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Dwight Macdonald

Sparks in the News

(9 March 1940)

From Socialist Appeal, Vol. IV No. 10, 9 March 1940, p. 4.
Transcribed & marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

The “Break-Even Point”

Much has been written about technological unemployment, hut I have seen little discussion of one aspect of the problem: the steadily increasing ability of American industry to make profits at ever-lower levels of production. A key statistic in any industry is the “break-even point”, i.e., the percentage of a plant’s productive capacity which must be used in order to operate at a profit. In the steel industry, for example, this is now between 40 per cent and 45 per cent – that is to say, once the average steel plant begins to run at a rate which produces 45 per cent as much steel as it can produce at full capacity, it begins to make money.

This means that an industry with a break-even point of 45 per cent – and in many industries the point is even lower – can make profits even though it is producing less than half the amount of goods its plants can produce. Thus the national consumption of these goods can be reduced to half that of boom times, employment can be far below the boom level, and the industry in question can still make money.

There is another interesting thing about this break-even point: once production reaches that level, profits begin to increase much faster than production. If a steel company makes, say $5 a ton at 50 per cent of capacity, its rate of profit at 60 per cent of capacity may well be not $5 a ton but $7 or $8. Thus it is often possible to double and triple profits with only a slight rise in production. The reason for this is that a highly mechanized mass production plant costs a certain minimum to run at all: it takes about as many employees, as much coal and water and electricity, as much wear-and-tear on the machinery, to produce steel at 30 per cent of capacity as at 40 per cent. But once production is high enough to absorb these minimum fixed charges, then costs for additional production are reduced to little more than extra wages and raw materials.

Sales Up 58 p.c.; Profits 910 p.c.

In the first quarter of 1939 the automobile industry gave a dramatic illustration of the above point. In that period, the net profits of the six leading automobile manufacturers were $65,500,000, as against only $6,500,000 for the same quarter of 1938. The increase in production, however, was very much less: sales of trucks and cars for that quarter of 1939 totalled 1,056,000, as against 669,000 in 1938. Thus an increase of 58 per cent in sales caused an increase of 910 per cent in profits.

Earnings and Employment

The mysterious workings of the “break-even point” are one reason for the phenomenon we see today of enormous increases in profits unaccompanied by any significant rise in the national standard of living or any significant decrease in the number of the unemployed.

As the readers of the Appeal are well aware, one out of every five families in the nation is starving and stagnating in the ranks of the unemployed. And, as I noted here a few weeks ago, only 13 out of every hundred of those dropped from WPA last summer have been able to find jobs in private industry.

Yet last year’s earnings of most big companies were spectacular. Goodyear Tire & Rubber reported 63 per cent higher profits in 1939 than in 1938 ... U.S. Steel lost $7,700,000 in 1938, made $41,200,000 in 1939 ... DuPont made $50,200,000 in 1938, $93,200,000 in 1939 ... Inland Steel’s net rose from $4,900,000 to $10,900,000. The National City Bank predicts that 370 leading manufacturers will report 1939 earnings totalling $329,000,000, which is double the 1938 figure.

If figures mean anything, these statistics mean that American capitalism can function with the utmost efficiency as a profit system, simultaneously with the utmost inefficiency as a social system. And since the bourgeoisie judge the desirability of capitalism by its ability to make profits, while the workers judge it by its ability to produce and distribute material goods – this being the case, there is inevitably a basic clash of class interests.

Mass Production and Mass Misery

This class conflict the bourgeoisie, both liberal and conservative, try to explain away with the well-worn thesis that American capitalism is “different” from that of Europe in that it is based on mass production and hence on the idea of a mass market. The assumption is that our capitalism must progress to ever higher levels of production and consumption because only thus can our great corporations find a market big enough to absorb their huge productive capacity. Hence the common interest of the employer and of the employee lies in increasing production and consumption (or sales). The conservatives repeat, with the U.S. Chamber of Commerce, “What is Good for Business is Good for You!” The liberals talk of an “economy of plenty” (as against the typical European “economy of scarcity”). The New Deal spending philosophy is based on this conception of the mass market being the logical corollary of mass production.

It is true that when industrial production falls below a certain minimum level (the national “break-even point”, so to speak), the bourgeoisie lose money and, of course, society as a whole is in a bad way. But, as we have seen, once the break-even point is reached, profits become rapidly less and less dependent on increased production. It seems probable that the future development of American capitalism will be in the direction of extracting bigger and bigger profits out of ever-smaller production. (The great aim of modem technology is to lower the break-even point.) There is only one political formula for imposing on the masses the lower living standards this economic development would make inevitable. Its name is fascism.

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