolution).

whole constituting a

shorter span of life than the ancient w^orld,

brutally exploited, despised. Yet, with the creative insight of scientific

Marx saw in the proletariat the class destined to overthrow capitalism, end class rule and exploitation, and transform the world. This was sheer madness to the vulgarly comfortable bourgeois and philanthropic reformers. But the proletariat was the typical, permanent class creation of capitalism, a class growing in numbers, organized by the mechanism of capitalist production itself, becoming increasingly aware of its revolutionary tasks. Seventy years after the Communist Manifesto was issued, the proletarian revolution was triunderstanding,

umphant
versary

in Russia, the Soviet

Union

celebrated

its

sixteenth anni-

fifty
is

years

after

the

death of Marx,
cumulative.

and

now

capitalism

everywhere

not merely challenged but threatened by international

Acceleration
is

communism.
is

Objectively, the acceleration of the proletarian revolutionary process

determined by the constantly swifter tempo of technical-economic change under capitalism and its impact on social relations. Former social systems were comparatively static, capitalism is demoniacally
dynamic,
its

technical-economic conditions perpetually changed by the

technological application of science

Capitalist production

and the pressure of accumulation. must expand or break down. Yet capitaHsm itself develops the forces which impose iron fetters upon its expansion. This appears in relative form in the increasingly disastrous cyclical disturbances, and in absolute form in the decline and decay of capitalism. Decline and decay flourish in the midst of all the class-economic factors necessary for the transition to a

new

social order: the collective

forms of production, which are the objective basis of socialism, and

the proletariat,

which
it

is is

the carrier of socialism. Capitalism the most transitional of

all social

is

not

merely transitional,

systems. It

has neither the economic nor the cultural stability and "wholeness"

The American Revolution

of earlier systems;

547
is

more than

its

predecessors, capitalism

driven on-

ward by social-economic change. Any society based on class antagonisms must end in revolution or decline. But capitalism endures least of all. It is driven mercilessly and swiftly to create its own negation.
It is merely a promise of socialism. Precisely because it has been the most progressive of systems, capitalism speeds up the process of social change and revolutionary action.

Subjectively,

the acceleration

of

the

revolutionary

process

is

de-

termined by the constantly more conscious and purposive factors

in revolution.

There was no awareness of the purposes and means

of revolution in the ancient world. Awareness appears in the bourgeois

if incompletely and mainly in the later phases. The conand purposive factors appear completely only in the proletarian revolution, for Marxism-Leninism, which is communism, is scientifically aware of the laws of social development underlying and conditioning program and action. Because of awareness of purposes and means, immediate and final, Marxism-Leninism consciously and creatively acts upon class-economic forces to accomplish its purposes. It is no

revolutions,

scious

longer largely a case of the impact of social forces upon revolutionary

purposes and means, but of the impact as well of purposes and means

Awareness becomes itself a social force. This manion a magnificent scale in the proletarian revolution in Russia, where Bolshevik awareness of purposes and means creatively acted upon the class-ideological crisis produced by an unusual comsocial forces.

upon

fested itself

bination of circumstances to accelerate the revolutionary process, to

drive on to a socialist conclusion while mechanical
ists" insisted that

Menshevik "Marx-

only a capitalist conclusion was possible and advisa

able.

Marxism

is

form

of social engineering.''^

Man,

the worker,

dominates this revolution.

*

But in only one of

its

aspects.
its

The engineering
awareness,

aspect of Marxism,
is

which

is

simply

the concrete application of

scientific

not the whole of Marxism, nor

is

does

it

imply acceptance of science to the exclusion of philosophy. Engineering

it

merely the technological application of science;

set for it

does not

set goals

but realizes goals

and with the means science and

for

distorted

stupid

society provide. Hence engineering may be and reactionary ends. As science expands, the necessity of a
it

philosophical synthesis becomes increasingly apparent, and

reactionary
scientist

is

only the pedestrian or

to

the universe

who under new

casts

loose

from philosophy (or seeks

aspect of

restore Deity
is

in

forms).

The engineering

Marxism
a

the concrete

expression of the unity of theory and practice, based

upon

conception of history,

economics, and society and a method of revolution,

of dialectical materialism.

all
is

implemented in the philosophy

involved in the social-economic

whole cultural revolution

reorganization envisaged by Marxism, whose essential oneness appears in the creative

unity of
its

philosophy.

548

The Decline

of

American Capitalism
is

This communist awareness o purposes and means

creative social force in

becoming

American

society,

which

is

definitely

moving

toward the conditions of a revolutionary struggle for power. The struggle has been slow in coming, primarily because the unusually swift tempo and great magnitude of American economic progress checked and distorted the elements o proletarian class-consciousness and action. But the tempo and the magnitude, now in reverse action,
will henceforth as effectively hasten revolutionary action as formerly

they retarded

it.

They make

the crisis

and

its

pressure

more

acute.

Nowhere
nowhere

are the collective forms of production as highly developed;

is

the clash as sharp between

o individual ownership

them and the older relations and appropriation. The new order strains

insistently against the class-economic fetters of the old relations.

The

new

revolutionary class strains insistently against the class-ideological

fetters restraining its

independence and action. Communist awareness

intervenes in a situation

which

is

the product of the whole developfactors involved are five-

ment
fold:
1.

of

American

society.

The immediate

Capitalist decline

and decay

create a crisis of the system

which

throws society into convulsions, breaks

order,

down

faith

in the existing

and

sets

the various classes in motion toward a struggle for

power.
lings, clings to

bourgeoisie, the financial capitalists and their underpower and attempts to thrust all the burdens of decline upon the workers, farmers, and lower bourgeoisie. Repressive measures are multiplied and imperialism is intensified as a way out of the
2.

The upper

crisis.

3.

The farmers

are inescapably entangled in the agricultural

crisis,

increasingly deprived of their propertied independence.

They cannot
farmers are

escape under capitalism and by their

own

efforts.

The

incapable of initiating an independent historical program and struggle,

but must ally themselves with some other, more powerful

4.

class.

The middle

class,
its

tormented by decreasing opportunity and

in-

creasing insecurity,

members more and more

thrust

down

into the

surplus population, begins to initiate

and support new reform move-

ments, including state capitalism and national economic planning.

the middle class
is

As

incapable of initiating an independent historical

it

program and
ful class.
5.

struggle,

must

ally itself

with some other, more power-

The

industrial proletariat

class, beset

and the other groups of the working by unemployment, lower standards of living, and repres-

549 and waging war upon capitalism, its awareness of purposes and means constantly broadening and deepening until it engages in the revolutionary struggle for power under communist leadership. In the struggle for power the two decisive classes are the proletariat and the upper bourgeoisie (who struggle for hegemony over the other classes and groups) the one as representative of the relations of the
sion,

The American Revolution

conscious of
itself

emerge

as

class

new

social order, the other as representative of the old.

The

interests

of the proletariat are class interests, but they express the progressive
interests of society in general.
act, if

For

if

the revolutionary workers do not

the basic economic drive of capitalism

tion of surplus value, the accumulation of capital

itself
itself.

^production and realiza to work

is

left

out unchecked, then decline and decay must

doom

civiHzation

Hence

the significance of the proletariat as the carrier of the

of socialism.
irreconcilable as
it

new social order, The struggle is

If capitalism

represents the clash of

two

systems.

prevents the emergence of socialism, decline and decay

must ensue. If socialism emerges, capitalism is crushed. Liberals who on the wing, combine them haphazardly, never bother with fundamentals, and scornfully reject the Marxist analysis of classeconomic forces, antagonisms, and development these liberals propose to "reconcile" the struggle, combine the "best" features of capitalism and socialism: "Beyond lies the struggle between the systems called communism and capitalism, Russia being champion of one, the United States of the other. Both systems in the last analysis have similar goals, of which the most immediate and important is the abolition of poverty [!] Conceivably the two systems might ultimately fuse into one basic pattern. In it the best features of both private enterprise and state control would be retained."^ This is state capitalism, the bastardized socialism used by the ruHng class to maintain its power. It is not the "fusing" of two systems "into one basic pattern." It is merely an aspect of the capitalist struggle for power, against which the proletariat must thrust its own revolutionary force and Marxist
catch ideas

consciousness.

But, answer the liberals, Marxism is alien to the "American mind," an imported ideology. Yet the "American mind" of the colonial era accepted an imported revolutionary ideology that met the needs of
the rising bourgeois class. The social or national "mind," moreover, changes in accordance with changes in social-economic relations and
class needs.

An

ideology

may

linger

beyond

its

material basis, but

only precariously and under sentence of death.

The "American mind"

550

The Decline
not
its

of

American Capitalism
it

has accepted ideas and institutions which

this process has

subsequently rejected, and

alien neither to the

come

to a standstill (except in the

.

ruHng

class

and

apologists)

Marxism

is

minds of the Ameri-

can nor any other national "mind." For Marxism is the scientific, dynamic, always enriched crystallization of the needs and experiences of

working class in its struggle for emancipation, and it is acceptable any working class moving toward the struggle for power. They say the American labor movement has no Marxist or revolutionary traditions. But this, even // it were true, is not particularly relevant. Revolutions do not arise because of revolutionary traditions, and they may arise without any traditions. A class in action to overthrow an outworn social order creates its own revolutionary traditions.
the
to

The

implication

is

not merely that American labor has developed

is a complete misunderstanding both of the American labor movement and of Marxism. One may say with strict Marxist accuracy: the development of

on a non-Marxist class struggle and

basis,
its

but contrary to the Marxist analysis of the

revolutionary function. This

capitalism creates the objective conditions for sociaHsm by socializing

production and making the proletariat

to organize against the exploiters in

the

most important

class

economically; the pressure of capitalist exploitation forces the workers

an independent class movement; and experience, plus the theoretical activity of the more conscious and revolutionary minority, impart to the labor movement increasingly larger objectives, militancy, and awareness, until eventually it initiates a revolutionary struggle for power and the overthrow
struggle
of capitalism.

This formulation apparently excludes the American labor movement. Capitalism was most highly developed in the United
the revolutionary aspects of
the Marxist conception
its
is

States, yet

movement were insignificant. But more dialectical, richer, more varied than
its

labor

general formulation, which characterizes the main features of a

whole historical epoch. Within this epoch, pecuHarities of national development due to the uneven growth of capitalism, cultural lag, and other factors may temporarily produce combinations apparently
contradictory of the general formulation: capitalism

proletariat

=
is

revolutionary labor

"The specific pumped out of

movement. Marx himself said: economic form, in which unpaid surplus labor

the direct producers, determines the relation of rulers

and ruled, as it grows immediately out of production itself and reacts upon it as a determining element. The form of this relation between rulers and ruled naturally corresponds always with a definite
. .

The American Revolution

stage in the development of the
tive social

551

methods o labor and of its producpower. This does not prevent the same economic basis from

showing infinite variations and gradations in its appearance, even though its principal conditions are everywhere the same. This is due to innumerable outside circumstances, natural environment, race
peculiarities, outside historical influences,

and so forth, all of which must be ascertained by careful analysis."* It was primarily the pecuUarity that Britain, from 1870 to 1900, had almost a monopoly of imperialist exploitation, in the profits of which the upper layers of the working class shared, that retarded the growth of a class-conscious labor movement. This peculiarity of economic
development intensified the separation of organized
skilled

workers

from the unorganized

unskilled, while the prevailing class relations

liberals.

Yet out of the movement, which to-day objectively challenges capitalism and whose reformist limitations and frustration project the necessity of communist struggle and revolution.
pressure of events and capitalist decline

permitted an alliance between laborites and

emerged

a class labor

What how are

are the peculiarities of the

American labor movement and

they explicable in terms of concrete application of the Marxist

conception ?
nations of Europe

The development of the labor movement in the more industrial may roughly be divided into three stages: 1. The stage of militant revolt against the horrors and increasing
economic needs and developed revolutionary aspirations; they
left

misery of the earlier industrialism. Workers went beyond their immediate

acted as the

wing

of bourgeois revolutions (France,

Germany)

and appeared as an independent class on the social scene. At this stage the theory and tactics of Marxism appeared. The stage ended with the collapse of the First International, the workers beaten back by insufficient class strength and the economic upswing of capitaHsm. The Paris Commune marked the end of an epoch although it also

projected the
2.

new epoch

of proletarian dictatorship.

The moderate
party) and

stage of the organization of labor (trade unions,

improvement of its conditions, made possible by upswing of capitalism. Nevertheless, the labor movement had a conscious class and even socialist character. This was not only due to socialist agitation, but to the rigidity of class lines and isolation of the workers from the peasantry and the middle class, forcing them to depend upon their own class action. Socialism, however, was given a moderate reformist slant it was the carrier of petty-bourgeois democratic
socialist

the

552
overs)

The Decline

of

American Capitalism

reform (because of incomplete bourgeois revolutions and feudal hangand transformed Marxism into a theory of "social revolution"

by means of gradual, progressive reforms, of "growing into" socialism

which
3.
its

in practice

meant growing

into state capitalism

and imperialism.
with the beginfor

The

revolutionary stage, during which the proletariat returns to

earlier

miUtancy on a higher
there

level.* It coincided

nings of the decline of capitalism, and was already apparent before the

World War, when

was an increasing demand

is

more

revolu-

determined by the slowing down and relative decline of economic development, a downward tendency
tionary socialist action. This stage
in the workers' standard of living,

and the aggravation of

class

antagoa

nisms by monopoly capitalism and imperialism.

The World War,

product of imperialism, accelerated the decline of capitalism and conse-

quent impoverishment of the masses, meant a reversion to the earlier tendency of increasing misery, and thrust the working class on to

more revolutionary
revolution in

nalize capitalist decline

Monopoly capitalism and imperialism sigand proletarian revolution. The communist Russia and the revolutionary struggles in Europe and
action.

Asia

mark

the beginning of the epoch of the decisive struggle for

power, of the world revolution.

Thus

far the
its

American labor movement has

also
it is

had three
only

stages.

But one of
its

stages never appeared in Europe,

now

in the

stage of capitalist decline

and approaching revolutionary and

class relations.

struggle,

and

whole development was profoundly influenced by national

in economic development

peculiari-

ties

There was no upthrust of left wing proletarian elements in the American Revolution, as in the English and the French (Levellers, Babeuf). Nor was the American Revolution as drastic, for there was no feudalism and the farmers were not an oppressed peasantry. Shays' Rebellion was one of those agrarian-debtor revolts which run like a red thread through American history. Thus, unlike Europe, the American bourgeois revolution did not lead to the appearance of a revolu-

tionary proletarian left wing.

While

in Europe, in the period 1820-50, the

and third

workers emerged as a
The workers'
of imperialist

* In the case of Russia the first

stages practically coincided.

persisted

militant resistance to developing industrialism

into

the epoch

war and

intensification

of the class struggle,

and coincided with a belated bourgeois and practice of the Bolshevik party

democratic revolution.

The

creative Marxist theory

decisively used the favorable combination of circumstances for the proletarian revolution.
Peculiarities

of

Russian development accelerated the revolutionary process,

peculiarities.

where the

process

was elsewhere retarded by other

The American Revolution

measurably independent
class,

553

engaged in militant struggle, and forged the theory and tactics of socialism, the American workers were not only still inchoate as a class but were almost wholly under the influence of agrarian radicalism. Nowhere in Europe was there an aggressive agrarian class in action (except later in Russia, and there in a form different from the American). The agrarian class was insignificant in Britain, subordinate to Junkertum in Germany, and satisfied with its small holdings in France. American agrarians, on the contrary, constituted a class infinitely larger than the working class, increasing twice as rapidly as the rest of the population, and markedly independent, which dominated social protest and politics for two generations. Agrarian radicalism, from its philosophical expression
in Jefferson to the practical politics of Jackson,
tantly
anti-capitalist

was crudely but mililabor's program and ideology. But agrarian radicalism is anti-capitalist only in the most petty-bourgeois sense, and this was particularly true of the American variety. American agriculture, owing to the perpetual renewal of the frontier and its new lands, acquired, along with its democratic propand impressed
itself

on

ertied independence,

an intensely speculative

capitalist

character.

In

spite of its radicalism,

American agriculture strengthened capitalism

economically and ideologically.

The early American labor movement (1825-35) was composed mainly of craftsmen and mechanics, either independent or employed in petty enterprises. Typical industrial workers, except in textiles, were
scarce; the

American

factory system

was not only

infinitely smaller

than in England but even smaller than in France and Germany, where
the output of manufactures considerably exceeded the output in the

United

States.

of pig iron

and France 350,000

Thus, in 1840, while England produced 1,390,000 tons tons, the United States produced only

290,000 tons, not

much more

than Germany's 170,000

tons.^

The

in-

dividualism of the craftsmen and mechanics

(many

of

whom,

includ-

ing some of the union organizers, were alternately employers and

workers while employers were frequently members of the unions),

predisposed them to agrarian radicalism and ideology. Labor supported
the Jacksonian revolt, and independent labor parties had major agrarian radical

while the philosophers of the

demands along with specific labor and democratic demands, movement were almost wholly agrarians.
to "the dispossessed"

These philosophers appealed

division of property."
^

and urged an "equal

and

Agrarianism was rooted in strong and persistent economic conditions class relations. Migration to the frontier now assumed larger pro-

554

The Decline

of

American Capitalism

opening of the Ohio Valley, and intensified the struggle for free land. It was not, however, simply a matter of the more aggressive workers in revolt against conditions of life and labor migrating to the frontier and thus depriving the working class of the
portions, with the

elements most capable of building a militant movement. This was

undoubtedly

significant,

but the majority of workers did not migrate,

and the migration overseas of workers did not prevent the growth of a class labor movement in Europe. More significant was the perpetual renewal of classes by successive sectional development, which prevented coalescence of the workers as a conscious and independent class and by the fluidity of classes within the older settled regions. Workers in the older regions might begin to develop a class program and ideology; this development was retarded, distorted, and upset by the emergence of workers in the newly settled regions who were submerged by the petty-bourgeois agrarian ideology and radicalism. In Europe there was an economic expansion within the old circles of class relations; in the United States new circles were formed by sectional expansion, which recapitulated the development from lower to higher, from older to newer, forms both in economy and class relations. Moreover, the agrarian class was much larger and grew more rapidly than the workers; it was a petty-bourgeois class waging war against developing capitalism and consequently distorted the ideology and program of the workers, as industrialism was still to conquer the American scene. There was militant struggle and organization among the workers, but whenever they went beyond ordinary shop and specific labor demands and formulated general political demands the labor parties, for the most part, accepted the slogans, program, and ideology of the agrarian radicals. The instability of class relations and agrarian influences prevented labor from separating itself from alien class influences, of developing an independent class movement such as developed in Europe during this period. There was no comparable European stage, as there was no comparable phenomenon of the successive sectional development of an expanding frontier and its influence on class relations. All these elements were bound up with the prevalence of democracy and the absence of those petty-bourgeois revolutionary democratic struggles which were so important in developing the militancy and consciousness of European workers. Of this peculiarity, Marx said in 18^2: "With nations enjoying an older civilization, having developed class distinctions, modern conditions of production, an intellectual consciousness wherein all traditions of old have been dissolved through
the

work of

centuries

the republic

means only the

political repolu-

The American Revolution

tlonary form of bourgeois society, not
as
is

555

its

conservative form of existence,

the case in the United States of America, where, true enough, the

but have not yet acquired permanent character, and reflux, constantly changing their elements and yielding them up to one another; where the modern means of production, instead of coinciding with a stagnant population, rather compensate for the relative scarcity of heads and hands; and, finally, where the feverishly youthful life of material production, which has to appropriate a new world to itself, has so far left neither time nor opportunity to aboHsh the illusions of old."^ ... Industrialism had made great progress by 1850-60, but the older class relations and ideology persisted, although the newly revived unions had partly shaken off alien class influences (employers were now excluded from membership). The unions were still composed mainly of craftsmen and mechanics. Progressive labor was caught in the struggle for free land and over slave or free labor. Slavery was a vital issue, but the workers' attitude was more a reflection of the interests of Western agrarians than of their own class interests. Unionism was practically destroyed by the crisis of 1857, and then the Civil War intervened. During the war, labor had no independent program. It was the passive ally of Western farmers and Northern capitalists. The Civil War, with its objective purpose of smashing slavery, was
classes already exist,

are in constant flux

measurably a completion of the bourgeois revolution, with these important differences:

class to fight
it

was

a sectional struggle, there

was no feudal

and

to arouse

comprehensive revolutionary ideas and

explains the vulgar character of Ameri-

energy (which

also, in general,

can liberalism), and the Northern victory signalized the conquest of commercial capitalism by industrial capitalism. One of the war's decisive phases

was the

capitalist struggle against the

middle

class (small

producers, merchant capitalists)

economically, in the increasing power

and
speculators,

of the big manufacturers, bankers,

their increasing control of

and

politicaUy, in

government, the repression of the Copper-

heads,

who

constituted an essentially petty-bourgeois opposition, and

These circumstances it was only secondarily bourgeois democratic. The decisive measure of Reconstruction, political expropriation of the Southern states, was determined not only by the struggle against the slave power, but by the need to prevent the unity of Northern petty-bourgeois malcontents with the South, which would have swept the Republican party out of power and broken
the subordination of the farmers to the capitalists.

determined the

historical character

of Reconstruction

the industrial capitalist control of the national government. Despite

55^
their

The Decline
many
class,

of

American Capitalism
(destruction of the
as a
slave

revolutionary aspects

system,

expropriation of a
the Civil
labor's

and dictatorship
left

means

of class struggle),

War and

Reconstruction

no revolutionary imprint on

mind.

Unionism revived under the impact of the war, increasing industrialand falling real wages. By 1870 there was a strong labor union movement, and during the next twenty-five years American labor was in the militant stage which had appeared in Europe before i860. The early post-war labor leaders (e.g., William Silvis) were militant, even revolutionary, and they thought measurably in class terms. They recognized neither skill nor race nor color in the organization of labor the Negro worker was accepted. The swiftly accelerated pace of industrialization forced the workers into action, and it was aggressive class action. Workers flocked into the Knights of Labor, the unionism of which was an inclusive class unionism embracing skilled and unskilled, all races and colors. The great strikes of 1877 assumed the character of mass insurrections, and were followed by
ization,

strikes of

strikes of

an equally militant character, culminating in the 8-hour 1886 and ending with the great Pullman strike of 1894
in this stage

(the
is

"Debs Rebellion"). The militancy of American labor

is

indisputable, comparable with the militancy of any labor

movement
practical

anywhere, and

of

enormous

theoretical, ideological,

and

significance to the revolutionary

movement

of to-day.

Europe forged the theory and and prepared the proletariat to act as an independent class, no similar development appeared in the United States. (No group of socially conscious intellectuals pioneered socialism, but this was itself
But while the
earlier militant stage in
tactics of socialism

a product of other factors.)

arose,

The

unions developed before socialism

and were not under

socialist influence.

There was a fundamental

contradiction in the Knights of Labor: while the workers were militant,

almost revolutionary, the leadership and ideology were not.

The

masses had to impose action upon the leaders,

strikes.
spirit

who

did not believe in

Although the movement was definitely anti-capitalist, this was deflected into alien class politics. Free land was still an important (although vanishing) influence, and the workers were still under the influence of agrarian radicalism, manifested in their support of greenbackism and populism. In addition, the workers were now influenced by another alien class, the middle class. In Europe this class of small producers never led any considerable struggle against trustification of industry, partly because
its

subordination to trustified industry

it

was

relatively

slow and incomplete, partly because

was

afraid of the

The American Revolution

independent
class action of labor.

557
elements in revolt

Lower middle

class

were forced into the socialist movement, which they influenced but could not wholly dominate. Industrialization and the growth of concentration

and

trustification,

rated, developed in the

which in Europe were measurably sepaUnited States almost inseparably and with the

speed of a locomotive.

The growth

of

new

industries increased the

middle
priated

class of small producers, particularly in the

newly

settled regions

of the frontier; simultaneously, concentration and trustification expro-

small producers and inexorably transformed the middle independent employers into a new middle class of managerial and supervisory employees in corporate industry.
class of

many

The
its

old middle class led a struggle against trustified capitaUsm and

control of the government,

and combined with the agrarian

radicals

movement for political power. (No such movement appeared in Europe: the demand there was not to "bust the trusts" but to nationalize them.) This petty-bourgeois movement submerged the workers in
in a
spite of their attempts at

independent

political action

ance of a

socialist

movement. Thus

labor's anti-capitalist spirit

and the appearwas

again deflected into alien class

politics, as

well as into futile proposals

Knights of Labor (comparable to the earlier Proudhonism in France). There was an extremely suggestive contradiction between the workers' militant mass movement and its political domination by agrarian and middle class radicals. The Knights of Labor collapsed under the weight of its own contra-

for producers' cooperation by the

By 1890 the organized workers broke away from middle class and agrarian radical leadership. Unfortunately, however, the break was bound up with the revolt of exclusive craft unionism against the inclusive class unionism of the Knights of Labor and rejection of all independent political opposition to capitalism. In separating from politics (which reappeared as the labor leaders' individual scramble for political jobs), the American Federation of Labor also separated itself from the working class as a whole. The trade unions developed
dictions.

an organized aristocracy of the upper layers of skilled labor, contemptuous of the unorganized and the unskilled. This was the exclusive, non-political unionism which prevailed in England, but which there was changed by the "new unionism" of the .unskilled workers.
as

One

result of this

was

a class political party of the workers, the

Labor

Party. In the United States, however, although the peculiarities of class

were disappearing, exclusive unionism and the backward movement were perpetuated by hangovers of an older ideology which had become institutionalized and bureaucratrelations

character of the labor

558
ized,

The Decline

of

American Capitalism

and by two other peculiar American developments. Accelerated growth of industrial integration and trustification on a scale unparalleled in Europe made it extremely difficult to organize workers in the plants of massed capital.* The difficulty was aggravated by an unprecedented influx of immigrants and their calculated concentration in basic trustified industries; most of these workers were former peasants of many stocks, whose racial antagonisms and language barriers were deliberately exploited by management (<?. g., by the United States Steel Corporation). That some immigrant workers waged many militant strikes and organized progressive unions does not alter their general role but dialectically complements it. Immigration, moreover, as in the past, only more so, permitted workers of the older American stocks to rise to superior jobs in trustified industries and practically to monopolize the better-paid occupations in other industries. Unionism was split three ways it was isolated from the mass of unskilled and semi-skilled workers, it was limited almost wholly to the sheltered trades, and it comprised mainly American workers. The organized workers, largely because they represented a small minority of the working class, were
:

able in the period

896-1914 to secure higher real wages, while the

wages of other workers were either stationary or moved downward. Hence the unions were not interested in a general class struggle against capitalism. On the contrary, unionism became a bulwark of capitalism,
led by bureaucrats

who acted

as "labor lieutenants of the capitalist class"

in the struggle against militant labor action.

American labor movement have been genby petty-bourgeois "labor experts" who consider the peculiarities permanent instead of exceptional and temporary. They consider the ideas of Samuel Gompers the "philosophy of stable trade unionism," and saw progress in the German trade union bureaucracy's

The

peculiarities of the

eralized into a theory

increasing rejection of socialism.^

The

experts forget, however, that

in the English labor

similar peculiarities of organization

and policy

movement broke down under

*

pressure of the organization of the

unorganized mass of workers (and of the imperialist decay of capWhere

steel

industrial

integration

and

trustification

on the accelerated American

and
trustified,

scale

have appeared in Europe, there the unions are weak or non-existent. The heavy iron

and

industry in
is

Germany and France

(the companies
also

are highly integrated

and

unionism

negligible

use

the

American methods

of

company

unions, employee stock ownership, welfare, spies, blacklists, and terrorism to prevent

organization).
trustified,

In England, on the contrary, the industry

integration

is

not highly integrated and

what

and

trustification there

are developed slowly,

and the iron

and

steel

workers are relatively well organized. Since the war the problem of organizais

tion in France

complicated by an influx of foreign labor.

The American Revolution

italism)
:

559
is

movement embracing
Moreover,
despite

the

majority of v^orkers cannot

wage
ness,

simple economic struggle, particularly where capitalism

national
peculiarities

declining.

and backwardin
all

the

American labor movement concretely manifested

to limit

stages the universal tendency

the employers'

authority in

the shops and usurp some of their functions ("job control," stressed by American labor) an elementary form of labor's struggle for power which assumes higher forms under pressure of favorable circumstances and in which is implicit the final revolutionary struggle for power. By 1900 the objective peculiarities of American class relations had almost disappeared, although the older ideology persisted. There was no longer any frontier, with its perpetual renewal of classes and its influence on the instability of class relations.* Agrarian radicalism was dead; the revolt of the farmers had been crushed in 1896, and their class-political importance declined rapidly with the end of the sectional expansion of agriculture and the growth of industry. These developments constituted the fundamental cause of the death of agrarian radicalism, although a contributing cause was the temporary and relative prosperity of agriculture produced by rising prices from 1896 to the World War. The sectional development of industry continued as the newly settled agricultural regions were industrialized, and added new elements to the middle class of small producers. Both the new and the older small producers were measurably crushed by the concentration of industry and centraUzation of financial control. The struggle

of the "radical" middle class against the trusts persisted, affecting labor.

But by 1914 monopoly capitalism was triumphant. Monopoly capitalism was the decisive factor in the new economic
set-up

and

class relations.

The

closing of the frontier contributed enor-

mously to the decUne of the agrarian class, but the closing

oly capitalism,

was

acceler-

monopwhich was the agency also in the final subordination of agriculture to industry (and the development of the present agrarian crisis). Monopoly capitalism, moreover, crushed petty-bourgeois radicalism by transforming the middle class expropriating many of the small producers, making the others dependent upon the larger corpoated by industrial expansion under the influence primarily of

* With the closing of the frontier around 1890, and particularly from 1900 to the World War, immigration was a major factor in whatever class fluidity still persisted.

Immigration

still

permitted Americans of the older stocks to

rise

in the social

scale

who

otherwise would not have risen, while social-economic differentiation

racial

among

the

immigrants produced a petty bourgeoisie in each

group.

(This was true also

among

the

Negro people.)

560
rations,

The Decline

of

American Capitalism

and strengthening those elements o the middle class which are a direct product of monopoly capitalism (executives, experts, technicians, managerial and supervisory employees, small investors). Finally, the unusually rapid and great development of monopoly capitalism in the United States prevented organization of the unorganized

masses and

facilitated the institutionalization of exclusive

unionism in

the sheltered trades, while the super-profits of monopoly, directly or

indirectly, made possible the higher wages which conservatized the upper layers of skilled workers and separated them from the working
class.

monopoly capitalism was enormously accelerated and the post-war period; it now dominates American economic life. Monopoly capitalism has completed the liquidation of the former objective peculiarities of American class relations begun by the closing of the frontier, and these class relations are now essentially the same as in any other highly industrial country (Table I).
of

The development

during the World

War

The

upper, or capitaUst, bourgeoisie, 0.8% of the gainfully occupied,

received in 1928 nearly

22%

of the national income and

77%

of

all

TABLE
PER-

Class Divisions in the United States, iSyo-igig

PERPER-

1870

CENT
46.9

1920
27,015,000
15,370,000
7,930,000
23,300,000

CENT
64.9

1929
33,000,000
15,500,000 12,500,000

CENT
68.5
32.1

Working

Class

5,860,000
2,600,000

Industrial

Workers

20.8
24.0

37.0
19.0

Other Wage-Workers
All

3,000,000
5,600,000

26.0 S8.i
10.4 15-5 16.0
9-5

Wage-Workers

44.8
2.1

36.0
8.9

28,000,000
5,000,000 7,500,000

Clerical

260,000
4,550,000 2,090,000
* #

3,715,000
8,500,000

Farmers
Bourgeoisie

36.4
16.7 *
*

20.5
14.6
9.0
5-1

6,085,000

7,700,000 4,575,000 2,750,000

Lower
Intermediate

3,759,000
2,100,000

5.7
.8

Upper
*

226,000

0.5

375,000

Not

available.

Industrial workers includes

wage-workers in manufactures, mining,

railroads,

water

transportation, municipal traction, electric power, construction, telephones

and telegraphs;
stenographers,

other wage- workers includes servants, hired farm laborers,

in

etc.

(but not wage- workers

stores,

government
office

service).

Clerical

includes

clerks

in

offices

and

typists,

boys and messengers, and salespeople in stores.

Farmers includes farm

working on home farms. Lower bourgeoisie includes all non- wage- workers and non-farmers with incomes below $3,000 yearly; intermediate bourgeoisie, incomes of $3,000 to $10,000; upper bourgeoisie, incomes of $10,000 up.
laborers

Source:

Computed from

material in Bureau of the Census,

Statistics of

Census of Population;

Bureau of Internal Revenue,

Income.

The American Revolution

corporate dividends, and

561

owned 46%

o the nation's capital resources

(an ownership concentrated in the decisive corporations, yielding control

over industry). This class dominates economics and politics;

it is

essentially a class o financial, not industrial, capitalists

and

rentiers, a

small, wholly predatory oligarchy.

were only 15.5% o the gainfully occupied, where 70% a century ago and over 36% sixty years ago. Still more important, the farmers are no longer primarily an independent propertied class. Mortgages rose from $7,875 million in 1920

Farmers

in 1929

they constituted

to $9,468 million in 1928 (not including $3,500 million of other indebt-

edness); mortgage interest practically tripled between 1909 and 1927,

while the share in agricultural income of the owners of leased farms

The farmers' share of the national income declined and relatively. Tenancy rose from 25.6% in 1880 to 38.1% in 1920 and 42.4% in 1930. While the number of farms decreased from 6,448,343 in 1920 to 6,288,648 in 1930, farms of 500 acres up rose from 217,224 to 240,316; the largest increase was in farms of 1,000 acres up, which rose from 67,405 to 80,620. Class divisions among the farmers may be thus roughly classified: 500,000 capitalist farmers, owners of fairly large farms, some of whom also rent land, and the "farmers" whose sole business is leasing the farms they own; 2,000,000 middle class farmers, owners and tenants of medium-sized farms, whose position becomes continuously more precarious; 3,500,000 poor farmers, the majority of small owners and tenants, pauperized American peasants deprived of nearly all possibiUty of rising in the economic scale. (The balance are farm laborers on home farms.) The farmers are no longer an independent, homogeneous, powerful class; they are now incapable of leading a great mass movement against capitalist abuses, of developing an agrarian radicalism which can dominate the ideology and political program of the workers. With a permanent crisis and surplus population in agriculture, it becomes possible, under the new economic set-up and class relations, to rally the mass of the farmers to the revolutionary struggle of the workers. The immediate program must include the repudiation of debts and expropriation of non-operators. The final program must include the socialization of farming, its socialist unity with industry. For American agriculture, with its many large-scale farms, its increasing efficiency and labor displacement, cannot prosper (except in exceptional cases and regions) on the basis of
increased 60%.
absolutely

small business production.

The lower and

intermediate bourgeoisie, as a class in between the

capitalist bourgeoisie

and the working

class, is

of extreme importance

562

The Decline

of

American Capitalism
American
capitalism; they

in the social-economic structure of

made

the most striking gains of any class during the 1923-1929 prosperity. The middle class in 1929 constituted 15.2% of the gainfully occupied
(the

same

as the farmers in

numbers), received, in

1928,

30%

of the

and 20% of corporate dividends, and owned 34% of the nation's capital resources. But this is not the same middle class whose decay Marx correctly predicted. The old middle class was essennational income
tially

a class of independent small producers,

who

are

now

comparaa class of

tively

unimportant, completely subordinate to the monopoHst com-

binations of capital.
technical, managerial,

The new middle

class is

essentially

and supervisory employees

in corporate industry

and investors (along with small producers, storekeepers, professionals and other elements which constituted the old middle class) The lower bourgeoisie is mainly composed of the older middle-class elements, and is deprived of economic or political independence. The intermediate bourgeoisie, or upper middle class, is composed mainly of the newer middle class elements; it is a direct product of monopoly capitalism, upon which it is wholly dependent. This upper middle class in 1929
.

comprised 2,750,000 persons gainfully occupied, 5.7% of the total, received, in 1928, 17% of the national income and 14% of corporate dividends, and

owned 20%

of total capital resources.

is

Middle

class "radical"

revolt against trustified capitalism

now

impossible on any consider-

able scale; the lower middle class has not the strength, the upper

middle class has not the desire. Any "revolt" of the middle class, independent of the workers, can today proceed only within the orbit of monopoly capitalism and fascism. But the lower bourgeoisie may be

won

over to the cause of the workers.

From 40%

to

50%

of

its

members

were independent entrepreneurs in manufactures, mining, and construction, and 1,499,000 in

are hired employees. In 1927, only 353,000
retail trade.

The

functional groups in the lower bourgeoisie

nicians, teachers, professionals

the techcan be approached on the basis of their

increasingly

functional

interests:

they are

unemployed, and only

socialism can release their craft function for social service.

The working

class is
it

now

the largest and economically most impor-

tant class; in 1929

constituted

(wage and

clerical)

68.5% of the gain-

fully occupied, but received, in 1928, only

and 1.2% of corporate dividends,

clerical

41% of the national income and owned only 4.7% of total capital

resources (concentrated in a small minority of better-paid skilled and

workers). There

is

instability of class

relations,

no longer the old fluidity of classes and whether due to the frontier, sectional
the workers have coalesced

industrial development, or immigration;

TOTAL GA/f\/fOUY

OCCOP/ED /929

INDUSTRIAL

^j-^RMl^
J0%

["

IWA&E - WORKERS Pl

Zo%
4.^

;=<

pj^URGEOiS|E.[-|
/6%

y>c<x>ficw 4.^^

CLERICAL cS
l70

WORKERS

Md
Rzo

ms

XIX.

AMERICAN CLASS DIVISIONS

1870-1929.

564

The Decline

of

American Capitalism
which
constitutes the

as a class, particularly the industrial proletariat

spearhead of the working

class.

Once

it

could be said: revolutionary

is

movements
definite

are not possible in the United States because there

no

class stratification, as in

Europe; American
class relations

class stratification is

now

and

final.

The new

permit the working class to separate

classes in

itself ideologically

and balance o class power from all other

conformity with

its

objective separation.

Any

considerable

workers against capitalism can no longer be deflected into alien agrarian or middle class radical politics. The new class relations and the multiplying contradictions and antagonisms of monopoly
revolt of the

capitalism (and imperialism) prepare the objective conditions for the

revolutionary struggle of the working class against capitalism.

One
class in
class.
.

of the

"new"

liberals

nonchalantly says: "Already the middle

America, not including the farmers, outnumbers the working

.
.

Adding farmers
is

to the

middle

class,

the majority in sheer

numbers
bers

large.

America

still

has a proletariat, but every autocells,

matic process, every battery of photoelectric

diminishes

its

num-

and its political importance." ^^ This is sheer fantasy. In 1929, the wage- workers alone, excluding clerical workers, constituted 58.1% of
the gainfully occupied

clear majority. In spite of

its

numerical

in-

crease, the bourgeoisie,

which includes the middle

class, stands, if

any-

thing, in a slightly smaller ratio than in 1870.

It is

another fantasy to

assume that technology will proceed smoothly, uninterruptedly toward

the abolition of the proletariat.*
is it

The

proletariat, the industrial workers,

a majority of all wage-workers,

and

in a larger proportion than

was

in i8yo.

This

class is the carrier of socialism. It is the heart

working class, and its might flows from control of industry a control more mighty than in 1870, because industry is now more pervasive and more complex. A revolutionary class, moreover, does not come to power because of numerical superiority; it comes to power
of the

because

it

represents
is

new forms

of production, the forces of social

It is

progress. This

the answer to fascism.

the answer to the waver-

ing of petty-bourgeois elements, for these elements can be

or neutralized
* This
is

won

over
if it

if

the proletariat manifests

its

revolutionary might,
for a

simply an argument against

communism and

middle

class "revolution,"
is

whatever that

may

be,

and

it

ignores the fact that the middle class

capitalist relations.
class,

capable of "in-

dependent" action only within the orbit of

is

variant of the

argument

that the

workers are increasingly an unemployed

and thus cannot make a

revolution. But the conditions

which thrust the workers

any.?

into

disemployment

also thrust

large groups of the middle class into the

same condition. Can the unemployed

of the

middle

class

make

a revolution,

if

The American Revolution

shows
itself

565

capable of carrying

on the

struggle for

power

to a suc-

cessful conclusion.

Yet there was no revolutionary upsurge of the working

period 1923-29, despite the

class in the

new

class relations; except for the

Comis

munist party,
tive

all

labor organizations

became more and more conservastill

under the influence of the "new capitalism." The explanation

simple: the institutionalized ideology of older class relations was

dominant and was strengthened by an unusual upswing of prosperity, due to an unusual combination of circumstances which had appeared only once before in American history, in the seven years after the Civil War. Prosperity was the product mainly of an exceptional expansion of old and new industries and the increasing export of capital and imperiahsm, in which the imperialist decline of Europe was of crucial importance. But these same forces produced an aggravated depression and introduced the period of decline of American capitalism. Monopoly capitalism has two contradictory aspects. It is capitalism at its highest, based on the technical integration and corporate concentration of industry a socialization of production which constitutes the objective basis of socialism. But monopoly capitalism is also capi-

talism in decay, rent asunder by aggravated contradictions. Capitalist

more disorganizaand adventurous, intensifies the basic instability of capitalist production. Monopoly, however incomplete, relatively restricts the technological and social development of production. This is aggravated by decline. Capitalism becomes more of a fetter upon the productive forces, begins to decay. The American ruling class will try to "solve" the mounting contradictions involved in restricted home markets and economic decUne by an intensification of imperiaHsm to secure foreign markets for surplus goods and surplus capital. But while that may solve some problems it produces other problems and ultimately makes worse the economic decline, as imperialism is the extension and aggravation on a world scale of all the inner contradictions and antagonisms of capitaHst production. Imperialist powers in Europe and Asia also seek foreign markets to absorb surplus goods and surplus capital. Foreign markets become relatively restricted; colonial and other economically backward countries tend to develop their own industries and capital resources, and are infected by the general capitalist decay as their "normal" economic development is hampered by monopoly capitalism and im"organization" turns into
its

opposite and produces

tion.

Finance

capital, speculative

periaHsm (economic

tribute, political pressure). Intensified

competition

among

the imperialist powers sharpens the danger of war, including

566

The Decline

of

American Capitalism
and
accelerates the general

war

against the Soviet Union,

economic

decline, although this decline

may

be interrupted by temporary up-

at different times. These developments mean more exploitation of the workers, driving them to revolt, aided ideologically by the example of the working class

swings of prosperity in different countries and

building socialism in the Soviet Union. Imperialism converts the world

into a revolutionary arena,

where the struggle ranges from

colonial

revolts to the direct proletarian struggle for the seizure of power.

is

War

war against capitalism and for socialism. Thus the very forces which produced the "resplendent" prosperity of 1923-29 are now creating its negation, the decay and decline of captransformed into
civil

italism, creating the negation of labor conservatism.

The

basic cause of
rise

not the general

of real wages

union conservatism in the years of 1923-29 was the rise was very small among the

majority of workers and was partly offset by increasing technological

unemployment; the basic cause was an unusually high rise of real wages among the organized skilled workers, with some few exceptions such as the miners, large gains in some cases (e.g., building trades). The wages of skilled workers, moreover, kept on rising after 1923, although real wages were stationary or decreased among the majority of unorganized workers. The unions were satisfied; they considered prosperity and rising wages everlasting. But union loyalty and membership declined the American Federation of Labor lost 2,000,000 members, and "welfare" capitalism and company unions developed great strength. While the labor union bureaucracy urged "class peace" the capitalists waged class war upon labor in the form of welfare capitalism and company unions, which are an expression of the class struggle. Union wages rose but the unions were threatened by technological changes and by the base of unionism becoming still more narrowly one of privileged skilled workers. There were many predictions that unionism might wholly disappear. Many of the union bureaucrats felt that new tactics were necessary, but they characteristically evaded the issue by proposing to "sell" unionism to the employers on a business basis, to foster labor-management cooperation, to develop a vulgar philosophy of "trade union" capitalism, to organize 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. This decline of unionism was not merely the result of prosperity but of the new economic set-up. Craft unionism, adapted to small-scale competitive capitalism, cannot survive in its old form the coming of

The American Revolution

monopoly
gations of capital. This

567
father
objec-

capitalism, of the concentration of industry in larger aggre-

of the theory that the older

tives are eternal

was admitted by John R. Commons, the American unionism and its limited and the basis of the labor movement:
. . .

"The period of banker capitalism is the modern variation of Karl Labor Marx' theory of the ultimate concentration of all industry. puzzling new movements now face a new problem and take on a formation. ... In the face of this situation of the twentieth century all labor movements except in Russia seem to be helpless and their
leaders

despondent. ...

relegated to the history

Ages or that munism." ^^

craft

It may be that labor movements will be which now shrouds the guilds of the Middle unionism will turn to industrial unionism or com-

The "banker capitalism" is monopoly capitalism, against which craft unionism is helpless. But the events of 1923-29 did not mean the end of unionism. Now, under the conditions of economic decline, intensified class struggle, and an influx of new members, the unions are becoming stronger, more militant, moving toward industrial unionism, responding to new conditions and new tasks. One expression of this was the
great series of strikes in 1934 (in which a new tactic was evolved of cooperation with organizations of the unemployed and the farmers),

including the magnificent general strike in San Francisco.

Left wings within the old unions will urge

more

militant class action

and the broadening of the basis of unionism.

ers,

tormented by economic decline, will

The unorganized workmove toward action and the

will

organization of industrial unions. Unions

become organs of

struggle, and can survive and develop only as organs of struggle. This

awakening
talist

to organization

and

action, limiting the possibility of capi-

concessions to comparatively small groups of privileged workers,

will force the

workers to independent poHtical

action, which,

under

American

conditions,

may

at first

mean

a labor party.

We

are not,

however, in England, in the year 1900, but in a revolutionary epoch

of larger perspectives

and struggle. A labor party, despite its significance, presents infinitely more problems than it solves. Organization of a labor party means simply that the masses are in motion, that they accept independent political action, and are prepared for larger objectives. These larger objectives must inevitably become a revolutionary struggle for the overthrow of capitalism, which laborism has proven itself incapable of waging. That is the task of the communist party and its Marxist program, disciplined organization, and awareness of
purposes and means, unifying
all

phases of the proletarian struggle.

568

The Decline

of

American Capitalism

As the objective conditions are favorable for the development of an American revolutionary labor movement and communism, the ideological backwardness of the workers must disappear, although it is still an important problem of approach. But where ideological backwardness formerly represented the overwhelming weight of objective economic conditions and class relations, backwardness now is simply a weakening cultural lag. Already unemployment, mass starvation, and capitalist repression are creating deep scars in the workers' consciousness, accompanied by a process of submerged ideological transformation which is slowly but surely becoming articulate. Capitalist relations are being undermined by the crisis of the system; the prospect is one of successively more violent cyclical collapses, of chronic hard times and short-lived spotty prosperity, of imperialist war and growing world revolutionary struggles. The ideological transformation now being wrought will be intensified by coming events and struggles. Communist agitation and action are
conscious, purposive factors in the process of ideological transformation,

stimulating,

clarifying,

organizing,

the

combination of mass
(six

struggle

and the "patient explanation" of which Lenin spoke

months before the conquest of power). The American revolutionary movement, moreover, is not a clean slate. Despite its agrarian and petty-bourgeois reformist ideology and illusions, the American working class repeatedly demonstrated its
capacity for militant struggle in the years 1877-94
of 1877,

the railroad strikes

which spread to other industries and became almost a national general strike; the mighty 8-hour demonstrations ten years later; the great Pullman strike of 1894. The ensuing twenty years were marked by another series of great strikes among the coal and copper miners, the textile workers and other groups of the working class. In these actions the workers manifested an incomparable spirit of solidarity and courage, their militancy often assuming the form of a struggle verging on civil war. There is nothing finer in the strike annals of European labor. Most of these strikes were waged within the circumscribed limits of an ideology which rejected the larger class character and class objectives of the labor movement. After 1900, however, changing class relations and relative economic decline produced the beginnings of ideologwas increasing discontent ical change in American labor. There among the unions of skilled workers, demands for amalgamation, more aggressive struggle and independent political action. Socialism was becoming a force; although the Socialist party represented mainly

The American Revolution

it

569

petty-bourgeois reformism and the unionism of the aristocracy of labor,

basis of the

which subsequently became the American Communist party. The Socialist Labor party and the Industrial Workers of the World built up traditions of real
significant proletarian elements

had

value to the contemporary revolutionary

struggle
against opportunism,

movement

the

one in

its

both

socialist

emphasis on the importance of a disciplined revolutionists, and its Marxist conception of industrial unionism; the
other in the great strikes
it

and trades union, its party of uncompromising

stirring to action of the

waged and

its

unorganized unskilled workers. The labor movement was approaching the European model, both in its general character and in the struggle between reformist and revolutionary tendencies. American labor was
its progress was simply slower. This progress was interrupted by the World War, when Gompersism became still more reactionary. But the SociaUst party, under mighty pressure of the left wing, adopted an anti-war program, which was, however, practically sabotaged by the party leaders. Out of the party's left wing emerged the Communist party. Immediately after the war, in 1919, accumulated working class resentment flared up

not exceptional, the tempo of

in a series of great strikes

the steel strike, in which unskilled workers tvaged one of the greatest labor struggles in American history, and the

Seattle

and Winnipeg general

strikes, in

which the

strike committees,

particularly in Seattle, usurped

many

of the functions of

government

in the

the

manner of Soviets. Labor and the unions were being radicalized, American Federation of Labor accepted the Plumb Plan for a sort

and the capitaUst press spoke fearlet loose an unprecedented campaign of terrorism against the workers, and particularly against the communists. There was another upsurge of militant strikes in 1921-22, when the workers' stubborn resistance to wage cuts was largely responsible for the rise in real wages by preventing a fall in money wages as great as the fall in prices. The process of radicalization
of workers' control of the railroads,
fully of revolution.

The government

culminated in 1924 in the acceptance of independent political action by the American Federation of Labor and the railroad brotherhoods. But

was an empty gesture, had temporarily stopped. Under the impact of prosperity the unions became more and more conservative. A repetition of the 1923-29 experience, when radicalization was submerged by prosperity, is now impossible, as the decline of capitalism prevents the revival of prosperity on any considerable scale. The forces which produced that submergence, it is now clear, multiplied economic
the acceptance of independent political action
for the process of radicalization

570

The Decline
class contradictions,

of

American Capitalism
the conservative unions,

and

weakened

and pre-

pared the appearance of an American revolutionary movement. Militant struggles will break loose again; but

unHke the

struggles o former

years they will, under the impact o economic decline, favorable class
relations,

larger dimensions

and communist awareness of purposes and means, assume and objectives, press onward to the struggle for
thus builds upon the dialectic

the conquest of political power.

Communism
and and

movement

of economic

class forces in this country, the heritage of the militant experience

American working class, and the determination to and creatively every favorable element in the American scene for proletarian revolution, which alone can overthrow capitalism and prepare the coming of socialism. Are the communists isolated? Are they rejected by the American working class? But communism represents the larger historical interests of the working class (as well as its immediate interests) and the only alternative to social decUne and decay. It is a minority, but it is also the advance guard of a class, issuing a challenge, creating an ideology, rallying the iron battalions for the coming struggle. A century ago the American Abolitionists were also isolated, spurned and repressed by the very class whose interests they served, yet that class was eventually compelled to wage a civil war to settle the issue of slavery. The working class will increasingly accept the protraditions of the
utilize realistically

gram

of

its

conscious representatives, the communists, the Abolitionists

are

of to-day

who

Ideological struggle

waging war to abolish capitalism and wage-slavery. and preparation are an indispensable preliminary

of revolution.

There
labor by

Nor
the

is

is no conflict, but harmony, between the tasks imposed upon American capitalist decline and the aspirations of communism. there any conflict between communism and the special prob-

lems created by the hangovers of peculiarities in the development of

and labor movement. That it is was urged by Marx and Lenin. In 1920, when the Communist International emerged as a definite organization, Lenin stressed that the communist approach means "to
class relations,

American economy,

necessary to consider such problems

investigate, study, ascertain, grasp the nationally peculiar, nationally

specific features in the concrete

attempts of every country to solve the

^^

aspects of a single international problem."

not exclude consideration of national differences, but

to facilitate

Thus communism does it considers them

(as usual)

and not

to

evade the revolutionary struggle.

the vulgar

The moderate

reformist socialists, echoing

The American Revolution

petty-bourgeois radicals, argue that

571
alien to the

communism

is

Ameriis

can scene, a sort of unnaturaUzed stranger in our midst. But that

precisely

what was
its

said o the Socialist party

It

when

it

still

clung to

some

of

revolutionary pretensions.
as another

considers peculiar national

problems simply

and opportunism, for the renunciation of revolutionary struggle and the overfor democratic reform

argument

throw of capitalism. That is everywhere characteristic of contemporary which represents the vestigial remains of the pre-war opportunist labor movement. Marxism was met by peculiar national problems in Russia; the Menshevik sociaUsts made of them an argument
socialism,

against proletarian revolution, the Bolsheviks utiHzed

the revolution.

them

to facilitate

Mensheviks opposed the Bolshevik revolution on the plea that capitalism was insufficiently developed for proletarian revolution. But capitalism was sufficiently developed in Germany, yet the socialists opposed proletarian revolution on the plea that democracy was insufficiently developed to realize socialism. Both evasions are combined in the policy of the Spanish
capitalism
socialists

they

plead that both

and democracy are insufficiently developed in Spain to make socialism the immediate issue. Thus the socialists defend capitalism. Meanwhile the communists in the Soviet Union build socialism. More worthy of analysis are the arguments on the need of "Americanizing" communism which are being discussed among intellectuals moving toward communism. (This leftward movement of the intellectuals is an enormously significant social symptom, unprecedented in American history, as one of the indications of coming revolution is desertion of the ruling class by intellectuals who accept the cause of an oppressed class struggling for power.) One group of intellectuals "Americanize" by stressing technology and the engineers either as an argument against communism or as an argument for some not clearly defined change in the communist approach. Technology and engineers, of course, are not unknown in Europe, and their significance is not exclusively American. The high development of technology offers more aids than obstacles to revolution. Engineers as a class are not capable of becoming revolutionary, as they are bound up with all the exploiting relations of capitalist production. Marxism envisages the significance of technology its accelerated development complicates all the contradictions and antagonisms of capitalism and it is one of the factors in revolutionary tactics.
.

To

offer,

substitute for

however, the "technological" conception of revolution as a communism and its reliance on an inclusive social theory
proletariat

and on the

can lead only to adventurism

or fascism.

572
"vital

The Decline
mysticism" in Karl

of

American Capitalism

"American spirit." It has discovered a of which no one was previously aware. "One must needs defend the Soviet Union. But we must forge our part of the world future in the form of our own genius."
stresses the

Another group

Marx

? What does it mean in terms of concrete revolutionary problems and definite communist tasks? It means too much or too

Yes, but

little. If it

means

even mainly from "our

conception of

communism must draw its inspiration only or own genius," it is too much, as that is the petty-bourgeois philistines. If it means that communism
that
its

must
little,

necessarily be colored by

American environment,

it

is

too

for the question

is,

"In what way?"

The

general, abstract formuinterpretation.

lation of the
Still

problem

invites

non-communist

another group stresses what

may

be called "understandability."

It insists

that the "supremely important job"

it is

now

is

to

"Americanize"
for

communism;

slightly

more

concrete than other "Americanizers"

but offers only substitutions

social

the substitution of "equity"

commu-

nism, of "unearned increment" for surplus value, and "interactions of

groups" for class struggle. These substitutions might be justified on one or both of two counts: they are more easily understood by the American masses and they are more realistic or scientific than the Marxist terminology. But the substitutions do not possess more understandability communism is acquiring definite meaning among the masses (it is identified with the Soviet Union's achievements; with what is "equity" identified?), "unearned increment" would have to be explained as much as surplus value, and class struggle and class war

are as elemental as the masses

whom
all

"interactions of social groups"

would completely
scientific

"equity"

baffle.
is

Nor

are the substitutions

more

realistic

or

all

things to

men and

is

claimed aUke by

religion, capitalism,

and fascism, the bourgeois economists are not

plunder, and "interactions of social groups"

agreed upon the meaning of "unearned increment," which, moreover,

justifies part of the capitalist

(a typical product of evasive

indefinite as class struggle

is

and apologetic American sociology) is definite. These abstract approaches

as to

the problem not only vulgarize the issues involved but

to liquidation of

may

lead

communism. In one

of

its

aspects "Americanization"

becomes the product of practical revolutionary development, of class and party action and experience. In another and correlative aspect
"Americanization" means the necessity of concrete Marxist analysis
of the special problems created by peculiarities in the development of

the
is

American economy,

class relations,

and labor movement

all

and this

necessary not only in the United States, but in

countries.

The American Revolution

573

The fundamental "special" problem which confronts American communism is the necessity of combining two stages in the development of the labor movement the stage of elementary class action and the stage

of preparatory revolutionary action. Despite their considerable mili-

American workers have still to take the first real toward larger independent class action, often the most primitive forms of such action. The working class cannot skip stages, but neither can stages be rigidly separated. Communism cannot isolate itself from
tant traditions, the
steps

the elementary forms of developing class action, but neither can this

from the necessity of more conscious revolutionary and organization. For the epoch is revolutionary. Thus the struggle to organize unions among the unorganized workers may at any moment become a struggle to throw them into larger mass actions, to organize them into Soviets. This "special" American problem is an
action be isolated
action
aspect of the necessity of linking

up

the final objectives of

communism
starting

with the most elementary needs and struggles of the workers, with
their every

immediate problem and

action,

which become the

point of communist preparation for the final direct struggle for power

and the dictatorship of the

proletariat.

Among
come

the

more

specific "special"

problems are:

Necessity of an intensive and variegated ideological struggle to overthe lingering cultural lag in the consciousness of the

American
organs
cor-

workers, linked up, of course, with the practical struggle.

Limited minority character of American unions as

essentially

of the aristocracy of labor, the unusual petty-bourgeois spirit

and

ruption of their bureaucracy, the necessity and problems of revolutionizing these unions and of combining this activity with the struggle
to organize unions

among

the unorganized workers.

Unifying the struggle of the Negro in its racial and class aspects (the Negro and organization of the unorganized workers, unity of the

Negro farm tenants with that of white tenants). Problems involved, class and geographical, in mobiUzing the farmers in the struggle against capitalism; differences in the American agrarian problem from that in economically backward countries. Unusually high development of American technology in relation to industrial unionism and prospective revolutionary struggles.
struggle of Significance of the

more

intensive struggle required to accomplish

the revolution in the United States offset by the greater ease of organ-

izing socialism after the conquest of

culties of the

power (many problems and

diffi-

Russian transition to socialism would not arise in this

its

country because of

higher economic development).

The Decline of American Capitalism 574 Problems created by the strength and significance of the new middle class in the American social set-up, particularly in relation to fascism. Significance of the belated development of radical social consciousness among the American intellectuals, their relation to various class groupings, particularly the new middle class, clarification of their function in the movement, communist struggle among them. Creation of an American Marxist literature, the inadequacy of which
more than anything else to the American scene.
creates the illusion that

communism

is

"alien"

Not
in

all

of these problems are peculiarly American, for most of them,

other,
exist in
is

some form or

other countries. Concrete Marxist

analysis of the

problems

necessary not merely to "Americanize"

communism

but creatively and dynamically to utilize the peculiarities

of our economic

and class development to hasten the coming of communist struggle and revolution. These peculiarities have their positive,
as well as negative, aspects.

The

necessity of considering the

more

elementary forms of
vides

class action in setting the

masses in motion pro-

communism with the opportunity of rallying the unorganized workers unopposed by an intrenched bureaucracy. The Negro offers a twofold approach class and racial. The absence of a considerable

American Marxist literature and tradition means that communism does not have to overcome any generally accepted or influential reformist socialist distortion of Marxism. Dialectically investigated and grasped, the special problems created by national differences offer means of accelerating communist struggle. Communism, which is Marxism and Leninism, is both a science of social development and a philosophy of revolution; it approaches the problems and tasks involved in the overthrow of capitalism and the building of socialism with a creative awareness of purposes and means. For communism is a conscious and determined struggle by a whole class to realize objectives clearly perceived and understood. The objectives are not the artificial creation of the communist; they arise out of the development of capitalism itself, including its American form. The American revolution is necessary; development of social-economic forces provides the means for making the necessity a reality. It is the fulfillment of history, of its progressive struggles and aspirations. American civilization depends upon communist revolution, and, given the dominant economic position of the United States, the victory of the American working class will make a mighty contribution to the building of world socialism and a new world civilization.

Notes and Sources

Notes

PART ONE
Introductory
*

Willard L. Thorp and Wesley C. Mitchell, Business Annals (1927),

p. 65.

CHAPTER
*Ncw York
July 8,

July 3,

Times, June 29, 1933; June 25, 1933; June 28, 1933; June 8, 1933; 1933; July 29, 1933; editorial, "The Spirit of '33," New York World-Telegram, 1933; Oswald Garrison Villard, "The Roosevelt Revolution," Nation, July 26,

1933 P 91;
well,
p. 2;

New

York Times, June

25,

"The

Ideas Behind the

New

Deal,"

Leonard Rogers, "Industry's

New

May 23, 1933; Rexford Guy TugYork Times Magazine, July 16, 1933, Deal," New York World-Telegram, June 12,
1933;

New

1933.

'David A. Wells, Recent Economic Changes (1889), pp. v, 381, 466. ' W. Jett Lauck, The New Industrial Revolution and Wages (1929), pp.
*Garet Garett, The American
"

2, 84.

Omen

(1928), p. 84.
10, 1927; E. A. Filene,

Melvin A. Traylor,

New

York Times, October

8,

1928; Haley Fiske, Nation's Business,

May

20, 1927; the Mitchell,

Times, March Rand and Mellon

quotations are from

the
"

New

Market News, an advertising promotion publication issued by

magazine True Story (1928). Benjamin A. Javits and Charles

W. Wood, Make Everybody

Rich

Industry's New

Goal (1929), pp. 90, 280.

'

Nation's Business, June 5, 1924, pp. 7-8.

'New York

Journal of Commerce,

November

13,

1925.

'Lewis Corey, "The

*F. P. Stockbridge,

New
"The

Capitalism" in American Labor Dynamics (1928), p. 62.

New
The

Capitalism," Saturday Evening Post,

November

6,

1926, p. 226.

"Thomas Nixon
(1924), pp.
9,

Carver,

Present Economic Revolution in the

United States

261-2.

"

Carver, Economic Revolution, pp. 91, 263.

ference

of the Committee on Recent Economic Changes, of the President's Conon Unemployment, Herbert Hoover, Chairman, National Bureau of Economic Research, Recent Economic Changes in the United States (1929), 2 vols., v. I, pp. xxi-

"Report

xxii.

"Robert M. Davis, "Long-Time Guarantees of

Statistical Association, June,

Prosperity," Journal of the

American

1928, pp. 138-4393. 206.

"Rexford Guy Tugwell, Industry's Coming of Age (1927). PP"New York Times, October 22 and December 3, 1929.

577

57^
" Quoted by W.
193 1, p. 225.
^*

Notes
J.

Eiteman,

"Two

Decades of Depression,"

New

Republic. July 15,

Stuart Chase, Prosperity: Fact or

"Stuart Chase, Out of the Depression

'"Charles A. and
II, p.

Myth (1930), p. 184. and After (1932), p.

11.

Mary

R. Beard, Rise of American Civilization, 2 vols. (1928), v.

800.

CHAPTER
*

II
1928, p. 447.

Department of Commerce,

Statistical Abstract,

p. 389. 'Victor S. Clark, History of Manufactures in the United States, 2 vols. (1928),

'Wesley C. Mitchell, History of the Greenbacl^s (1905),

p. 37.

v.

n,

*Alvin H. Hansen, "Factors Affecting the Trend of Real Wages," American Economic Review, March, 1925, p. 32. "^Mitchell, Greenbacks, p. 400; John R. Arnold, "The Trend of Consumption in the
United States," Annalist, October
5,

1928, p. 511.

'Hansen, "Real Wages," American Economic Review, March, 1925, p. 32. ' Willard L. Thorp and Wesley C. Mitchell, Business Annals (1926), pp. 130-37.
*

Department
I.

of

Commerce,

Statistical Abstract of the

United

States,

1931, p. 813.

"Willford
p. 44.
^"

King, Wealth and Income of the People of the United States (191 5),

" United

David A. Wells, Recent Economic Changes (1889), pp. 28-29. States, Bureau of Labor Statistics, History of Wages

in

the United States

(1929), p. 521.

"Arnold, "Trend of Consumption," Annalist, October

5,

1928, p. 511.
492.

"Department of Agriculture, Yearbook of Agriculture, 1932, p. "Lewis Corey, The House of Morgan (1930), pp. 247-48, 273.
"Scott Nearing and Joseph Freeman, Dollar Diplomacy (1925),

p.

12.

^Commercial and Financial Chronicle, March 2, 1901, p. 416. " New York Times, December 29, 1907. "Frederick C. Mills, Economic Tendencies in the United States (1932), p. 2. "Mills, Economic Tendencies, p. 35. '"Mills, Economic Tendencies, pp. 139, 143. "Mills, Economic Tendencies, p. 159. "Paul H. Douglas, Real Wages in the United States, i8go-ig26 (1930), pp. 205,
391.

"National Industrial Conference Board, The Agricultural Problem in the United

States (1928), pp. 38, 48.

"King, Wealth and Income,

'^^Mills,

p. 231.
5,

'"Arnold, "Trend of Consumption," Annalist, October

1928, p. 511.

Mills,

Economic Tendencies, Economic Tendencies,

Jones,

p. 21.

p. 21.

'*F.

W.

"Real Wages in Recent Years," American Economic Review, June,

1917, p. 330.

"Henry Pratt Fairchild, "The Standard of Living nomic Review, March, 191 6, p. 9. '"Rexford Guy Tugwell, "The Ideas Behind the
Magazine, July 16, 1933,
p. 2.

^Up
New

or

Down?" American

Eco-

Deal,"

New

York Timet

"Mills, Economic Tendencies, p. 188.

Notes
**

579
p.

Bureau of Internal Revenue,

Statistics of

Income, 191 6,

16.

"Arnold, "Trend

"Douglas, Real Wages, pp. 205, 391-93. of Consumption," Annalist,

p. 511.

CHAPTER
^M.
J.

III

Bonn, The

Crisis of Capitalism in

America (1932), pp. 187-88.

1931, p. 637.
p.

"Frederick L. Schuman, International Politics (1933), p. 828.

'Department of Commerce,
*

Statistical Abstract,

Alexander D. Noyes, Forty Years of American Finance (1909),

1931, pp. 413, 420.

52.

'^Statistical Abstract,

^Statistical Abstract, 1931, pp. 3, 49.

'New York
December

Herald Tribune, November

12,
4,

1933;

New

York World-Telegram.
5,

28, 1933;
Fiscal

New York

Times, January

"A Record
*

Year Ends

and

1934; January

1934. Charles Merz,

July
i,

Another Begins"

New

York Times,

1934.

*New York
"The
7,

Times, November 10, 1933; November 12, 1933. Super-Highway Project in Hitler's Recovery Program,"
1933, p. 41.

Literary

Digest,

October

PART TWO
Introductory

^New York
*

Times, July 25, 1933.

Editorial, "Public

Works

to the Rescue,"

New

Republic, September

6,

1933, p. 87.

CHAPTER
*

IV
United
States,

Department of Commerce,

Statistical Abstract of the

1931,

p.
I,

488.
p. 41.

"Department of Commerce, Commerce Yearbooks, 1929, 2 vols. (1930), v. 'Frederick C. Mills, Economic Tendencies in the United States (1930),
National Bureau of Economic Research, Recent Economic Changes (1929),
*

p.

191;
220.

v. I, p.

National Bureau of Economic Research, Recent Economic Changes,

1931, p. 403.

v. I,

pp. 258-59.

^Statistical Abstract,

"John R. Arnold, "The Trend of Consumption in the United September 28, 1928, p. 473.
''

States,"

Annalist,

Mills,

Economic Tendencies,
Economic Tendencies,
Yearbook,, 1929,

p. 280.

*
^

Mills,

p. 246.
v. I, p.

Commerce

437.

^"Department of Commerce, Census of Manufactures,

1929,
v.

v.

I,

p.

112;

Hugh

Quigley, "Electric Power," Encyclopedia of the Social Sciences,

(1931), p. 459.

" Commerce Yearbook, 1929,

^^

v. I, p.

236.

Commerce Yearbook, 1929, v. I, p. 410. " Commerce Yearbook, 1931, v. I, p. 431. "Bureau of Foreign and Domestic Commerce, The Balance

of Payments of the

United Stated in ig2g (1930), p. 2; Great Britain, Royal Commission on Unemployment Insurance, Final Report (1932), p. 95.

"Bureau of Foreign and Domestic Commerce, Balance of Payments, p. 4. "Bureau of Internal Revenue, Statistics of Income, 1923, p. 14; 1929, p. 267. " National Bureau of Economic Research, Recent Economic Changes, v. II, p. 641.

580
^^

Notes
Statistics of

Income, 1923,
Income, 1923, Income, 1923,

p. 118; 1929, pp.

328-29.

'^Statistical Abstract, 1932, p. 175.

^'^

Statistics of

p. 13; 1929, p. 330.

p.

^^

Statistics of

118; 1929, p. 328.

*^

Statistics of

Income, 1923-29.
1923-29; Mills, Economic Tendencies, p. 504.
1929,
v. I,

^Statistics of Income,
^*
^^

Commerce Yearbook,
Statistics of

pp. 318-19.

Income, 1923,

p.

63 and 1929, p. 333;

W. H.

Rastall,

"The Machinery
1933,

Industry at Grips with the Business Cycle," Mechanical Engineering, January,

p. 11; lAWXs,

Economic Tendencies,

p.

438.

CHAPTER V
*

W.

Jett

Lauck, The NeuA Industrial Revolution and Wages (1929),

v.
II,

p. 84; Victor S.

Clark, History of Manufactures in the United States (1928),

p.
I,

281; National

Bureau of Economic Research, Recent Economic Changes (1929),

Austin and

v.

p. xiv;

Bertram

W.

F. Lloyd,

The

Secret of

High Wages (1927),

p. 74.

p.

120;

M.

J.

Bonn, The

Crisis of Capitalism in
*

America (1932),

Lauck,

New

Industrial Revolution, p. 78.

'New York
trial

Times,

May

2,

1921;

May

10, 1921; January 3,

1922; National Indusp. 47;

Conference Board, Wages in the United States, igi4-igjo (1931),

v.
II,

National

Bureau of Economic Research, Recent Economic Changes,

*

p.

435.

Labor Research Association, luibor Fact Boo\ (1931),

Times, March 22, 1919. Times, January
4,

p.

138.

"New York 'New York

1921;

1921; February 11, 1921; March

8,

1921; March 24,

November 24, 1921; December 6, 1921. 'Samuel M. Vauclain, Optimism (1924), pp.

6, 35, 37, 54, 81,

117, 213, 266, 301.

"Frederick C. Mills, Economic Tendencies in the United States (1932), p. 393.

Department

of

Commerce, Biennial Census

of Manufactures, 1923, p. 14.

"Mills, Economic Tendencies, p. 290.

*^

Computed from
Mills,

material in the Census of Manufactures for the respective years.

p.

"

Economic Tendencies,
p.

477; Department of Labor, Monthly Labor Review,

November, 1931,

186.

"Paul H. Douglas, Red Wages

in the United States (1929)

in

pp.

177-82; Whitney
p.

Coombs, The Wages of Unskilled Labor

Manufacturing Industries (1928),

121. of

"Labor Research Association, Labor Fact Book, P- 83; United States, Department Commerce, Census of Distribution, 1929; New York Times, February 5, 1930.
"United
States,

Bureau of Labor

Statistics.

"Lauck, " Lauck,

New New
6,

Industrial Revolution, p. 280.

Industrial Revolution, p. 4.
6,

"New
"New
ber 2,
1

York Times, December

1930;

1929; December 15, 1930;

July 28, 1931.

New

York World-Tele-

gram, April

New

York Times,

York, Bulletin, May, 1931;

York Journal of Commerce, November 25, 1930; National City Bank of New New York Times, January 12, 1931; May 16, 1931; Decem1932;
p.

931; Pennsylvania Department of Labor, Monthly Bulletin, November,

H.

B. Myers,

"The Earnings

of Labor,"
10,

American Journal of Sociology, May, 1932,

897;

New

York Times, April

1931; Department of Commerce, Statistical Abstract

of the United States, 1933, p. 303; John T. Flynn, "Starvation Wages,"

Forum, June,

Notes
1933. p. 327;

581
1933;

New
5,

York Ximes. February

1933.
19, 1934;

27,

New York Times

and World-

Telegram, October

"New
p.

York Times, January

York Times. October

William H. Lough, Business Finance (1922),

475; Statistics of Income, 1930, p. 213, and 1931, p. 48.

"New

18, 1933;

New

York World-Telegram, April

12,

1933;

New York

Times, October 29, 1933;

May

30, 1933; January 18, 1934.

CHAPTER
*

VI

Based on reports of the Federal Reserve Board.

'

Wall Street Journal, July

15, 1933.

'New York
*

Times, December 17, 1933.

Federal Reserve Board, Bulletin. November, 1933, p. 173;

1934.

New

York Times, February

20,

4,

"Bruce Bliven,

"New England

Waits,"

New
8,

Republic,

December

1933, p. 158;
Post, January

New
*

York Times, January

14, 1934;

January

1934;

New

York Evening

19. 1934.

"Labor and the NRA,"

New

Republic, October 25, 1933, p. 310.

'Editorial,

"Unions for Technicians,"

New

Republic, January 24, 1934, p. 296.

New "New
*
^''

York World-Telegram, January 2, 1934. York World-Telegram, September 26, 1933.

"Labor

the

Sore Point," Business Week., September

8,

9,

1933, p.

5;

New

York

Times, November

1933;

New
3,

York World-Telegram, January

17, 1933;

12, 1934.

"New

York Times, September

September

19, 1933.

" New York Times, October

1933.

"New York Times, September 17, 1933. "New York Times, January 16, 1934. "New York Times, October 11, 1933. "W. L King, "Capital, Risk, Enterprise
of Business, ed. by

and

Profits,"

The Economic Foundations

W.

E. Spahr

(1932), p. 119.
12,

"New York Times, September 5, 1933; December "W. W. Hay, "Plant Overexpansion As a Logical
Act," Annalist, July 28, 1933, p. 115.

1933; December 16, 1933.

Result of the Industrial Recovery

PART THREE CHAPTER VII

*

Computed from

material in Department of

Commerce,

Statistical

Abstract of the

United

States, 1923, p. 289.

^Statistical Abstract, 1932, pp. 345, 371, 689.

CHAPTER
^

VIII
December
13, 1933, p. 118.
v. II, p.

Computed from

material in Census of Manufactures for the respective years.

'Editorial, "Profits

Under

the

NRA," New

Republic,

"National Bureau of Economic Research, Recent Economic Changes,

641.

582

Notes

CHAPTER
'J.

IX

M.

Clark,

The Economics

of

Overhead

Costs, (i923)> PP- 386, 486-87.

'New York Times, July 2, 1933. 'W. W. Hay, "Plant Overexpansion As

Act," Annalist, July 28, 1933, p. 115.

a Logical Result of the Industrial Recovery

PART FOUR
Introductory

*New York
ber 13, 1933.

Times, July 25, 1933; September

5,

1933; August 13, i933; Rexford

Guy

Tugwell, "The Ideas Behind the

New

Deal,"

New

York Times,

July 16, 1933; Septem-

'Victor
838;

S.

Clark, History of Manufactures in the United States (1928),

v.

II,

p.

Magnus W. Alexander,
Its

New York

Times, November

4,

1929; P.

W.

Martin,

"The

Technique of Balance:
October, 1929, p. 494.

Place in American Prosperity," International Labour Review,

Great Strides (1877), p. 19; Dorothy

*

'David A. Wells, Recent Economic Changes (1889), pp. 330, 381; J. A. Dacus, The W. Douglas, "Ira Steward on Consumption and
Jacob Vanderlint,

Production," Journal of Political Economy, August, 1932, pp. 536-37.

Money Answers

All Things (i734) PP- 64,

6(),

76, 87.

CHAPTER
*M.
1929.
*
'J.

X
p. 128.

Bonn, The

Crisis of Capitalism in

America (1931),

'Editorial,

"Census of Manufactures,"

New

York Journal

of

Commerce, March

i,

John R. Arnold, "The Trend of Consumption in the United

States," Annalist, Octo-

ber 5, 1928, p. 511.

*

Frederick C. Mills, Economic Tendencies in the United States (1932), p. 244.

"Mills,

Economic Tendencies,

p. 281.

'Mills,
'

Economic Tendencies, pp. 251, 282. E. H. Welch, "Purchasing Power and Wage

Policy," Bulletin of the Taylor Society,

October, 1932, pp. 182-83.

"G. H. Phelps, Our Biggest Customer (1929).

P- 18.

CHAPTER
^Editorial, Annalist, July 16, 1926, p. 68.
'

XI

W. W. Hay,

"Manufacturing of

New
of

Products an Escape from Effects of Saturated

Markets," Annalist, December 12, 1930.

*C. T.

Murchison,

"Requisites

Stabilization

in

the Cotton

Textile

Industry,"

American Economic Review, Supplement, March, 1933, p. 72. *W. W. Hay, "Plant Overexpansion As a Logical Result of the Industrial Recovery
Act," Annalist, July 28, 1933, p. 115.

'"Taking up the Slack with Sidelines," Literary Digest, June 12, 1926, p. 84; New York Times, September 19, 1931; Iron Age, December 22, 1932, p. 956. "New York Times, November i, 1931; R. F. Martin, "Industrial Overcapacity," Bulletin of the Taylor Society. June, 1932, pp. 96-99; C. E. Eraser and G. E. Doriot, Analyzing Our Industries (1932), p. 253; Statistical Abstract, 1931, p. 457; Sumner H.

Notes
Slichter,

583
The Power Age

Modern Economic

Society (i 931), pp. 5-6; Walter N. Polakov,

(1933), p. 82.

'New York
3,

Times, September 11, 1932;

New

York Journal

of

Commerce, January

1928; Statistical Abstract, 1932, p. 58.

*J.

George Frederick, president of the Business Bourse, "What Price Super-Selling,"

Advertising and Selling, January 25, 1928, pp. 19-20.

G.

W.

Stocking, "Oil Industry," Encyclopedia of the Social Sciences, v. XI, p. 442;

M. Thorpe, "The Business Revolution of 1927-37," Nation's Business, March, 1927, p. 27; New York Journal of Commerce, March 23, 1926; Printers Inf{, May 23, 1929, p. 133; New York Journal of Commerce, November i, 1929; "Sugar Institute Starts
National Advertising Campaign," Printers Ink, February 21,
Frederick,

1929, p.

57;

J.

George

"What

Price Super-Selling," Advertising

20; George Mansfield,

"How

and Selling, January 25, 1928, p. Long Will Luxuries Stay on Top," Advertising and Selling,
Stores

January 29, 1929, p. 22; "Candy, a Billion Dollar Muddle," Nation's Business, August,
1927, p. 17; Editorial,
July 25, 1928, p. 29;

"The Chain

Wield the Big

Stick," Advertising

and

Selling,

New York

Times, September 26, 1932.

Selling," Encyclopedia of the Social Sciences, v. VIII,

*W. C. Plummer, "Instalment

P-

75.

"J. George Frederick, "Is Progressive Obsolescence the Path Toward Increased Consumption," Advertising and Selling, September 5, 1928, p. 19-20.

"Thomas

C. Sheehan,

"Must

We

Limit Production," The Magazine of Business,

of the Social Sciences, v.

February, 1928, p. 152.

"Carl Brinkmann, "Luxury," Encyclopedia

636.

IX (1933),

p.

"C. T. Murchison,
September
9,

"Business Activity Upheld by Stock Market Gains," Annalist,

1932, p. 333.

"Frederick C. Mills, Economic Tendencies in the United States (1932), p. xvii; Commercial and Financial Chronicle, October 5, 1929, p. 2137. "New York Evening Post, October 10, 1929; Department of Commerce, Statistical
Abstract, 1931, p. 319.
^''Annalist, April 7, 1931.

"Investment Research Bureau, Making Money

in Stocks

(1928), p. 7;

New

York

World-Telegram. February 20, 1933. "Leland Rex Robinson, "Investment Trusts," Encyclopedia of the Social Sciences,
V. VIII

(1932), p. 280.
P- 26.

'"Bonn, The Crisis of Capitalism, p. 123. "Joseph Stagg Lawrence, Wall Street or Washington? (1929).

"New

York Times, October 22, 1929; December 3, 1929. "Guaranty Trust Company, Guaranty Survey, December 30, 1929, York Journal
Clay,
of

p.

i.

"New
*"

Commerce, June

16, 1928.

Bureau of Internal Revenue,

Statistics of

Income, 1928, pp. 11-13.

"Paul

"Economic Outlook
July 7, 1933.

for 1929," Journal of the

American

Statistical

Asso-

ciation, June, 1929, p. 182.

"New

York Times,

CHAPTER

XII
5,

^Frederick C. Mills, Economic Tendencies in the United States (1932), pp. 278-80.

''Department of Commerce, Commerce Yearbook., 1931, pp.

324, 415, 417.

584
"W. H.
Rastall,

Notes
"The Machinery Industry
at

Grips with the Depression," Mechanical

Engineering, February, 1933, pp. lo-ii. * Karl Marx, Capital, v. Ill, pp. 293, 301-03. 'Irving Fisher, The Money Illusion (1928), p. 33. "John Maynard Keynes, A Treatise on Money (1930),

v. I, p.

179; v.

II, p.

381.

'Keynes,

Treatise

on Money,

v. II, p.

381.
p. 23.
p.

'Keynes, "Causes of the World Depression," Forum, January, 1931,

'L. A. Rufener, Price, Profit and Production: Principles of Economics (1928),

15.

CHAPTER
tember, 1933, pp. 323-26.

XIII

*L. Valenstein and E. B. Weiss, Business Under the Recovery Act (191 3), p. 237. 'Rexford Guy Tugwell, "Design for Government," Political Science Quarterly, Sep-

'W. H.

Rastall,

"The Machinery Industry

at Grips

chanical Engineering, January, 1933, p. 11; David Friday,

With the Business "The Formation

Cycle,"

Me-

of Capital,"

American Economic Review, Supplement, March, 1933, p. 93. * William Green, "National Planning: Labor's Point of View,"

New

York Times,

December 17, 1933. 'Edward S. Mead, "Adjusting Excess

'Institutes,'" Annalist, July 19,

Producti^ve Capacity

to

Closed Markets

the

1929, p. 98.

Price,
'

New York Times, November i, "A New Champion Enters the

*Mordecai Ezekiel, "Can
Briggs,

1932;

New

Irish Lists,"

New

York Tribune, October 8, 1933; Clair York Times, September 17, 1933.

Valenstein and Weiss, Business Under the Recovery Act, p. 236.

We Starve Ourselves Rich," To-day, March 10, 1934, p. 8. York Times, September 28, 1933. * Valenstein and Weiss, Business Under the Recovery Act, p. 237. "Clark Foreman, "The End of Internationalism," New Republic, August 9, 1933,
Frank

New

p. 333.

"Malcolm Muir, Deputy Administrator

September 27, 1933.

of the

NRA, New York World-Telegram,

pp. 208, 386.

"John Maynard Keynes, A Treatise on Money (1930), v. II, "Lawrence Dennis, Is Capitalism Doomed? (1932), p. 36. " Karl Marx, Capital, v. Ill, p. 304.

PART FIVE
Introductory

*W. H.

Beveridge, Unemployment, a Problem of Industry (1912), p. 68.

States,

'Paul H. Douglas, Real Wages in the United

1890-1 g26 (1930),

p. 460.

CHAPTER XIV
*J. M. Clark, The Economics of Overhead Costs (1924), p. 93; Boris Stern, "Glass and Pottery Industries," Encyclopedia of the Social Sciences, v. VI (1931), p. 673; National Bureau of Economic Research, Recent Economic Changes, 2 vols. (1929), v.
II,

p.

513;

Labor Research Association, Labor Fact Book.

(1930),

p.

90;

Meredith

Givens, "Iron and Steel Industry," Encyclopedia of the Social Sciences, v. VIII (1932),
p.

303; Frederick C. Mills, Economic Tendencies in the United States (1932), p. 296;

Notes

585

Department of Commerce, Statistical Abstract of the United States, 1931, pp. 387, 835; William Haber, "Construction Industry," Encyclopedia of the Social Sciences, V. IV (1931), p. 265; National Bureau of Economic Research, Recent Economic
Changes,
v.
I,

p.

248.

Commerce, Commerce Yearbook, 1930, v. I, p. 28. 'Leo Wolman, "Machinery and Unemployment," Nation. February 22, 1933, p. 203. * Dexter S. Kimball, "Changes in New and Old Industries," Recent Economic
of

^Department

Changes,

v.

I,

p. 92.

^Statistical Abstract, 1931, p. 637.

'W.
^

I.

King, The National Income and

Its

Purchasing Power (1930),

p.

50.

King, National Income, p. 50. King, National Income, p. 50.

'

'Wesley C.

Mitchell, "A Review," Recent Economic Changes, v. II, p. 878. York Times, January 11, 1928. "Paul H. Douglas and Aaron Director, The Problem of Unemployment (1931),

"New

pp. 132, 141-42.

"Clinch Calkins, Some

pp. 4-10.

Folk.s

Won't Wor\ (1929),

p. 13.

"Isador Lubin, The Absorption of the Unemployed by American Industry (1929),

"Paul U. Kellogg, "When Mass Production

p.

Stalls,"

Survey Graphic, March, 1928,

685.

"True
**

Story

Promotion Department,

Netv Market News, October,

1928,

p.

i;

quoted from Forbes Magazine.

Calkins,

"New
"New

Some Fol^s Won't Work, PP- 27-28, 34-36, 40-42, York Times, December 15, 1930.
23, 1932.

117,

122-24,

i57-

^^Statistical Abstract, 1932, p. 50.

York World-Telegram, January

Engineering
Council,

'"American

Safety

and Production

(1928),

p.

76;

Louis
28,
of

Resnick, "Saving and Wasting Lives," Nation,

May

21,

1929, pp.

593-94;

May

1929, p.

622; Labor Research Association, Labor Fact Book, P-

96;

Department

Labor, Monthly Labor Review, July, 1930, p. 85; Royal Meeker, "Mining Accidents,"

Encyclopedia of the Social Sciences,

v.

(1933),

p.

511;

Monthly Labor Review,

of Business,

November, 1931,
2 vols. (1931),
V.

p.
II,

27;
p.

W.
321;

E.

Spahr, ed..

The Economic Foundations

Hugh

Quigley, "Electric Power,"

Encyclopedia of the

Social Sciences, v.

(1931), p. 467.

CHAPTER XV
*

Dexter

S.

Kimball, "Industry," National

Bureau

of

Economic

Research,

Recent

Economic Changes, 2 vols. (1929), v. I, p. 93. ^ Paul H. Douglas, Real Wages in the United
'Douglas, Real Wages,
*

States,

1890-1926 (1930),
p. p.

p. 411.

p. 459.

Bureau of the Census, Manufactures, 1929, v. I (1933), 'Department of Commerce, Commerce Yearbook, 1930,
1931, p. 669.
Is

15.

28;

Statistical

Abstract

of the United States,

'Allan

W.

Rather,

Britain

Decadent?

(i93i)

Unemployment (1929), York Times, December

p.
4,

39; Harold Callender,

1932; Great Britain,

This P- 34; V. A. Demant, "The Unemployment Riddle," New Committee on Finance and Industry,

586
Report (Macmillan Report, 1931),
p. 19; International
^

Notes
p.

308; E. Varga, The Decline of Capitalism (1928),

Labour

Office, International

Labour Review, June, 1933, pp. 809-11,

Times, December 17, 1933. ^International Labour Review, June, 1933, pp. 809-11;

New York

New

York Herald Tribune,

December

28, 1932.

Census of Manufactures, 1929, Preliminary Report.

'"New York Times, February 13, 1933. "New York Times, November 18, 1932.
"Editorial,

"Unions for Technicians,"

New

Republic,

January 24,

1934,

p.

295;
pp.

"Last

Year's

Unemployment

Relief,"

Electrical

Engineering,

November,
1931, p.

1932,

809-10; Department of Labor, Monthly Labor Review, August,

261;

New

York World-Telegram, November 14, 1932; New York Times, November 12, 1932; November 6, 1933. ^' New York Times, November 4, 1930; December 14, 1932; January 14, 1932; New York World-Telegram, November 13, 1931; January 14, 1932; Laura T. Turnridge, "We Haven't Saved a Cent," Nation, September 16, 1931, p. 281; New York Times, January 7, 1932; New Republic, January 27, 1932; New York Times, July
29

1933; January 14, 1934.

"New

York Times, December

29,

1933;

January
is

13,

1934;

January
Republic,

14,

1934;

January 19, 1934; Bruce Bliven,

20, I933> P- 158.

"New England
17, 1933.

Waiting,"

New

December

"New
"C.
^*

York Times, December

York Times, December
Chase,

R. Whittlesey, "Rubber," Encyclopedia of the Social Sciences,

30, 1933.
for

v.

XIII

(1934)-

"New

Stuart

"What Hope

the Jobless," Current History,

November, 1933,

pp. 131-32.
^

New York

Times, December
v.
I,

9,

1933.

'"Karl Marx, Capital,

*^

pp. 693-95, 698, 702, 712.

Great Britain, Royal

Commission on Unemployment Insurance, Report

380.

(1932),

pp. 91-93.

"Royal Commission on Unemployment, Report, "New York Times, January 14, 1933.

p.

"New
^^

York Times, October

31, 1869.

Maxine Davis, "200,000 Vagabond Children," Ladies

8.

Home

Journal,

September

1932, p.
'*

New
V.

York Times, November York Times, January

"Relief

21, 1932.

"New
^^

21, 1934.
for

Trivanovitch,

the

Unemployed,"

New

York

Times,

February

12, 1933.

CHAPTER XVI
*

A. P. Usher,

History of Mechanical Inventions (1929), pp. 274-76.

*
' *

Walter Rautenstrauch,
Usher,

New

York Herald Tribune, December

29, 1932.

History of Mechanical Inventions, pp. 337-40.

v. I,

Karl Marx, Capital,

396.

'

Marx, Capital,
Marx, Capital,

v. I, p.
v. I, p.

407.
408.

Notes
V.

587

^Meredith Givens, "Iron and Steel Industry," Encyclopedia of the Social Sciences,
VIII (1932), p. 299.

*Marx,
'

Capital, v.

I,

417-18.
429.
Statistical Abstract of the

Marx, Capital,
of

v. I, p.

"Department
1

Commerce,

United

States,

1904, p. 530;

93 1,

p.

420.
"Industrial

"Herbert Heaton,
V.

Revolution,"

Encyclopedia

of

the

Social

Sciences,

VIII

(1931), p.

8.

"E. Varga, The

^*

Decline of Capitalism

(1928), pp. 39-40;

Matare,

Werkzeuge,

Maschinen und Apparate (1913), pp. 89-95.

Statistical Abstract,

1923, p. 289.
Statistics,

"United
^^

States

Bureau of Labor

History of Wages in the United States

(1929), pp. 7-10.

History of Wages, pp. 84-86.
R.

"

G. Hurlin and Meredith B. Givens, "Shifting Occupational Patterns," Recent

Social

Trends

in the

United

States, 2 vols.

(1933),

v. I,

pp. 281, 284.

p. 386.

"J. A. Hobson, The Evolution of Modern Capitalism (1912),

^^

Iron Age, October 13, 1932, p. 572.

""Paint Plant Goes Automatic," Business Wee\, June 11, 1930, p. 24. "Walter N. Polakov, The Power Age (1933), p. 98; "Inspection of Surfaces for Minute Defects," Mechanical Engineering, September, 1932, p. 647; New^ York Times,

December
^*W.
F.

7,

1932.
S.

Ogburn and

C. Gilfillan,
133.

"The

Influence of Invention and Discovery,"

Recent Social Trends,

v. I, p.

"M. H.
p. 264.

Hedges, "Mechanic," Encyclopedia of the Social Sciences,

v.

(1933),

"Polakov, Power Age,

^*

p.

119.

The Gotha Program, p. 31. ''Polakov, Power Age, p. 119. ** New York World-Telegram, November "New York Times, January 12, 1933. ^ New York Times, September 14, 1933.
Karl Marx,

21,

1933.

"New

York Times, December

31, 1932.

'"Webster Powell and Addison T. Cutler, "Tightening the Cotton Belt," Harpers,
February, 1934, p. 308.

"Department
and

of

Commerce, Census

of Manufactures, 1929, v.

I,

p. 16.

""M. Rubinstein, "Relations of Science, Technology and Economics Under Capitalism

in the Soviet

Union," Science at the Crossroads (1931),

4,

p.

9.

"New

York Times, February

Capital, v.
Capital, v. Capital, v.
I,

1934.

"Marx, " Marx,

"Marx,

p. 417. p. 363.

II,
I,

p. 846.

PART
*

SIX

New 'New

Introductory York Times, May 21, 1927. York Times, February 9, 1934.

588

Notes

CHAPTER
^

XVII
(1928), pp. 27, 59.
of the
Social
Sciences,
v.

Paul T.

Homan, Contemporary Economic Thought

Simon Kuznets, "National Income," Encyclopedia

XI,

(1933), p. 223.
'

Lewis Corey, "Fortunes, Private: Modern," Encyclopedia of the Social Sciences,

v.

VI (1931). p- 396. *W. I. King, The Wealth and Income of the People of the United States (191 5),
p. 231.
*

Bureau of Internal Revenue,

Statistics of

Income, 191 6,

p. 26.

'^Statistics

of Income, 1925, p. 13.

p.

*
*

'Simon Kuznets, National Income, 1929-32 (1934), Statistics of Income for the respective years.
Statistics of

14.

Income, 191 6,

p. 31.

"New
cember
1933.

York Times, September

17,

1933; January 18, 1934; February

9,

1934; De-

16, 1932;

May

30, 1933; September 8, 1933; September 11, 1933; October 18,

"John T. Flynn, Graft in Business (1930), p. 55. "E. Varga, "Economics and Economic Policy," International
December
^^
^*

Press Correspondence,

2,

1931, p. 1094.

Statistics of

Income, 1931,

p. 39. p. 234.

Statistics of

Income, 1924, pp. 11, 123, 176; 1929,

"Department of Commerce, Statistical Abstract of the United States, 1931, p. 112. "Department of Agriculture, Yearbooks of Agriculture, 1932, pp. 501, 893, 912; Crops and Markets, July 1929, p. 254. "W. I. King, The National Income and Its Purchasing Power (1930), p. 306. "Eric Englund, "Farm Mortgages," New York Times, February 5, 1933.
^^

Yearbook of Agriculture, 1932,

p.

492.

^"New York Times, November

22, 1932.

"New
"W.

York Times, January

16,

1928; George Soule,

The
p.

Useful Art of Economics

(1929), p. 66.
T. Foster and Waddill Catchings. Profits (1925),
150.

"C. K. Hobson, The Export

of Capital (191 4), pp. 66-67.

CHAPTER
*

XVIII
Saturday Evening Post, November
6,

F.

P.

Stockbridge,

"The

New

Capitalism,"

1926, p. 226.

^National Bureau of Economic Research, Recent Economic Changes, 2

V. I, p. xii.
^

vols.

(1929),

Adolf A. Berle and Gardiner C. Means, The Modern

Corporation

and Private

Property (1933). P- 56.

*

Joseph S. McCoy, "Sources of Prosperity," American Bankers Association Journal,

January, 1930, p. 703.

Berle and Means,

Modern Corporation,
Statistics of
S.

pp. 66-67.

"Bureau of Internal Revenue,

'

Income, 1929,

p.

21.

Joseph

S.

McCoy, "The U.

Legion of Capitalists," American Bank^s Association

Journal, February, 1927, p. 626.

*H. M. Graves, "Gaps

in the

Tax Fence,"

New

Republic, January 31, 1934, p. 329.

Notes
'

589
13,

Albert

W. Atwood, "The New

F.
Foerster,

Ownership," Saturday Evening Post, February

Stock

1926, p. 122.

" Robert
"

"Employee

Ownership,"

Encyclopedia

of

the

Social

Sciences," v.

(1931), p. 506.

Become Capital," Forbes, December i, 1927, p. 9. York Tim^s, October 28, 1928. R. F. Foerster and Else H. Dietel, Employee Stock Ownership in the United States (1926), pp. 62-64.
B. C. Forbes, "Labor to

"New

"Editorial, Manufacturing Industries, January, 1929, p. 65.

"New

"Editorial,

York Times, April 5, 1929. New York Journal of Commerce, April

19,

1929.

"Nicholas Paine Oilman, Profit-Sharing (1889), pp. 109, 265. " Foerster and Dietel, Employee Stock Ownership, p. 90.
^* Abram S. Hewitt, The Mutual " Oilman, Profit-Sharing, p. 394.

Relations of Capital

and Labor (1878),

(1916),
v,
I,

p.

17.

^"
**

Frank Barkley Copley, Frederick W. Taylor, 2

vols.

p.

16.

H. L. Gantt, Industrial Leadership (191 6), pp. 65, 67. "Computed from material on occupations in Statistical Abstract, 1926. ^'Abraham Epstein, "Outwitting Unionism," New Republic, April 6, 1927,

p.

193.

"Sumner H.
"'

Slichter,

Modern Economic Society (1931), Modern Economic Society, pp. 83-84, 887.
Slichter,
v. Ill,

pp.

81-82.

**Karl Marx, Capital,

pp. 451-52, 454-56.

CHAPTER XIX
^Federal Trade Commission, National Wealth and Income (1926), p. 59. ^ Federal Trade Commission, National Wealth, p. 58.

'Bureau of Internal Revenue,

*

Statistics of

Income, 1923,
St.,"

p. 42;

1929, p. 54.
1924, p.

Silas Bent,

"Labor's

Window on Wall

The Nation's

Business, June,

25-

'Albert F. Coyle, "One of Labor's Greatest Hopes," Labor Age, May, 1926,

p.

3.

'M. R.
635.

Neifeld,

"True Effect

of Depression

on Savings," Annalist,

April,

1931, p.

^Department of Commerce,
*

Statistical

Abstract of the United States,

1931, p. 275.

New York

Times, January 15, 1927.

"Neifeld, "True Effect of Depression," Annalist, April, 1931, p. 635.

""Small

Depositors, Small Borrowers," Business

Abstract, 1931, p. 279.
9,

Week,

July

29,

1933, p.

19.

'^'^Statistical

"New
V. II, p.

York Times, October

486.

1932.
vols.

"National Bureau of Economic Research, Recent Economic Changes, 2

(1929),

"Paul H. Nystrom, Economics

"Maurice Taylor, The
^''Statistical Abstract,

of Consumption

(1929), p. 504.

^^Statistical Abstract, 1931, p. 308.

Social Cost of Industrial Insurance (1933), pp.

138,

152.

1931, p. 309.
p.

" Nystrom, Consumption,

^*

502.
p. 48.

Statistics of

Income, 1931,

"H.
492-96.

"Frederick C.

G. Moulton, The Financial Organization of Society (1924), p. 488. Mills, Recent Economic Tendencies in the United States (1932), pp.

590
p.

Notes
v.

'"Isador Lubin, "Mining. Labor," Encyclopedia of the Social Sciences,

(1933),

505.

"Victor
V. I, p.

S.

Clark, History of Manufactures in

the United States,

2 vols.

(1928),

145-

"Vernon
I,

Parrington,

The Romantic Revolution

of the Great

in

America (1927),
vols.

p.

224.
v.

^Gustavus Myers, History

p. 58.
'"

American Fortunes, 3

(1909-10),

Charles A. and

Mary Beard,
in

Rise of American Civilization, 2 vols.

(1928),

v.

I,

p.

342.

" Computed from material

Wealthy Citizens of the City of
"^John R.
(1918),
**

M. Y. Beach, The Wealth and Biography

York. (1855).

of

the

New

Commons and
305.

Associates, History of

Labour

in the United States, 2 vols.

V. I, p.

Lewis Corey, The House of Morgan (1930),

p. 42.

'J. L.

and

B. B.

Hammond, The
Cecil

Rise of

"J. Burnley, "Studies in Millionaires,"

Modern Industry (1925), p. Chambers Journal, March, 1901,

p.

158.
p. 215.

'^Howard Hensman,

Rhodes (1901),

150.
p. 215.

"Burnley, "Millionaires," Chambers Journal, March, 1901,

"Charles and Mary Beard, American

Civilizatdon, v.

II,

pp.

170, 199.

" W.
**

Z.

Ripley, Railroads, Rates

and Regulation (191 2),

pp.

37-39.

Corey,

House

of Morgan, p. 144.
p.

"Eliot Jones, The Trust Problem in the United States (1922),

89.
p.

^Bureau

of Corporations, Report
Fifty Years in

on the Steel Industry (1911),

(1908), p. 746.
p.

112.

'"Henry Clews,
"Franklin
**

Wall

St.

Pierce,

The

Tariff

and the Trusts (1907),

122.
of the
Social
Sciences,
v.

M. A. Marsh, "Keith, Minor Cooper," Encyclopedia

(1932), pp. 553-54; John Dos Passos,

VIII

The 42nd

Parallel

(1930), "Emperor of

the Caribbean," pp. 249-52.

"New
"Ida

York Tribune, February

11, 1892.
p. 154.

The Life of Elbert H. Gary (1925), "Corey, House of Morgan, pp. 282, 301. ^ New Republic, February 21, 1934, 30-31.
Tarbell,
*^

Statistics of

Income, 1929,

p. 15.

"Statistics of Income, 1929, p. 18.

**

Robert R. Doane, The Measurement of American

Wealth (1933),

p.

29.

"New
p. 266.

York Times, October

2,

1932.

""Editorial,

"Does Responsible Ownership Function,"

New

Republic, April 21, 1926,

"New

York Times, January

29, 1934.

PART SEVEN CHAPTER XX

*

Rexford

Guy Tugwell, "The

16, 1933, p. 2.

Ideas

Behind

the

New

Deal,"

New

York Times

Magazine, July

'Department of Commerce,

Statistical

Abstract of the United States, 1923, p. 289.

Notes
^United
*

591
v. I, p.

States Industrial

Commission, Report and Proceedings (1900-02),

. .

15.

United States Bureau of Corporations, Report

on the

Steel Industry

(191 1),

pp. 251-57.
^

A. P. Usher, "The Rise of Monopoly in the United States," American Economic

Review, Supplement, March, 1933, p. 1-2. "John Moody, Truth About the Trusts (1905), p. xi. ' United States. Congress. House of Representatives, Investigation of Financial and Monetary Concentration in the United States [Money Trust Investigation], Report
(1913). PP- 89-90. * Lewis Corey, The House of Morgan (1930), pp. 390-94.

W.

L.

Thorp, "The Persistence of the Merger Movement," American Economic

p. 78.
2,

Review, Supplement, March, 1932,

^New^ York Times, March

i,

1931; March

"

Editorial, "Fashions in Finance

p. 943.

1933.

^The Merger,"

Commercial and Financial Chronicle,

v.

February 16, 1929,

'^Department of Commerce, Census of Manufactures, 1929,

I,

pp. 61, 95.

" Census "Bureau

^" ^^

of Manufactures, 1929, v.

I,

pp. 61-62.

of Internal Revenue, Statistics of Income,

v. I, p.

1924, p. 11.

Census of Manufactures, 1929,

Statistics of

94.

Income, 1929,
Income, 1931,

p. 234.

'^''Statistics
^^

of Income, 1929, pp. 338-39.

p.

Statistics of

15.

'^

Nevi^

^^

York World-Telegram, June 9, 1932. Adolf A. Berle and Gardiner C. Means, The Modern Corporation and

Private

Property (1933). PP- 33-35^^

C. E. Eraser and G. E. Doriot, Analyzing

Our

Industries (1932), p. 263; United

States, 1929, v.
v.
I,

States

Bureau of Mines, Mineral Resources of the United

pp. 487-99;

G.

W.

Stocking, "Oil," Encyclopedia of the Social Sciences,

New

Republic,

York Times, August 30, 193 1; Editorial, December 7, 1932, p. 86; H. W. Laidler, The Concentration American Industry (1931), pp. 141, 282. ^^ Federal Trade Commission, National Wealth and Income (1926),
v. I,

XII (i933) PP- 443-44; "Unscrambling Radio's Eggs," New

of Control in

p.

4;

Mineral

Resources of the United States, 1929,

July 17, 1931.
^'
1

pp. lo-ii; v.

II,

p.

715;

New

York Times,

New

931;

W.

2 vols.

York Journal of Commerce, December 6, 1929. New York Times, March i, L. Thorp, "The Changing Structure of Industry," Recent Economic Changes, (1929), v. I, p. 187. New York Times, March 15, 1931; W. S. Raushenbush

and H.
^*

W.

Laidler,

Power Control (1928),

14, 1931;

pp. 68-71.

New
1929.

York Times, November

New

York Journal

of

Commerce, February

16,

^^New York Times, May

'^'^

14, 1933.
p. 26;

Statistics of

Income, 1923,

1929, p. 127.
1

" Computed from

Poor's Directory of Directors,

Utilities,

93 1

and Moody's Manual of Invest-

ments, Industrials and Public

1931.
25,

^ Leon Henderson, New York Times, February

1934.

York Times, February 28, 1934. '"New York Times, March 21, 1934; New York Herald Tribune, April 18, 1934. " Mauritz A. Hallgren, "The NRA Oil Trust," Nation, March 7, 1934, pp. 271-73; New York World-Telegram, February 14, 1934; New York Times, March 13, 1934.

"New

592

Notes

CHAPTER XXI
*

Adolf A. Berle and Gardiner C. Means, The Modern

Corporation

and

Private

Property (1933), p. 69. 'Berle and Means,

Modern Corporation,

pp. 94-116.

'Lewis Corey, The House of Morgan (1930), pp. 396-97. *Karl Marx, Capital, v. Ill, p. 393.

'New York Journal of Commerce, May 10, 1930. "Department of Commerce, Commerce Yearbook,, 1931, v. I, p. 634; Moody's Manual of Investments, Ban\s and Finance, 1931, p. a47; New York Times, December 19,
1 931;

New

York Journal

of

Commerce, October
2,

29,

1929; Corey, House of Morgan, 1933; Corey, House of Morgan,

p. 446.
^

New
446.

York Times, August

1930; January 27,

p.
*

Corey,

House

of Morgan, pp. 446-48.

of

"New York

Journal

Commerce, May

10,

1930;

Harvey

O'Connor,

Mellon's

Millions (1933), pp. 422-29.

"Marx, Capital, v. Ill, p. 519. " Kurt Wiedenfeld, "Combinations,

V. Ill

Industrial,"

Encyclopedia of the Social Sciences,

(1930), p. 672.

"R. B. Prescott, New York Post, April 15, 1933. " R. H. Tingley, "What Can We Do with Muscle
February, 1934, p. 218.

Shoals,"

American Mercury,
World-Telegram,

"New
March

York Times, December

19, 1931;

March

9,

1933;

New York

10, 1933.

"Dane

Yorke, "The Radio Octopus," American Mercury, August, 1931, p. 387.

Conflict,"

"Schuyler C. Wallace, "Industry's Inner

Today, March

10,

1934, P- 20.

"New
"M.
^"

York Herald Tribune, March 4, 1934. C. Rorty, in Recent Economic Changes, 2

Capital, v.
Ill,

vols.

(1929)

v. II, p.

864.

"Marx,

p.

1003.

Robert Weidenhammer, "Causes and Repercussions of the Faulty Investment of

1933, p. 37.
9,

Corporate Savings," American Economic Review, Supplement, March,

'*

Ralph C. Epstein, "Earnings on Invested Capital," Annalist, February

2,

1934, p.

261; March

1934, p. 372.
23,
28,

"New "New

York Times, September York Times, November

1932.

1933; January 19, 1934; John

W.

Hester,

"The

Blight of Holding Companies," Current History, March,

1934, p. 682,

"Rudolf Hilferding, "Probleme der Zeit," Die Gesellschaft, April, 1924, p. 2. ^ Joseph Schumpeter, "The Instability of Capitalism," Economic Journal, September,
1928, pp. 384-85-

CHAPTER
*

XXII

Achille Viallate,

Economic Imperialism and International Relations During the Last

Fifty Years (1923), p. 60.

'C. K. Hobson, The Export of Capital (1914), *Hobson, Export of Capital, p. 59.
*

p. 58.

J.

A. Hobson, Imperialism (1902),

p. 60.

'Franklin H. Giddings, Democracy and Empire (1901),

p.

274.

Leland H. Jenks, Our Cuban Colony,

Notes A Study

593
in

Sugar (1928), pp. 33-37; R. D.

in the Pacific

Gibson, Forces Mining and Undermining China (191 4), pp. 168-69; Leslie Bennett
Tribolet, International Aspects of Electrical

Communications

Area (1929),

PP- 157-58; Walter Millis,

The Martial Spirit (1932), pp. 27, 47. ^ Giddings, Democracy and Empire, p. 283-84. ^Brooks Adams, America's Economic Supremacy (1900), pp. i,
^Editorial, Banl{ers' Magazine, August,
^^

12, 23, 32, 222.

1900, p. 160.

Lewis Corey, The House of Morgan (1930), pp. 322-37. " C. W. Phelps, The Foreign Expansion of American Bankj (1927), pp. 146-48; Robert W. Dunn, American Foreign Investments (1926), p. 161.

"Max
"L.
^*

Winkler, Foreign Bonds:

An Autopsy

(1933), p. xix; Editorial,

New

Re-

public. January 27, 1932, p. 283.

Bader, World Developments in the Cotton Industry, (1925), p. 179.

C. E. Eraser and G. F. Doriot, Analyzing

in the

Our

Industries (1932), p. 26.

" O. H. Cheney, "America

p. 819. ^^

World

Steel

Market," Annalist, November 25, 1927,

New York

Times, June 22, 1933.

of the

"Editorial,
P- 33.
^'^

"The Economics

Chaco War,"

New

Republic, February 22, 1933,

J.
^^

F.

Normano, The Struggle

for South

America (1931),

p. 66.

Winkler, Foreign Bondf, p. xvi;

"Wrecking a Continent,"

New

Times, October 25, 1933; Editorial, Republic, September 27, 1932, p. 276; United States

New York

Senate, Hearings Before the Senate

Securities (1932), pp. 1289-95.
^*'

Committee on Finance,

Sales of Foreign

Bonds or

United States Senate, Sales of Foreign Bonds, pp.

Erich

1849-67;

Harvey O'Connor,

Mellon' s Millions (1933), pp. 194-206.

^^

W. Zimmerman, "The

Resource Hierarchy of Modern World Economy,"

1931, pp. 458-63.
Securities in

Weltwirtschaftliches Archiv, April,

^^

Department of Commerce, American Underwriting of Foreign (1930), p. 14; New York Times, February 20, 1927.

1929

"

B. R. Wallace

and L. R. Edminster, International Control of

Raw

Materials (1930),

pp. 244-46; Alfred Marcus, "Metals," Encyclopedia of the Social Sciences, v.

pp. 364-88; C. L. James, "International Control of

(i933)>

Tin Ore," Harvard Business Review,

October, 1932, p. 69;

Distribution of
**

C.

New York Times, December 2, 1930; J. W. Frey, "Geographic World Mineral Production," Mineral Economics (1932), pp. 46-48. H. Huff, "The Copper Industry," New York World-Telegram, December 13,
Moon, Imperialism and World Politics (1926), pp. 515-16, 519; BusiNew York Times, January 2, 1934; April i, 1934.

1932.
^''Parker T,

ness Weeli, January 25, 1933, p. 24;

'^

"New
^*

York Times, May 10, 1933. York Herald Tribune, February 11, 1934. Editorial, "The Economics of the Chaco War," New Republic, February
Ludwell Denny, America Conquers Britain (1930),
p.

New

22,

1933,

pp. 33-34**

332.
20,

'""Battle for World's Telephones," Business

Week, October

1930, pp.

11-12.

" Winkler, Foreign Bonds, p. xiv. "'F. M. Turner, "The Dye Industry," Annalist, December 7, 1928, p. 893; New York Times, June 4, 1930; Moody's Manual of Investments, Public Utilities, 1932, under names of the respective companies.

594

Notes
Policy

" M. Pavlovitch, The Foundations of Imperialist " Denny, America Conquers Britain, p. 402.
''
**

(1922), p. 66,

Moon, Imperialism, pp. 539-40. New York Times, March 19, 1934.
Leslie Buell,

"Raymond

New

York Times, August

12, 1933.
v.

^M.
p.

J.

Bonn, "Imperialism," Encyclopedia of the Social Sciences,

VII

(1932),

613.
^*

New
*^ **

Buys Foreign Bonds and Why," Literary York Times, December 19, 1931. *"New York Times, September 7, 1933; December
Jenks,

"Who

Digest, January 29,

1927, p. 60;

19,

1933.

New

Our Cuban Colony, p. 298. York Times, February 23, 1934.

of

"Department

Commerce,

Statistical Abstract

of the United States,

1931, p. 483.

PART EIGHT
Introductory
'

A. A. Berie, "The Social Economics of the

New

Deal,"

New

York Times, October

p. 203.

29. 1933.

*John Bauer and Nathaniel Gold, Permanent Prosperity (1934),

CHAPTER
*

XXIII

Oskar Morgenstern, "Free and Fixed Prices During the Depression," Harvard Busi-

ness Review, October, 1931, p. 62.

*Sir Arthur Salter, Recovery, the Second Effort (1932), p.

19.

'New York * New York "New York

*

Times, April 22, 1934. Times, March 20, 1933.

Times, November 11, 1933.
Statistical

Department of Commerce,

Abstract of the United States, 1931, p. 413.

''Statistical Abstract,
*

1931, p. 836.

G. E. Barber, "The Air Conditioning Industry," Harvard Business Review, April,

1932, p. 358.

New York

Times, February 24, 1934.

26,

"New
"New
^*

York Times, May York Times, June

1934.

^^Statistical Abstract,

1931, p. 819.
28, 1933;

December
Plan'
for

16,

1933.

^^Statistical Abstract, 1931, p. 816.

Gerhard Colm,
Lewis Mumford,

"Why

the

Tapen

Economic Recovery Failed,"

and
Direction,"

Social

Research, February, 1934, p. 96.

^^

"The Shortage

of

Dwellings

New
9,

Republic,

February 28, 1934,

p. 70.

"Jonathan Mitchell, "The Armaments Scandal," New Republic, May "New York Times, April 11, 1934; May 14, 1934.

1934, p. 353.

"Hugh

Quigley, "Fascism Fails Italy," Current History, June, 1934, pp. 258-59.

" Alvin H. Hansen,

"Trade, Commerce, and Commercial Crises," American Economic

Review, September, 1933, p. 507. '""Financing Capital Goods," Today, March 17, 1934, " New York Times, April 26, 1934.

p.

21.

Notes
"Editorial, "Profits

595
December
13, 1933, p. 115.

Under

the

NRA," New

Republic,

"New
P- 335.
^"^

York Times, May 9, 1934. "Clark Foreman, "The End of Internationalism,"

New

Republic, August 9,

1933,

^
9,

New York New York

Times, December 20, 1933; March 24, 1934; May 8, 1934. Times, December 14, 1933; December 26, 1933; April 18, 1934;
of

May

1934.

"Department
**

Commerce, Commerce Yearbook, 1931,

v.

I,

pp. 318-19.

V.

I.

Lenin, Imperialism (191 6), p. 112.

CHAPTER XXIV
* * ^

Moody's Manual of Investments, Banks and Finance, 1933, pp. 2,666-70. Editorial, New York Post, "The New Deal and Steel," June 11, 1934. H. I. Harriman, New York Times, June 25, 1933.
Ethel B. Dietrich, "French Import Quotas," American Economic Review, December,

1933, p. 660.
''John A. Hobson, "'Recovery' in Great Britain," Nation,
'Editorial, "Will Roosevelt
^

Back
6,

Up

Labor,"

New

Republic,

May 23, May 9,

1934, p. 589. 1934, p. 351-52.

New York

Times, March

1934.
of for

Subcommittee of the Committee on Unemployment and Industrial Stabilization

J.

the National Progressive Conference,

M.

Clark, Chairman,

Long Range Planning

the Regularization of Industry (1932), p. 11.

'Paul T. Homan, "Economic Planning: the Proposals and the Literature," Quarterly
Journal of Economics, November, 1932, p. 18.

"Charles A. Beard, "A 'Five Year Plan' for America," Forum,

July,

1931, pp. 1-2.

"Carl T. Schmidt, German Business Cycles (1934), pp. 266, 271. ^^ Stuart Chase, Out of the Depression and After (1931), p. 25.

"V.

I.

Lenin, "Left"

Communism, An

Infantile Disorder

(1920), p. 38.

"Karl Marx, The Eighteenth Brumaire of Louis Bonaparte, p. 14. ^'Carmen Haider, Capital and Labor Under Fascism (1930), pp. 99-101, 186-87. "New York Times, January 17, 1934. "New York Times, March i, 1934; Report on "The Political Structure of the Third Reich," by Mildred Wertheimer, New York Times, June 17, 1934.

CHAPTER XXV
*Carl Russell Fish, The Rise of the
^

Common Man

Everett

Dean Martin, The

p. 22.

Conflict of the Individual

(1927). PP- 8-12, 62, no. and the Mass in the Modern

World (1932),
*

'Ellsworth Huntington and Leon F. Whitney, The Builders of America (1927), p. 75.
F.

W.

Taussig and C.

J.

Joslyn,

American Business Leaders (1932), pp. 243, 251.

p.

''Huntington and Whitney, Builders of America,

116.

'Lothrop Stoddard, The Rising Tide of Color (1921), pp. 164-67.

'New York
*

Times,
Visher,

Stephen

S.

May 27, 1934. "A Study of the Type

of the Place of Birth

and Occupations of

the Fathers of the Subjects of Sketches in 'Who's

of Sociology, March, 1925, p. 553.
*

Who

in America,' "

American Journal

Taussig and Joslyn, American Business Leaders, pp. 234-37.

596
"O.
**

Notes

R. Reynolds, The Social and Economic Status of College Students (1927), p. 14. H. G. Campbell, "High School Has a Boom," New York Times, September 24, 1933; Eunice Fuller Barnard, "Our Schools Face a Day of Reckoning," New York Times, April 15, 1934; R. L. Duffus, Our Starving Libraries (1934), pp. 2-6. "New York Times, April 11, 1934; June 17, 1934. " Frederick L. Schuman, "Germany Prepares Fear," New Republic, February 7,

I934> p. 355.

"New

York Herald Tribune, May

27, 1934.

"Charles A. Beard,

Charter for the Social Sciences (1932), p. 71.

CHAPTER XXVI
^

L. P. Edwards,

The Natural History

of Revolution (1927), pp. 6, 211, 218.

p.
i.

^ *

Karl Marx and Friedrich Engels, The Communist Manifesto,

Stuart Chase,

Out of the Depression

v. Ill, p.

and After

(1931), p. 15.

*Karl Marx, Capital,

919.
p. 3.

"Brooks Adams, America's Economic Supremacy (1900), ' John R. Commons and Associates, A History of Labour
(1918),
^ *

in the United States, 2 vols.

V. I,

pp. 237, 527.

Karl Marx, The Eighteenth Brumaire of Louis Bonaparte, pp. 21-22.

Selig Perlman,

Theory of the Labor Movement (1928), pp. 232, 304-18.

Its

"

W.

I.

King, The National Income and

Purchasing Power (1930),

p. 62.

"Stuart Chase, The Economy of Abundance (1934), p. 257. ^* John R. Commons, "Labor Movement," Encyclopedia of the Social Sciences,
VIII (1932), P- 684.

v.

"V.

I.

Lenin, "Left"

Communism, An

Infantile Disorder (1920), p. 73.

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PERIODICALS
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York Times, Herald Tribune, World-Telegram, Post, Journal of Commerce, Wall Street Journal; American Historical Review; American Economic Review; American Mercury; American Bankers Association Journal; American Journal of Sociology; Advertising and Selling; Annalist; Bankers Magazine; Bulletin of the Taylor Society; Business WeeJ^; Chambers Journal; Commercial and Financial Chronicle; Crops and Markets (United States Department of Agriculture); Current History; Die Gesellschaft; Economic Journal; Forbes Magazine; Forum; Guaranty Trust Survey; Harpers; Harvard Business Review; International Labour Review (International Labour Office) Iron Age; Journal of Political Economy; Journal of the American Statistical Association; Kolner Sozialpolitische Vierteljahresschrift; Labor Age; Literary Digest; Manufacturing Industries; Mechanical Engineering; Monthly Labor Review (United States Department of Labor) Nation; Nations Business; New Re; ;

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Ind ex

Index

Abbott, Grace,

on child
relief,

labor,

238;

un-

American capitalism: evidence of

11;

decline,

employment
Abolitionists

250.
569.
scarcity,

and "new"
to

capitalism,
peculiarities

i4fl;
of,

deff;

and

communists,
12;

velopment and
relation

24

Abundance: and want,

192;
threatens
to

and

European

capitalism,

48;

make
480

capitalist
ff.

proalso

confirms Marxist
production,

analysis

of

capitalist

duction

unprofitable,

See

ii3n; becomes monopolist,

imperialist,

Consumption.
Accidents,
industrial,

373

fl,

and

416

ff.

See

and exploitation of

also Capitalism;

United

States.
of,

labor, 238fif; in Germany, 239n. Adams, Brooks, on imperialism, 424. Adams, Samuel, as professional revolutionist,

American dream:
and
socialism,

elements
53;

51;

and
ff;

Capitalist decline,

crisis

of,

515

538.
of Labor:

54 in; thrust into obscurity, 542.

costs,

American Federation
14;

and

NRA,

Advertising and

165.
origin,

and

industrial peace, 86;

on unem-

Agrarian
ence

radicalism:

515;

influ-

on
ff;

American

labor

movement,

ployment insurance, 250, 258; estimates of unemployment, 253; origin, 557;

development,
558;

553

no longer an influence on labor

Administration
209. See

membership,
action,

565;
568.
loyal-

movement, 561. Agricultural Adjustment

and
also
restriction

and

independent

political

of production,

American Revolution: expropriates ists, 353, 541; and Civil War,

541
ff.

542;

Farmers.

and the coming communist revolution,

output
of,

Agricultural

machinery:
133,
Civil

66;

and

rate of profit,

American Telephone and Telegraph Com-

Agriculture:

before

War,
ff,

24;

re-

pany:

assets,

389; interlocking directors,

lation to frontier,

49,

515

554; and

391; and imperialism, 433.

industrial expansion, 49; capitaUst exploitation of, 29, III,

ucts
real

Anaconda Copper Company:

162; and imperialism, 433.

sideline

of,

132; prices of prodprosperity,

66,

and

capitalist

and

Apparatus,

increasing

importance

of

in

wages, 82, and mass consumption,

in,

production,

276.
speculation, 358;

206; restriction of output

208, 211,
in,

Armour, Philip D.:

concentration,

and and

392n;

displacement of
progress

labor

227;
in-

375.
output,
65;

technical

neglected,
of,

269; 282;

Automobile

industry:

creasing

mechanization

com-

prosperity, 10, 468; profits, 70.

bining of with industry, 286; and imperialism,

Autarkie: forgotten by Nazis, 445; lowers

standards of
living,

449.

See also Farmers.

labor reserve,

483.
crisis

Alexander,

Magnus W., on

Ayres, Col. Leonard, on cyclical

of

232n.
Allen,

1929, 21.

G. C, on income, I7in. Aluminum Company of America:

line
of,

side-

162;

as

monopoly, 380, 388;

Bagdad Railway and imperialism,

Banks:
control
of

50.

interlocking directors of, 391; and

petition,

com-

profits of, 71; aid speculation, 174;

406.

industry

by,

400

ff;

and

607

6o8
finance
ff;

Index
concentration

capital, 399 among, 401; interlocking directors of, 403; and imperialism, 426, 428, 432 fl. See also Finance capital; Monopoly cap-

Brady, Robert A., on industrial accidents

in

Germany, 23 9n.

italism.

Calkins, Clinch,
Caesarism:
as

Beard, Charles A., on American capitalism,

21;
capitalist

on unemployment, 236 ff. and imperialism, 488; fascism

of,

planning,

498;

planning

form

514.

in Soviet Union, 499n; ideals of

Amer-

ican dream, 535.

Canada: American investments in 443. Capital: defined, 346; and profits, 95;
superabundance
ital

Belgium,

and imperialism, 357; colonial

of,

160; increase of cap-

empire, 439.
Bernstein, Eduard,

claims,

288;

and
of,

labor

displace-

on "organized"

capital-

ment, 291; growth

325;

and stockholders,
sources
of,

ism, 414.

and

savings,

343n;

Bethlehem
Beveridge,
Birck,

Steel

Corporation: interlocking

346ff.
of.

See also Capitalism; Profit, rate

directors of, 391;

Cuban

interests,

423.

W.

A.,

on wages, 105.
of wages,
capital,

Capital,

accumulation

of:

defined,
;

iii;

L. V.,

on Marx' theory
interests
in,

during and after Civil War, 25ff during

3i8n; on sources of
Bolivia:

348n.
433;
ex-

and

after

World War,
of,

37;

decisive in

American

capitalist

production, 44, 95,

108, iii,
ff;

ploitation of labor in, 440.

143;

contradictions
of,

113

social

Bolsheviks: twofold task of, 482n; awareness of purposes

peculiarities

and means, 547; and

Russian

of

development,
of,

552n; revolutionary policy

also Soviet

570. See

and expansion, 74; and consumption, 199 ff; determines prosperity, 63, 468; and railroads, 271; and industrial concentration, 373 If;
character

347;

Union.

382;
prosperity,

undermines

capitalist

production,
138,

Bonn, M.

J.,

on American

151.

139;

and

decline

of

capitalism,
capitalist
ff.

Bourgeoisie: and capitalism, 43; and technological revolution, 262

fl;

477ff; tends to

make
477
of.

produc-

as

revolu-

tion unprofitable,
ital;

See also Cap-

tionary class, 507

by,
of,

ff;

use of dictatorship
character

Profit,

rate

506, 541

ff;

number and
national

Capital,

export of: nature and objectives,

560

ff;

share of

income,

437;

and

capitalist

expansion,

64;

in
re-

312, stock ownership, 329, wealth, 350;

economically backward countries, 46;

places
frontier,

changes in composition

of,

397

ff ; inter-

75;

and
418

rate of profit,

mediate bourgeoisie, 312, 329, 350, 560;

lower bourgeoisie, 312, 329, 350, 560;

136;

and

railroad

construction,
ff;

271;

basis of imperialism,

and inner

upper bourgeoisie, 312, 329, 350, 560. See also Middle class; Capitalism.
Brazil, coffee control, 208.

American imperialism, 421; and American imperialism, 423

ff;

relation to ex-

port of goods, 447; and American pros-

Brinkmann,
civilization,

Carl,

on

alternatives

before

perity,

67;

limitations

of,

as

factor

in

171.
after

prosperity,
Civil

485.
basic in capitalist

Building

construction:

War,

Capital goods:
tion,

produc-

26; and prosperity, 64ff, 75,

107, 472;

45,

64,

95,

180,

198;

output of
ff;

and workers' needs, 473.

Business cycle: inherent in capitalist production,
of,

during and after Civil War, 25

fore

be-

World War, 36;

131;

as factor in prosff;

13;

causes

of,

i93ff;

control

perity, 66, 74,

profit,

151, 466
for,

and

rate of

20;

and
state

"organized"

capitalism,

demand

203, 271; atof,

414;

under

capitalist

decline,

458
See

ff;

tempts to stimulate output

204; out-

under

capitalism,

500.

also

put of and workers employed, 197; and

displacement of labor, 244; and wealth,

Prosperity;

Depression.

Index
346;

609
427; foreign plundering
of,

and

credit,

factors of

and long-time expansion, 31 ff, 49ff; and

40011;
ff;

435;

Amer24;

ican investments in, 443.

Civil
as

imperialism, 418

under

capitalist de-

War: and American

542.

capitalism

470 tion and

cline,

ff;

influence of,

on consumpi93ff.

revolutionary struggle, 43; and dic-

capitalist

decline,

See
ac-

tatorship,

also

Consumption goods;
of.

Capital,

Civilian

Conservation

Corps and

forced

cumulation
Capitalism:

labor, 473.

as

revolutionary
profits,

force,

42;

Civil

Works
John

Administration

and

low

markets and

43; cyclical breaklimi-

wages, 97.
Claflin,
B.,

downs
tations
of,

of,

12; expansion, 44, 57;

on

J.

P.

Morgan, 32.

on expansion, 45, 138; upswing and labor absorption, 292 ff; tech-

Clark, John Bates, on fixed laws of distribution,

305.

nology and decline, 294; and colonial

Clark,

J.

M.,

on overhead

costs,

i28n,

and wealth, 352 ff; stages of development, 397; becomes imperialtrade,

353;

137; on stable prices, 2i2n.

Classes: interlocked with

economic

forces,

ist,

417
ff;

ff;

crisis of,

and
by

class struggle,

457;

and

technical-economic

changes,

457
465;
tect

threatened
against

world

market,

reacts
profits,

abundance to proto
state

482;

resorts

cap-

S., 560 ff; fluidity and American labor movement, 554; American peculiarities of abolished, 559;

281; divisions in U.

of,

italism

489 ff. See also Bourgeoisie; Commercial capitalism; Incapitalism.

and fascism,

and American
fication of, 532;

dream,

515

ff;

strati-

and

socialism, 539. See

dustrial

Monopoly

capital-

also

Class

struggle.

ism.

Class

struggle:

nature

of,

156;

sectional

Carnegie, Andrew, and Homestead Strike, 29; sells company, 360; as industrial
capitalist,

forms in United

States,

421; intensified

by monopoly capitalism and imperialism,

375.

453;

and the
as

crisis

of capitalism,

Carnegie

Steel

Company: crushes
of

labor,

106, 481;

aspect of state capitalism

362; and concentration, 374.

Cartels:
restriction

and
208;

fascism,

497,

511;
ff.

revolutionary

output,

and

significance of,

507

See also Glasses;

NRA,
Carver,

391, 409; limitations of, 405; in-

Struggle for power.

Clay, Henry,
Clerical

ternational, 443.

See also Combination.

capital-

on wages, 105.
growth,
281;
salaries,

Thomas Nixon, on new

workers:
88;

ism, 18; on Soviet Union, 19.

84,

mechanization

and

displace-

Catchings, Waddill, on consumer democracy,

i65n.
imperialist aspects of, 433.
profits, 71;
ff;

ment, 295; unemployment among, 249; stock ownership, 329, wealth, 350,

number, 560.
Cleveland, President Grover, and Pullman
strike, 29.

Chaco War,
Chain
stores:

wages, 85; and

390.

competition, 167

sales,

Colm,
in-

G.,

on Papen Plan, 54n, i9on.

in

Chase

National

Bank:

control

over

Colonies:

early
to,

capitalist

development,

dustry, 403;

and export of
on

capital, 428.

352; exports
tion of, 424;

46; American acquisiff;

Chase,
21;

Stuart,

American
502;

capitalism,

and imperialism, 418

of,

on planning,

on capitalism
and unand

distribution

439;

revolt

in,

and

and communism, 549.

Child
labor: in

world revolution, 488. See also Impe87;

rialism.

depression,

employment, 238.
China:
railroad

Combination:
50;

defined,

373;
ff;

development
profits,

construction,

and

significance,

373
over,

72;

surplus
terests

population,
in,

273; American into,

and speculation, 178;

Qnancial
control

efficiency of,

377;
inter-

423; struggle over loans

378

ff;

6io
ital,

Index
Concentration:
sion,

locking directors, 391; and finance cap-

defined,

374;

in

depres-

395

ff;

and competition, 405

ff;

30;

and

efficiency,
of,

375;

growth
Civil

and imperialism, 433!!. See

Concentration;

also Cartels;

and significance
Consumption:

Monopoly

capitalism.
in-

during

373 ff. and

after

Comite des Forges, acquires German

terests in Alsace-Lorraine,

War, 25
ff;

ff;

decrease during

World War,
ff,

363.
in

38; in relation to prosperity, 39

147

Commercial capitalism: defined, 397;

the

and excess
of,
ff;
ff;

capacity,

128; and capiclass distribu-

United

States,

24;

influence

on
of

talist

production,
156;

151

ff;

technological revolution, 262; in North

tion

and

cyclical

depression,

American
italism;

colonies,

353;

as

stage

180

and

capitalist

decline,

194

ff,

capitalism, 397. See also Industrial cap-

480

and income inequality, 316

428,

ff;

Monopoly

capitalism.

and

imperialism,

445;

socializa-

Commission on Unemployment Insurance

(British),

tion of necessary, 481;

and abolition
of,

of

on permanent unemployment,
R.,

capitalism,

490;

possibilities

49on.

256.

See also Excess capacity; Abundance.

Commons, John
unionism, 566.

on decline of trade
of,

Consumption
capital

goods:

increase

less

than
re-

goods, 34;
to

output

of,

153;

Communism: economy
of

482;

its

ideal

lation
tion,

capital

goods and accumulaalso

education

as

enlightenment,
of

530;

recognizes
culiarities,

significance

national peclass

193 ff. See Consumption.

Capital

goods;

569;

and

developing
573.

Cooke,

Jay:

financiering,

358;

plunders

action,

572;

objectives,

See also
revo-

railroads, 374.

Socialism;
lution.

Marxism;
Party:

Proletarian

Coolidge, Calvin, on prosperity, 303.

Communist
strikes

Cooper, James Fenimore, on landholding,

organization
of,

of,

568;

and suppression

353.
Cort, Henry,

78; and un-

employed
for,

demonstrations,

25 1

need
Credit:
speculation,

and ironmaking, 355.

as aid

510; unifies working-class struggle,

source of capital, 347;

to

566.

174; social nature of, 399;

Company
tion,

unions: under
of

NRA,

and
100, 496.

capital goods, 40on.

Competition: aspect
60;

capitalist

produccapital,

and composition

of
ff;

Cuba: loans from American bankers, 74; American interests in, 423, 443; and
Spanish- American War, 424; "freed" of
Piatt

129; and excess capacity, 160

tions
of,

limita-

211; and concentration, 375; and combination, 377; and small-scale

industry,

Amendment, 446n.
in

Culture:

bourgeois

revolution,

43;

407;

new forms
depression

of,

under

threatened by decline of capitalism, 537

ff;

monopoly
ism,

capitalism, 409;
in

and imperialand recovery,

bourgeois

and

proletarian

culture

442;

contrasted, 508.
Cutler,

461. See also Cartels; Monopoly; Excess

capacity.

Addison

T.,

on small farmers and

393n.

government
capital: defined,

aid,

Composition of
accumulation

112; and
ff;

of

capital,
ff;

113

and
Davidson,
Philip
G.,

the rate of profit, 118

and displace-

on Samuel Adams
as

ment

of

labor,

270;

earlier

and

later

and Thomas Paine

olutionists,

professional rev-

stages of, 267;

under

capitalist decline,

54 in.

472. See also Capital, accumulation of;

Profit, rate
of;

Debs' Rebellion, 556.

Excess capacity.

Debt:
jobs,

increase

and

significance

of,

290;

Compton, Karl
470.

T.,

on science and

in depression, 463.

Deflation, effects of, 66. See also Inflation.

Index
De Leon,
geoisie
classes,

6ii
of,

Daniel, on inevitability of social-

Education: ideal
ary

528; old revolution529;

capitalist

ism, 505n;

on

differences
as

between bourrevolutionary

significance
against,

of,

refas-

and

proletariat

action

529;

degraded

by

soyn.
of,
of,

cism, 531;

Democracy: origin and character

517;
44;
if;

communist and socialism, 539.

attitude to, 530;

and capitalism, 43; limitations

in

Electric

the

United
against,

States,

48,

51,

515

tor in combination, 389;

of>

Bond and Share Company: facCuban interests

other
foreign
interests,

reaction

by monopoly

capital-

435;

and
65;

ism
state

and imperialism, 446; limited by capitalism, 496; suppressed by

imperialism, 443.
Electric

power

industry:
75,

growth

of,

fascism, 512;
ff;

capitalist

and American dream, 521 reaction against, 522; and on American

also Revolu-

and
in,

prosperity,

107;

concentration

389.

socialism,

539; influence

Electrical

machinery industry, growth

of,

labor

movement, 554. See

65.

tion; Proletariat, dictatorship of.

Dennis, Lawrence, on falling interest rate,

215.

Employee stock ownership, character and amount of, 330 ff.

Equality: origin of concept of, 523; capitalist

Depression: recurrence
of,

of,

13,
of,

27; effects

reaction

against,

524;

suppressed

12,

30,

247; causes
124;

18

ff;

and
290;

by fascism, 525; and socialism, 539.

Excess capacity: causes and significance
of,

rate

of

profit,

and
of,

debt,
ff;

changes in character

460

deep-

120

ff;

extent

of,

85,

128,

49on;
122;

in-

ened
465n.
cycle.

and
See

prolonged
also

by

imperialism, Business

fluence

on
160

rate

of

profit,

and
pro-

Prosperity;

state capitalism,
tition,
ff;

140; aggravates compe-

and
as

restriction

of

Diaz, Porfirio, political power and wealth

of,

duction, 213;

factor in imperialism,
capital;
of;

358.

429.

See

also

Composition of

Dickinson, H.

C, on income

distribution,

Profit, rate of; Capital,

accumulation

3o6n.

Competition;

Consumption.
of,

Displacement of labor: in 1920-29, 228;

Exchange:

control
of,

139;

consumption

change from
placement,

relative

to

absolute
of,

dis-

an aspect
tion,

147; secondary to produc-

23ofT;

relation

to

pro-

191, 194.
distribution
of,
ff;

ductivity of labor,
culture,

225ff,

244; in agri-

Exports:
of

67;

in

upswing

227;

among
of

clerical

workers,

capitalism,

46
as

and
of

American
checking

295; under capitalist decline, 479ff, See

also

prosperity,
fall

67;
of

means

Productivity

labor;

Unemploy-

in

rate

profit,

135;

American
ff.

ment.
Distribution costs, increase of, 70,
164.

share of, 154; and imperialism, 416

See also Foreign trade; Imperialism.

Dividends:

during and after Civil War,

of, of,

25
88
of,

ff;
ff;

increase

73;

in

depression,

Fairchild,

movement
ff.

i53ff; distribution

327

Mildred, on employment wages in Soviet Union, 24 7n.

and

Farmers:
R.,

during
of,

and
-50;

after

Civil

War,

Doane, Robert

on
of

rate of profit,

I24n;

25;

revolts

participation of in

on on

interest, dividends,

and wages, I54n;

I58n;

prosperity, 38

distribution

consumption,

ff; consumption by, 158; and surplus population, 294, 47in; in-

on wealth
Douglas,

distribution, 342n, 350, 35in.

come

of, 34,

308

ff;

capitalist exploita-

Paul H.,

employment,
mates
of,

on technological un233; unemployment esti-

tion of,

132; capital returns and debt,

of,

315; tenancy, 315; wealth

350; and

242, 273n.

American dream, 517

ff;

and American

6l2
labor
class

Index
movement, 553
character
of,
ff;

number and

Ford, Henry, on unemployment, 236, 251;

as industrial capitalist, 398.

560.

See also Agri-

culture.

Fascism: defined, 511; nature and objectives,

stricts

Ford Motor Company: and displacement of labor, 225; and unemployment, 236;

512

if;

control of labor, 102; resmall-scale

distribution

and competition, 405.

Foreign-born
wages,
97;

production, 209; and

workers:
relief

and

minimum
250;

industry,

212;

income

among,
422n;
527;

and
older

under, 305, 321; and imperialism, 445;

in depression, 464; neglects housing for

monopoly
Americans
labor

profits,

permit

to

rise,

and American
Immigration;
74; world

workers,

474;

lowers

living

standards

movement, 558;
559n.
See

as factor in class

and prepares for war, 483; against reforms, 505; and state capitalism, 511;
rejects

fluidity,

also

Surplus population.

bourgeois
attitude

revolutionary

ideals,

Foreign investment: increase

of,

521

fl;

toward dictatorship con539;

of

amount and income

American,
materials,

of,

419; growth of

trasted

with communist attitude,

against,

424,

427,

428;

and
of

raw

struggle

511;

as

form

439;

distribution

Ameri-

Caesarism, 514. See also State capitalism.

can, 443; British

and American income

imperialism,

Federal Emergency Relief Administration,

extent of relief of, 252.

from,

448;

and

416

ff.

See also Imperialism.

Federal Trade Commission: on stock

ership

own-

Foreign trade: influence on

rate of profit,

costs,

106; and

among

officers

and

directors,

135, 4i7n; in

American

335n; on wealth distribution, 341.

Feudalism:
of
its

development,

27 8n;

and

imperialism,

and capitalism, 43; influence absence on American developand commercial revolution,

of

418
Foster,

ff.

See also
T.,

Exports; Imperialism.

W.

on consumer democracy,
industry
in,
in,

ment, 48;

i65n.
France:
state

262; forms of wealth under, 352.

Field,

aid to

55;

re-

Marshall, character

fortune of,

striction
capitalist

of

production

209;

and
of,

361.
Filene, E. A.,

wealth, 356;

imperialism

on new capitalism, 16; on

character
profits of,

357,
ties

419,
in

428;

sells

German
363;

propercolonial

abolition of poverty, 149.

Alsace-Lorraine,
of,

Finance

capital:

defined,
of,

400;
ff;

empire
Frick,

439.
Strike,

and development
71,
73,

395

Henry C, and Homestead

influence of

412; control over railroads by,

ff;

29.
Frontier, the:
capitalism,

374n; control over industry by, 378

on American
individualism,
agricultural ex-

and

stockholders,
of

326n;

its

basis

in

31

if;

and on

socialization

production,
if;

404;
relation

and
to

49, 520; influence of

imperialism,

418

in

pansion, 49;
75;

replaced by other factors,

large-scale industry, 433;

italism,

and

state cap-

and inner

American imperialism,
if;

494;

and

fascism,

512.

See

421; and American dream, 515

new

also

Banks;

Monopoly
B.,

capitalism;

Im-

and old

frontier contrasted,

518; influ-

perialism.
Fisher,

ence on agrarian radicalism,

553; and

A.

G.

on wage
cyclical

differentials,

American labor movement, 554.

84n.
Fisher, Irving,

on

crisis

of

1929,
as

21,

174;

on

money

and

prices
ff.

Gantt,

H.
N.

L.,

on supervisory employees,

causes of cyclical crises, 185

Fiske,

33416.

Haley, on
costs.

new

capitalism,
costs.

Gaskill,

B.,

on NRA,
of,

14.

Fixed

See Overhead

General
162;

Electric

Company:

sidelines

of,

Flanders, Ralph E.,

on investment, 2i3n.

power

388; interlocking direc-

Index
tors
of,

615
on wage cuts, 87; on coal code, 101; on consumption, 205; on unemployment and
14;

391,

and
profits

imperialism,

433;

Green,

William, on

NRA,

foreign interests of, 443, 447.

General
of,

Motors:

of,

96;

sidelines

162;

interlocking directors of, 391;

relief,

250,

252;

browbeaten by Gen.

and competition, 405; and imperialism,

433-

Hugh

Johnson, 497.
interests,

Guggenheim

in Latin

America,

General strike: in Seattle and Winnipeg,

78; in San Francisco, 566.

426; and imperialism, 433.

Germany:
dustrial
in,

state aid to industry in, 55; in-

expansion

in,

64;

labor
interest

laws
rate

Hacker, Louis M., on farmers,

agriculture

29n;

on

102;

wages
in,

in,

104;
capital

and imperialism, 449n.

rail-

reduction

i9on;

goods outin,

Harriman, Edward H., control over

roads by, 374n.

put

in,

204;

industrial
in,

accidents

239n;

unemployment
relief in,
in,

246;

unem-

Harriman, H.

L,

on

NRA,

14;

favors

ployment
capitalism

257; aristocracy and

open shop, 100. Hay,

356; foreign investments

of,

W. W., on
Henry,

overproduction,

i84n.

and imperialism
in

419, 428;

fascism

Haymarket
Hazlitt,

tragedy, 29.

aggravates

economic

crisis,

464;
in,

business cycles and state capitalism

on

unemployment

in

Soviet Union, 273n.

500.

Giddings,

Franklin

H.,

on

imperialism

Heinrich, A. W., on industrial accidents,

240.

and progress, 421.

Gilman, Nathaniel
P.,

on

Hewitt,
profit

sharing
if.

Abram

S.,

on

employee

stock

and employee stock ownership, 332

ownership and philanthropy, 333.

Hilferding,

Gomez, Juan
wealth
of,

Vicente, political

power and

Rudolf, on "organized" capi-

358.

talism, 414.

Gompers,

Samuel,

on high wages,

Hitler,

Adolf,

77;
fluctuations,

on war,
on

534.
cyclical

conception of unionism, 558.

Hobson, John A., on income and

source

Gould, Jay,
of

as
of,

strikebreaker,

29;

320;

British

imperialparisitism,
state

wealth

359, 374.
in industry: ex13,

ism,

420;

on

imperialist

Government intervention tent and aim of, 11,

of capitalism, 62, 489
capitalism;

447n; on international aspects of

capitalism,

94;

and de-

495.
profits
of,

velopment of capitalism, 48; and decline

ff.

Holding companies:

71,

414;

See also State

subsidiaries of, 90; as

method

of combi-

Fascism.

Grace, William R., and American imperialism,

nation, 379; opposition to 4i2n. See also Combination.

labor

of,

361.
Britain:
state

Holland:
aid
to

colonial

exploitation

by,

356;

Great

industry

in,

colonial empire of, 439.

55; industrial expansion in, 64; exports

of,

Hoover, Herbert, on industrial democracy,

18;

67;

Corn Law repeal

production
in,

in,

82n; re-

on

business

stabilization,

86;

on
and

striction of

209; unem-

unemployment
Hours
of
industrial

insurance, 249.

ployment

and

relief

in,

244

ff,

257;

work: under

NRA,
270.

97, 477;

technological revolution in, 264

capitalist wealth,

ff;

and
and

revolution,

355

ff;

aristocracy

Huntington, Ellsworth, on biological basis

of inequality, 524n.

capitalism in, 356; imperialism of, 357,

417

ff;

amalgamation
empire
551.

movement
of, of,

in,

38in; foreign investments

448;
colonial
in,

419, 428,
labor
Ickes,
rior,

439;

Harold

L.,

Secretary

of

the

Inte-

movement

on

New

Era, 303.

6i4
Immigration,

Index
and
unemployment,
242.
Installment selling and consumption,
Insurance, labor's share in, 344.
of,

168.

See also Foreign-born workers.

Imperialism: nature and development
32; and railroad

Interest:

corporate,

73,

88

ff,

153,

154;

416

fl;

appearance

of,

and investment and the

188.

rate

of profit,

construction,

50; and
of,

World War, 47;

prosperity, 67,

development
107; and

53;

and

Investment banking: development

of,

400;
See

monopoly

capitalism, 136;

and

and accumulation
also

of

capital,

74.

world market, 417; and foreign trade, 418 ff; development in the United States
of,

Banks; Finance

capital.

Investment income: profits

as

source

of,

421
as

ff;

424;

and Spanish- American War, stage of capitalism, 434; and

capitalism,

73; and consuming income, 75; in prosperity

Italy:

and depression, 71, 161, 188.

aid to industry in,
to,

decline of

47,

432, 484

ff;

state

65;

loans

and

highly

developed

countries,
of,

442; 444;
state

from American bankers

and wage cuts
dustry
in, in,

74; fascism

promotes war, 444; limitations

as

103; control of in-

form

of

Caesarism,

488; and
racial

209; unemployment in, 246;

capitalism,

495; concepts of

in-

colonial empire of, 439.

equality of, 524;

lution,

and proletarian revo-

552. See also

capital;

Monopoly
Foreign
of.

capital-

ism;

Finance

invest-

Japan: foreign investments

nial

of,

428; colo-

ment; Capital, export

inequality

empire

of,

439.

Income: theory and distribution

ff;

of,

305
of
of,

Javits,

Benjamin,
17.

on making everybody

of,

28, 34, 38,

306;

rich,

average family, 85; class distribution

/efferson,

Thomas, on
Senator

right to revolt, 520;

312

ff;

inequality of and capitalist pro-

glorifies Shays* Rebellion, 542.

duction,

317

ff;

as

factor

in

cyclical

Johnson,

Hiram, on

loans

and

fluctuations,

319; 320;

and

the

decline

of
State

capitalism,

and imperialism, 448.

Johnson,
trator,

Department, 436.
General

India:
craft

surplus populatir.n in, 273; handi-

Hugh,
14;

NRA

Adminis-

economy
for

of disrupted, 355; strug-

on NRA,

on open shop, 100;

on

strikes,

loi; on purchasing power,

gles

independence,
in
relation

488.
to

Individualism:

capitalism,

147; on unemployment, 254; browbeats

43; in the United States, 48; and frontier,

William Green, 497.

Jordan, Virgil, on spread-work

49, 517; capitalist reaction against,

movement,

519; suppressed by fascism, 520.

Industrial

249.
in
as

capitalism:
States, 24;

defined,

397;

United
a

and wealth, 355;

397;
also

stage of

capitalism,

transforms

Keith, Minor
ism,

C, and American
B.,

imperial-

American dream, 518 ff. See mercial capitalism; Monopoly

Industrial

Comsocial-

361.

capitalism.
of

Kendrick, Benjamin

on farmers, 29n. on

unionism:

as

aspect

Keynes, John Maynard, on monetary aspects of cyclical crises,

ism,

505n;

and unorganized workers,

strikes

187

ff;

rate

566; and Socialist Labor party, 568.

Industrial

of

profit,

189,

214;

on

speculation,

Workers of the World:

36,

189; on capital goods

and investment,

and

suppression of,

78;

contribuof,

189 King,

ff.

tion to
Inflation:

American movement
resort
to,

568.

Willford

I.,

13, 463;

and wages,

on

wages,

105;

on income, 68n, 89; on economics as a

98; wipes out middle-class wealth, 362;

limits

science,

io5n.

and dangers

of,

463.

Kingsbury, Susan M., on employment and

Injunctions, in post-war period, 78.

wages

in the Soviet

Union, 247n.

Index
Knights of Labor: boycotts by, 376;
class

615
colonial
basis

of

American imperialism,
investments
in,

unionism
Krueger,
oly,

of,

556; collapse

of,

557.

440;

American

443;

Ivar,

and international monop-

American imperialism upholds reaction

in,

433-

446.

Kuczynski, G., on relative wages in Ger-

many, 83n.

League of Nations and peace, 444. Lenin, V. L, on finance capital, 399n; on monopoly competition, 405n; on monopoly
profits

and

labor,

Labor: in prosperity,
of,

40,

56

fl;

division
to,

privileged workers, 422n;

as a stage of capitalism,
italist

42on; on on imperialism

264, 286; post-war attitude

of,
if;

77;

change in character
of machinery,
ff,

under influence

decline

43 4n; on capand decay, 485; on neagainst

capitalism,

284
of,

under
fl;

NRA,
343;

94
in-

cessity

of

struggle
industrial

496; income
of,

307
of,

stock ownerof,

506;

on

unions,

5o6n;

on

ship

328

ff;

savings

significance

of

national

peculiarities,

surance
of,

holdings
anti-trust

344;

exploitation
against,

569.

95;

laws

used

Leopold
357.

II,

King, and

Congo

massacres,

379n;

and holding

companies,

41 2n;

under decline of capitalism, 47, 471 ff; and imperialism, 440; and ideals of

Leven, Maurice, on income, 312.

Lewis,
signs

John

L.,

and

coal

code,

loi;

American dream, 520 ff. See also Labor movement; Unemployment; Trade unions.

agreement with

mine
of,

operators,

loin.
Liberty:
origin
reaction
of

concept

520; cap-

Labor banks and

18,

trade-union capitalism,
italist

against,

521; suppressed

565; and workers' savings, 343.

Labor

movement:

American

and

Euro-

by fascism, 521; and socialism, 539.

Limitation of output: as element of

pean contrasted, 551; development and peculiarities of American, 552 if; Russian,

moin

nopoly

and

capitalist
bottles,

decline,

45;

manufacture of

552n;

and

275n; urged by

agrarian

democracy,

553; changing character and the revolutionary

perspectives
of,

manufacturer, 169; always practiced by

capitalism,

208

ff;

encouraged by

NRA,

567

ff.

See
state capitalism,

also Labor; Strikes; Struggle for

power.
in agriculture,
capitalism,

and fascism, 210, 494 if; 392n; and the crisis of

if.

Labor Party, significance and

of,

limitations

480

See also Consump-

566.
in-

Lamont, Thomas W., on spheres of

fluence,

tion; Excess capacity; Profit, rate of.

Lippmann,
Lodge,

Walter,

on

freedom

and

427.
as

democracy, 52on.

Landholding

form of wealth, 352; de-

creasing importance of, 354.

Henry Cabot, on American

ex-

Lapidus, L, on fixed capital and rate of

profit,

pansion, 424.

i2in.
30; and iii; and com-

Luxury goods and production, 170.

Large-scale industry: growth of,

accumulation of

capital,

position of capital,
of,

112; overhead costs

ff;

Machado,
nections,

Gerardo,
435.

and

American conof

127; and the rate of profit, 133

development
405;

of, 373 ff; competition in, and finance capital, 395 ff; and
if.

Management:

separation
ff;

ownership

from, 31, 192, 395

increasing

mechand

imperialism, 416
tion;

See also Concentra-

anization of, 285; Taylorism and, 334;

projects

Combination; Small-scale industry. America:

United States policy
loans
to,

new

social

order,

335;

Latin

to-

socialism, 338,

ward,

423; foreign

434;

as

Manufactures, concentration

in,

387

ff.

6i6
Martin,

Index
Robert
F.,

on

raw

materials,

Means,

Gardiner

C, on

separations

of

iSsn.

Marx, Karl: on American capitalism, ii3n;

ownership and control, 395. Meiggs, Henry, and American imperialism,

on

realization

of

surplus

value,

iign;

361.

on

utilization of fixed capital, i2on;

on

Mellen,
397-

Charles

on Morgan

control,

fixed costs, I2in;

on

rate of profit, I33n,

2i4n, 216; on
duction,

crises,

i82n; on overproproduction,

Mellon,

Andrew W., on

prosperity, 16;

on

184;

on

capitalist

speculation,

174; interests of, 396, 406;

i92n; on reserve army of labor, 232n; on

surplus population, 255
ff;

and Barco concession, 435.

Mellon
interests:

on theory of

threat to, 406;

in

and im-

wages, 3i8n; on technology, 26in; on

perialism, 433;

Colombia, 435; and

438.

changes

in capitalist

ownership, 324n;

aluminum world
Mexico
Middle
281,

trust,

on

significance of separation of

owner-

Mergers and speculation, 178.

ship and

capitalist wealth,

management, 338; on source of 347n; on concentration

382n;

and

surplus

population,
in,

273;

American investments
class:

443.

of

industry,

on

middle

class,

changes

and
of,

growth
ff;

of,

386n; on finance
centration

capital,

399n; on con405n;

314;

income
of,

308
wealth

stock

and

competition,

on

ownership

329

ff;

of,

350;

foreign trade and rate of profit,

4i7n;
461 n;

Marxist conception

of,

386n;

and the
420;

on on
on

overcoming
capitalist

cyclical

crises,

market,
old

4ion;

and

imperialism,

and

socialist

production,

economic significance of destroyed,

502n;

on proletarian

revolution,

509;

variations in social development, 550;

class relations, 554.

on American
ican

410; and American dream, 517 ff; and American labor movement, 557; number and character of, 560 ff; and revolution, 564. See also Bourgeoisie.

Marxism: economic
capitalism,

theories of,

and Amerof,

ii3n;

tactics

510;

Miller,

Spencer, on

new
on

capitalism,
science

18. jobs,

scientific

awareness of means and pur547;

as
social

Millikan, Robert A.,

and

poses

of,

engineering,

470.
Mills,

547n;

and American mind,

labor

549; and

Frederick

C, on
7on; on

productivity

of

American
theories

movement,
forged
of,

550
by,

ff;

labor,

38n;

on

building

construction,

and

tactics

551;

65n; on

profits,

costs,

ii4n.
116;

Americanization
peculiar
also

571; approach of to

Mining and composition

of

capital,

American problems, 573. See Proletarian revolution; Labor moverelation

to

accident rates in, 239; concentration in,

389.
Misery,
increasing,

ment.

and

industrial

revo-

Mass consumption:
of>

prosperity
of

lution,

269; and the decline of capital486;

I5>

39'

56;

and composition
205;

ism,

105,

new
on

aspects

of,

487.

capital,

117; and production, 194; confactors

of,

See also Surplus population.

Mitchell, Charles E.,
prosperity,
16.

ditioning
of

and decline

capitalism,

207. See also

Consumpof

Mitchell,

Wesley C, on displacement of
cyclical crises, 185, 187.

tion;

Prosperity.
ideal

workers, 231.

Mass well-being: assumed

capitalism, 15
pression, 25
capitalist
fl;
fif;

new

Money and
Monopoly:
cline,
ital,
ff;

in prosperity

and desup-

as

element

of

economic deby
ff;

labor struggle for, 525;

against,

30, 45;

and composition of cap-

reaction

526;

134;

strengthened

NRA, 392
and
rate of
as
of,

pressed by fascism, 526; and socialism,

and competition, 404

134,

539.

profit,

411;

limits

411;

Matthews, A. M., on volume of production, 63n.

"organization" of capitalism,
imperialism,

414;

and

430;

in

economically

Index
backward
and
countries,

617
on wage
cuts,

432; and

interna-

87;

control of over incapital,

tional competition,

442; and stagnation

dustry, 378, 403;

and export of
of,

decay,

448;

prolongs

depression
ff.

428; foreign bond issues

433n; Cu-

and hampers recovery, 462

See also

ban loans
National

of,

435.

Monopoly capitalism; Finance capital. Monopoly capitalism defined, 398; as stage of capitalism, 398 ff and state intervention, 37, 492; and state capitalism, 394,
:

Industrial

Recovery

Act,

see

NRA.
National
tion,

Industrial Recovery

Administra-

see

NRA.
Board

494;

as

objective abolition of capitalist

National
100.

Labor

and

strikes,

98,

production, 404; and competition under,

405

if;

contradictions of, 415;

and imof

Natural

resources:

exploitation
in,

of,

358;

perialism,

419
against

ff;

and

exhaustion

concentration of ownership

389.

long-time factors of expansion, 431; as

reaction

democracy,

446;

its

Negro and minimum wages, 97; and unemployment, 237; relief for, 250; exploitation
of,

basis in socialization of production,

449;

422;

threatened

by Jim
struggle

and fascism, 513. See

ital;

also Finance cap-

Crowism and lynching,

of,

523;

Imperialism.

572.

Monroe Doctrine: transformed, 423; imperialist interpretation of,

"New"
18;

Capitalism:

after

depression

of

440; and Cuba,

1873-79, 15; and industrial democracy,

446n.

and high wages and

of business

profits, 61;

and and

Moody, John, on unemployment, 23 2n. Moorhouse, H. W., on leisure as cause of

unemployment, 236. Morgan, Arthur E., on
portunities, 53on.

"control"

cycle,

223;

wealth distribution, 342; and American

unionism, 564.

educational

op-

NRA:
labor

ballyhoo for, i4ff; and attitude of

leaders,

98;
of,

purposes

of,

13;

Morgan,
32;

J.

Pierpont:

power

of

and

cycles,

459; character
54;

6 iff; expenditures of,

and Theodore Roosevelt, 37n; on

374n; control of over indus-

limitations of,

103; effect

of,
ff;

96ff;

rights of property, 362; control of over

railroads,
try,

restriction of production by,

cartels,

209

and

409; strengthens monopoly, 391;

397-

and
of;

capital

goods output, 204;

of

restricts

Morgan,

House

financial
ff,

control

of

introduction

new machinery,

293;

over industry, 376

388, 402; electric

power
of,

interests of,

389; associated with

and consumption, 195; and closed shop, 99; and prices, 187; and hours of labor,
477; acts against labor, looff, 496; and
imperialism, 445;

Pacific cable project, 424; Chinese loans

427; and export of capital, 428; forof,

and

state

capitalism,

eign bond issues

interests of, 435.

433n; Colombian

494ff

as expression of decline of capital-

ism, 140. See also State capitalism.

Morris, A.

J.,

on purchasing power, 148.

industry

Nourse,
49on.

Edwin

G.,

on capacity

to produce,

Moving
107.

picture

and prosperity,

Murray, Philip, labor leader, and President

Franklin D, Roosevelt, 100.
Mussolini, Benito, on war, 535.
Collective bargaining

Open Door
99.
reaction

doctrine, changes in, 427.

Opportunity:

origin

of,

526;

capitalist

and

NRA,

against,

527;

suppressed

by

fascism, 528;

Ostrovityanov,

and socialism, 539. K., on fixed capital

I2in.

and

National

Bituminous

Industry
100.

Board,

rate of profit,

labor representation on,

Overcapitalization and rate of profit, 126.

National City Bank, on high wages, 77;

Overhead

costs

and

profits,

121; in large-

6i8
scale

Index
industry,

127.

See

also

Excess

Production:
2$(i',

during and after Civil War,

in
rate

capacity; Profit, rate of.

fall

of

increase

of,

33,

Overproduction,
output,

iSafl;

and

restriction

of

208.

See

also

Business

cycle;

and consumption, 45, 75, I47ff; and displacement of labor, 96, 242^,
152;

Excess capacity.

293. See also Consumption.

capitalist

Ownership:
192;

under

production,

Productivity of labor: increase in, 27fl, 65,

96,

separation
control,

of

from
395ff;

management
distribution
irresponsi-

253;

and
of,

323ff,

controlled,

and wages, 28, 81, 85; not 104; and composition of and
rate of profit, 118; re-

329ff;

and wealth, 350;

capital, 116;

bility of,

364; and imperialism, 433, 447.

lation of to production

and

prices, 232,

See also Property.

272; displacement of labor by and un-

employment, 225ff, 242fT; and

rate

of

growth

of production, 272; possibilities,

crisis

Panama
French

Canal:

United
423;

States

opposes

293; and
also

of capitalism, 479^. See

building,

and American

Unemployment; Production; Wages.

growth of, 281; salunemployment among,
into,

imperialism,
Parasitism: and

426.

Professional workers:
aries
of,

growth of debt, 290; and

88;

imperialism, 447.
Pareto,
Vilfredo,

249;
distribution,

and surplus population, 296;

of,

on income

come
561.

313;

functional

approach

305Paris

Commune,
Thomas,
54 in.
as

significance of, 551.

as

Paine,

professional

revolu-

Profit,

rate

of: causes

and
in

results,

I30ff;
capital
in-

relation
tionist,

of

to

interest

rate

and

Peace:

bourgeois

ideal,

533; capitalist

goods
dustry,

output,

189;

small-scale

reaction against, 534; repudiated by fas-

122; and productivity of labor,

costs,

cism, 534; and League of Nations, 444;

119;
to

and overhead
fall in,

127;

efforts

and

socialism, 539.

check

13 iff; and monopoly,

135,

Perkins,

Frances,
14;

Secretary of Labor,

on

134, 408, 411; and foreign trade,

NRA,
259.
Picketing,

on unemployment

4i7n;
reserves,

and export of
4i8ff;

capital

and imde-

perialism,

under

capitalist

cline, 477ff.

See also Capital, accumulacapacity;

injunctions

against,

78.

tion

of;

Excess

Competition;

Pigou, A.

C, on

wages, 105.

Profits.

Piotrowski, R., on

monopoly competition,
Profits:

defined,

iii;

during

and

after

405n.
Civil

War,

25ff;

during World
39,
56, 63 ff,

War,
107;

Planning, economic: under capitalism, 205,

37; and

prosperity,

under socialism, 495n, 504; in Soviet Union, 499n, 504; and abolition
499
of
ff;

and "new" capitalism, 61; government and consumption, 66; to, aid 62;

capitalism,

501;

forms

of,

502ff.

amount and
investment
of,

distribution

of,

67ff;

re-

See also State capitalism.

Portugal:
Britain,

74; increase of,

82,

96;

imperialist

alliance

with Great
of,

418;

colonial

empire

439.

and wages, 92, 11 iff; and excess capacity, 128; monopoly, 134 ff; and
speculative,
cyclical

Powell,

Webster,
aid,

on small farmers and

393n.
25ff, 33;
crises,

i72ff;

and

prices,

186; and

government
Prices:

fluctuations,

319; concentration

during and after Civil War,

104, 392;

in distribution of, 376; industrial profits

fixing of,
i85ff;

and

cyclical

subordinated
tive
profits,

to

financial
ff;

and speculaimperialism,
abolition

and

restriction of production, 211.

412
in

and

Primitive

accumulation:
States after

in

Europe,

352;

4i8ff,

445;

colonies,

440;

in United

Civil

War, 358.

of

threatened

by

capitalist

production

Index
itself,

619
ing directors
of,

i96ff,

477ff;

and

limitation

of

Radio Corporation of America, interlock388, 391.

output

480; under

socialism

501.

See

also Capital, accumulation of; Profit, rate

of;

Finance

capital.

Radio industry and prosperity, 107; overexpansion in, 162.

Railroads: basic factor in prosperity after
Civil
of,

Progress: origin of concept, 535; capitalist

reaction
fascism,
against,

536;

suppressed
540.

by

War,

26ff;

post-war expenditures

537;

and

socialism,

64; importance of in capital accumu-

Proletarian

revolution:

contrasted

with

lation, 26ff,

271;

officers' salaries in,

92;

bourgeois revolution, 5o8ff;

in the

developing
of,

as factor in

export of capital and im-

United

States,

54 iff; character

perialism, 50, 271, 418;

to J

government aid
and control
in,

545; increasing awareness of means and purposes, 346S; conditioning factors of,
548; and petty-bourgeois elements, 564;

359;

concentration

374n, 389.

Rand, James H., on prosperity,

Rather,

16.

and American problems, 57 iff. See also Labor movement; Struggle for power;
Marxism.
Proletariat:
talist

Allan W.,

on technological

un-

employment, 234n.
Rationalization: defined,

130; and rate of

typical

class

created
as

by capicarrier

profit,

130.

production,

489n;

of

Raw
of,

materials: changes in, iii; prices of,

rate of profit,

socialism,

491;

as

revolutionary
of,

class,

and

132;
of

overproduction
capital,

number and proportion See also Labor; Working class.

507ff;
Proletariat, dictatorship of,

564;

183;

and

export

418;

struggle for control of, 437; monopoly,

not state capi-

438. See also Imperialism.

talism,

495n;

contrasted

with fascism,

Reconstruction (after Civil War): economic

Property: rights

539; and economic planning, 504. of, 362; as basis of wealth

class rule,

and

political aspects of,

26n, 555; rein-

terpreted because of use of dictatorship,

and
of,

365; changing character

542.

395ff;

corporate

form and

of,

323;

Reconstruction

Finance

Corporation:

ex-

small

independent

property

destroyed,
socialism,

penditures of, 54; and credit, 190; created by President Herbert Hoover, 495.
Reserves, corporate, and dividends, 90.

5i7ff; social character of,

324, 366; and democracy, 521; fascism

defends old relations

of,

513. See also

Revolution:
5o6ff;

bourgeois

and

proletarian,

Ownership.
Prosperity:
24ff;

importance of in American deof,

and

meaning and development of, profit, 63 ff; and high wages,

velopment, 54iff; causes

eration of,

544; accel-

546; influenced

by cultural

39;

cultural
tion,

and consumption, 39, 15 iff; agricrisis during, 66; and specula179;

borrowing and diffusion, 545n. See also

American Revolution; Bourgeoisie; Proletarian revolution;

and

unemployment,

22$fi;

Marxism.

and imperialism, 428, 485; prospects of, 40, 42, 204; under capitalist decline,
46off. See also Depression; Business cycle.

Rhodes,

Cecil,

on imperialism, 357;
D.,

on

social imperialism, 420.

Rockefeller,
capitalist,

John
360.

becomes

financial

Public

debts:

increase

in

American, 54;

world

total of,

365; as form of parasitic

Rockefeller,
bility of

John D.,

Jr.,

on

irresponsi-

wealth, 366.

ownership, 364.

Public expenditures, character of, 366n.

Public Public
in
utilities,

Rogers, Leonard, on

NRA,

15.

concentration in, 389.

States,

Roosevelt, President Franklin D.,

on NRA,
in

works: in the United

55;

54;

61; and labor leader, 100;

tion,

on consumpof encour-

Europe,
204;

and

capital
of,

accumulafactor
in

147;

affirms

open door policy

tion,

limitations

as

China,

440;

administration

revival

and

prosperity, 472.

ages imperialism, 484.

620
Roosevelt, Theodore, and
trusts, 36,

Index
3711;

Speculation: causes

and development

of,

land
titles,

commission

of,

condemns

land

i7iff; during Civil

War, 25; and pros-

361; anticipates

NRA,

493.

perity, 21, 25, 179; distribution of profits

of,

Rothschilds, capitalist function of, 356.

176; and early capitalism, 355; and

174,

finance capital,

412. See also Fi-

nance
Salaries, officers': in

capital.

manufactures, 67, 72,

Spengler,
45;

Oswald, on decline of culture,

as

89; in depression, 90.

on property and man

interests:

beast of

Savings: and investment, 73, 188; sources

of, 34611.

prey, 362n.

Standard Oil

profits,

360;

and
fi-

Schuman,
42.

F. L.,

on decline of capitalism,
revolution,
of,

industrial

capitalism, 374ff;

become

nancial oligarchy, 360; after dissolution

in

Science:

bourgeois

262;

of trusts, 380;

still

dominant, 388; Cu-

technological

application

265;

and

ban holdings
433.
State

of,

423; and imperialism,

crisis of capitalism,

470, 53 in.

Shays'

Rebellion:

glorified

by

Jefferson,

capitalism:

defined,

493;

developcrisis

542; an agrarian debtor revolt, 552.

ment and

objectives of,

4895; and
as

Union Oil and competition, 167, 442. Slichter, Sumner H., on unemployment,
Shell

of capitalism, 11;

NRA

form

of,

14,

54 37> 394;
56,
95ff;

and decline of capitalism,

loi; and prices,

23 2n; on professional management, 336.

Small-scale industry: rate of profit in, 129;
decline of, 373ff; and competition, 407.

61,

139; profits and wages under,

labor,

and

187;

See also Large-scale industry.

Socialism: in United States, before

and consumption, 195; interlocked with monopoly capitalism and imperialism,

414, 445; and cyclical recovery, 4625;
contradictions
of,

World

War,
under,

36,

53,

556ff;

economic control

465;

and

limitation

94;

and higher composition of

forms of created by capital489;

of output, 482; lowers living standards

capital, 138;

and prepares
ism,
labor,
as

for war,

484; progressive

ism,

335ff,

and
of,

w^orld

planned

and reactionary stages

495;

of,

493 not
;

social-

economy, 450;
491;

proletariat as carrier of,

inevitability

5055.

See

also

form of struggle against 496; and reforms, 504; and fasThaddeus,

revolutionary

Communism.
Socialism, reformist: attitude toward state
capitalism,

cism, 511. See also Fascism.

Stevens,

enemy

494;

weaknesses
labor

of,

510;

of slavery, 542.

dominates
551;

pre-war

movement,
struggle,

Steward,

Ira,

on consumption, 149.
ff;

abandons

revolutionary

Stockholders: multiplication of, 322

and and

570. See also Proletarian revolution.

Socialist

ownership,
to

281;

number

of,

323;

Labor

party,

contribution

large-scale industry, 325.

American movement, 568.

Socialist party, character of, 568.

Stock ownership: development and

cance

signifi-

of, 323ff; class distribution of,

329;

Soviet Union: no excess capacity in, 138;

among
Stone,

officers
S.,

and

directors,

335.
18.

and unemployment, 247n; income

tribution in, 32on;

dis-

Warren
1

on labor banks,
and

and functional mancapitalists

Stretch-out
labor,

system

exploitation

of

agement, 339; expropriates

landlords,

and

61.

362;

socialist

relations

and

Strikes:
real

Homestead, 29, 376; and higher

wages, 77ff; under
77; attitude
of

industrialization in, 476n, 482n; planned

NRA,

98,

loi;

economy
Soviets

in,

503; and world socialism,

outlaw,

Carnegie Steel
against,

565. See also Bolsheviks.

management,
568; and mass

362;
of,

NRA
in

77,

and general
572.

strikes,

496; militancy
in Seattle

i87o's-9o's, 567;

actions,

and Winnipeg, 568; new up-

Index
surge, 566. See
also

621
United
77;
States, 553ff ;

Labor Movement.
in

post-war attack on,

Struggle for power: conditioning factors of,

457fT;
objectives
of,

and wages, 84;

under

NRA,

99,

491;

struggle

496; petty-bourgeois theory

trade union capitalism, 564;

of,

558; and

against
crisis

fascism,

511;

and

ideological

and fascism,
of,

of capitalism, 538; decisive classes

512;

decline
also

and resurgence

565ff.

in,

549. See also Marxism; Class strug-

See

Labor

movement;

Industrial

gle; Proletarian revolution.

unionism.

Surplus
stages

population:
of

in

earlier

and

later

Traylor, Melvin A., on business cycle, 16.

industrial

revolution,
of,

269^;
24 iff;

True
Trusts:

Story
of,

Magazine:

promotion
toward,

camand

development and significance

paign

i7n; on consumption, 148.

attitude

and decline of capitalism, 116; in economically backvi^ard countries, 273; in

labor

36;

NRA,
ber

210; development
377.

of, 372ff;

num-

United States after Civil War, 278; and

farmers, 294; and clerical, technical and
professional workers,
revolution,

of,

See

also

Concentration;

Combination; Monopoly.
Tugwell, Rexford Guy, on
control
of

295; as factor in
law,

NRA,
20;

14;

on
148,

297;
also

and Malthusian

business cycle,
crisis

on con-

475.

See

Unemployment; Misery,
defined,

sumption and
195;

of

capitalism,

increasing.

on competition and combination,

and frontier and
history,
sec-

Surplus

value:

iii;

basic

in

capitalist
profits,

production,

71; and financial

83;

373Turner, Frederick
tions

J.,

73; growth of,

and wages,

in

American

5i8n.

95; relation of to composition of capital,

117, 143; and rate of profit, ii8ff,

Unemployment:
225ff, 24 iff;

causes and development of,

125; and excess capacity, 120; as source

of wealth, 346;
478ff.
tal,

accompaniment of
27!!;

capitalist

and decline of capitalism,

development,

under

NRA,

103;

See also

Wages;
of.

Profits;

Capi-

and wages, 106, 116; in Soviet Union,

273; and decrease in production of surplus
nical,

accumulation

value,

296;

among

clerical,

tech-

and

professional

workers,

295;

Taxation: and
capacity,

profits,

38,

105; of excess

under

capitalist decline,

47 iff. See also

140.
raises

Displacement of labor; Surplus populaproductivity

of

Taylorism:

labor

tion.

without

new

investment, 282; and

334.

man-

Unemployment
forms
in,

insurance:
in
of,

proposed

re-

agerial employees,

257;

the

United

States,

Technical workers: and

of,

NRA,

98;

growth
298;

258;

limitations

258;

necessity

of

281;

occupational

status

of,

struggle for, 259n.

and revolution, 570.

Technocrats and technology, 263, 287n.
Technological
260;

Unemployment
defined,

relief,

249ff.
of,

United Corporation,

interests

389.

unemployment:
of,

United Fruit Company: and American imperialism,

of,

development
of

272,
226fl.

234;

and
also

361;

interlocking

directors

productivity

labor,

See

391.

Unemployment.
Technology: economics
of,

United States: relation to world capitalism,

26off;

and un47off;

48ff;

technological

development

in,

employment, 26off; limitation of progress

27off;

wealth

in,

353ff; inner imperialof,

by under

capitalist

decline,

ism

in,

421; export of capital

of,

422ff;

and revolution, 570. See

Productivity of labor.

also Capitalism;

imperialism
of,

423ff;

colonial

empire

439;

new

class relations in, 56off.

Trade unions: militancy of before World

United States Steel Corporation: formation

of 30> 376; watered stock of, 33; profits

War,

36,

556fi;

development

of

in

622
of,

Index
12411,

360; rate of profit and excess

163;
interlocking
interests
of,

of,

364; and capitalist decline, 365;

as

its

capacity of,
of,

directors

socialization

basis of

socialism,

366.

391;

Cuban

423;

and

See also Ownership.

imperialism,

433;

exploits foreign-born

Wcidenhammer,
I24n.

R.,

on
costs

rate

of

profit,

workers, 558.
Unskilled workers: real wages
early factory system, 266;
of,

84; in

Welfare

capitalism,

of,

335;

and

and

industrial

suppression of labor, 335.

Wells, David A., on consumption, 149.

unionism, 566.

Unused

capacity, see Excess capacity.

Westinghouse Electric and Manufacturing

Vanderbilt, Cornelius, on law and power,

Company: sidelines of, 162. White Collar workers: wages of, unemployment among, 249. See
Clerical

97;
also

362.
Vanderlint, Jacob, on consumption, 149.

workers; Professional
Assistant

workers.
of

White,
State,

Francis,

Secretary

on prosperity and wages, 78ff. Venezuela, loans from American bankers,

Vauclain,
S.,

on loans and
F.,

State Department,

436.

74; concessions in, 423.

Villard,

Whitney, Leon
14.

on

biological

basis

of

Oswald Garrison, on NRA,

inequality,

524n.
ideals

Whitman, Walt, on
dream, 516.

of

American
of
stock-

Wage

labor: as basis of capitalist production,

Widener,
holders,

P.

A.

B.,

and

rights

263.

See

also

Labor;

Surplus

value;

326.
87;

Wages.

Wiggin, Albert H., on high wages,

determination
86ff;
as
of,

Wages:
in,

76;

reduction
of
social

salary

and bonuses

of, 90.

77,

proportion

Williams,

Arthur, on workers and stock

1

product, 82; and capitalist development,

86;

ownership,

8.

among union
89;

workers, 84; in deprofits,

Wilson,
strike,

President

Woodrow, on

miners*

pression,

and

92,

11 iff;

in

78; and Latin- American conces-

manufactures, 67;

industrial

and

total,

sions, 427.

72; and costs, 95; under

NRA,
in,

97, 107;

Winkler,

Max, on Latin-American bond

economists urge reduction

105; and

defaults, 435n.

composition of capital,

107;

and con-

Wister,
J.

Owen, on Theodore Roosevelt and

workers, earnings
F.,
of,

sumption, 2o6fT; and imperialism, 440;

as proportion

Picrpont Morgan, 37n.

85ff.

of national income,

315;

Women
i4on.

and

foreign

investment,

448;

under

Woodlock, Thomas

on

rate of interest,

capitalist

decline,

107. See also Labor;

Wages,

real.

Woods, Arthur, on unemployment

250.

relief,

Wages, policy of high, and new capitalism,

61, 94.

Working
during and after Civil War,

class:

income

and
of,

poverty

of,
of,

Wages,
25flf;

real:

315; stock ownership 350;

329; wealth

stationary in prosperity, 34ff;

of
capital,

and

number and

character of,

56off;

accumulation
63flF,

56;

post-war,

ideological backwardness of, being liqui-

77ff;

under

NRA,

98, 102. See also

dated, 567. See also Labor; Proletariat;

Wages.

Labor movement; Proletarian revolution.

capitalist production,
of,

Waste and
352fif;

131.

World
class

War:
47;

and
47;

prosperity,
as aspect

37ff;

and

Wealth: development
social

under capitalism,
of,

imperialism,
decline,

of capitalist

character
of,

346;

and American prosperity,

distribution

346ff;

in

economically

67; creates

new American

millionaires,

backward

countries, 358; parasitic

forms

362.