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Fourth International, June 1949


Louis T. Gordon

Capitalist Choice: War or Crisis


From Fourth International, Vol.10 No.6, June 1949, pp.172-175.
Transcription & mark-up by Einde O’Callaghan for ETOL.


The signing of the Atlantic Pact will undoubtedly be followed by a new lend-lease arms program. Thus the military sector of American economy, which has grown to an unprecedented peacetime level, will be still further enlarged.

If we are to believe the “responsible” press, this development is most regretted by the capitalist class. The front pages of the newspapers are full of lamentations about the huge amounts that “must” be spent for armaments in order to protect “democracy” against the Russian threat. However, we need only glance through the financial columns to realize that the wailing is all for public consumption. One industry after another is placing its hopes for sustained activity, directly or indirectly, on war production. Haunted by the specter of a new crisis, the American bourgeoisie is starting on a road that leads to war.

During World War II, many a bourgeois economist, seeing the writing on the wall – “capitalism is doomed if the experience of the Thirties is repeated” – endeavored to answer the question, how will America avoid unemployment and depression after the conflict?

The core problem of democracy in the twentieth century,” warns Leon H. Keyserling, of the President’s Council of Economic Advisers, “is whether it can act without a crisis, for even as we by firmness in foreign policy avoid a clash of arms with totalitarian forces there remains the ideological conflict competing for the minds of men and the decisions of whole peoples.”

But can a crisis be averted? For a long time the apologists of capitalism have been ridiculing those who predicted a postwar crash. Let us not “think ourselves into depression,” they said. The obvious corollary is that by the same mental process we can steer ourselves away from a depression. To this “psychological” approach Marxists have always counterposed a scientific analysis. The causes of crises are to be sought not in the minds of people but in the process of production.

Capitalist crises of overproduction, Marx pointed out, are inseparable from the capitalist system. As long as this system survives, crises will keep recurring. Capitalist production tends to develop the productive forces of society unlimitedly while the consuming power of the masses is narrowly restricted.

The aim of capitalist production is not to satisfy the needs of the consumers but the realization of profit. Use values are produced to extract surplus value. If consumption were the purpose of ‘production, there would be no danger of overproduction since the needs of the people are far from met, but the overproduction that looms is one of commodities and of capital. These include both expanded productive means in the form of capital and things produced for mass consumption. “Too much.” has been produced as soon as more commodities are available than can be sold in the market. At the same time, there is “too much” productive capacity to find profitable outlets for capital.

Yet, although the motive of capitalist production is primarily for profit, ultimately what is produced must be consumed. Means of production serve to produce both capital goods and consumer goods; but, in the last analysis, when the market for consumer goods is glutted nobody buys the means of production required to produce them, or to enlarge the productive apparatus as a whole. The more the productive forces grow the less are the masses relatively able to absorb the increased production.

“The last cause of all crises,” Marx pointed out, “always remains the poverty and restricted consumption of the masses as compared to the tendency of capitalist production to develop the productive forces in such a way that only the absolute power of consumption of the entire society would be their limit.”

This has nothing in common with underconsumption theories. Marx explicitly demonstrated that the problem cannot be solved by increasing wages, which generally rise in the period preceding the crash. He explains the laws ot capitalist crises as follows:

“The crises are always but momentary and forcible solutions of the existing contradictions, violent eruptions which restore the disturbed equilibrium for a while ... The real barrier of capitalist 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; that production is merely production for capital and not vice versa ... The means, this unconditional development of the productive forces of society, comes continually into conflict with the limited end, the self-expansion of the existing capital.”

America’s Productive Apparatus

Is there danger of overproduction of goods and capital in the US? Let us look at the facts.

America’s peace economy was unable to overcome the 1929 depression. Production never reached the 1929 level until the war. In 1937 it was 92.2% of the 1929 level, but in 1938 it went down again to 72.3%. There was limited unemployment in 1929 but in the succeeding years it reached enormous proportions. 10 million were still unemployed when the war started. Moreover, the capitalists’ efforts to reduce production costs in the Thirties led to an immense increase in production per man-hour.

“Fewer people) working snorter hours,” we read in an official publication, “produced substantially more goods and services in 1940 than in 1929. This was possible because of continued improvement in efficiency through the greater use of labor saving devices and techniques.”

“Over the 12 years 1929 to 1941 the nation’s output per man-hour of employment increased 34%. This was at the rate of 2½% per year compounded.” (Post-War Markets, Bureau of Foreign and Domestic Commerce)

Only as a result of the war was the US able to get rid of unemployment and put to use the entire productive machine. During the war America’s total plant increased by almost 50%, as did productivity although to a lesser degree. This dual process continues apace. The general manager of the National Machine Tool Builders Association told the N.Y. Times that World War II production equipment has been “rendered completely obsolete” by the new types of equipment now available. He added that “approximately one-third more production can be secured on the average with new machines designed since the last great war. It is probably safe to say that American industry could increase its output 50% by studying its weak points and by replacing the equipment which can no longer compete with what the machine tool builders are putting out today.”

It is true that this improved equipment is not yet in general use but it is being installed as plant construction and modernization continue. In the President’s 1948 mid-year economic report it was, pointed out that a change had occurred in the pattern of plant and equipment outlay. Whereas “during the first stages of reconversion,” it says, the intense pressure to replace facilities and to restore civilian output took precedence over the introduction of innovations [now there is] increasing emphasis on cost reduction and on the substitution of new products and techniques.”

Under capitalism, however, technical progress does not benefit the workers. On the contrary, it raises technological unemployment to new heights. A new crisis would hasten the general introduction of the most efficient machinery and productive methods, thus boosting unemployment to the tens of millions who could not be reabsorbed into capitalist industry.

The Home Market

The very hugeness of the American productive machine constitutes its weakness. Can markets be found to absorb this colossal production?

Foreign trade is undoubtedly not the solution. The Marshall Plan has been unable to maintain American exports at postwar levels. Furthermore, “as Europe’s production increases it competes with America’s in the markets of the world.

Consequently, most of America’s production will have to be absorbed at home. Will this market be large enough? The wiser heads of the bourgeoisie know that it will not. “America has the biggest production machine the world has ever known,” reads an editorial in the US News and World Report (March 1, 1949). “That machine can produce more goods than the American people can consume, even allowing for an increase in population each year and increased demands for goods resulting therefrom.”

Reconversion was carried out in this country without major difficulties. But this postwar boom had exceptionally favorable circumstances. The extraordinarily large demand accumulated during the conflict and the good condition of American agriculture all helped to create a market for production. It did not take too long, however, to fill the gap. Dangerous inventories soon began to accumulate in spite of government expenditures. And far from keeping up with the increased production, the consuming power of the masses diminished; prices skyrocketed and mass incomes after taxes shrank; real wages have been declining steadily. Keyserling sounded the alarm warning that consumers were able to buy the portion of national output available for their use only “through drawing upon Wartime savings and increased use of credit (which cannot go on forever).”

At the close of 1948 virtually only metals and automobiles were still in strong demand. And this is hardly insurance against a setback. It is well known that demand for durable goods is strong even when the boom is about to terminate. In the last few months, demand for cars and metals has been declining. The N.Y. Times reported recently that “for the first time since prewar days steel plants are being closed now because demand is dwindling.” It the rearmament program doesn’t come tb the rescue, it: is obvious that production will continue to fall not only in steel but all along the line.

The latest developments have not come as a surprise to the American capitalists. The depressed condition of the stock market has been the surest indication of their lack of faith in a continuing boom.

Is there any remedy under capitalism for the over-expansion of the productive forces and the dangers it causes? There are of course still those in the bourgeois camp who believe that the cycle should be allowed to run its course. Their conception was clearly expressed in the N.Y. Times by H.Collins, who holds that “recessions are not merely inevitable but desirable – that they are natural correctives, made necessary by earlier excesses of one kind or another.”

Others believe, following the ideas of the late J. Maynard Keynes, that crises can be averted if the government intervenes vigorously and engages in large-scale spending. One of their leading exponents in this country, Alvin H. Hansen, proposes a fiscal policy to offset the “fluctuations” of the prosperity-depression cycle. He advocates an increase in public expenditures and a reduction in taxes during depression and a reduction of public expenditures and an increase in taxes when there is “excessive boom.”

Government spending would maintain full employment and swell the consuming power, while “leaving private enterprise its appropriate field of action,” as Seymour E. Harris put it. But to achieve this result would not be altogether easy. Hansen asserts that a “fatal defect” in New Deal spending of the Thirties was its “hand to mouth character.” During the war he recommended, to avert a postwar crash, a comprehensive economic development program conceived “in bold terms” which “should be nothing short of a plan to rebuild America over the next two decades, to develop her latent resources, to increase her productive power.”

And what is the bourgeoisie asked to give up in order to enter this ideal capitalist paradise without “business cycles”? It is admitted that to avoid the slump they would have to sacrifice profits during the boom. In the long run, however, they are reassured, it will be for the best. Here is this capitalist Utopia as pictured by Hansen:

”In a society operating at continuously full employment, it is not probable that peak-prosperity profits (in 1925-29 approximately twice the average for the entire period 1925-40) could indefinitely be maintained ... They would be eaten into partly by competitive price decreases benefiting consumers and partly by the pressure for higher wages which invariably occurs in industries making large profits.”

Yet, says Hansen, over the whole cycle the magnitude of business profits would be greater. This perspective cannot be very luring for a capitalist who wants to make as much profit as he possibly can during the boom, profit he will never give up for a promissory note that his sacrifice will help avert the crisis.

A Utopian capitalist society without unemployment and crises, where the government spends tens of billions of dollars for “human betterment,” for social security and schools and slum clearance, may look attractive on paper but it can never materialize. The quack doctors who advocate it begin from wholly unreal premises. They ignore the nature of the bourgeois state and capitalist society as a whole; they disregard the class struggle and the role of the industrial reserve army. Is it surprising then that their conclusions are viewed with such utter disregard by the American bourgeoisie?

The Rearmament Program

“If prospects for peace had improved,” says Edwin G. Nourse, Chairman of the President’s Council of Economic Advisers, “or even not grown worse, through 1947 and 1948 our ability to adjust our economy to the requirements of sustained peacetime prosperity would progressively have been put to the test in one industry after another as each passed from a condition of scarcity to one of abundance, from a sellers’ market to a buyers’ market – or tiue competitive enterprise. If the practitioners of communism bad not thrust us back into the danger of war, we would soon have been thrust forward into the difficulties of peace.

We might ask whether the direct opposite was not true, whether the practitioners of “free enterprise” seeking to escape from the “difficulties of peace” thrust America back into the danger of war. In any event, the problem confronting American capitalism cannot easily be solved even by resorting to large outlays for armaments. “Even with an armament economy,” asserts the US News, “there is a surplus of goods in producing countries like the United States.”

If a rearmament program is to avert the unfolding of the crisis, it must create a substantial enough sector in the economy producing goods not subject to ordinary demand. Rearmament must proceed on a scale to benefit not only the manufacturers of the goods directly involved, but the economy as a whole as a result of the new purchasing power created. Only a full-scale war economy would achieve this.

Such a sector does not exist at present. Total government-expenditures (including the Marshall Plan and the preparedness program) account for only 14 percent of the gross natiohal output of almost $255 billion. The scheduled armament program of about $16 billion a year, or even a larger one, would not place too heavy a burden on the economy – although its damaging effect on the standard of living is well known. However, it would also, be too small to alter the economic trends, especially now that private investment is falling. Yet America will spend for armaments in 1950 more than twice as much as in 1941, when the country was preparing for an imminent war and had already started lend-lease and Selective Service.

At the peak of wartime production, the US spent annually for national defense about $90 billion. Bearing in mind the subsequent development in the productive forces, the average annual increment of 600,000 new workers entering the labor force, and productivity growing by 2½ percent (figures which are likely to be surpassed in 1949), it can be readily seen that to be effective the outlays for military purposes would have to reach far higher figures than are now envisaged.

On the other hand, the US emerged from the last war with an overburdened tax and debt structure which is increasingly difficult to manage. If, war expenditures go beyond the present level, either taxes will have to be increased or a still bigger debt will accumulate. Strict controls would have to be imposed – despite opposition from certain bourgeois circles – or the whole economy would be in danger of collapse.

The rearmament program will make the greatest demands not only on non-durable goods industries, where supply has already caught up with demand, but on heavy industries which have just started to catch up. Steel production, for instance, is insufficient to simultaneously meet heavy civilian and military needs.

Burden Will Fall on Masses

A war economy worthy of the name would mean heavy sacrifices for the American people.

“Every citizen must recognize,” said Edwin G. Nourse, “that further diversions of productive effort to military uses inevitably involves same sacrifices of civilian types of consumption. It is our particular application of the old alternative of ‘guns or butter’.”

The high productivity of American labor is still not high enough to meet both civilian and military requirements. That is why Sumner H. Slichter, a conservative capitalist economist, insists that the need for a rise in output per man-hour “is greater than ever.”

Since the working people of America will have to shoulder the full burden of war preparations, since they will have to be made to accept a reduction in their standard of living, no real war economy can be started without the passivity and acquiescence of the powerful union movement. This is one reason why the whole propaganda machine of the bourgeoisie tries to surround the expenditures for military purposes with an air of inevitability and to prevent any questioning of their advisability.

Parallel with Hitler Germany

History records another case of a peacetime war economy carried to its ultimate conclusions – Hitler’s Germany. The example of this country, where the workers were enslaved, the problem of unemployment “solved” while the big capitalists reaped handsome profits, cannot but exert a strong influence on the American bourgeoisie. However, the situation in the US now differs in several respects from that of Germany in the Thirties from an economic as well as a political point of view.

In 1933 Germany was still suffering from the depression. There were millions of unemployed and large unused plant facilities. Thus Germany could produce for war without reducing the output of consumer goods. She needed only to increase war production to the limit and slightly increase civilian production. As depression was the starting point, the transition to a war economy in Germany could be made without a still further reduction in the low living standard.

On the other hand there is still no huge unemployment in the US; wages are relatively high; the great majority of the workers are producing consumer goods. Every unavoidable decline in the standard of living as a result of the war program will be doubly felt by the masses and sharply resisted.

There is also a difference in regime. The underlying reason for the “success” of the war economy of German capitalism was the totalitarian nature of the Nazi state, which enabled the government to rule the economic life of the country with an iron hand; to “regulate” and divert about 50 percent of production into war channels, and to suppress any resistance of the workers. The US, on the other hand, is still a bourgeois democracy and the working class has not been subdued.

American monopolist rulers face this dilemma: Either they do not divert into “preparedness” a substantial portion of the economy – and this would mean crisis. Or they embark upon such a war program which would ultimately result in class struggles on an unprecedented scale. Time to reach a decision is running short. The longer reconversion to a full-fledged war economy is delayed, the harder it will be to avert the crisis.

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