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International Socialism, December 1969/January 1970


Joel Stein

Locating the American Crisis


From International Socialism (1st series), No.41, December 1969/January 1970, pp.8-17.
Transcribed & marked up by Einde O’Callaghan for ETOL.


The World Economy

With the Great Depression of the 1930s, United States capitalism seemed to move into a permanent crisis, a period of extreme capital stagnation with unemployment ranging between 15 and 20 per cent. While all government efforts to end the crisis failed, the world crisis gave way to the World War, which gobbled up the unemployed to feed the machine for destruction. When the war clouds cleared, the spectre of crisis lingered on while the crisis itself failed somehow to return. According to the official legend, divine spirits were heard muttering obscure incantations of which such words as ‘state intervention’ and ‘John Maynard Keynes’ stuck in men’s minds. By continuing to repeat these magical formulae, which were supposed not to have worked during the depression only because they had not been sufficiently applied, we were .assured that the evil spirits would never again triumph. Some even gave ‘credit’ to Keynes for the war itself, as a great ‘public works’ project which had ended unemployment. [1]

Of course, in the real world, the clouds of the Second World War never cleared. In place of the ‘War to Guarantee Peace, Democracy, Freedom, Justice, And So On, For All Time’ came the new war, a permanent war, called Cold but often enough hot. Russia and the United States started over the spoils of the Second World War and, while securing their hegemony aver the divided European continent and the return of Western Imperialism to the colonial world, proceeded almost at once to prepare for a new war, each in the name of the principles which both had espoused against Germany. This war extended, taking on new forms. While Russia consolidated its European empire, the United States struggled against the new Communist power in Asia and against Communist and other national movements around the globe.

For the United States at the end of the war a number of possibilities seemed open. The stagnation of the pre-war period raised the spectre of post-war crisis. To avoid this, America, with almost 65 per cent of the total world production, dreamed of realising the old British dream of becoming the ‘work-shop’ of a non- and semi-industrialised world built around the requirements of this industrial centre. As a publication of the Twentieth Century Fund summed up America’s post-war policy [2]:

‘The United States favours multilateralism; non-discriminatory trade practices; reduction of trade barriers, including its own; and free competition in the world market. These are the principles on which the State Department’s proposals for a trade charter rest.’

The proposal of ‘free competition’ to war-devastated Europe had clear implications concerning the role to which the United States hoped to assign the continent.

As the Cold War intensified, as the Russians strengthened their hold in Eastern Europe and, in light of the continued social instability in Western Europe due to the war destruction, it became clear that the United States had no choice but to resurrect Western Europe’s economic and war-making ability. For the US, this European reconstruction had to be contradictory leading, on the one hand, to the restriction of America’s hopes for the exploitation of the continent and, on the other hand, to the re-emergence of a powerful competitor in the world market.

Even with European reconstruction, the US was hardly willing to forego the advantages which its dominant position in world society preferred. These nations were forced to give priority to reconstruction of war-making capacity, to a certain extent to the detriment of capital expansion, a conflict which continues to this day, for example, in the attempts of Washington to ‘encourage’ West Germany to increase war expenditures, preferably through purchases from the US.

The US slowly edged the Europeans out of the colonial world, replacing them as the dominant economic power, this policy began immediately with the war’s end, as stated in a Senate Economy Committee Report of November 1947: [3] ‘Provided that necessary safeguards are established there is no question that in the mineral field at least, American capital is available to take over or supplement European investments in many colonial areas. US capital is already heavily invested in Rhodesian copper, Canadian nickel and aluminium, and Surinam bauxite ... lead-zinc deposits in Morocco. Given a stable government, American capital would probably undertake the re-equipment of the important lead-zinc deposits in Burma ...’

... the report seems to have failed to mention replacing the French in South-East Asia.

The Europeans were forced to accept an international monetary system based around the special position of the US dollar. Through this system, all currencies stand at fixed exchange rates to the US dollar which is itself fixed at 35 dollars to the ounce of gold. The US dollar, and also the British pound, are ‘reserve currencies’ in this system. This means that they are supposed to be treated as ‘as good as gold’ in international trade and capital movements. While all other nations at the end of a given period, for example, a year, are supposed to settle up any balance of payments deficit – meaning simply that more notes of the nation’s currency, through capital export, overseas military expenditures or in exchange for commodity imports, have left the nation than have entered in exchange for commodity exports – in gold, outstanding dollars are supposed to be held in the reserves of other nations and used in international transactions. Of course, the dollar is not a precious metal but a piece of paper covered in green ink under the auspices of the US government. This system gives the US great advantages in international transactions, in effect extending it unlimited credit with other nations.

The European nations were forced to accept this system because of their own war devastation, their tremendous debts to the United States incurred during the war, and since the period beginning with the First World War, and the strong position of the US which held a majority of the world’s production and a near monopoly of the gold reserves of the West. These conditions dictated the European reliance upon US loans and trade for recovery. Since their reserves were void of gold and filled with debts to the US, the stability of their currencies depended upon the quantities of dollars, which they held in reserve.

The construction of this system made obvious the US’s intention to maintain its dominant position in the world economy and particularly in relation to the European powers. The fixed exchange system implied a fixed economic relation, that is the same relative strengths, between the various national economies. This is not due to any direct correlation between these two ratios but rather to the effects of the changing economic relation which may be summed up in the national balance of payments problems. A national economy expanding relative to others in the world economy will in general express this expansion in its growing share of world trade, its tendency towards balance of payments surplus, composed of a surplus of exports over imports and perhaps also in capital imports which the expanding capital attracts. This has been the case particularly in the hitherto fastest-growing market-economies of West Germany and Japan. On the other hand, a national economy declining relative to others will express this in its tendency towards capital export, an expression of its own stagnation generally, and trade deficits. This has been the case in the United States which has been an increasing capital exporter in the post-war period, rising 150 per cent in the past decade alone, particularly to Western Europe, and has seen its trade surplus fall from 10 million dollars at the end of the World War to zero in the last quarter of 1968. In the US case the balance of payments deficit is especially aggravated by huge overseas military expenditures, today primarily due to the Vietnam War, while the relation between America’s foreign interests and home capital stagnation is obvious. The founding statutes of the International Monetary Fund look forward to a balance in the payments of all nations, with neither surplus nor deficits, and to a generally balanced growth of the world economy. Such a balanced growth means no more than the continued gap in the relation between the US and European powers. The dominance of the US dollar and the reliance of the international monetary system upon its privileged position, and the bond created between the dollar and gold, which made sense only if the US could hold on to its tremendous gold reserves, were likewise expressions of the US’s hopes of continued predominance.

In fact, if the original intention was to help stabilise the US actual predominance in world economy, the privileged position of the dollar became a means through which, over the past two decades, the Europeans have financed a huge and persistent balance of payments deficit on the part of the United States. The US today has a total overseas dollar deficit of forty billion, four times the size of its gold reserves, which have shrunk to less than half of their postwar level. These outstanding dollars represent a huge loan which the Europeans have extended to the US – a loan without interest, with no sign of repayment, and with every sign of growing, especially in light of the continuance of the Vietnam war – for such worthwhile ventures as American war efforts and capital invasion of the European economy.

America’s balance of payments deficit can only be seen as an advantage so long as the Europeans can be forced to subsidise it. As the deficit grows, and the stability of the international monetary system becomes increasingly precarious, this becomes less and less possible. But America’s balance of payments deficit, as we have said, expresses the relative decline, though hardly the absolute decline, of the US’s former predominance. The movement of capital from the US to Western Europe has even contributed to the boom in the European economy as compared with the US stagnation. [4] The disappearing US trade surplus has been likewise an expression of the relative decline in the gap between the US and Western Europe and Japan since the end of the world war. These tendencies, and the US’s overseas military efforts, show no sign of reversal in the immediate future.

The international monetary system is today permanently threatened by crisis which almost occurred following the British pound devaluation of November 1967; the run on the dollar in March 1968; and on the French franc in November 1968. Behind the weakness of the system lies the weakness of the dollar and the system’s dependence upon an American economy which once comprised two-thirds of the world’s production. The structure of the system reflects a power balance which existed 20 years ago.

Any other nation with a persistent balance of payments deficit would be forced to devalue its currency, which would produce a fall in the ‘value’ of the nation’s currency relative to those of other nations. This increases the competitiveness of the nation’s commodities in world markets by cutting the prices of its commodities, discourages imports by increasing their prices and is used to augment profitability within the national economy by introducing a general wage cut by means of the rising prices of imports which, like all price increases in monopoly capitalism, are passed on to those least able to pay them, workers and poor. If this wage cut can be successfully enforced it can be a means for augmenting the profitability of capital thereby encouraging capital expansion, particularly in exporting industries, and improving the balance of payments position of the national economy. At least that is the dream of all those who undertake currency devaluation.

For the United States to devalue, however, would mean an increase in the price of gold and because all other currencies are arranged in relation to the dollar, a restructuring of the world’s monetary system. Such a move is feared by the world powers, particularly at the present time. The expansion of world trade of the post-war period has slowed down over the past three years, and a significant change in the competitive positions, by means of devaluations, through which each nation would attempt to increase its share of world trade, would result instead in an anarchy of the world trade and an anarchy of the world’s currencies, an absolute decline in world trade and therewith growing capital stagnation and unemployment in all nations.

With or without devaluation, however, the position of the dollar and of the world monetary system, is extremely insecure. While the dollar’s reserve status rests in theory upon the immediate convertibility of dollars into gold by the Federal Government at the fixed price of 35 dollars an ounce, today it rests in fact upon the agreement of the Central Banks not to convert dollars into gold.

Following the gold dollar crisis of March 1968 a ‘two-tier’ gold price system was devised, one ‘free’ market in which the gold price ranges between 40 and 45 dollars per ounce, and another through which the Central Banks agree to exchange gold at the official price of 35 dollars an ounce. This system already represents, in part, a de facto dollar devaluation. On this basis, almost no gold has entered the central banks, while the increasing industrial demand for gold, speculation and the South African near-monopoly of gold production makes any long-range attempt to keep the ‘official’ gold price nearly impossible. The slightest fluctuations in the gold market, world trade, and the economic-political position of any of the market-economy ‘partners’ could be a source of such a failure and of the possible crisis consequences. Nor would such a failure mean that the gold price would shift simply to the unofficial rate since the ‘free’ market is also subject to manipulation and the influence of the ‘official’ gold price.

All of these financial and monetary problems are only the expressions of the general state of the capital expansion process and of the profitability of capital. Today, it is the end of the European boom and the American stagnation which determine the slow-down in world trade expansion. Aside from the capital expansion process itself, the profits of capital can only be augmented through either competitive advantages at the expense of other capitals, in this case of other nations, or at the expense of the living and working conditions of the working-class and poor. With or without financial crisis, the policies of all Western powers come increasingly to centre around wage-control and wage-cutting policies, either through direct or indirect state policies. As the difficulties of profit production increase, the ruling-class assault will stiffen and intensify.

If at the end of two world wars, the United States was the great stabilising, force of Western, and particularly European, capitalism, today the United States has become the primary source of instability in the Western world. This is true – thanks to its war-making policies and its general attempt to export the inflation of a stagnating, permanent arms economy through its balance of payments deficit. The cheap dollars of the inflationary economy are an added inducement to US capital export, attracted to Europe already through the higher profit rates obtained there. And while the US contributes to the expansion of the European economy, the deficit thereby increased becomes the source of new instabilities. This is hardly to say that the European economies are free from instability. But only the United States has been in a position to pass on its difficulties, which have also been the most over-riding. Precisely the past strength and weakness of the US and European economies respectively turns the former into a force for instability today at the expense of the latter. In fact, the other Western power which has been in as similar, and even worse position to the US. Britain, has had its balance of payments deficit subsidised thanks mainly to the support which the pound has offered the dollar absorbing the immediate shock of any instability of the monetary system.

In 1945 the US had approximately 65 per cent of the total world production. Today that portion has shrunk to around 35 per cent while the productivity of labour and total production in Western Europe and Japan, leaving aside Russia and Eastern Europe, has risen relative to that of the US over the past decades. If the first half of the 20th century is seen as the near completion of the US’s world dominance, finally off-set at the last moment by the rise of the new Russian rival, the second half is in large part the weakening attempt of this dominant power to hold on to its empire. The former Saviour of the Western World is now destined to aggravate, if not be the cause of, any future crises.

The US Economy

The United States has had, excepting Britain, the slowest growth rate of any industrial nation in the post-World War II period. Thus the average growth rate of Western Europe, which includes that of Britain, between 1956 and 1961 was 3.9 per cent, while that of the United States was 2.3 per cent. (This figure comprises total production and therefore underestimates the difference since a larger portion of the increase in the US consisted of war production. [5]) The growth rates of Japan, Russia and the industrial countries of Eastern Europe have, in general, been even higher in most of the post-war period. If today the gap between the US and the rest has somewhat lessened, it is thanks only to the slowdown of the West European economies.

Immediately following the Second World War, the extraordinary conditions of war-time still exercised an important influence. During the war, half the total production had gone to the military so that actual capital formation had fallen from the depression period. [6] The immediate post-war period saw no crisis thanks mainly to the emergency demands of ‘readjustment’, the requirements of America’s victory and the fact that the military was never fully dismantled. Even so, before the Korean war, when government expenditures, although not the total portion of government taken from the economy, had fallen to 10.6 per cent [7], the economy began to move into the first of those famous postwar recessions. With Korea, the permanent arms economy became a regular attribute of the US economy, taking up regularly 8-10 per cent of the total production.

In general, in the post-war period, declines of government spending have been preludes to recessions which could be overcome only through increases in government spending. [8] To the extent that private capital stagnation has increased, the share by government on all levels of total production has risen to off-set the effects of that stagnation and attempt to overcome it. Leaving aside the extraordinary years of world wars, the proportion of total spending taken by government has consistently risen throughout this century till today government on all levels takes approximately 30 per cent of total production. Of this the largest proportion, 10 per cent of total production, has been war and arms production which, in the past decade alone has doubled to 80 billion dollars. While the Vietnam war was the immediate cause of the massive upsurge in war spending in this decade, Nixon has already promised that, whether or not the war ends, military spending will continue to rise throughout his administration. The intention to go ahead with the ABM system shows that he means it. The reliance of American capitalism upon government spending cannot be denied today, nor can the importance of the arms economy, in which at least 10 per cent of the total labour force is employed, be overestimated.

The Monopolies

The US economy as a whole is dominated by a small number of giant corporations. Approximately 500 corporations, interlocked on every level, produce about 70 per cent of total US manufacture and obtain almost 80 per cent of total profits accruing to industry. [9] Even this figure, however, overestimates the number of independent centres within the US economy although there is no way of knowing how completely intertwined these giant corporations are. The information is not available and, when it is, companies come into being simply for the sake of owning other companies. [10]

It is impossible to speak of competition between these corporations which, in effect, represent the capital structure of the US economy. Completely insulated from any competitive influences within the US economy, they are not subject to the government attempts at ‘regulation’ which might affect smaller enterprises but, as we shall see, are rather the primary recipients of government direct and indirect assistance.

Thanks to the protected positions which these corporations enjoy, some economists, notably Galbraith in his New Industrial State, have attempted to prove that they are no longer interested in profits. In fact, since Galbraith believes that these corporations are more interested in ‘growth’ than ‘profits’, while the largest share of profits have always been utilised for capital expansion upon which the corporate profits depend, his argument is pointless. The top 200 corporations demonstrate their indifference to profits by obtaining a profit rate at least 60 per cent higher than that of the average corporations engaged in manufacture. [11]

It is said that because the managements of these corporations are supposed to be independent of stock-holders and of external financing, they are free to follow whatever profit policy they like. Firstly, the degree of this ‘independence’ is subject to debate and since management and company directors are generally large shareholders themselves it is often only a question of which clique of shareholders controls the company. Secondly, the degree of self-financing of these corporations is also subject to controversy and since most corporations are inter-connected with financial institutions, the difference between ‘internal’ and ‘external’ financing is itself rather ambiguous. At any rate, the ‘growth’ of a corporation depends upon its profitability just as its profitability depends upon its growth. Galbraith and Ben Seligman, leading advocates of this position, contend that a large stock-holder will sell his shares rather than fight the management. But if the stock of a company were always being sold, and, presumably, never bought, it would indicate only ... that it was failing to expand capital and profits. Even if the stock-holders had nothing to do with managers which were autonomous robots programmed in Cambridge, Massachusetts, the corporations would depend upon their success in profit production since there can be no financing at all if the stocks are worthless while they would be worthless if they weren’t profitable. Galbraith’s misunderstanding is also based upon a confusion of profits with dividends, which always make up a minor proportion of the former.

These corporations are as interested in profits, and contrary to Baran and Sweezy, in ‘maximum profits’, as ever before. [12] Since the US economy has in effect become subordinated to the requirements of these leading companies, their disproportionate share of capital expansion and of profits produced is assured. But precisely the problem for these corporations, as for US capitalism, has been the stagnation which has forced these giant corporations to rely upon the American state, and particularly upon its war production, for their profits.

It is these corporations which obtain the vast majority of government war orders. One hundred companies, and more or less the same ones each year, obtain about 30 billion dollars annually from the Federal Government. [13] Nor is there really any particular sinister ‘military-industrial complex’: the whole giant corporate structure engages in this war-profiteering. While some corporations, of course, specialise in the military production, it is impossible to say what inter-connections exist between these and other corporations. At the same time, a huge portion of ‘non-military’ corporations are heavy war contractors.

It is not possible to estimate exactly the profits which these corporations obtain from the government nor to get a precise idea of the extent to which profits and capital expansion depend upon the government war spending. [14] Profits can not be estimated only because it is impossible to say what portion of the total ‘sales’ to government are costs and what part profits. Recent disclosure made by the Senate Sub-Committee on Government Financing, Chairman Senator Proxmire, found, for example, that all major computer corporations refuse to reveal the costs of the equipment which they sell to the government although they are legally bound to do so. Further, the special bureau paid by the government to investigate the costs in the arms industry consist of former and future employees of these same firms. In general, the ‘competitive bids’ of the arms firms have nothing to do with the actual bill they hand in at the end of production while, given guaranteed profit rates, the higher their costs the higher their profits. Presently, there is a push under way to get rid entirely of any remnants of a ‘cost-effectiveness’ system in this ‘high risk’ industry in which no one ever loses. Secretary of Defence Laird appears to support the" Defence Suppliers in this bid. [15] In this system, all you need is a few hundred million dollars and/or a few friends in the Pentagon to get the biggest welfare payments in history.

While it is impossible to estimate exactly the dependence of the US economy, and of these giant corporations, upon the state war spending, we can say that these same corporations obtain the vast majority of war spending and engage in the majority of industrial capital investment and that today in the US the total arms spending (about 10 per cent of total production) is approximately equal to total investment in new plant and equipment. [16] Nor are the dominant corporations subsidised only through war spending; capital investment is further subsidised through various tax-write-off schemes, taxes are avoided through depreciation, and so on. In 1962, for example, capital depreciation allowances represented 81.9 per cent of total outlays on plants and equipment by non-financial corporations, this percentage having risen consistently from 49.4 per cent in 1953. [17]

The government arms spending and inflationary policies subsidises the giant corporations in other ways. Research and development of private corporations is almost entirely a by-product of government war spending. While the public pays for this research, the fruits of it fall to the corporations which then force the public to pay the costs again. This research and development has stimulated the rise in the productivity of labour, about 2.7 per cent per year over the past two decades; the benefits of this rising production go almost entirely to the dominant corporations for, while productivity rises, prices do not fall but also rise. It is hardly true therefore that the technological development is the cause of the present-day capitalist stability, although without it the stability could not be maintained. While it has augmented profits, it is in the first place the result of government war spending while, rather than creating new markets for capital expansion, the technology-industries are the most heavily dependent upon arms spending. [18]

The real content of the government’s attempt to cut unemployment, to offset capital stagnation, then has been the attempt to subsidise the giant corporations which dominate the US economy, through war spending. Meanwhile, the conditions of the cities become more and more unbearable; mass poverty and unemployment, concentrated in the Black and Spanish-speaking populations but effecting white workers as well, continue unabated; medical, educational, housing and transportation facilities, the most basic needs of the mass of workers and poor, go unanswered. While war spending grows, ever-worsening conditions slowly undermine the mass of the population. The slow devastation of US society is complemented by a process which promises that the ‘way out’ will lie in the destruction of the human race.

Stagnation, inflation and statification

It is the stagnation of private capital which forces it to rely upon the state to offset the effects of stagnation, unemployment, and to guarantee the profits of the giant corporations. But the stagnation cannot be prevented, but its effects only postponed, nor can the profitability of private capital be restored through the state intervention. In fact, the state intervention contributes to the problems which it is meant to overcome. [19]

For the total economy, the growing war production means a declining portion of profit-production of total US economy. This arms spending and government spending in general, is paid through taxes, loans and inflationary measures taken out of the private economy by government on all levels. While according to Keynesian theory the government would subsidise the economy in times of crisis, generating expansion conditions which would counter the dependence of capital on the state, stimulating state surpluses which would repay the deficits, nothing of the sort has happened. The giant corporations have proved incapable of utilising their government subsidised profits to engage in private capital formation to a sufficient degree to offset their state-dependence. On the contrary, their state-dependence has grown consistently, as has the share of government spending in the total economy represented by the increasing share of taxation, the growth of inflation and deficits.

This situation has been ‘tolerable’ in fact mandatory, for the giant corporations because those companies which obtain the profits are not the ones which pay for the government spending. The monopoly position of these giants enables them to pass off their taxes in the form of price increases. They receive only the ‘rewards’, as war contracts are called, of the government spending, with of course no ‘risk’, while the costs fall on the American people as a whole and, at that, in proportion to the inability of each section of the population to escape from government taxation and inflationary policies: that is, particularly, the working-class and poor.

Taxation, through direct and indirect means, is an obvious and direct deduction from the workers’ wages while the rich have thousands of ways of avoiding taxation through loop-holes, business expense accounts, company cars and homes for executives. Assumedly, inflation harms all the population. In fact, inflation, the fall in the purchasing power of the dollar caused by corporation price increases including taxation, and government policies – particularly interest of the national debt and inducing the federal reserve to increase dollars in circulation for government purchases, thereby cutting the purchasing power of dollars in circulation – effects workers and the poor, is a means for cutting their real wages. The workers and poor have only the dollars they receive as wages and relief while the wealth of the rich is in corporate stocks and bonds, that is capital, securities, real property. The inflation which cuts the wages of workers and the poor to pay for war production and ensure corporate profits becomes the basis for a speculative boom through which millions are made by those who have millions, overnight. The only way which the government can think of to halt inflation, however, is to stop workers from fighting to make up through monetary wage increases for the inflationary. This forces them to do overtime and increases the necessity of working wives, through which the bosses get two workers for the price of one. The masses of unemployed and poor can do almost nothing against this government policy of ‘income redistribution’.

Thus, for the past two decades, the growing dependence of giant corporations upon the state, the relative growth of government spending and decline of private profit production has been offset by an absolute increase in the mass of profits due to the rising productivity of labour, the increasing intensity of labour, mainly speed-up, increasing labour-time and growing number of working wives while real wages have remained relatively stagnant. Nevertheless, the ability of the private sector to generate sufficient profit to support the growing state-spending, since whatever the means through which this state-spending is supported, it must be seen as part of the total profits, and private profit must decline with the decline of the private sector. This process even has support from the giant corporations which come to prefer the guaranteed super-profits which the government offers. In addition, the rising productivity of labour, the chief means for obtaining the growing absolute mass of profits, presents the dilemma of how to dispose profitably of the growing production, threatening increased capital stagnation and unemployment and still more state-dependence.

It is precisely these problems which call the state-dependence into being in the first place. In both the United States and Western Europe private capital production has come to rely more and more upon the state. But whereas in the latter, this state spending could also be a means for capital expansion, though hardly of ending the state-dependence, in the United States expansion centred more heavily on arms production. The difference in West European and US growth rates in the post-war period was not due to the comparative wisdom of the leading statesmen and corporate executives of the different countries but rather to the West Europeans’ good fortune in being devastated in a world war which saw a 60 per cent increase in US production capacity. An even better comparison can be made between Western Europe and Britain which, despite similar state ideologies, had less war devastation and the lowest growth rate of any industrial nation in the post-war world. Today as well when the boom in Western Europe has been drawing to a close, state policy has demonstrated no ability to revivify capital expansion except through attempts to augment profits by anti-working class measures. These measures, as the French mass strike shows, can generate conditions which may end capitalism altogether while the efficacy in stimulating capital expansion is extremely limited.

Just as in the days before the decisive state intervention in economy, the market was supposed to explain everything, today the state is supposed to explain everything. But the state intervention is itself determined by the conditions which call that intervention into being, determine what forms it shall take, and what its limits shall be. Thus, the West European destruction by war, and a certain inducement of the increased integration of the West European economy demanding a larger scale of capital production, opened the possibilities for the boom which ensued over the next two decades. Just as the market crises drove obsolete capitals out of the market through bankruptcy, destroyed backward capitals, forced workers to accept lower wages, and centralised capital permitting further expansion, until the next crisis, so the war presented the same effects in Europe while the state intervention could be a further means for the capital centralisation. Although the state was a necessary instrument of this expansion, it could not create the conditions which made it possible. In this sense, the ‘mixed economy’ was only a further stage in the centralisation and concentration of capital resulting from the capital expansion-crisis process.

In the United States, existing capital plant severely limited possibilities for expansion while the inability to open up the world market directly to US commodity invasion put a decisive bloc upon expansion. Capital expansion could also occur through state action, though not to the same degree as Europe. The expansion process had at the same time to be paralleled by the growing waste production of the war economy. In this sense, the ‘mixed economy’ was a means of tying the capital expansion process to a permanent capital destruction. Both elements were present in all ‘mixed economies’.

There are those who contend that the cause of the stagnation of the US economy has been its monopolisation. This theory was very popular with the Cambridge economists before the war, from whence came Keynes, and was used by Paul Baran in his Political Economy of Growth. According to this view, monopolisation leads to a decline in competition, therefore leading to capital stagnation since monopoly is supposed to discourage capital expansion because of the monopoly’s wish to protect the previous investment in the more backward plants. In fact, however, it is just the other way around. Capital stagnation and crisis lead to the increasing centralisation of capital and monopoly as means towards centralising profits to increase capital expansion. It is, if anything, the increasing stagnation of capitalism which calls monopolies into being as a means to revive capital expansion. If the stagnation can still not be. overcome, further centralisation will still be required, nationally and internationally, though this may still not be sufficient to revive capital expansion. It is also true that monopolised and protected industries can themselves prevent this further centralisation and thus become roadblocks to expansion. Nevertheless, this stagnation can hardly be seen as favourable, dictating only that the monopolies will become more backward in relation to those capitals still able to expand.

This theory was revived by Baran and Sweezy in their book on Monopoly Capital. There the authors claim that the problem for modern-day capital is the tendency for the ‘surplus’ to rise while monopolies are not interested in carrying out sufficient capital expansion to ‘absorb’ the ‘surplus’. In fact, it is just the other way around again. The problem of the giant corporations and of US capitalism generally is precisely insufficient profits to engage in sizable enough profitable capital expansion, that is, expansion of production which will be a means for increasing the mass of profits to free it from state-dependence and, at the same time, profits too large to invest profitably under the given level of production. The result has been a stagnating and extremely lop-sided development and growing state-reliance. Thus, while the US still has by far the greatest productive capacity in the world and is the most technologically advanced nation, particularly in war-related industries, it also has ‘the oldest stock of metal working machinery of any industrialised country in the world’. [20] The fact that the US economy is the largest in the world is beside the point. It is not large enough to generate sufficient profits to emerge from its stagnation.

While the problem of US capital has been insufficient profits and while capital must always act in such a way as to increase its profits and expansion, it does not follow that the possibilities of expansion must necessarily exist. Today, on the contrary, while the US economy suffers in part from backwardness, it also suffers from the threat of automation. Automated plants are still extraordinarily expensive. While cheap in relation to the greater output which they can provide, that greater output can’t be profitably disposed of. Nevertheless, automation will have to continue and, since production will not expand nearly in proportion to the increase in the productivity of labour which the automation will cause, it will give rise to further unemployment. This is required not only as a means for expanding profits and improving the competitive position of US capital, but also to support the growing war production, to expand the mass of profits to support the war machine which itself arises to offset the effects of unemployment largely derived from this automation. [21] And while in the past this automation has centred in the heavy industrial sector, as the militance of white-collar workers rises, and the costs of computers fall, while it is at any rate simpler to automate office-clerical work than industrial work, the tendency will be to shift to white-collar automation. Nevertheless, industrial automation will continue, though hardly to the extent of ending the industrial working-class [22], though certainly to the extent to cause increasing unemployment within it, and in US society generally.

The ‘mixed economy’, the state spending financed through taxation, inflation, and state-deficits, comes into being to offset private capital stagnation. This growing relative share of the State in production demands a still more rapid absolute increase in the private profit production. But ultimately this relative increase in the government sector must interfere with the possibilities of private capital expansion. The deficit-spending of both government and corporate financing can only be a going concern so long as the total production expands at an accelerating tempo. But the deficit-spending and state spending generally narrows the boundaries of that expansion. Thus the problems solved by the ‘mixed economy’ introduce problems which demand still more drastic- than the ‘mixed economy’ is itself as compared to the ‘free market’ economy when the state took up 5 per cent rather than 30 per cent of total production. The other side of this growing state dependence is the subordination of the greatest world power in history to the interests of a handful of corporations, engaged more and more deeply in a business which threatens to end world history.

The Arms Economy

It has been said that it would be possible to convert the government arms spending into welfare spending. This notion is based upon the Keynesian belief that capitalist production stagnates merely because of an insufficient ‘effective demand’ which can be increased through government spending while it is irrelevant what form this state expenditure takes in reference to the capitalist economy. Indeed, it is maintained that the fall in ‘effective demand’ ultimately depends upon a ‘psychological law’ which Keynes believed he had discovered, a ‘declining propensity to consume’ in relation to increased production. Not only is it ridiculous to explain capitalist crisis in which millions starve on the basis of their lack of propensity to consume, but, further, there is no direct correlation between capitalist consumption and capital expansion which results rather from the requirements of profit-production. Be that as it may, this Keynesian view is also advanced, for example, by Paul Baran in his Political Economy of Growth. Baran believed that while individual capitalists must oppose any attempt to increase the consumption of the community, it was in their interests to do so since this would increase demand and therewith total profits. This would explain the lack of the welfare state by the stupidity of the corporations which on the contrary, have shown themselves more than willing to give up opposition to state spending when it can be a source of profits.

In fact, capitalist production is a system of profit production and just as in the individual firms, wages are ‘costs of production’ opposed to profits, so in society as a whole the profits of those who control production are opposed to the consumption requirements of the mass of the population. It is this fact which explains the need for a welfare state in the first place, the deterioration of the living standards of the masses in general, of housing, of transportation, hospital care and education – it is not profitable to provide adequate services to the mass of workers and poor.

The arms production is, in the first place, not simply just another form of government spending. For those who rule America it is a particularly acceptable and even necessary ‘cost of production’, to keep the world open to American exploitation. It raises the hope that the present waste production of the arms economy will someday pay for itself through US exploitation of foreign areas. With the growing stagnation of the American economy, however, dictating expansion of the war machine beyond the possibilities of really open international exploitation, and the fact that the exploitation of foreign countries must ultimately entail their industrialisation, insofar as it could pay the costs of the expanding war production, this ‘cost of production’ becomes mere waste production, although still of a particularly acceptable kind. [23]

The prospect of world conquest is not really very hopeful for the United States. No capitalist country has actually undertaken the industrialisation of a foreign territory with the exception of Japan in Manchuria. This area, which has contingent with Japan and could be directly integrated with the Japanese economy, is comparable only to US policy in Canada. In general, the use by capital of foreign areas has been as a means to serve the requirements of capital expansion within the ‘mother country’ at the expense of the development of the colony.

This policy centred around the exploitation of natural resources and the sale of consumption commodities to the native population. These profits and resources were then utilised to serve the capital expansion of the imperialist nation, a policy continuing to this day. European and American investments in the backward countries remain today predominantly in natural resource exploitation although there has been some tendency towards the introduction of assembly plants using the cheap labour-power of these countries. This advantage is lost as industrialisation advances.

These industries are tremendously profitable. But they can never become the primary source of profits, nor of sufficient profits to pay the costs of the war machine. This would depend upon a high productive apparatus, a high labour productivity, and industrialisation. On the other hand, it is precisely the high labour productivity of the industrial countries, at least in relation to the lower productivity of the backward, which permits imperialism to obtain its super-profits in the first place. A policy of industrialisation of the underdeveloped countries, in order to obtain profits at some future time after the process of ‘reinvestment’ in the backward countries was ‘completed’, would be a self-defeating process promising only the end of the imperialist system itself. In fact, this would be imperialism in reverse. Under the imperialist system, the backward countries were means for the capital expansion in the developed countries. Now the developed countries would become means for capital expansion in the backward, a not likely proposition.

The US capital export to Europe, now the largest recipient of US capital exports, which increased more than 400 per cent from 4 to over 20 billion dollars to Europe in the past decade, is a somewhat different matter. This is a reversal of the capital export policy of the Europeans before the First World War, which went mainly to the US and Russia. Just as the European capital export became a means for the surpassing of the capital exporter by the capital importer, so the boom in Western Europe, as compared to the US stagnation, has been served by the reversal of roles. Today the US capital export is not nearly at the proportions of that of the Europeans at that time, however. For the US firms engaging in that capital export, it is very profitable indeed. But the consequences can be as harmful to the US as they can be to the Europeans. Decisions concerning employment in London, Paris and Milan will be made in New York and San Francisco. But after all, the plants will be in London, Paris and Milan and the US companies, just as they utilise their position within the European economy to act as European firms, so in the world market they may serve as means for the expanding share of world trade going to Europe as opposed to the US.

In fact, as the European boom slows down, and the US, at least as long as the Vietnam war continues, is forced to control its balance of payments deficit through discouraging capital export, the West European economy will not surpass the United States, nor will the US industry take over the European economy. At any rate, unlike the backward countries, the European continent was already developed previous to the US capital export, while that capital export did not cause, although it encouraged, the expansion but was attracted to it.

That the United States is not able to utilise the backward countries to even pay the costs of the war spending will hardly force it to either give up the attempt to keep these areas open or to stop war spending. For a century, the west attempted to batter down the walls of China with its cheap commodities, such as gunpowder and lead shot. When it finally succeeded it proceeded ... to do almost nothing with it, but it still hasn’t sent any congratulations to Mao for taking this unpromising investment off its hands. On the contrary, as the stagnation of the US continues, it becomes only more desperate in its attempt to keep these areas open, if only for the sake of keeping these areas open, or to prevent any independent development or replacement by its Russian rival. At any rate, the expenses of war spending are suffered by the American people as a whole while the profits of that spending, and of imperialism, go to the dominant corporations.

Thus the government arms spending is not simply just another form of state spending. What is more, this particular form of state spending is an especially effective means for subsidising the corporations in heavy industry which dominate the US economy. No other system could subsidise these corporations so well – such as welfare spending, public housing and so on which involve other industries. Of course, if the government went in a large way into these other areas, the giant corporations could also follow, as evidenced for example by the beneficent activities of Litton Enterprises which has moved out from war production into public schools and war on poverty job training camps – most of the graduates of the latter are fortunate enough to qualify for ‘jobs’ in the army. [24] But other forms of spending cannot be means of capital and technological development. [25] Further, the war spending has the added advantage of forcing competing nations to engage in this form of waste production.

War production is the best form of government spending just because it is waste production. As such it can threaten none of the fundamental social relations of US society. Today unemployment, poverty and the general insecurity of the population are means for assuring the social position of those who rule US society. The taxes and inflation through which the costs of government spending are shifted on to the working masses depend upon this general insecurity as well. Without it, the threat of poverty hanging over the head of every worker, the giant corporations might actually have to pay the taxes they pass on to consumers, as workers would be able to win back the wage loss which the inflationary price increases cause. Without the mass insecurity, the whole fabric of life in capitalism would be shaken and those who rule made to feel it. Above all, the war economy is a means for subsidising 500 corporations at the expense of 60 million American workers and their families. To turn that war spending into welfare spending would mean reversing this relation, a situation which could come about only by destroying the American ruling class.

In general, it is just the things that the masses need that aren’t even paid out of taxes but through loans. This is particularly true of state and local governments afraid to tax the giant corporations and rich who dominate the local state and general area. Instead of taxing the local government’s float bonds to build schools, public housing, hospitals and transportation. Indeed, the federal government’s methods of partially reimbursing local public housing programmes depend upon this method of financing.

Of course, these loans have nice, safe interest rates. They’re tax free – and they’re all owned by the richest one per cent of the population. [26] Of course, the local and state governments can never borrow much on this basis while the real needs for this programme is constantly growing. So local taxes skyrocket to pay the debts which keep accumulating to the rich money-lenders while all the local services become more and more inadequate. The giant corporations would like to see an end to the urban crisis – they’re just not willing to pay for the solution. On the contrary, they’d like to make money on it. ‘Free enterprise’, they say, must solve the urban crisis. Meanwhile, the federal government can spend 80 billion dollars a year for arms production. The total receipts of the five largest arms corporations is larger than the total federal housing programme; the receipts of the leading 100 war corporations is larger than the whole government welfare outlays, for health, education, job retraining and public housing.

Thus the other side of the state’s subsidisation of giant corporations through the war economy has been the slow devastation of America’s cities and of its general environment. This devastation isn’t opposed, but is on the contrary furthered, by state policies just as the government ‘redistribution’ of wealth is from those who don’t have it to those who do. It would be laughable, if it weren’t tragic, to recall the arguments of the 1950s, which persist today although more quietly, which wished to prove that present-day capitalism, and particularly the state intervention, would provide better living for workers. Today tens of millions continue in poverty, while millions are actually not only hungry but starving. The American factory worker puts in more hours on average today than in 1940 and work-time has increased by about three hours per week over the past three years. Taxation takes about 30 per cent of the average worker’s pay check. Inflation is now about 5 per cent per year and even higher in industrial centres and large cities. The housing shortage and urban conditions have grown to crisis dimensions. Air polution, water polu-tion, food pollution, inadequate health, education and sanitation services, get worse and worse. In the past five years real wages are supposed to have remained the same, thanks to overtime, and actually fallen in 1968. And since the quality of housing, of transportation, of the air we breathe, gels worse and worse, even constant ‘real’ wages mean declining wages. The ‘mixed economy’ has perhaps saved us from sudden collapse. Everything is falling to pieces slowly.


Since the Vietnam war intensified in 1965, the US economy is supposed to have had less unemployment than at any time in the post-war period ... since the happy days of war in Korea. While the war has cut unemployment and prevented an economic recession which appeared imminent before it began, it has also aggravated the problems of the ‘mixed economy’ increasing the share of government in production, for war. The ‘boom’ which the US economy is supposed to have seen over the past years is essentially a war expansion, occurring essentially around war-related industries with falling consumption for the masses and stagnant profits. Despite the much talked about ‘cheapness’ of the Vietnam war, give or take a few hundred thousand dead human beings and the destruction of Vietnam, this is the most expensive war in United States history. It’s the first war since 1812 that the US government hasn’t been able to spend enough to win.

The war itself is now responsible for most of the US balance of payments deficit as well as a growing budget deficit and rising taxation. It has accelerated the rate of inflation to about 5 per cent per year, and more in urban centres. This inflation is, in the first place, caused by the growing government spending and represents an immediate wage cut for all workers and recipients of welfare and social security payments. For those who believe that inflation is caused simply by ‘rising demand’ it is enough to note that the industrial price increases eventually express themselves as increases in consumer prices, which have risen more rapidly than industrial prices in the past two years. The various corporations and industries divide among themselves the increases they derive from inflation at the expense of the workers and poor. Inflation, combined with increasing taxation and employment, has forced and enabled (at least those who can do so) workers to fight for higher monetary wages to make up real wage losses. To the extent that they succeed, and beyond, corporate prices are raised still more. This situation, known as the ‘wage-price spiral’, through which workers attempt to defend themselves against real wage cuts, is the kind of ‘inflation’ which the corporations and government want to control. They want the benefits of their inflation which augments profits and pushes the costs of war on to the general population, without its nasty side-effects, the workers’ defence of their living standards. Further, to the extent that inflationary policy fails to finance war spending, other forms of fund-raising must be found, such as increased taxation and loans.

Thus the government’s attempts to offset the consequences of the instability sown by its growing war spending, take the form of attempting to enforce income cuts upon the mass of the population. Through this means it hopes to offset the growing encroachment of the state on to private capital production and perhaps also to augment capital profitability in order to revivify private capital expansion, something it hardly hopes to do by forcing business to rely upon its own ‘free enterprise’.

These measures of government take the form of cuts in government non-military domestic spending, mainly for welfare, education, housing and other ‘luxuries’. This is true not only of federal but of local public service spending. The universal cuts in state higher education budgets, indeed education on all levels, welfare, medical aid, etc., is a direct consequence of growing federal taxation for war since this obviously cuts off local sources of revenue. If the national corporations were really interested in a solution to these local problems as some on the left have recently contended, they could easily pressure the government to shift from subsidising the same enlightened corporations through war spending, to taxing them for welfare spending.

In moving to force income cuts on the workers and poor the government makes attempts at wage-control through direct means, such as anti-labour legislation and state intervention in labour disputes, and indirect means, such as increasing unemployment. The Nixon Administration today has declared its aim to increase unemployment to about 5 per cent. This official figure would mean a much larger real figure since hundreds of thousands no longer looking for jobs are not included on the unemployed lists. This encouraging unemployment, since its goal is to help finance war spending, can only take the form of discouraging domestic production. This the government attempts to do by (for example) increasing interest rates, a policy which works mainly, if at all, against smaller enterprises and purchasers of durable consumer goods such as houses, cars and instalment-bought goods, thanks to the inter-locks between financial and non-financial giant corporations. It therefore especially affects the poorest workers. What is more, it may also contribute to inflation to the extent that, rather than discouraging production, it merely raises interest rates. Incidentally, these measures, such as cuts in non-military spending and increases of interest rates, are ironically also presented as Keynesian measures although Keynes’ ‘General Theory’ was originally presented as a critique of such deflationary government policies and attempts to cut consumption still more. It is ‘Keynesian’, however, only in the sense that it actually accomplishes the opposite of what it is hoped to do, that is, increases the state dependence of capital.

Firstly, so long as the unemployment policy of government remains on this level there is very little chance of its actually controlling organised workers from fighting against inflation and rising taxation although it will certainly succeed in depressing the wages of the poorest, just as it will force those who become unemployed to a lower income. But organised workers may well be able to offset such attempts at indirect wage control. To discipline them in this way it would be necessary to manufacture a full-fledged crisis though this might still fail. We can therefore look forward to growing state intervention, anti-labour legislation, perhaps particularly against unofficial strikes and attempts at direct wage control which will be put forward as ‘prices and wages policies’ though it will manage, if anything, only to control the latter.

The attempt, however, to ‘discourage’ non-war production, which is what the government’s policy will entail, will only force a still greater reliance of capital upon the state for its profits, accelerating the very tendencies which the state policy hopes to offset. If successful, this policy would at the same time increase centralisation of private capital, as the state policy does in general.

Contrary to the Keynesian view which sees state deficits as meaningless because they apply within one nation, the deficits actually apply – that is, they are ‘loans’ from one particular section of the nation, the rich 1 per cent who own all state and local bonds and approximately 40 per cent of total federal loans – through these loans the rich ‘back America’ ... in its efforts to subsidise the rich. Though the actual control of this wealth passes from the hands of the rich to the state, the interest remains a lucrative compensation and this hardly prevents those who own the loans from regarding them as their property. The slowdown in the economy generally will indicate an inability by the state to control workers from struggling to protect their real wages against inflation and indicates, of course, the growing weight of state spending in the economy; will cause an increasing reliance upon the state and could even be the cause of a ‘crisis of confidence’ by the rich in their state, a crisis which can cause results like those recently seen in an extreme example in the French crisis of last November wherein French francs began fleeing the country, being converted into German marks, to ensure their owners against possible losses, threatening the possibility of monetary and economic crisis. The speculative boom in stocks, bonds, real property will not take kindly to government efforts to slow down the economy while the deficit financing of state and corporate spending demands more rapid expansion. On the other hand, the weakening position of the dollar internationally and US balance of payments deficits make such measures of restraint more and more necessary.

The growing difficulties of the ‘mixed economy’ lead to an increased government-corporate assault upon workers and the poor, regardless of whether or not that assault, even if successful, can solve those difficulties. The tendency towards increasing statification of US capitalism is today irreversible while the government attempt to offset this tendency, at the expense of the working-class, can only ensure ultimately that, while the transition for the ‘market economy’ to the ‘mixed economy’ followed upon 10 years of crisis, any further statification of production will also take place on the basis of severe social-economic crisis. Whether or not that crisis takes place slowly or rapidly, and the slow crisis always threatens to turn into a rapid one, the stability of the past will slip more and more in the future.

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1. See Robert Lekachman, The Age of Keynes, London 1967, p.103.

2. Norman S. Buchanan and Frederick A. Lutz, Rebuilding the World Economy: America’s Role in Foreign Trade and Investment, NY 1947, p.252.

3. Quoted in Homer Paxon, Marshall Plan: American Way of Conquest, The New International, July 1948, p.142.

4. See Paul Mattick Capital Formation and Foreign Trade, Science and Society.

5. Angus Maddison, Economic Growth in the West, NY 1964, p.28.

6. Paul Mattick, The Mixed Economy, Science and Society.

7. Maddison, op. cit.

8. See Mattick, The American Economy, International Socialist Journal, 1967.

9. US Senate Hearings Before the Sub-Committee on Anti-Trust and Monopoly: Economic Concentration, Review by David Michaels in Monthly Review, April 1966.

10. See Domhoff, Who Rules America?

11. See Michaels, op. cit. This Senate inquiry gives the misleading figure of, instead of profit rates, the relation between profit and total assets. This is 8 per cent for the top 200 and 5 per cent for the rest. Since the turnover of smaller firms is generally more rapid than larger ones, that is a larger proportion of their ‘total assets’ is actually expended in each year, while the profit rate refers to the relation between profits and total capital actually expended, the difference is really greater.

12. See Monopoly Capital, Penguin edition 1968, p.39. The authors believe that the corporations’ search for maximum, profit is ‘subject of course to the elementary proviso that the exploitation of today’s profit opportunities must not ruin tomorrow’s’. If Mr. Sweezy will be so good as to divulge the secret which is for him so obvious, the corporations of the world will unite in gratitude.

13. Wall Street Journal, 1968.

14. Harlow Unger, Sunday Times, June 30, 1968, points out that the top 200 defence contractors are concentrated among America’s 300 largest corporations.

15. See Wall Street Journal.

16. About 7.4 per cent of total production, NY Times, April 6, 1969, figures for 1968.

17. Baran and Sweezy, op. cit., p.108.

18. See Michael Kidron, Western Capitalism Since the War, London 1968.

19. Paul Mattick, The Mixed Economy, op. cit., for the basis of this discussion.

20. Seymour Melman, Our Depleted Society, p.50.

21. See Paul Mattick, Arms and Capital, International Socialism 34, p.34.

22. The increase in output per man hour from 1947-63 was 2.7 per cent per annum as compared with 3.0 per cent per annum between 1919 and 1947 in manufacturing. Lekachman, op. cit., p.203.

23. Paul Mattick, The US in South-East Asia, International Socialist Journal.

24. See Ramparts, April 1969.

25. See Michael Kidron, op. cit., to see the tremendous dependence of technological development on arms production

26. See Domhoff, op. cit.

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