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Dwight Macdonald

The American War Economy

Where Are We? What Lies Ahead?

(April 1941)

From New International, Vol.VII No.03, April 1941, pp. 40–46.
Transcribed & marked up by Damon Maxwell for ETOL.

WHEN WE LOOK ABOUT US and see the speed with which a war economy is coming into being – the billions appropriated by Congress, the feverish building of industrial plants and army camps and power dams, the headlines about steel profits and new records in shipbuilding and anti-strike legislation – It is hard to believe we are just at the beginning of the road to a modern war economy. Yet such is the case.

Today in both Germany and England six out of every ten working hours are devoted to production for the war machine, leaving only four hours for all the needs of the civilian population. Today in the United States only thirty minutes out of every ten working hours goes for war goods, and even by midsummer, when the program is expected to be in “full swing,” only about one hour and fifteen minutes out of every ten working hours will go for war. According to Commerce Reports for March 8, 1941, the German government is now absorbing – mostly, of course, for military purposes – the incredible total of 72 of the entire national income. Estimates are that the American government will spend this year about $23 billions for all purposes, which is about 25 of the national income. Even allowing for the fact that America has a much bigger productive plant than Germany and hence can produce as much with a smaller percentage of national income, it is plain we are only at the start of the road to an all-out war effort.

This article tries to estimate how far we have gone and in what direction, from the point of view of the working class, we are going. It may be useful to begin by setting out the line of argument. This can be put, briefly, thus:

  1. American war production is increasing rapidly, but has fallen far behind the planned expansion. The bourgeoisie are currently much concerned about this.
  2. The explanation is not in “defense strikes,” but in the conflict between the immediate profit and property interests of the bourgeoisie and the measures that must be taken to prepare for war (i.e., to protect their long-range economic interests). The bourgeoisie have shown little ability to subordinate the former to the latter and hence are unable to organize an effective war economy.
  3. American labor has put forward the boldest and most intelligent proposals for organizing war production – the Reuther and C.I.O. plans. Politically reactionary, these are nonetheless impressive evidence of the bankruptcy of the present ruling class and the social maturity of the working class.
  4. All classes of American society are at present enjoying, in different degrees, the benefits of the growing war economy, without as yet experiencing the disadvantages.
  5. The Roosevelt Administration last summer talked of expanding both war production and civilian consumption at the same time – of an economy of “guns and butter.” This program could have succeeded only with an enormous plant expansion by American industry. This expansion, for good business reasons, industry refused to make, nor was the Administration either willing or able to force them to make it.
  6. Hence the war economy now taking shape is to be an economy of guns instead of butter. Even New Dealers now admit this.
  7. To business this means at present export controls and priorities, the thin edge of the wedge of state control.
  8. To the masses this will mean in the near future an increasing diversion of their purchasing power into war channels, and thus lower living standards. The government will engineer this both “voluntarily” through baby bond and war-savings-stamps campaigns, and forcibly, through taxation, “compulsory savings” schemes, and finally direct rationing.
  9. We are still a good distance away from the “crisis point” in the development of our war economy, when the imposition of totalitarian state controls will become not only desirable but necessary. This point will come when a state of full production and employment is reached, at which point only totalitarian controls can avert a runaway price inflation. This point may be reached in the summer of 1942.
  10. The Roosevelt Administration is already well prepared with plans for total economic and social controls in future. But actually to put them into effect may be politically difficult, if not impossible. The question is: can totalitarianism be imposed wholly from above, administratively, as “white” or “cold” fascism?
  11. The answer to that question will be found chiefly in the ability of the American working class to put forward the revolutionary socialist alternative to Roosevelt’s “white fascism” (and Hitler’s “black” fascism).

1. How Effective Is the War Production Program?

There are two parts to the Administration’s arms program: the creation of a powerful American war machine, and aid to England. For the first, Roosevelt’s latest proposal, which will probably have passed through Congress by the time this is printed, calls for the spending of $28 billions in the next three years. For the second, now moving into high gear with the passing of the Lend-Lease bill, there is not definite amount specified. An idea of the enormous expenditures planned for both these purposes plus the regular expenses of the government is given by the U. S. News (March 28) estimate of the total government spending in the single fiscal year that will begin next July 1: namely, $23 billions, or almost three times the 1939 government budget.

War Production Higher But Far Short of Plans

So far the most successful part of the program has been the speed with which Roosevelt has proposed and Congress voted ever huger appropriations. If voting the money were the problem, the United States would be in a position to invade the Continent tomorrow and occupy Berlin in a week. But – as the Nazis have understood for a long time and as the democracies are beginning to learn now – money is one thing, production another. It is true that there has been a rapid rise in the volume of actual arms expenditures (as against appropriations) in the last few months, as the following table shows:

July, 1940


$177 Millions


$200 Millions


$300 Millions


$473 Millions

January, 1941

$572 Millions


$592 Millions

But this table also shows that the rate of increase, though rapid, has been much less than planned. For the current fiscal year (ending June 30) a total of $6,500,000,000 was allocated for the war program. Two-thirds of the year has gone by and over half ($3,600,000,000) of that amount remains unspent. To fulfill the budget schedule, spending in the remaining four months would have to be at the rate of $900 millions a month – that is, the March total would have to jump about 80% over February and this rate of increase would have to be maintained. This seems clearly out of the question. As the table shows, the rate of expansion has been slowing down in an alarming (to some people) way of late: December was 57% over November, but January was only 21% over December, while February scored only a negligible (3.5%) gain over January.

Aid to England has also slowed down of late. Last August shipments to England totalled $125,000,000. By December they had declined to $101,000,000. As for the vital supply of American planes, the New Leader of December 7, 1940, sadly noted: “Even the most optimistic in Washington do not see how we can hit the scheduled 1,500 planes a month before 1942 ... Even at that time, we will only be able to turn over 750 planes a month to Britain, while German production stays at a 2300 a month level.”

This failure of American war production precisely at the point when the war approaches a Spring crisis, when Britain’s position may become desperate at any moment, and the German attack on British shipping is reaching new highs – this is naturally very disturbing to official Washington. Ex-Ambassador Bullitt, frequently a White House mouthpiece, said recently:

We know that our country is not producing weapons of defense fast enough and that we are not supplying weapons in sufficient quantities to the British, the Chinese and the Greeks ... We have not lived up to our tradition of American enterprise and industrial efficiency ... We are making just the effort that it is not troublesome to make. We could double our planned output of airplanes and tanks and merchant ships and guns in 1942 if we would but buckle to the task now. – (Time, March 10)

Why, Oh Why, Can’t We Produce?

This pathetic lament is typical of recent bourgeois comment on the war program. Also typically, Bullitt blamed it all on the isolationists and the communists. The most popular scapegoat, of course, is labor. The nation’s press has launched a campaign to get strikes “outlawed” and unions put under strict government control. Strikes in “defense industries” are played up prominently on the front page: reactionary Congressmen make the welkin ring with their cries of “treason” and “sabotage.” In a letter to the N.Y. Times dated March 6, Secretary Perkins gave some cold facts from the Bureau of Labor Statistics: (1) “Strikes in defense industries in 1940 resulted in lost time equal to only one-fourth of 1 per cent of the total defense effort”; (2) the average duration of defense strikes last year was 8 days, of non-defense strikes, 20 days; (3) “From September, 1940, through January, 1941, the number of man-days of idleness because of strikes has been 27 per cent less than it was year before ... The average number of days per strikes in January was 9.6 days as compared with an average of 16.6 days per strike in January in the five year 1935–1939.” [1]

No, it’s not in this direction that the explanation will be found for the lag in arms production, and the reactionaries who are now campaigning for stricter controls over labor will find, if they put their program through, that they have solved nothing. The roots of the problem lie much deeper: in the conflict between capitalist profit and property interests and the demands of a modern total war economy.

The Situation in Aircraft

Consider, for example, the vital aircraft industry. At the end of December, Knudsen admitted that plane production was 30 behind schedule. This was conservative. In August Knudsen had stated that military planes were then being turned out at the rate of 11,000 a year, and had predicted that by January 1941 the annual rate would be 18,000. But when that time came, practically no increase had been registered: 1,002 military planes were produced in January, which is at the rate of slightly over 12,000 a year. Other evidence could be cited: the fiasco, just beginning to leak out, of the Allison water-cooled engine; Admiral Towers’ recent testimony that the present serious shortage of engines for Navy planes would last until the summer of 1942; Knudsen’s announcement last October that the automobile industry would turn out 12,000 planes for Britain in a few months and his revision of the figure, several months later, to 3,600 – with the first of them not scheduled to come off the assembly lines until 1942.

What is behind this? The only important strike to date in aircraft was the Vultee strike, and not even Congressman Dies could blame it all on that. What is involved here, as in similar situations in other war industries, is the determination of the private companies, on the one hand, to protect their profits and their plant investment, and the inability (and unwillingness) of the Government to take the necessary steps (involving administrative invasion of legal property rights) to force planned and maximum production. It was the aircraft companies which led the sit-down strike of business last summer which forced through Congress the kind of excess-profits bill they wanted: they simply refused to sign contracts until their terms were met. Similarly, for months the plane companies insisted, despite Washington pressure, on filling all the extremely profitable orders from commercial airlines they could get, and it was only the exercise of priority power by the Defense Commission recently that finally forced them to give military planes the right of way. And it was pressure from the plane companies which as much as anything killed the Reuther plan for mass production of planes in idle automobile factories by the automobile industry (of which more later). Any radical change in production methods – such as the Reuther proposal – would, of course, render obsolete much of the present plant investment of the aircraft industry.

2. The Working Class Alone Can Plan

The pattern is the same in other industries as in aircraft: the logic of their immediate profit interests leads the bourgeoisie to sabotage the war program designed to defend their long-range economic interests. It is a little more complicated than that, however. The control and planning on a national scale which are the heart of war economy today, these are a new road for capitalism, ending God knows where, from which the bourgeoisie shrink back. So we find that the only class whose social interests are broad enough to allow it to think on the national planned scale required by a modern war economy is the working class, and we see, in England first and now in America, the supreme paradox, the irony of ironies – the working class showing more ability to create an effective economy to wage imperialist war than the ruling class itself. This suggests, I might add, how enormously more effectively a working class, socialist government could prosecute a war against Hitler.

It is the C.I.O. which has put forward the two boldest and most far-reaching plans for reorganizing the war program: the Reuther Plan and the C.I.O. proposal for industrial councils (specifically worked out in Murray’s plan for the steel industry). These plans – and their fate – deserve a bit of attention at this point.

The Reuther Plan

The Reuther Plan, as most people know, is based on the fact that, because of the seasonal nature of automobile production, the vast resources of the industry in machine tools, plants and skilled workers are idle, on a year-round basis, half the time. Reuther proposed to use these idle men and machines to build a standardized pursuit plane with mass production methods at the rate of 500 a day, or 150,000 a year. He claimed that this figure could be reached within six months. (Today, more than six months after the Reuther Plan was first proposed to the Administration, plane production is at the rate of 12,000 a year.) This could only be done, of course, by treating the entire auto-mobile industry as a single vast productive mechanism, planning and coordinating without any regard for existing corporate lines, competition, or property rights. The necessary authority to do this Reuther proposed to vest in a nine-man board, equally divided between labor, management and government.

The plan was at once greeted with a barrage of technological criticism from both the auto and the aviation industries. To the layman, these criticisms are not very convincing – and, furthermore, there is the fact that much of what Reuther proposed is now being done, on a small scale and with the proper safeguards to property interests, by the automobile industry. The real objections of both industries to the plan were not stated in public, since they involved the delicate matter of profits and property. The aircraft companies were against the plan because (1) they would lose business; (2) introduction of mass production would make worthless most of their present plant investment; (3) the relatively small aircraft companies would go to the wall once the huge and wealthy automobile companies entered their field. The automobile companies opposed the plan because (1) they would lose considerable managerial control over their business to a board composed mostly of government and labor representatives; (2) even if the board were “satisfactory” to the companies, the entire present structure of private ownership in the industry would be shattered (and might be difficult to restore later on, if the plan worked); (3) the plan, although in theory it would not interfere with normal automobile production, actually would involve such a drastic reorganization of the industry that production of cars undoubtedly would suffer, at least at first – and this premises to be the most profitable year the industry has had in a decade. Beyond all these objections was also the simple fact that the plan was proposed by labor. What would the public think if the C.I.O. turned out to know more about their industry than the automobile moguls themselves?

The reception the Reuther Plan got from the Administration was rather chilly. Far from being patted on the head and called a bright boy for showing papa how to win the war, Reuther never even got a serious hearing. He laid his plan before Hillman last August, who spoke to Knudsen, who has done and said nothing about the plan since then. On December 22, no doubt a little impatient, Murray of the C.I.O. made the plan public, discussing it with Roosevelt the next day. (“No commitment either for or against was made by the President,” reported the Times.) There followed a round of conferences with Washington officials, some radio speeches by Reuther, and then the plan seemed to quietly expire.

The C.I.O. Industrial Council Plan

Similar in essentials is the story of the C.I.O. Plan for setting up councils, with labor, management and government represented on each, to plan war production in each industry. The aim was to draw into war production the thousands of smaller companies that so far have been left out in the cold. Murray claimed that “out of 10,000 manufacturing establishments capable of providing defense materials, only 30 have received government contracts.” From the standpoint of production, this is bad. From labor’s viewpoint, it is bad also, since workers have to eat whether they work for big or little businessmen. Murray also presented a special plan for steel, based on the experiences of the S.W.O.C. “Large steel firms are overloaded with orders,” he stated, “while smaller steel firms are operating as little as 45% of capacity.” In these plans the C.I.O. put its finger on what is more and more coming to be recognized as a major weakness of the present war economy: that, following the line of least resistance, the O.P.M. has allocated orders mostly to the biggest companies, leaving untapped the collectively vast productive facilities of thousands of small firms. The C.I.O. plan would spread out control both geographically (away from Washington, into each industry) and socially (labor representatives), thus making possible a more even distribution of war orders. The objections to the C.I.O. Plan were of the same order as those to the Reuther Plan, and have proven equally decisive. [2]

The Parallel with England

The significance of the Reuther and C.I.O. plans is enormous, especially when one considers how closely the American experience parallels the British in this war. The British bourgeoisie has also been revealed by the stern test of war to be bankrupt as a ruling class. Not until the Labor Party entered the government last spring was there even the beginning of a serious war effort, nor was it accidental that in that first crisis cabinet the three key economic posts were given to labor politicians: Dalton in Economic Warfare, Morrison in Supply, and Bevin in Labor. What is the meaning of these unprecedented developments – the working class not merely passively submitting to the bourgeois war machine – as in the last war – but actually showing a greater boldness and grasp of how to run it than the bourgeoisie themselves? The explanation, I think, is that (1) the economic problems of waging war in 1914–1918, staggering though they were compared to anything that had been known up to then, were relatively simple and could hence be solved with a relatively mild reshaping of peacetime capitalism, as compared to the problems that must be met and the revamping of the peacetime economy that must be made in contemporary warfare; (2) capitalism today is incomparably more decadent and literally unworkable as an economic system than it was in 1914–1918, so that the bourgeoisie simply make a terrible hash of things when they try to function in the old ways. The working class thus has today an unparalleled opportunity to take the power that is slipping from the grasp of a dying ruling class – as, for that matter, have the fascist demagogues. The great tragedy of our period up to now has been that the reformist leaders of the working class in England and America have done all they could not to take the power so lightly held by the bourgeoisie. Labor “leaders” like Bevin and Morrison and Murray and Green are thrusting the working class back into the house of democratic capitalism just as the whole structure is collapsing.

Thus the actual effect (as against its symptomatic significance) of the intervention of labor into the organization of the war economy has been merely to tie the workers to the wheels of the imperialist war chariot, since this intervention is made without first securing control of the state by revolutionary action. It has not even strengthened labor’s bargaining power within the capitalist system: the Labour party chiefs have steadily lost power to Churchill’s Tories in England since last May, while the shift of the Roosevelt Administration to the right in the last few months needs no underlining. Nor has labor’s intervention, under these conditions, been very effective even technically. The reformist politics of labor bureaucrats like Bevin, Reuther and Murray, their timid refusal to call into action the working class – little effort was made to bring to bear on the Administration rank-and-file working-class pressure for the Reuther Plan, for example; its fate was decided entirely in conferences with top government officials – have made it possible for the bourgeoisie to use labor’s economic plans only to the extent they think is absolutely necessary for national survival. Thus Knudsen has put into effect the automotive-aircraft tieup advocated by Reuther and the spreading of war production advocated by Murray – but only in a crippled, small-scale form, safely within the bounds of private enterprises. Churchill has likewise taken care to sabotage the more “extreme” (i.e., effective) features of the labor politicians’ economic plans, so that even today the British war economy is far from maximum efficiency. It should be clearer than ever today that working class planning can be fully effective, whether for peace or war, only within a working-class socialist political system.

3. The Road Ahead for the U.S. War Economy

At present all classes of American society are enjoying the benefits of war economy without, as yet, feeling very seriously the disadvantages. This is because the government is injecting into the national economic system sums which make the New Deal’s peacetime pump-priming efforts look picayune: $23 billions of government spending a year means boom times on a 1929 scale. On the other hand, the Administration has, so far, refrained as much as possible from applying those controls over the property of the bourgeoisie and the consumption of the masses which will become increasingly necessary as war production develops. So for the present, every one is happy, the precise degree of happiness being related to the particular rung of the economic ladder one happens to occupy. Big business is, naturally, happiest: last year the average yield of all stocks on the N.Y. Stock Exchange was 5.7%, highest since 1932, and more dividends were paid out to stockholders than in any year since 1937. The middle classes also have cause for rejoicing. Their consumption has so far been greatly increased by the war boom: automobile production last year was the biggest in four years, and production schedules are set for another 1,500,000 vehicles in the second quarter of this year: there is a home-building boom on, with residential building contracts for February 56% ahead of last year; current department store sales are up 19% over last year. (These figures, by the way, indicate how far we are from even the beginnings of the sort of war economy Germany has had since 1936.) Even the working class is sharing in the boom, in its modest way: it is expected that by the end of the year the present 7,000,000-odd unemployed will be reduced by half.

The Incompatibility of Guns and Butter

But there is something uneasy and foreboding about this prosperity. The middle classes and workers see rationing and lower living standards ahead. Wall Street, too, is uneasy, as is shown by the lack of activity on the Stock-Exchange and the failure of stock prices to rise despite huge earnings. Here an important point must be made: that the immediate economic interests of the bourgeoisie and the masses are to some extent similar. That is, the business man wants to fill both Government war orders and also the civilian orders which are pouring in as a result of the general stimulus to the economy by the huge government spending; even though he makes more on a government order – which is not always the case – a businessman, with an eye to after the war, wants to fill the orders of his private customers as much as possible. “Business as usual” is his dream, which means that civilian consumption would be allowed to rise as high as the war boom would take it. Thus the question might be asked: since everybody, including the liberal weeklies, want a war economy of guns and butter, why isn’t this what we are going to get?

Before answering this question, we should understand clearly that this is not what we are going to get. The turn away from butter, in fact, is already in process. “When the defense program was first undertaken, the general policy was to superimpose it on the normal requirements for the civilian population ... The defense program has now, however, passed into its second stage. It can no longer be superimposed ... If it is possible to produce what we need and still take care of our business as usual, that, of course, is what I want to do; but we must have the defense material regardless.” (Donald M. Nelson, leading O.P.M. official, as quoted in Time, Jan. 27, 1941.) Last summer, Roosevelt declared cheerfully that the nation need not be “discomboomerated” by the war program, that business could proceed “as usual” and the people could have more and not less butter. In this as in other matters, events have made a liar out of our President. The conservative U.S. News for March 7 sums up the trend thus:

When the defense program was launched, official plans centered on a policy of providing the American people with both guns and butter. With idle plant and millions of unemployed, the opinion was widely held that defense requirements, superimposed on non-defense output, would lead the country to full employment and provide adequate arms without sacrificing living standards. “Business as usual” was not to be too greatly interrupted.

This theory has now broken on hard production facts. However much defense plant expands, officials now recognize that more government supervision is necessary to keep defense industries operating at peak. A gradual broadening of priority orders issued from O.P.M. is now viewed as inevitable.

The only way that the liberal-reformist program of guns and butter could have been put into effect would have been by an expansion of productive capacity large enough to supply both war and civilian needs. [3] But business doesn’t want to expand too much, because it is better to make a good profit on orders piled up months and even years ahead than to build new plants and risk being caught with ruinous amounts of excess capacity after the war boom is over. Thus we find the same pattern repeated throughout American industry in recent months. Several weeks ago the Federal Power Commission predicted a serious shortage of power for war industries “if power needs continue to be underestimated by the utilities as they have been in recent months.” The railroads, under pressure by the Administration to increase their rolling stock so as to handle the heavy volume of traffic expected in future, have steadily rejected the suggestion as “public hysteria.” A similar battle has been going on between New Dealers, who want greatly expanded steel production, and the big steel companies, who don’t. Roosevelt has finally settled the dispute in favor of the companies on the basis of a report by the conservative engineer, Gano Dunn. (And already business publications admit it will soon be necessary to apply priorities to steel.) The machine tool industry, one of the two worst bottlenecks in war production, has doubled its production in a year without making any significant additions to its plant – preferring to pile up huge back-logs of future orders and ration its customers. So too with aluminum, the other bad bottleneck, where the monopolistic Mellon-owned Aluminum Co. of America (backed by the dollar-a-year men on the Defense Commission) for months insisted there was plenty of aluminum for both civil and military needs – until, last fall, the shortage became so acute that priorities had to be applied by the government.

The pattern has been the same in every big industry: a quite understandable reluctance by business to sink capital in plants which may later on be excess capacity (and tend to drive down prices), and an equally understandable reluctance on the part of the Roosevelt Administration to take the drastic steps (planning, centralized control, government-owned plants) which would be necessary to expand industrial capacity to the point where it could supply both military and civilian demands. This was Mr. Nelson’s “first stage” of the war program, and the battle was won in every case by business. And so, since plant capacity is not enough to supply both guns and butter, the choice has had to be made for guns – which is the “second stage” we are now entering into. For the masses, this means, in the future, rationing (of this, more later). For industry it means, beginning now, increasing priority control by the government – that is, the rationing of scarce commodities like aluminum or nickel among industrial consumer on the basis of which industry is decided to be more essential to the war program, and hence entitled to “prior” call on the rationed commodities. And the decisions are made by the government bureaucracy (sweetened with dollar-a-year men) and are enforced by Federal law.

Priorities for Business

Business, naturally, doesn’t much like this invasion of its property rights either, but it chose it quite deliberately as a preferable alternative to plant expansion. (“Industry faced the problem of priorities with its eyes open,” comments one business paper.) But a lesser evil is nonetheless an evil. The explanation of the strange apathy of the stock market despite the huge profits being made today and despite the more than sympathetic attitude of the Roosevelt Administration, is to be found in the steady growth of governmental controls over business since the Nazi Blitzkrieg last Spring. (That the controls are mostly administered by sound business men – and not by New Dealers – softens the blow; but it all means, nevertheless, entering into a strange and perilous new economic world.) This growth has not yet been pushed by Roosevelt, who on the contrary has shown every desire to avoid “discomboomerating” American business. Like Caesar, he has thrice put aside the crown – and, like Caesar, he seems fated to wear it all the same. For the requirements of the war program are pushing American capitalism with an irresistible logic into the harness of state control.

As in Germany, the first steps towards total Wehrwirtschaft began in the field of foreign trade. Last June Roosevelt put an embargo on the export of machine tools, following this up a month later with an order requiring governmental licenses for the export of “any munitions, materials, or machinery needed in the national defense program.” On October 22, Roosevelt issued an Executive Order “decreeing priority for defense orders placed with private industry.” (The authority had been voted to him the preceding June 28.) “The order set up the first general governmental control over private industry in the peace-time history of the United States,” commented the N.Y. Times. The Administration moved slowly and with caution down this dangerous and untried path. Roosevelt selected the most ineffective and pro-Wall Street of the Defense Commission chiefs to administer priority control: E.R. Stettinius, Jr., former chairman of U.S. Steel Corp. and a loyal “Morgan man.” It was not until February 24, four months after Roosevelt set up the priorities board and eight months after Congress voted him the power, that Stettinius put into effect the first industry-wide priority systems, in the machine tool and the aluminum industries, where shortages had been acute for months. The pace has been accelerating, however. Several weeks later, Stettinius had to put three more industries under full priority control: nickel, magnesium, and synthetic rubber. And it is expected that in the near future three more will be added: zinc, scrap iron and lumber – the last two of which have already been forced, by government pressure, to lower their prices.

For the Masses – Taxes, Enforced Savings, Rationing

We need not be too much upset by the sad plight of business. For the masses much worse things are in store than priorities. For one thing, of course, priorities as they extend v/ill more and more affect the living standards of the people. Her aluminum pots and pans are the first, but by no means the last, sacrifice the American housewife will have to make for the war. But there is much more than that to it.

Congress has raised the national debt limit to $65 billions, and there is already talk of $100 billions. The money will have to be raised by taxation and by borrowing. A survey of business sentiment printed in the December Fortune found a 67% majority in favor of higher taxes. This is less surprising than it seems: the question is, who is to be taxed? Recent Congressional actions give some clue to the answer. The excess profits tax passed last summer set rates at from 25% to 50% against 100% in England today. And on February 24 last, the Ways and Means Committee of the House made history by reporting out favorably a measure to lower corporation taxes by over $100,000,000 a year – the first time in ten years Congress has taken a step towards lowering the corporation tax. There is a campaign on in Congress – opposed at present by the Administration – to raise much of the needed war money through a general sales tax. As for borrowing, the Treasury already has announced a campaign to sell “baby bonds” and war-savings stamps in order to tap the income of the working class. If this voluntary method fails to bring in enough revenue, there is talk of some adaptation of the famous Keynes plan for “compulsory savings” (by withholding part of the workers’ wages until “after the war”) which was defeated last winter in England by labor opposition.

It is important to understand that such measures, at present, are designed chiefly to raise money. They have another effect, however, which will become increasingly important: by diverting the masses’ spending power into governmental channels, that is away from consumption goods into war goods, they promote that shift from butter to guns which is essential in a war economy. Thus a sales tax is simply an indirect form of rationing. It was for this reason and not for the additional revenue it raised (which was relatively negligible) that in England last fall the Churchill-Labour government finally put into effect a general sales tax. The same economic effects came from the sale, whether voluntary or forced, of Government securities to the public.

The Crisis-Point: Full Employment and Production

Here in America we are only in the first stages of war economy. All these devices – priorities, export controls, taxation, baby war bonds – are as nothing compared to the totalitarian control over the entire economy one sees in Germany. Our capitalist economy is still far from the real crisis-point, when the inflationary tendencies of war economy threaten to get out of control. That point will come when the national economy reaches a state of full employment and full production, that is to say, when consumer buying power at its maximum runs into the stone wall of a productive mechanism that can expand no more. The result then will be a runaway price inflation, unless the state can intervene to freeze prices and wages and divert – by taxes and direct rationing – mass purchasing power from consumption goods into the war machine.

The American economy is still far from that point today, with 7,000,000 unemployed and a large reservoir of unused plant capacity. Prices in the first eighteen months of the war have risen very little, and a few weeks ago the American Statistical Society predicted that commodity prices are not likely to rise more than from 5 per cent to 10 per cent during 1941. As Chairman Eccles of the Federal Reserve Board recently put it: “I do not see how it would be possible to have a dangerous general inflation so long as we have a large amount of idle men and unused resources.”

The crisis is still far off, but it is approaching. Some observers think that full employment and production may be reached by the middle of 1942. Already the Defense Commission has prepared a series of Executive Orders for price control, to be issued when necessary by the President. Much broader powers than he now has, however, will have to be voted by Congress. A government official recently remarked that much of the national price structure “is now being held at proper levels by means of paper clips and rubber bands.” Something more than paper clips will be needed later on.

The Road Ahead

How much “later on” it is depends not only on the economic factors just mentioned but also on political developments. It is easy to forget that the United States is not yet, technically, at war with Germany. But this technicality is important, for until an actual declaration of war the famous “M-Day” plans drawn up years ago by Army experts cannot go into effect. [4] The nature of these plans is indicated briefly in Time’s comment (June 10, 1940): “The U.S. M-Day Plan is so perfect that the actual Nazi program of complete mobilization for a knockout blow was based on it, after a six-month study, in 1934.”

The totalitarian nature of the measures Roosevelt will propose “later on” is clear. But to propose is one thing, to execute an-other. The great political problem which will then confront Roosevelt will be how to persuade – or force or both – the bourgeoisie on the one hand and the working class on the other to yield to the government the necessary authority for putting into effect a totalitarian social and economic system. [5] This is the problem Hitler had solved by 1936 (the “crisis-point” in the development of the German war economy), that Daladier-Reynaud never solved, and that is still far from being solved in England even today under the pressure of imminent invasion. The difficulties England is having, and American is beginning to have, in creating a total war economy came chiefly, in my opinion, from the fact that, unlike the German situation, there is no mass political pressure behind it. The political question here, which I have no space to go into, is whether such a totalitarian economy can be imposed administratively, from the top, or whether a mass political movement like fascism is necessary. In other words, can there be a “white” or “cold” fascism? The answer to that question depends largely on the ability of the American working class to make its strength felt in economic and political action. And here we can take heart from the Reuther and C.I.O. plans which, however reactionary politically, demonstrate that the American working class, by virtue of its class position and interests, can think and plan in terms far broader and more effective than the American bourgeoisie is able to. Much the same lesson is to be learned from the intervention of British labor in this war. And let us hope that the sad fate of the C.I.O. proposals, and of the Labour party leaders in the Churchill cabinet, will sink home to the American workers, and that they will come to understand that the struggle against fascism, inside and outside the country, can only be fought on a revolutionary political basis. The only alternative to Roosevelt’s “white fascism” is revolutionary socialism.


1. Conservative papers have claimed that “defense” strikes, while not on a large scale, have involved key production points – so that a strike of a few hundred men in, say, an aluminum casting plant might hold up the work of many thousands of industries dependent on that plant’s output for some essential part. This is possible, but there is no way of proving it without much more research than I have seen devoted to the subject. And in any case it seems doubtful that this factor could raise the one-fourth of l per cent loss estimated by Secretary Perkins to anything significant.

2. About the same time as the Reuther and C.I.O. plans were made public, the National Association of Manufacturers held its annual Congress of American Industry. The historical bankruptcy of the present-day American ruling class was here dramatically revealed. The Congress of Industry devoted its sessions to such vital current problems as government ownership of the railroads (against), the St. Lawrence Waterway Project (against), the Wagner Act (against), the unbalanced federal budget (against), etc. Its biggest achievement was to launch the Robey investigation of “subversive” sentiments in the nation’s schoolbooks. As little as possible was said about the fact there is a war on, for, as Time put it: “The subject of defense found the cream of American industry unable to make up Its mind.”

3. It is true that there are still 7,000,000 unemployed, and that a large percentage of the national productive capacity is still idle much of the time. But to put these to work would involve government interference with the economic system on a tremendous scale. This idle capacity is wholly among the smaller plants. The big monopolistic corporations, whose pressure on the Administration is decisive, have more orders than they can handle now and are not at all interested in sharing the gravy with smaller competitors (who find it hard to get government orders precisely because they are small). Centralized planning and control could undoubtedly greatly increase production even by the big corporations, but the fate of the Reuther Plan is an indication of how far that solution is likely to get.

4. There may well be, however, a campaign to get Congress to grant M-Day powers to Roosevelt even in peacetime. Thus the U.S. News for March 14 reports: “High Army and Navy officials are convinced that this country’s defense effort will not click until Mr. Roosevelt takes the Army-Navy Industrial mobilization plan out of the mothballs and gives it a try.”

5. It goes without saying that the chief problem will be not the bourgeoisie but the working class, which loses more and suffers more under a total war regime. But let us not underestimate the difficulties to be encountered from the bourgeoisie as well. Their fears are well expressed in a recent businessman’s newsletter from Washington: “Trend is very strong towards bigger and bigger government. Defense emphasis tends to obscure this trend; to divert attention from steadily growing use of government power; to hide real meaning of what’s happening ... It’s a super-New Deal that is growing up, that is taking shape as government moves in to direct a vast and growing defense effort. Industry recalls that it was somewhat the same in 1917–18 ... But overlooked is the fact that Roosevelt is building defense into the regular machinery of government; that in 1917–18 wartime controls were built outside regular government machinery; that there will be much more difficulty deflating government after the present emergency than after the last one. Ideas that present defense controls are just a flash in the pan mistaken.”

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Last updated: 15.12.2012