Lewis Corey

The Decline of American Capitalism


PART SEVEN
Monopoly Capitalism and Imperialism


CHAPTER XXI
Monopoly and Finance Capital


MONOPOLY capitalism has two interlocking aspects: separation of ownership, management, and control; usurpation of control by the financial oligarchy. Industrial concentration and the centralization of financial control increasingly transform the social capital into finance capital, liquid, intangible, mobile. This capital is mobilized and manipulated by the oligarchy and the financial institutions with which it is 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 class aspect is decisive. The animus of the “institutional” approach is clear: if “professional” management is an independent category, then there may be a smooth, gradual, peaceful development toward a “new” society, meanwhile retaining the fundamental exploiting relations of capitalism. 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 the analysis of the subject by Gardiner C. Means, in The Modern Corporation and Private Property. After a comprehensive and convincing 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.” [1]

This clear appreciation of control as independent of ownership and management is offset, however, by an unclear conception of how control is secured and exercised and by whom. Of the 200 largest non-financial corporations, according to 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). [2] 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 terms of larger 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 ownership of the Aluminum Company of America, the Gulf Oil Corporation, and 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; the estate of the Duke (tobacco) family, with typical widespread financial interests; 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 Ponts and the Rockefellers. What are the legal devices? Voting trusts, non-voting stock, and holding companies, typical methods (particularly the holding company) used by financial capitalists to get control of corporations without any substantial investment of their own; among the combinations thus controlled are the Cities Service Company and the Morgan United Corporation. Management, according to Means, controls corporations with “no single important stock interest.” But it is precisely these corporations, where ownership is most scattered, which come most easily under control of the financial oligarchs and their 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” control!

Some of the “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 ruled the New York, New Haven 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 questioned the railroad’s president, Charles S. Mellen, about a particular transaction:

FOLK: Why didn’t you tell Mr. Morgan: “By what right did you buy that stock?”

[Outburst of uproarious laughter from the lawyers present, convulsed by the idea of putting such a question to Morgan.]

MELLEN [smilingly]: Well, it did not seem that that was just exactly the right way to approach Mr. Morgan.

To cut short discussion and opposition at New Haven board meetings, Morgan would fling his box of matches from him, smash his fist on the table, and say:

“Call a vote! Let’s see where these gentlemen stand.” They always stood where 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.” [3] The only difference to-day is that the financial dictatorship is not so personal, it is more oligarchic ...

Another aspect, which the “institutional” economists neglect, is that monopoly and finance capital mark a new stage of capitalism. Three stages may be distinguished in the development of capitalism (its basis remains unchanged: antagonism between wage labor and capital, production of surplus value and its conversion into capital):

  1. Commercial capitalism, dominated by merchant or commercial capitalists, 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 technical-economic 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 capitalist, 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.” [4] This was the stage of the commercial revolution.
  2. Industrial capitalism, dominated by industrial capitalists, who participated personally in production and whose wealth was augmented 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. Monopoly or finance capitalism, dominated by financial capitalists. Industry becomes increasingly large scale, requiring constantly greater masses of capital. Free competition is replaced by monopoly competition. Capital more and more assumes the money form, serving as capital only when put to use by other persons (or institutions) than its owners. Industrial concentration and combination separate ownership, management, and control. Management becomes an institutional function of employees. There is an immense socialization of industry, the objective basis of a new social order; but control is usurped by financial capitalists 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 capitalist is Henry Ford, who, however, has acquired considerable financial interests and in 1930 “bought into” the National City Bank. [5] (The Fords will either become financial capitalists or eventually lose control of their enterprise.) [1*] 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, speculative, adventurous, wholly parasitic, dominates the capitalist class. This is the stage of the decline of capitalism.

The three stages overlap, elements of one appear or persist in the other, yet they are distinct, and the differences are of immense historical importance. Commercial and industrial capitalism were identified with the emergence and upswing of capitalist production, the progressive transformation of industry, performing the historical task of developing the objective forms of a new, the socialist, order. Monopoly capitalism is 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 transformation 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 large-scale 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 constantly greater importance in capitalist production. (Credit, whether based on savings or not, is a command over social labor; it 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, creating disturbances and maladjustments. [2*] The social nature of credit is, however, one form of the objective transition toward a new mode of production, toward socialism. Industry becomes constantly more dependent upon the money capital under control of the banks.

Industrial capital itself increasingly assumes the form of money capital. Industrial capital is bound up with the person of the industrial capitalist. 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 is particularly true of the stockholdings of great financial capitalists, 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. [3*]

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 1830’s-50’s out of the import of capital, mainly to finance the construction of canals and railroads. As industrialism developed, the commercial banks, at first exclusively limited to mercantile operations, began to supply industry’s growing needs for fixed capital. In the 1880’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 acted as fiscal agents for corporations and performed other services for them. (By acting as investment expert for non-active investors in corporations the trust company emphasized the separation of ownership and 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 operations. And all the great banks, commercial, investment, or trust, acquired control of insurance companies in order to manipulate their vast resources, which were mercilessly exploited and plundered. This process 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: indirectly, by investment in corporate securities, loans for fixed-capital purposes, and loans on new issues not yet absorbed by the investment market; directly, 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, 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 affect the indirect investment operations of commercial banks.

This integration of function is paralleled by concentration and combination. Banks have grown in size by concentration, by reinvestment 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 in the post-war period. An unprecedented number of failures and mergers reduced the number of banks from 30,812 in 1921 to 24,079 in 1930; in the following year another 2,000 disappeared. The large number of banks still seems to indicate existence of a “democratic” banking system in comparison with other highly developed capitalist countries, in Canada, Britain, Germany, Italy, and France, where a handful of monopolist banks control banking and industry itself (in Europe, the banks, by command of credit, participation in combinations, and interlocking directorates, institutionalize the centralization of financial control over industry). But of the 24,079 banks, 20,000 were in small towns and had an average capital of only $40,000. In 1930, sixty-nine banks had resources of $25,900 million, and another seventy-one banks had resources of $5,100 million; these 140 banks, only 0.58% of the total, had 48.9% of total banking resources (excluding savings banks). Five of the giants – including Chase National, Guaranty Trust, and National City – had resources of $9,073 million, 14.3% of commercial banking resources: a concentration probably six times as great as in 1912. 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 centralization of control was still greater. Chains are interlocked with 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 [4*], 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, three-fifths of the assets of all life and fire insurance companies. [6]

These monopolist combinations of banking capital, with enormous control over the money capital of society, are no longer mere intermediaries serving industry, they are the masters of industry. The mastery is strengthened by industrial combination, with its separation of ownership, management, and control. Monopolist banks become the dominant force in the centralization of financial control over industry, by the command of credit, the operations of security affiliates, and the interlocking of directorates. This appears clearly from the number of interlocking directorships held by banks in other financial, industrial, and utility corporations. Fifteen New York City banks held 1,762 such directorships in 1899, and 5,324 in 1931. In 1929, the three 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 in direct control of United 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 institutions held directorships in General Electric, Westinghouse, 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 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. [7] The Morgan oligarchy and its allies represent the greatest centralization of financial control, as appears from their 1929 interlocking directorships:

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 in the National City 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 million, and interlocking directorships in scores of other corporations. [9] A handful of financial oligarchs control the monopolist combinations of industrial and banking capital, the most decisive portions of social capital; they control, in one concentrated institutional mass, the use of savings and credit, the mobilization of investment capital, and the great corporations in which most of the capital is invested. It is the dictatorship of finance capital.

The basis of the dictatorship of finance capital is the constructive socialization of production and the “social book-keeping” performed by banks, the “organization” of capitalism. But this “organization” is entangled with all the social relations of capitalist production; it necessarily develops into contradictory and antagonistic forms. The financial oligarchy exploits the socialization of production and the “book-keeping” of the banks for its 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 prices, and crush the farmers by subordinating agriculture to industry (instead of merging them in a new social-economic synthesis). Banks encourage overexpansion, speculation, and risky enterprises, convert their constructive “book-keeping” function into a source of maladjustments. Financial capitalists move from enterprise to enterprise, industry to industry, and country to country, seeking and extorting higher profits. All this is both result and negation of the constructive achievements out of which arises the predatory dictatorship of finance capital. Marx clearly foresaw the development, although it was merely emergent in his day:

“This is the abolition of the capitalist mode of production within capitalist production itself, a self-destructive contradiction, which represents on its face a mere phase of transition to a new form of production. It manifests its contradictory nature by its effects. It establishes a monopoly in certain spheres and thereby challenges the interference of the state. It reproduces a new aristocracy of finance, a new sort of parasites in the shape of promoters, speculators, and merely nominal directors; a whole system of swindling and cheating by means of corporation juggling, stock jobbing, and stock speculation. It is private production without the control of private property.” [10]

Monopoly and finance capital multiply the contradictions and antagonisms of capitalist production. More thorough organization of industry is accompanied by more competition and disturbances. The primary purpose of monopoly is to suppress competition, to control prices and markets. Competition is suppressed, but only partly, temporarily. It does not disappear, but assumes higher and aggravated forms. [5*]

The most effective form of price control, short of complete monopoly, is the cartel. “But such control,” one bourgeois economist admits, “is scarcely ever fully achieved. Even the most closely organized syndicate must leave a marginal field where competition prevails; this marginal competition delimits the area dominated by the syndicate and affects 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 is inherent in modern technology. All loosely organized cartels are the forerunners of more rigid forms of combination.” [11]

Monopolist combinations seldom exercise complete monopoly. The gigantic United States Steel Corporation controls only 40% of the industry; competition flares up periodically, although four monopolist combinations are dominant. Competition is particularly effective in the case of smaller concerns using the newest and most efficient equipment: a higher rate of profit is “earned.” General Motors and the Ford 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, but competition forced his 50% share of the total market down to 20% in 1932; some of the business went to independents, General Motors got most of it. [12] 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 monopolist position, the Radio Corporation of 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 combination, many savage competitive battles have been waged in recent years. 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 bauxite. While “Mellon succeeded, by devious means, in completely throttling alunite competition,” the threat may revive. [13] It is rarely possible to monopolize a whole industry; all the combinations can do is 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 they use against independents: denial of supplies, price cutting, and banking pressure, all means to get a larger share of the market and higher profits.

To overcome these limitations of monopolist combinations, the financial oligarchy develops community of interest among them by interlocking directorates and the centralization of financial control. This is only partly successful. A particular combination must show 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 capital claims, the reorganized company’s competitive strength is invigorated. Financial oligarchs, moreover, while they cooperate, are split up into rival groups. In 1931, the Morgans and Rockefellers interlocked some of their utility interests: the Standard Oil Company of New Jersey acquired a 30% interest in the gas-pipe lines of the Columbia 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 J.P. Morgan and Company “crack the whip too much” according to one commentator, there is a little revolt.) [14] The oligarchs encourage competition, if it means the possibility of higher profits, and the formation of new enterprises in fields where monopoly profits are inviting. This is stimulated by the adventurous and speculative character of finance capital the superabundance and surplus of available capital, the tendency of the rate of profit to 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, but eventually competition flares up in the destructive battles of giants.

While 1,300 monopolist combinations dominate American industry, there are 475,000 other corporations in control of roughly 40% of industry. Among them competition rages continuously and furiously. The competition is aggravated by the prevalence of monopolist combinations. They exploit small-scale industry by forcing it to pay high prices for supplies or by invading its markets. Monopoly limits investment opportunities in the fields it dominates; in any event, investment is open only to large capitals. This forces large masses of capital into non-monopolist fields of enterprise. Monopoly capitalism is accompanied by accelerated accumulation of relatively surplus capital, pressing for profitable investment; this capital flows particularly into new industries or into fields not yet dominated by monopolist combinations, and 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. [15] 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 survive, smaller concerns increase their capacity, made possible by the superabundance of capital; the inevitable increase in excess capacity sharpens competition, a competition made all the more 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 productivity 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 superiority of large-scale production itself is neither progressive nor absolute; beyond a certain point 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 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, which decentralizes plant and local administration while centralizing financial control. Resulting 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’ profits, strive toward monopoly, or insure financial control. The disadvantages of large-scale enterprise invite and make possible, within limits, the frequently successful competition of smaller concerns – small, however, only in relation to the giant combinations. Recent technological changes (e.g., electric power, higher productivity based on qualitative rather than quantitative elements 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 capital. The larger concerns redouble their efforts to get “a bigger slice of the consumer’s dollar” by forcing the sale of old products or adding new products to their output. Alongside of these contradictions and antagonisms, competition is again aggravated by the growth of production for variety demands and markets. Finally, competition, itself aggravated by excess capacity, reacts 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 promotes both concentration and combination and the cartellization of industry. But competition is not eliminated, it is merely transformed. It crops up in the most unexpected manner. Thus, before the NRA codes, rayon competed with cotton textiles on a style basis; minimum wages raised the costs of one more than the other, because cotton manufacturing needs more labor than rayon, making it possible for rayon to compete with cotton on the basis of style and price. [16] The NRA tends to inflame the “new competition” which was so disastrous in 1923-29, while simultaneously making it more difficult for the smaller producers to survive. This aspect of the situation has been thus described by the financial expert of the New York Herald Tribune.

“The NRA cartel idea may finally nullify itself because the cartellization of all industries merely serves to bring each industry into more direct competition with others in the effort to capture increasing portions of the national income. It cannot be stressed too emphatically that competition will remain just as strong under the NRA as before. It will merely take another form, 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 directions.” [17]

This competition of industry against industry becomes all the greater under the conditions of capitalist decline, of mass unemployment, restricted markets, and lower profits. Nor will it be limited to industry against industry: competition will also flourish within an industry, in different but more savage forms, stimulating concentration and combination.

What happens to competition under monopoly capitalism is this: competition is transformed, assumes higher forms. It is no longer primarily the competition of small individual capitals, but of combined million-capitals. The area of competition is restricted, its intensity and 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 was limited by the unequal distribution and sizes of the competing capitals. Monopoly capitalism, whose economic and class characteristics are large-scale corporate enterprise, the decline of small capitalists, and the rule of finance capital, limits competition only by making it impossible for small capitals to arise and compete independently except in unimportant fields, and by limiting (but not eliminating) competition among the larger enterprises. There never was any “pure” free competition; there is no “pure” monopoly.

Monopoly capitalism practically destroys the economic significance of the old middle class of small producers (and small merchants). [6*] 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.” [18] Ideals may persist beyond their economic basis, and the petty-bourgeois ideal of economic individualism still survives; but it is now merely an ideological 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 with a monopoly price ... They leave the boundaries of surplus value itself untouched. If a commodity with a monopoly price should enter into the necessary consumption of the worker, it 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.” [19] The limits of monopoly are thus described by a bourgeois 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 proportion of the monopoly profits can be ploughed back as will enable the monopolist to retain his maximum differential in his privileged field; investment of monopoly profits must take place in free industries.” [20]

In addition, monopolist combinations exploit “free” industries (only relatively free, in process of development toward concentration, hence absorbing an increasing amount of capital goods) by means of monopoly prices. The exploitation is direct if the monopolist combinations sell supplies to the “free” industries. It is indirect if the monopoly prices are for consumption goods, for that limits the demand for non-monopoly goods. Thus complete monopoly would nullify itself, make impossible monopoly prices and profits. This is one reason why monopolist combinations are active in the export of capital and imperialism, for in economically undeveloped countries the “free” industries are still numerous. The limits of monopoly appear also from the fact that monopoly profits may be reaped at the expense of other monopolist combinations. The General Motors rate of profit rose from about 13% in 1922 to 31% in 1926-27, while the Ford rate fell from about 30% to a deficit; the du Pont rate of profit rose 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. [21] The masters of capitalist industry must prey upon one another. Hence the intensification of competition, the aggravation of maladjustments and disturbances by monopoly capitalism.

TABLE III
Distribution of Financial, Non-Financial, and Speculative Profits, 1923-29

 

FINANCIAL CORPORATIONS

OTHER CORPORATIONS

SPECULATIVE PROFITS

YEAR

AMOUNT
(millions)

INDEX

AMOUNT
(millions)

INDEX

AMOUNT
(millions)

INDEX

1923

$879

100.0

$4,948

100.0

$1,172

100.0

1924

1,061

120.7

  3,927

  79.3

  1,513

129.2

1925

1,610

183.2

  5,361

108.4

  2,932

250.6

1926

1,459

166.0

  5,315

107.4

  2,378

203.2

1927

1,687

191.9

  4,193

  84.7

  2,894

247.4

1928

2,444

278.0

  5,192

104.9

  4,807

410.8

1929

2,438

277.3

  5,645

114.1

  4,684

400.3

Source: Computed from corporation and personal income reports in Bureau of Internal Revenue, Statistics of Income for the respective years.

The limits of monopoly and the general conditions of decline which it expresses enormously increase the importance of financial and speculative profits in the capitalist economy (Table III). In 1923-29, 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 money to speculate, to promote, to get control of combinations. One little method of making money used by the Morgans and the Insulls was to sell the stock of newly formed combinations to “friends” (political and financial) below the offering price: in one case, $12 while the public paid $27 [22], which yields an automatic profit of large dimensions. That is why the holding company [7*] is so beloved of the oligarchs. For the holding company, used to concentrate control of banks and industrial corporations, needs only a small investment to secure dominion over vast properties. This 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 assets of $1,200 million are controlled by an investment of $8,000,000. The holding company, in addition to other profits, makes its gains by extortionate service charges; the profit of one company from such charges ranged from 157% to 269%, while another company was disallowed “supervisory fees” of $500,000 by the Federal Power Commission. [23] Sweet are the uses of monopoly control!

[Diagram 17: The Dynamics of Finance Capital]

Increasing monopoly, under the conditions of capitalist decline, is accompanied by mass disemployment, lower production and realization of surplus value, a downward movement in the accumulation of capital. Larger profits now depend upon two factors: an immense lowering of mass standards of living and a more systematic plundering of one capitalist group by another. The struggle for a larger share of a diminishing mass of profits definitely affects the policy of state capitalism and, especially, fascism. For while fascism protects the system of private property as a whole, its origins and state policy (notably in Germany) are identified with the struggle for more profits and power of particular groups of capitalists, 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 capitalism 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. [24] 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 of them, in 1928, declared the cause of cyclical fluctuations was the older type of “innovation,” of technical-economic change, by individual, competing capitalists, and concluded: “Innovation is not any more typically embodied in new firms, but goes on within the big trusts. It meets with much less friction ... Progress becomes ‘automatized,’ increasingly impersonal and decreasingly a matter of leadership and individual initiative. The only fundamental cause of instability inherent in the capitalist system is losing in importance as time goes on, and may even be expected to disappear ... Capitalism is economically stable and ever gaining in stability.” [25] These arguments were especially plentiful in the United States in 1923-29. They were answered by the worst depression in American history.

The fundamental causes of capitalist instability 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. Hence instability must increase. And Niraism? Monopoly state capitalism? They aim to unify, to organize capitalism, but their efforts are hopeless because of the underlying relations which impose limits upon monopoly. All that state capitalism does is to strengthen concentration and combination, to merge finance capital and the state, to preserve monopoly capitalism from collapse.

The fundamental contradiction of monopoly capitalism is this: it is neither free competition nor complete unification of industry. 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) capitalism, 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 extension of contradictions and antagonisms on an enlarged scale, national and international, until they reach the breaking point.

Footnotes

1*. André Citroen, the Henry Ford of France (with, however, more general interests), was overwhelmed by financial troubles engendered by the depression. After slashing wages and juggling with the social insurance funds of his employees, Citroen was forced to beg aid of the banks, whose reorganization of the automobile company took control away from him. New York Times, March 4, 1934.

2*. Credit outstrips savings; this is necessarily a disturbing factor, as it encourages an unbalanced output of capital goods. But limiting credit to savings would solve no problems. For then the output of capital goods would be smaller, restricting employment and prosperity. And if new capital were based only on savings, there would still be maladjustments and disturbances, because the capital must yield profit, a deficiency in consumption would be created, and planlessness, competition, and speculation would still prevail: inevitably, for the final source of all maladjustments and disturbances is the capitalist 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 maladjustments and disturbances.

3*. “With the development of large-scale industry money [financial] capital, so far as it appears on the market, is 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 the character of an organized mass, which is far more subject to the control of the representatives of social capital, the bankers, than actual production is.” Karl Marx, Capital, v.III, p.433. “In proportion as banking develops and becomes concentrated in a small number of institutions, the banks grow from modest intermediaries into all-powerful monopolists having at their command almost all the money capital of all the capitalists and small businessmen, as well as the greater part of the means of production of a given country or in a number of countries ... A handful of monopolists controls all the operations, both commercial and financial, of capitalist society ... This transformation is one of the fundamental processes of the growing of capitalism into capitalist imperialism.” V.I. Lenin, Imperialism, the Highest Stage of Capitalism, pp.30, 34.

4*. The “money trust” investigation of 1912 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 became a dead letter. A similar fate awaits the 1933 prohibition of commercial banks owning security affiliates.

5*. “As capitalist production develops, the minimal size of the individual capital grows; the size that is requisite to carry on business under normal conditions. The lesser capitalists, therefore, crowd into spheres of production which large-scale industry has not yet fully annexed. In these fields competition rages in direct proportion to the magnitude of the competing capitals.” Marx, Capital, v.I, p.691. “When monopoly appears in certain branches of production it increases and intensifies the chaos proper to capitalist production as a whole ... Monopolies, which have sprung from free competition, do not eliminate it, but exist alongside of it and over it, thereby giving rise to a number of very acute and bitter antagonisms, points of friction, and conflicts. Monopoly is the transition from capitalism to a higher order.” Lenin, Imperialism, p.80. “When a certain branch of industry is monopolized, competition with outsiders and rival cartels and trusts at home does not cease, and a struggle for shares in production and sales goes on within the cartel. It is safe to say that as there is no competition without monopolies, so there is no monopoly without competition.” R. Piotrowski, Cartels and Trusts (1933), p.365.

6*. It is frequently argued that industrial concentration and monopoly create an economic crisis by destroying the small producers, the most important section of the middle class market. Until recently, however, this market tended to expand, not contract. Not all small producers defeated in the battle of competition were proletarianized, that is, deprived of all property and forced to become wage-workers. Some sold out to the larger enterprises and went into other businesses or retired, while others became executive or managerial employees in corporations. The expansion of industry, moreover, permitted new batches of small capitalists to arise. At the same time the middle class market grew because of growth among its other elements: technical, supervisory, and managerial employees in corporate industry, storekeepers, and professionals (not to mention the multiplication of parasitic occupations). Thus the “new” middle class, i.e., all groups, exclusive of farmers, between the workers and the upper bourgeoisie, constituted a constantly greater part of the market, scoring, particularly in 1923-29, relatively much larger gains than the working class. That was, however, in the epoch of the upswing of capitalism; in the epoch of decline the situation is materially different. With the curve of production moving downward, defeated small producers are much more likely to be proletarianized, while the chances of new producers arising are slight: they now decrease in numbers as well as in economic significance. But the small producers are not the most important section of the middle class market, which shrinks primarily because the wording 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 affect adversely the business of small storekeepers, whose customers are mainly workers. A serious fall in income and restriction 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 salary cuts among teachers. Most of the members, the lower incomes, of the functional groups in the middle class are dependent upon prosperity among the workers: there is an economic identity of interest, not antagonism. (That is why the promise of fascism to improve, at the expense of the workers, the conditions of the middle class can benefit only small groups: conditions among the class as a whole must become worse.) Shrinkage in the middle class market is not produced directly by destruction of small capitalists; it is produced indirectly and primarily by capitalist decline and shrinkage of the working class market.

7*. The holding company, of course, by massing industrial and financial power, is a tremendous weapon against labor. This is seldom, if ever mentioned, by American writers. They are more outspoken in England: “Do not big holding company organizations represent the means by which employers are going to provide a unified opposition to the more extravagant demands of labor?” A.J. Simons, Holding Companies (1927), p.12.



Notes

1. Adolf A. Berle and Gardiner C. Means, The Modern Corporation and Private Property (1933), p.69.

2. Berle and Means, Modern Corporation, pp.94-116.

3. Lewis Corey, The House of Morgan (1930), pp.396-97.

4. Karl Marx, Capital, v.III, p.393.

5. New York Journal of Commerce, May 10, 1930.

6. Department of Commerce, Commerce Yearbook, 1931, v.I, p.634; Moody’s Manual of Investments, Banks and Finance, 1931, p.347; New York Times, December 19, 1931; New York Journal of Commerce, October 29, 1929; Corey, House of Morgan, p.446.

7. New York Times, August 2, 1930; January 27, 1933; Corey, House of Morgan, p.446.

8. Corey, House of Morgan, pp.446-48.

9. New York Journal of Commerce, May 10, 1930; Harvey O’Connor, Mellon’s Millions (1933), pp.422-29.

10. Marx, Capital, v.III, p.519.

11. Kurt Wiedenfeld, Combinations, Industrial, Encyclopedia of the Social Sciences, v.III (1930), p.672.

12. R.B. Prescott, New York Post, April 15, 1933.

13. R.H. Tingley, What Can We Do with Muscle Shoals, American Mercury, February 1934, p.218.

14. New York Times, December 19, 1931; March 9, 1933; New York World-Telegram, March 10, 1933.

15. Dane Yorke, The Radio Octopus, American Mercury, August 1931, p.387.

16. Schuyler C. Wallace, Industry’s Inner Conflict, Today, March 10, 1934, p.20.

17. New York Herald Tribune, March 4, 1934.

18. M.C. Rorty, in Recent Economic Changes, 2 vols. (1929) v.II, p.864.

19. Marx, Capital, v.III, p.1003.

20. Robert Weidenhammer, Causes and Repercussions of the Faulty Investment of Corporate Savings, American Economic Review, Supplement, March, 1933, p.37.

21. Ralph C. Epstein, Earnings on Invested Capital, Annalist, February 9, 1934, p.261; March 2, 1934, p.372.

22. New York Times, September 23, 1932.

23. New York Times, November 28, 1933; January 19, 1934; John W. Hester, The Blight of Holding Companies, Current History, March 1934, p.682.

24. Rudolf Hilferding, Probleme der Zeit, Die Gesellschaft, April 1924, p.2.

25. Joseph Schumpeter, The Instability of Capitalism, Economic Journal, September 1928, pp.384-85.

 


Last updated on 29.9.2007