From New International, Vol.4 No.3, March 1938, pp.75-77.
Transcribed & marked up by Einde O’Callaghan for ETOL.
THE CURRENT ECONOMIC decline chisels in bold relief two conclusions for all to see: first, the crises of American capitalism are increasingly sharper and more disastrous; second, capitalist economists can neither understand nor explain them.
That crises are getting sharper is easily proven. During the five months following the crash of 1929, the New York Times index of business activity fell eleven points. During the five months following the decline of 1937 it fell thirty-three points. The magnitude of the current decline is three times as great. No less important is the rate of fall. The rate for the five months’ period of 1929 was 9.5%, but that of 1937 was 30%. The rate of fall for the current decline is more than three times as great. The fall in steel production is even more impressive proof that crises are getting sharper. It took more than three years for steel production to fall to less than 20% of capacity after the crash of 1929. It crashed to this low in less than five months after the current decline set in.
To call such disastrous falls a “recession” is mere playing with words. The fact is that the current “recession” is deeper than the major depression of 1921-1922 and is one of the deepest in American economic history. There is no good reason for expecting any economic recovery within the next few months. As the National City Bank’s economic bulletin admits:
“The trend is plainly downward but has farther to go, and this will limit the improvement in the primary industries during the next two or three months.”
It is just as likely that the current decline will continue into a depression that will make the last depression look like a little recession by comparison. For American capitalism is on the decline, its recessions are greater than its former depressions, and its future is one of depressed prosperity, worse crises, and worse suffering.
That capitalist economists can neither understand nor explain these crises is even more easily proved. They admit it in words and they substantiate their words in their own actions. The associate financial editor of an outstanding capitalist newspaper, the Herald-Tribune, opened his review of financial events of 1937 with the frank admission that:
“It is doubtful if professional economic forecasters – and there are more today than at any time previously in our history – ever failed so conspicuously to recognize a bear market and a business depression as they did in 1937.”
He also confessed that he was himself one of those who had “failed so conspicuously”. In January of 1937 he had predicted that the country was “well advanced on what may be described as the third, and easily the most convincing wave of recovery since the bottom of the depression was reached, in 1932”. In this he differed not at all from the rest of the most prominent capitalist economists and financial experts. And the current disastrous declines have proven him as short-sighted and as futile as they.
The double bankruptcy of capitalist economy and capitalist economic theory poses only two alternatives: Either affirmation of faith in capitalism, despite its failures, and acceptance of its economic theories, despite their failure; or repudiation of both capitalism and its economic theories as bankrupt accompanied by the conscious substitution of an economic system and an economic theory that succeeds where the other fails – by the conscious substitution of socialism and Marxism.
It is typical of liberals that they shun both alternatives. With words of bitter criticism some attack the sterility of capitalist economic theory, others attack the evils of capitalism itself. But both, at the same time, repudiate Marxism; and neither consciously substitutes an economic theory that is more fruitful or an economic system that works. There have been two recent examples of both types of attack by popular economic writers. We would do well to analyze their articles that we might judge the fruitfulness of liberal economic theory and the direction of liberalism in action.
To repudiate capitalist economic theory without consciously substituting an alternative theory is as dangerous for theory as it is for practise. This type begins with an attack on the wrong theories of capitalism and then launches out into an attack on all theory. Having decided that one set of principles is wrong, it decides that all principles are wrong. It substitutes anti-rationalism for poor rationalism. However the solution for wrong theories is not the abandonment of all theory but the substitution of correct theory. The solution for a lack of rationalism is not less but more rationalism. The solution for bad principles is not the abandonment of all principles but the substitution of good principles. This type substitutes its own irrationalism for the irrationalism of capitalism.
Stuart Chase shows the fundamental irrationalism of this type of liberal in his recent article in the December issue of Harper’s, called Word Trouble Among the Economists. Here he lashes out indiscriminately against the economic theories of the right and the left in the name of an “operational” method whose mystic powers he never quite makes clear. His own formula for action, however, he does make clear.
“What then are citizens to do? I modestly suggest that we divest our minds of immutable principles and march after tangible results. Use the ballot, social legislation, collective bargaining ... if, as, and when the context of the situation, after study, gives promise for any advance. An advance to what? To make Adam I and his family more comfortable and more secure.”
The flight from principle to particularism is quite evident here. But he does not abandon all principle, although he makes a great show of doing so. Rational, principled thinking cannot be abolished by fiat, not even by that of Stuart Chase. He may “suggest that we divest our minds of immutable principles” but actually he is suggesting that we divest our minds of all immutable principles except two of which Stuart Chase approves: his distorted conception of the principle of the “operational” method, and the principle that unprincipled action in politics, i.e., opportunism, is the most beneficial course of conduct to follow if we are to “march after tangible results”.
Whatever changes may have occurred in physics, among human beings the principle has remained the same – nature abhors a vacuum, even if it is Stuart Chase’s head. The choice in fact is not between principle and no principle, but between good principle and bad principle.
What is it that Chase’s principles involve? First, that we draw no general conclusions from any problem. Every problem should be judged by itself, each preceded by a research job. On each problem we should start with Chase’s tabula rasa. Such an approach emphasizes the dissimilarities between problems, rather than their similarities. Without similarities there can be no science, and without science there can be no prediction. By assuming that there are no basic identities in social life, he precludes any social or economic science. In which case, decision on any subject must await a trial. Fascism has not benefitted the Italian workers and peasants. But we have not tried it here. Maybe it would succeed here? Our unprincipled disciple would give it a trial here before he passed judgment on its merits.
The result of raising unprincipledness into a principle is to make Chase subject to every wind of doctrine and information – and to the capitalism which dominates both. The outcome is that he supports capitalism and its solutions, whose “tangible results” are economic decline and lowered living standards. This is inevitable. In a conflict between the irrationalism of the capitalist system and that of Chase, capitalism will always win. It has all the weapons of persuasion at its disposal – force and propaganda. All the social controls are in its hands.
The second type of liberal economist attacks the evils of capitalism but substitutes no alternative economic system. In practise, it is to accept capitalism. This type is well represented by John T. Flynn of the New Republic. He realizes full well that accepting capitalism and its economic theories means more than simply that. It means also accepting economic decline, of falling standards of living for the American people, of increasingly widespread and grinding poverty for more and more millions of American workers and middle class. In pleading for a realistic approach to the current economic decline, he demands above all that
“... there should be an end of the half-mad cults of abundance. The day of the promisors – the destroyers of poverty and the makers of abundance, Republican and Democratic – ought to be closed. Perhaps one day we shall know how to achieve this miracle within the framework of the capitalist system. It is a very real sober world of facts that we must now face”.
This, indeed, shows the plight of “liberal” economic theory in a world of monopoly capitalism. Even in its progressive youth, in the period of laissez faire capitalism, the fulfillment of the promise of abundance inherent in capitalist production was far from realized. Nevertheless there was partial delivery, and the promise of greater abundance to come had a basis in reality. But today, the very liberal economic theory which was first to promise abundance is the one openly to abandon it For the propaganda of abundance is too patently false. While capitalism itself is convulsed in crises that are increasingly more severe, only “half-mad cults” could continue to expect it to fulfill its promise of abundance. Abundance under capitalism would be a ‘‘miracle”. In fact, it is impossible. The ideal of abundance has no legitimate place in capitalism, least of all when capitalism is in crisis. Mr. Flynn wants the ideal abandoned, the promisors of abundance silenced and all people to face the “sober world of facts”.
“If there is a possible disaster ahead, it can be averted only by understanding it,” says Mr. Flynn at the outset of his article on This Setback in Business in Harper’s of January 1938. There is another alternative: one can understand and accept disaster. Mr. Flynn accepts disaster for abundance and the workers in order to avert disaster for capitalism.
Flynn is willing to abandon abundance to save capitalism. How does he propose to do it? His solution for keeping capitalism from crashing into depression is in the best traditions of laissez faire capitalism. The government should not subsidize agriculture – it should encourage free competition. The government should make war on trusts in industry. In the building construction field it should attack “the whole structure of monopoly controls in it by labor and contractors”. These measures and others that he proposes are all part of the attack on prices because “The one hope of escape now is an attack on the price structure”.
It requires only the most casual reflection to realize the sheer naivete of Mr. Flynn personally, and laissez faire economists generally. Substantially, what he and they propose is to introduce competition into a world of monopoly capitalism, to stop government subsidies because they undermine competition. However, agriculture is depressed and more than one-third of the farms are mortgaged. To stop subsidies to the farmers would bankrupt them and take down in their wake insurance companies and banks that hold farm mortgages. To enforce competition among corporations – even if it could be enforced – would cause a glut on a market that is contracting, would slash prices, slash profits, and bankrupt corporations. These might easily bankrupt as well banks and trusts whose income and assets depend upon them. Mr. Flynn may say blithely: “Railroads and other corporations which are bankrupt in fact should be allowed to secure for themselves the benefit of bankruptcy and the revival of their investment functions,” but the widespread bankruptcies of railroads, banks, etc., might well cause such reverberations as to drag down with them the capitalist system itself.
The underlying theory is that if bankrupt capital is destroyed, the rate of profit for the remaining capital will increase. There will be an impetus to private investment in new capital goods under the spur of high profits. This will stimulate the capital goods industries whose output sustains business recovery. The theory leaves out of consideration the fact that the bankrupt capital may represent so large a proportion of the capital that there might be precipitated a far greater crisis than Mr. Flynn imagines. Furthermore, recovery from the lower level could not reach as high as the present. It would be a depressed recovery, with a contracting market The field for capital investment would be narrowed, capital goods output would be restricted, a worse depression would occur, and the down-spiral would continue.
It is this prospect of decline that impels him to abandon the ideal of abundance. However, he is willing to accept the hazards of future, worse depressions, providing that the government accept this solution for the present one. But he makes his plans in a vacuum. He reckons without the class-economic forces that are intertwined with all this capital that he would destroy. The owners of this capital are not interested in just general economic activity but in their own profitable activity. Their pressures on the government far outweigh those of laissez faire economists. The solution is unreal. It is of the past, not of the present.
If the solution for saving capitalism is unreal economics, the proposal to abandon the myth of abundance is foolhardy politics. As a revulsion against the blatantly false propaganda of abundance, it is praiseworthy, but it shows no real insight into the politics needed to maintain capitalism.
The capitalism of the past had a double base: one, its ability to distribute some share of increasing plenty to workers, middle class and farmers; and two, its ability to inspire faith in those sharing inadequately that the development of capitalism would extend the magic circle of abundance to include them.
Conditions have changed. Today there is a decreasing production and a decreasing proportion of what is produced is distributed. Meanwhile the population grows. The potential plenty of large-scale industry is frustrated by profits. The ideal of abundance has become a myth contradicted by the reality. It becomes more than ever necessary to broadcast nation-wide the myth of abundance in order to hide the harsh reality that American capitalism is on the decline.
For it to continue, capitalism must retain the faith of workers and middle class; it must spread the impression that it still can work. The propaganda of abundance is a narcotic which lulls them to subservience. The day when they recognize that so long as capitalism exists they are doomed to degradation and poverty amidst the greatest potential in the world – that day will have seen the dawn of social revolution and the overthrow of capitalism.
The dilemma of laissez faire economic theory and John T. Flynn comes to this: They would abandon the ideal of abundance to save capitalism – but capitalism qualified, laissez faire capitalism. The alternatives of laissez faire capitalism or monopoly capitalism are posed as if they were real. Actually there is no such choice. The introduction of competition into modern monopoly production, amidst contracting markets, would so glut the market, so slash prices and profits, beget so great a torrent of bankruptcies, as to cause an economic decline unprecedented in American history. It would threaten capitalism itself.
It is to “avert this disaster” that capitalism turns to monopoly, destroys laissez faire, and confronts the liberal economists with the dilemma: If they want laissez faire, they must repudiate capitalism because it is predominantly monopoly capitalism. If they support capitalism, they must repudiate laissez faire. A compromise between monopoly capitalism and laissez faire can be made only on the basis that the phrases of laissez faire be used to cover the actions of monopoly.
Roosevelt’s cohorts may indulge in attacks on monopolies, and he himself make brave speeches about trust busting. These are only the words of laissez faire meant to retain the flagging faith of workers and middle class. The actions are those of monopoly capitalism. The aid to prices in agriculture continues and is expanded. The TVA, intended to compel the utilities to reduce the price of electric service, is being limited. The road is being paved for another session of government legalization of trusts under a new NRA. The emphasis is on keeping prices up and profits “reasonable”. Under such circumstances, to believe that a return to laissez faire is probable is to delude oneself as well as others. For economic systems, even as for humans, there is no fountain of youth. There are only offspring.
There is an easy transition between laissez faire economic theory and that of monopoly capitalism. Both accept private ownership of the means of production, operation for profit, and distribution of the products by exchange, i.e., capitalism, as the basic data of their thinking. Both abandon the ideal of abundance in order to keep the reality of capitalism. As the increasing severity of economic crises threaten the destruction of capitalism, both propose measures to save it. But since monopoly capitalism dominates the scene, any measure to strengthen capitalism means, in practise, to strengthen monopoly capitalism. And strengthening capitalism means to increase its profits.
Thus, to aid recovery, Mr. Flynn asks for a war in the construction industry on “the whole structure of monopoly control in it by labor and contractors”. And it is highly significant that Roosevelt, the most conscious defender of monopoly capitalism, asks the same action in the same name of recovery. In such a war the contractors would not suffer nearly as much as the unions. For the whole institutional weight of monopoly capitalism would bear down on labor, forcing it to take in wage-cuts more than what the contractors lost in price-cuts.
To break labor’s monopoly in building construction means to smash the strength of these strategically located unions, weaken their bargaining power and lower their wages. Unionism, here as elsewhere, means essentially that workers’ organizations have monopoly control of the labor supply, and by virtue of this control they can dictate to the contractors wages, hours, conditions of work. Flynn’s proposed war on monopoly includes an attack on those controls exercized by labor. The phrases are those of laissez faire but the actions are identical with anti-union drives in all periods of capitalism.
However, whatever distinctions between liberal and monopoly economists remain will be hammered beyond recognition beneath the blows of history. The weight of declining capitalism is breaking through the propaganda of abundance, crushing beneath it faith in capitalism. In periods of crisis such as now, falling production and profits impel corporations to cut wages and employment The flagging of faith in capitalism becomes more widespread. As the falling rate of profit falls still faster, employers try to cut costs by further wage cuts. The workers’ opposition becomes more militant They find that they must either strangle themselves in declining capitalism or overthrow it The flood of propaganda for overthrowing capitalism finds ready hearers. Conditions are ripe for revolution.
Amid these prospects, the National Association of Manufacturers met at the Waldorf-Astoria on December 8, 1937. The New York Times reported that “The assembled manufacturers were told by Virgil Jordan, president of the National Industrial Conference Board, their research organization, that ‘it is extremely unlikely that prosperity can be restored soon enough to prevent the destruction of the economic and political system of which you are a part’. Mr. Jordon said ... that within five years the only question would be whether the new American system was to be fascism or communism’’.
Quite right In the struggle to keep up profits, capitalism must smash the workers’ “monopoly controls”, the trade unions and the independent working class political parties. It must keep them smashed and incapable of reforming for further conflict. It does this by establishing a permanent state apparatus of suppression – fascism. The only alternative solution of any permanence is communism. Only thus can the workers escape the strangulation of falling wages amidst declining profits. Only here, with the profit system removed, can they find abundance.
In the face of this basic conflict, “liberal” and monopoly economists will slough off their differences and unite on their common platform: the maintenance of capitalism. But in such a crisis the only instrument to save capitalism is fascism. The liberal economists of today, accepting capitalism and its theories, must remain futile or support the only instrument of its preservation tomorrow – fascism. John T. Flynn and his fellow New Republicans are no exceptions. They had better consider again, whether they are for capitalism – and fascism; or whether they are for labor – and communism. And when they consider, let them remember Flynn’s warning that “The statesman who seeks the approval of his contemporaries at this juncture is a fool. There is but one verdict now worth having – the verdict of history”.
The warning applies equally to liberals and liberal economists. History awaits to judge their verdict – fascism or communism?
Last updated on 4.8.2006