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The New International, October 1941


The Editor’s Comment

The New Economic ‘Boom’


From The New International, Vol. VII No. 9, October 1941, pp. 228&ndaqsh;30.
Transcribed & marked up by Einde O’Callaghan for ETOL.


American capitalism is experiencing a new “boom.” The rise in the economic curve is, however, based entirely upon a war economy, i.e., the mounting governmental orders for the most varied type of commodities essential to a successful realization of the provisions of the Lease-Lend Bill and the erection of a mass American armed force for naval and land operations. Roosevelt’s aim to make of the United States an “arsenal of democracy” has produced the present new wave of industrial and financial prosperity for the American ruling class. Consider for a moment the mountainous needs in planes, ships, heavy armaments and the equipment of an army of millions and one can begin to visualize the enormous quantities of steel, aluminum, copper, brass, textiles, paper, petroleum, electricity, coal, and other similar products, which are required. At present the authorized national program (1940–1941), in its preliminary stage, calls for the expenditure of an unprecedented $56,536,000,000. This vast amount of money is divided between the Army and Navy, Lend-Lease, Maritime Commission, RFC and similar agencies. It is intended to cover the cost of basic materials and weapons for a host of requirements.

The total disbursement from April, 1940, to August, 1941, has been $9,882,000,000, leaving more than 45 billion dollars of the original budget yet to be expended. But the effects of this spending have already left their mark.

How Their Profits Grow

Despite the heavy taxation passed last year, profits growing out of the enormous increase of business activity have been greatly augmented. The National City Bank Bulletin for August, 1941, illustrates this rise. On page 92, it reports:

A tabulation of the published statements of 360 leading companies engaged in manufacturing, mining, trade, service and construction shows combined net profits, less deficits, of approximately 785,000,000 after taxes in the first half year, which compares with $652.000,000 for the same companies in the first half of 1940 and represents an increase of 20 per cent. (Our emphasis – Ed.)

The net worth of the afore-cited companies at the beginning of 1941 was more than 12 billion dollars, upon which “the half-year’s profits were at an annual rate of 12.8 per cent, compared with a slightly smaller net worth and a rate of 10.8 per cent a year ago.” (Our emphasis – Ed.)

Let us cite some other examples of this rapid rise in the economic conjuncture. The increase of industrial activity raised the consumption of electricity to a new high level of more than 60 per cent above the 1929 average! Operating income of all class 1 railroads for the first half of 1941 showed an increase of 21 per cent over 1940 and represented the greatest increase since 1930. But the total railway operating income, expenses and taxes already deducted, increased by 77 per cent over 1940, surpassed the 1930 figure and was the highest since 1929. The combined sales of 40 large manufacturing groups totalled $3,060,000,000 for this same period. This increase is larger by $878,000,000, or 40 per cent, over the corresponding period of 1940. There was a 16 per cent increase in sales of mail order houses, department stores and chains. General sales increases ranged from 25 per cent to 100 per cent. Tremendous profit gains were experienced in textiles, stone, clay and glass, iron and steel, building equipment, hardware and tools, railway equipment, auto equipment, metal products and miscellaneous manufactures. Production increases were maintained in contrast to usual seasonal declines. This was not unexpected in view of the requirements for total war.

These great increases in all fields and the rise of profits are accompanied by some very grave problems. Such problems arise primarily from the fact that the economic upswing is essentially an artificial one occasioned solely by governmental expenditures. But whether artificial or not, the upswing is a fact and the problems growing out of the current economic situation are real.

Defense Goods versus Consumer Goods

The continued production of war goods and their increase in accordance with the main aim of the Roosevelt Administration cannot be maintained, on a capitalist basis, without an immediate curtailment in the production of consumer goods. “Guns or butter” will become a reality for Americans just as it did for all Europeans. The capitalist profit economy is not organized for the purpose of providing for the common good and it is sheer utopianism to believe that the native war economy can accomplish what no other imperialist power has been able to do. If there are some who believe that the United States can see its war program through without affecting the standard of living of the masses, they will be quickly disillusioned.

The Administration production chiefs are gravely occupied with this very problem – not whether such curtailments shall take place, but how much and in what fields. This is the heart of the question when the matter of priorities are considered. And although there is a considerable resistance on the part of those manufacturers of capital goods for consumer industries and those directly producing consumer goods, the pressure of the government is making itself already felt as, for instance, in the automobile industry.

Priorities unemployment, therefore, looms up as one serious threat to the American workers. The production of automobiles, radios, refrigerators, household goods, furniture, etc., are some of the commodities slated for reduction or total elimination. It is already estimated that there are about 100,000 unemployed automobile workers in Detroit. While the government aims at their absorption in a transformed industry producing tanks, armanents and munitions, a considerable dislocation, in the meantime, follows in the automobile centers.

This growing disproportion in the production of war materials and consumer goods has created the initial basis for the current rise in prices and prepares the ground for an enormous inflation. The rise in prices has been especially acute in the field of consumer goods, striking directly at the working class. There has been a 23 per cent increase in all prices in the period just past, while farm prices have risen 51 per cent since the war began. Interestingly enough, the rise in prices has been smallest in the “field of basic defense metals.” There has been almost no increase in finished steel prices; copper and lead have risen only 10 per cent. But the price rise in foods, household goods, wearing apparel, furniture and rents has been enormous, especially since the new tax legislation and the bar on installment buying went into effect.

In the discussions before the House Banking and Currency Committee on price control, it became apparent that the goal of the legislative hirelings of big business was not control of prices or profits, but the establishing of a ceiling on wages. The abysmally ignorant congressmen publicly attribute the current price rise to the rise in wages and propose to control prices by the avenue of setting maximum wage scales. That is the gist of the bill introduced by Representative Gore of Tennessee. In support of this program, the reactionaries cited a 55 per cent rise in manufacturers’ aggregate payrolls, and a 32 per cent increase in weekly earnings. Purposely overlooked in the presentation of these figures are the following facts: these wage increases result from the lengthening of the working day and, therefore, the work week, and the creation of over 3,500,000 new jobs in industry since the defense program began. Another important measure is the productivity of labor resulting from technological developments and intensified production.

In arguing against a ceiling being placed on wages, Isador Lubin, Commissioner of Labor Statistics, pointed out that precisely because of the above reasons the net labor cost per unit has risen only 1.2 per cent since 1936, while net prices increased on an average of 20 per cent for all commodities, 30 per cent for raw materials and 11.2 per cent for durable goods. In contrast, there has been a 16 per cent increase in profits since the outbreak of the war!

Whatever may be the outcome of the congressional hearings, one thing is certain: the American masses are due to suffer a sharp decline in their living standards.

How They Seek to Prevent Inflation

The Administration leaders are full of anxiety over the threat of inflation, which has, though not yet seriously, already descended upon the country. To overcome a tremendous rise is buying power in the face of a diminishing supply and production of consumer goods, the government seeks measures for reclaiming large portions of the national income. As a measure of providing greater revenues to finance the war program, the new taxation program on a “broader base” was enacted. But this tax program, which now makes taxpayers of the lowest income group ($14.43 a week) is also a device to prevent uncontrollable inflation. A second effort is the establishment of priorities and price control, mentioned above. A third effort is in the direction of sales of defense savings bonds to individuals and group investors, etc., to augment the Treasury purchasing power. Finally, there is the aim of Eccles to “dampen demand”; it follows upon the heels of legislation which already curbs installment buying.

While the National City Bank fears that the measures so far adopted by the Administration will accomplish little in price control and the prevention of inflation, its own proposals are certainly no improvement, but they have the merit of greater frankness. The bank proposes a reduction in non-defense governmental spending (national and local); the increased sale of defense bonds to individual investors, and a still greater increase in taxation. Where shall taxation take place? It “must cut across the stream of spending; in other words, they must be levied over a broad base and reach the great bulk of consumer incomes.” This means: strip the working class and take from it what the bosses have been unable to achieve in the way of a static wage scale or wage reductions. Finally, set a ceiling on wage increases.

Who will bear the burden of a reduction in consumers’ goods? Again, the working masses. Thus, the prospects: inability to purchase consumers’ goods, possible wage ceilings enacted by Congress, tremendous increase of taxation hitting hardest at those least able to pay, and general deterioration under a “guns or butter” economy.

On the other side of the fence, the American proletariat will observe how the capitalist class becomes daily more bloated by mounting profits, untroubled by the curtailment of consumers’ goods, unworried by increased taxation which hurts them least and, above all, soundly content in the knowledge that in Washington it has friends.

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