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Harry Allen

The Middle Class in Crisis

Effects of the War Economy

(October 1942)

From The New International, Vol. VIII No. 9, October 1942, pp. 264–267.
Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

The juggernaut of the war is rolling along rapidly and sounding the death knell of large sections of the middle class. Hundreds of thousands of small businesses, ranging from the smallest of retailers to small wholesalers, service and distributing concerns, amusement places, construction companies and industrial manufacturing concerns, either have been or will be wiped out as the war plunges ahead. The destruction of tremendous numbers of the lower and upper middle classes will, in the course of the war itself, hasten the growth of social dissatisfaction and disturbances in these groups. Equally important, this development has a direct relationship to the economic and political course of the American working class.

Big business – monopoly capitalism – is not much concerned over the fate of small business. To the extent that it recognizes a business and social problem in the mass elimination of large sections of the middle class, it is also aware that nothing substantial can be done to improve matters for these minor capitalists. For the great financial and industrial lords know very well that the war has only accelerated the process of the centralization and concentration of wealth, business and power in the hands of the monopoly trusts. Many lose their property (capital) as it becomes concentrated and centralized. “One capitalist always kills many” (Marx). This process may take place through outright loss, bankruptcies or sales by the small-property capitalists. In any event, either a single powerful capitalist takes over; or, as is more commonly the case at this phase of centralization of capital, a group of monopoly capitalists take over control, ownership or both, of the former wealth of small business or capitalists. Moreover, big business intends to let this process of capitalist centralization and concentration take its course still further, during the war and after.

Thus, as this development is speeded up as a result of the war economy, the great mass of the remaining petty bourgeoisie of varying size and importance are caught in the middle even more firmly between the major classes in society – the big bourgeoisie and the proletariat. The imperialist war compels the stream-lining of production and distribution along the lines of big business aims and methods. These are: to win the war for the American bourgeoisie; and, at the same time, to make profits. Vast numbers of the middle class (independent owners of property and salaried employees) must pay the price as victims of imperialism’s course. So, too, in a sharper and more direct exploitive manner, capitalism passes the burdens of its system and its war on to the workers.

The Roosevelt Administration undoubtedly is concerned with the effects of the mass destruction of small businesses, and thus of the middle class, in relation to its present war plans and in relation to the social-political effects in the future. Nevertheless, the Administration also recognizes as inevitable the overwhelming domination and ownership of private property by the great monopolies; just as it realizes that the conduct of the imperialist war requires the highest degree of governmental control from above – through a highly bureaucratized and military administration. An imperialist war economy can only be managed through a powerfully centralized and authoritative government. Thus, while the Administration “recognizes” small business, even notes its “usefulness” at times, it knows very well that the efforts of small businesses are powerless to affect significantly the course of economic-political developments. The government knows it has an economic and political problem on its hands, but cannot offer a serious solution.

The Administration has established numerous committees and agencies intended to help small business out of its hopeless dilemma. These committees and agencies fuss, fume, procrastinate and then produce duds, so far as any serious aid to small business is concerned. Whatever remedies are proposed or administered can at best be only temporarily, if at all, ameliorative, and can only cover an insignificant number of businesses. Small business men, while despairing, recognize this. For big business runs the big show and takes the proceeds of war orders as well as other business. The struggle of the middle class is a lost cause.

The Death Rate of the American Middle Class

It is interesting and important to observe the swift decimation of this social category (which Marx clearly indicated) and the reaction of several segments of small business.

The Department of Commerce lists 2,750,000 small businesses of all kinds. The Index, publication of the New York Trust Co., makes manifest (New York Times, September 21) that the “small manufacturers unable to convert to war production or to continue their normal output, face a bitter struggle for survival, as do many of the nearly 2,600,000 small businesses engaged in distribution or services.”

This dark statement is concretized in the case of the small industries as follows:

  1. There are a total of 184,000 (both large and small) manufacturing concerns. Of these only 45,000 (or less than 25 per cent) can be converted to war production in some form.
  2. By October 1, 24,000 manufacturers, wholesalers and retailers would be forced out of business as a result of priorities and war needs, according to the prediction, as early as last May, by Philip Reed, chief of the war industries branch of the War Production Board.
  3. Since then, the death rate of small business wholesalers and retailers has increased considerably beyond that prediction, as is abundantly clear from the report of government economists (Department of Commerce) to the Senate Small Business Committee (New York Times, September 30). They estimated that 300,000 retail stores, 20 per cent of the total, would close up shop by the end of 1943.

These same economic analysts recommended the “orderly liquidation” of large numbers of small enterprises as against the continuation of “profitless competition.” Thus, as Marxism demonstrates, monopoly capitalism coldly permits or ordains the destruction of the middle class elements whenever their tenuous preservation interferes with “normal” economic development or profits. Capitalism is the great expropriator of the many capitalists by the few, as well as the exploiter of the laboring majority by a parasitic minority.

In desperation, small industrial plants have pooled their resources in order to obtain war orders, in accordance with the recommendations of the Senate Small Business Committee and the War Production Board itself. Five hundred such pools were quickly formed. (Three hundred are already dissolved for lack of work report of the Senate Small Business Committee). The war orders received by the remaining pools proved meager.

The procurement procedure of the government’s own procurement agencies is greased for big business, for the large prime war contractors. So complains small business as it continues to hope for “extensive revisions” in their behalf. But will this policy of, by and for big business be changed in any important way for the benefit of small industries? No, because small business does not have the economic strength, the resources or possibilities, nor does it have the political strength (despite its numbers) to make serious and significant requests for favors. It is unable to make demands or to encroach upon big business and monopoly government. Still less is it able to exercise economic force (strikes, boycotts, etc.), should such a thought even enter its head.

Listen to the lament of a representative small steel operator and the revealing testimony of others before the Senate Committee investigating the “defense” program, in which the government is virtually the sole customer:

“Unconsciously (sic!) and by reason of circumstances,” sadly stated a small steel operator (J.M. Budke, Parkersburg, W.Va.), “the business (steel orders) was given to these large companies.”

And how does big business so easily direct orders its way? The Office of Production Management (OPM) recommends the appointment of steel company representatives to serve on the OPM sub-committee which decides the priority orders. This sub-committee (Bent Committee) includes former or present officials of five large steel companies (Carnegie-Illinois – U.S. Steel subsidiary, Bethlehem, Republic, Inland and Youngstown Sheet & Tube) but not one representative from the small steel companies.

Question to Roland C. Allen, deputy chief of the WPB’s iron and steel branch: “Why did you not appoint representatives of smaller companies?”

Reply: “It never entered my mind ... I just looked upon them as individuals ...”

A direct, even honest, answer, showing that the monopolies take a certain set-up for granted. They regard the markets as theirs; especially the market provided by government orders for imperialist war needs. It is their war and their profits, too.

The Decline of Free Enterprise

The complaints which fall upon deaf ears are that “small business does not have adequate representation in the administrative agencies ... many of which overlook that the future of free enterprise is dependent on its maintenance” (Senate Small Business Committee, October 5). But twenty and more years of the steady decline of capitalist “free enterprise” and the persistent, unchecked and inevitable growth of the centralizing and concentrating tendencies of capital toward ever greater domination by industrial and finance (monopoly) capitalism, indicate that the future of free enterprise is past. Longings, nostalgia and day-dreaming will not re-create the old conditions. The historic order o£ the day is: monopoly capitalism full-blown, with its devastation and wars. Or proletarian power and the reorganization of the means of production along socialist lines. Meanwhile, as illustration and development show in all important aspects, big capital continues and will continue to take a “thumbs down” attitude toward the laments, requests and demands of small business; and the government will heed its master.

Briefs issue forth opposing either monopoly capitalism or “regimented” socialism, and calling for a system of capitalist “free enterprise” on modern wheels. Peter F. Drucker, widely known for his work on The End of Economic Man, is one of these (see Total War Requires Free Enterprise, Saturday Evening Post, October 3). So far as his comments bear on the subject of this article, one must declare that Drucker also exemplifies wishful thinking. Even his presentation of the facts on the manner of functioning of the capitalist order runs contrary to his proposals. Nor is there any serious evidence adduced that capitalism can possibly be transformed along his conceptions.

Individual enterprise and responsibility, he fears, “will be undermined without anybody’s noticing it.” The American people are apathetic, feeling, he acknowledges, that they have no personal stake in “free enterprise.” Drucker recognizes the “monopolistic tendencies” of big business. He examines the Administration’s taxation policy on war profits; specifically, that profits shall be regulated on the basis of invested capital, and shows clearly that the government’s policy “makes it possible only for a very rich man or corporation to start a new business.” But government tax policy is only in accord with the functioning or innate direction of business and reflects it in all essentials. It is a big business war which the government runs and regulates and, with minor allowances, business and governmental policies (economic and political) run along parallel lines.

This is the only reasonable, sound explanation and reply to Drucker’s criticism and lament that government policy is dealing heavy blows to small business. Government tax policy, says Drucker, is “generous to heavy industries which stand to make the war profits (if any).” It “discriminates against the very businesses which are likely to suffer most under a war economy. Above all, it penalizes individual initiative and enterprise and favors the big corporations ...” What particularly surprises Drucker in all this is that a New Deal group, professing particularly opposition to big business, sponsored a big business policy. This only shows that even an astute man, such as Drucker, when he wants to see something else, fails to see that the New Deal is now simply the War Deal and has no choice but to cut its cloth to the imperialist pattern.

Such remedies or sops as the great monopolies toss to the middle class have proved futile. They are either abandoned outright or they lie dormant. For example, the American Business Congress – composed of small manufacturers – declares that the Stanley plan to aid small manufacturers in obtaining sub-contracts has had some success, particularly in the Chicago region. But opposition from the War Production Board, beginning with the suspension of the Stanley plan’s Directory of Contract Opportunities, has practically destroyed this instrument for succorring small concerns. Small business protests, even calls mass meetings. But big business, ignoring or not taking seriously its own proposals (via WPB and other government agencies) to hold together dying small business, allows them to be scuttled. This attitude toward the weak trades or industries was expressed in still another way in the war and post-war program of the National Association of Manufacturers when it advised the government to “refuse to subsidize distressed industries.”

Basically, today, the government is equivalent to big business, and vice versa. Just as workers have no say in the dictation or direction of the fundamental policies of the government, so likewise is small business, or the middle class, shut out, except to pin-prick and lament. This is clearly, if dejectedly, recognized by representatives of small business. The president of the national wholesale druggists, serving 60,000 retail druggists, says:

“The government is dealing directly with corporations of tremendous size ... monopolistic in character ... The small retailers and the small wholesalers Would be a thing of the past.”

And, interpreting capitalism to their likes, interests and prejudices, this small business representative declares that such would be “directly contrary to the true system of private enterprise.” But the monopolists do not appear disturbed thereby, and indeed are satisfied with the change from myriads of small private businesses to a handful of huge private monopolies.

Big business is conscious that its sops to small business are not even a drop in the bucket. Even here, however, as in the government’s grant of $150,000,000 for loans to smaller war plants, its first concern is of the rival imperialist nations with which American imperialism is waging war for world domination of markets and resources: “Will the money (the proposed loan) help to kill a Jap or German?” (New York Times, October 1)

“The Government as Undertaker”

In all other respects, in reality, “the government is taking an undertaker’s attitude in regard to the retailers’ wartime problems” (L. Hahn, general manager, National Retail Dry Goods Assn.). Washington, he complains, is giving attention to “how the retailer may go out of business in an orderly fashion.” He would like to know “how to keep alive, not how to have a fancy death.” But little help of consequence will be forthcoming, it may be predicted, even though Donald Nelson, head of the War Production Board, proposes to create still another board (this one a war liabilities adjustment board to help small concerns in war efforts and post-war adjustment). Still, he acknowledges, small business casualties would be “high” despite all the government might do. The more realistic or brassly bourgeois-minded Senator Robert Taft of Ohio, opposes even the formation of such a board, saying that it is a “hopeless” task to aid 1,800,000 retailers because survival is possible for only a year or two for those that might be granted help. Hence, big business policy toward small business is, in substance, for “orderly liquidation.”

Like the bourgeoisie itself, government economists (Department of Commerce) likewise are precisely clear concerning the fate of small business and the direction of American economy. Therefore proposals and recommendations made before the Senate Small Business Committee (September 30) included, besides proposals for countless outright liquidations, the following measures:

  1. To limit the entry of new concerns into trade fields except in “defense” localities;
  2. to limit stores in one field taking on new lines of another;
  3. to concentrate the remaining businesses “in a few nucleus concerns,” with compensation for closed firms.

Thus, succinctly and coldly, these government economists, proclaiming the early demise of hordes of middle class businesses, declare at the same time that old style (laissez-faire) capitalism is forever gone. For what becomes of “free enterprise” and “rugged individualism” when one may not enter any field of business? When one may not freely invest capital in order to expand in new directions? Capital investment

ceases to be free. And the final recommendation for the concentration of business “in a few business concerns” (following British example) is a direct recognition that the concentration and centralization of business and industry are not only the natural developments of capitalist economy but, moreover, that they constitute the only means of economic survival for the remaining sections of the middle class financially equipped for such combinations. Thus, too, the government economists, whose business it is to know the truth about the course of American economy, proceed to reduce to euphemisms the conceptions of Thurman Arnold, the advocate of unrestricted competition and free capitalist enterprise as the American post-war economy.

Petty Bourgeois Elements Enter Working Class

What do these developments mean for the middle class, and what is their meaning in relation to the working class? This is our prime consideration. Only a small part of this middle class will be re-absorbed into other businesses, continuing as private property institutions with a degree of “independence.” Another portion will find minor jobs and posts as part of the constantly increasing government bureaucracy and apparatus.

The major portion of these elements, however, will be forced into the working class, except in so far as the armed forces now absorb them. They will carry over the psychology, interests and ambitions of the petty bourgeoisie. As a part of the working class or labor movement, they can become ideological and organizational obstacles toward labor’s progress. First, because of their previous private property associations and interests, such elements could easily be duped, baited or utilized by employers for reactionary and anti-labor ends. Employers could dangle enticements and hopes for economic and prestige advantages to many of them and thus hold in check incipient dissatisfaction and a turn to a common life and interests with their fellow workers.

Second, and more significantly, because of their residual conceptions and desires, they could especially become a prey to demagogues of a fascistic variety appealing to their property instincts. True, these uprooted small business people haven’t any property any longer, and had very little before. But the constant din about property rights employed by fascist demagogues is a drum which can catch their ears.

Thus, wittingly or unwittingly, these declassed middle class forces can become tools of the most reactionary forces in society. In fact, out of their ranks could emerge also some of the leaders of reaction. This is the record, among other factors, of the rise and advance of fascist organizations in Italy and Germany. Such groups – the middle class in general – provide the social basis for fascism as democratic capitalism disintegrates; and particularly if the proletariat under the leadership of the revolutionary party does not step forward to establish socialism, taking the petty bourgeoisie with it.

On the other hand, these elements can become an integral, organic and progressive part of the organized labor movement. Their business experience and intelligence, their initiative and even their enterprise could well be utilized by the working class movement. This, provided the labor movement recognizes here a special problem and consciously endeavors to educate, organize and integrate these elements into the ideas and practices of a militant labor movement. Teaches them, for example, that they must cease to look backward, in the hope of re-absorption again into a small business or middle class existence; teaches them, further, that they are now a part of the working class, and must actively link their interests and actions to the labor movement.

In so far as there are also involved the workers formerly employed in these thousands of small businesses, they can and will enter more swiftly, directly and easily into the industrial life of mass scale production; and can, without difficulty, become a living part of the labor movement.

Labor Movement Must Integrate New Elements

The labor movement must be careful be avoid the pitfalls of anti-Semitism and, instead, to welcome and absorb the numbers of former small Jewish petty bourgeoisie into its ranks. Past experience shows that this can easily be accomplished if the labor movement holds out a fraternal hand. Discrimination and prejudices, hurtful to labor and helpful to the employers, are also easy to develop among the workers. This is demonstrated in the discriminatory and Jim Crow policies pursued in the past and still followed by many labor unions toward the Negro workers, who also entered the industrial field relatively late. Such labor unions fall for and play the bosses’ game.

The fascists and Nazis cleverly carried anti-Semitism to its logical extreme. First they expropriated the larger and upper middle Jewish bourgeoisie (crying, “See! See! Here are your enemies!”) for the benefit of their bureaucracy and the big “Aryan” bourgeoisie, thus combining demagogy in politics with profit and wealth. Then they further developed the scapegoat methods to cover their intensified exploitation o£ the working class and peasants and their wholesale extermination, incarcerations and deportations of the Jewish masses. This invidious development and result in America must be guarded against by the conscious policy of the organized labor movement toward the integration of all new workers, including the Negro, the former Jewish petty bourgeoisie or “alien,” into the labor movement upon a completely equal basis.

What, finally, must be concluded concerning the latter-day developments in a large section of the middle classes? The social picture and class divisions are, in certain respects, altered. Properly seen and analyzed, these developments are in the interests of the working class, now and ultimately.

The specific weight and gravity of the industrial proletariat, already the great majority of the population, thus become even greater in relation to the capitalist class. The needs of the imperialist war today give employment to the masses as in no other period. This will include the hundreds of thousands of former petty bourgeoisie. Thus, too, the imperialist war enlarges and helps to consolidate the workers, first, at the point of production in the mass production industries and, second, through the impulsion and need for union organization, among these larger numbers engaged in factory life as workers for the first time. Not even “frozen” union organization can stop this process of education, ideological change and organization in due course.

The class lines and cleavages between the major classes-big bourgeoisie and proletariat – come to stand out more clearly. These changes in class relations – the greater polarization of the classes at extremes – thereby actually narrow the basis of capitalism. Specifically, the social-economic upheavals in a substantial layer of the middle class, particularly the lower middle class, must therefore be utilized in the immediate and coming period to the advantage and interests of the organized labor movement and, ultimately, the aims of the revolutionary movement.

Labor Must Lead Toward Socialism

American capitalism is emerging with its own “collectivist” order: the rigid control and ownership of the means of production and distribution in the hands of a small group of monopoly capitalists. The problem of today and tomorrow is the transformation of this anti-people’s “collectivism” (not yet fascist in its political manifestation) into social ownership and control, that is, the control and ownership of the means of life by the masses; by all those able and willing to engage in socially useful tasks, physical and intellectual. These forces will include, besides the proletarian masses, the millions found today among the functionally useful middle classes in production and distribution and the services (professionals, teachers, etc.) and also the functionally necessary managerial and supervisory forces employed in production.

Continued control of the destiny of the world by the monopoly capitalists, by imperialism, can only mean strangulation of the masses and world-wide reaction. In its narrow profit and power interests, imperialism limits production itself. Imperialism prevents the full utilization of all technological and scientific advances. Imperialism uproots all peoples, the middle classes, the working class, the exploited colonial peoples, placing them at best on a subsistence basis, and then finishes them off by death through imperialist war. A way out of this chaos and horror does exist.

Only socialist production, socialism, can freely and abundantly utilize the forces of production and distribution and make possible consumption on a scale never yet remotely realized. Socialism is ready for the task of making use of all forces, machine, science, the human forces, in the social and cultural interests of the masses. Socialism, not imperialism, alone can be the architect of the future of humanity.

The main instrument in the direction and road toward socialism is the working class. It is decisive in this task because capitalism and history have placed the workers in an indispensable position in relation to production itself. The political task of the working class is to realize that their decisive relation to the productive forces is also the key to the struggles in defense of their daily interests, and their social interests of tomorrow.

The middle class forces now dislodged and tossed to the dogs by capitalism and also the millions of the lower middle class elements and salaried employees still in existence, must learn, and learn soon, that their destruction or liberation is bound up with the choice they make: the linking of their lives with the big bourgeoisie or with the proletariat. The proletariat and the revolutionary movement must consciously help them to make up their minds to choose the side of history, of the advancing proletariat. This choice will be a positive factor in the political road the working class itself must take: the road to independent class power by the masses and the establishment of the socialist order.

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