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Arne Swabeck

What Is this Business Revival?

(April 1936)

From New International, Vol.3 No.2, April 1936, pp.40-44.
Transcribed & marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

THE UPTURN in the economic cycle is now unmistakable. Since about the middle of 1933 the business indices began to show a rise; some sharp fluctuations followed, but on a whole this period records an almost continuous upward trend. This revival is not experienced by the United States alone; it is world wide. As a matter of fact, the statistics of industrial production gains place several countries ahead of the United States, ranging somewhat in the following order: Japan, the Scandinavian countries, Italy and Great Britain. Insofar, however, as the perspectives of world economy are concerned, the question of recovery in the United States is of major importance.

The crisis was world wide in its nature and in its devastating effects, although not uniform in its manifestations in the various countries. Similarly, the present trends toward recovery are of a universal character. No more proof than this is needed to verify the fact that the business cycle still continues as the “normal” mechanism of capitalist development. Still, it cannot assure anticipations of new prosperity peaks emerging in their alluring splendor on the road ahead. Such assurances are not to be found in the present economic trends.

The World War upset many previously accepted calculations; it destroyed the “normalcy” of the regular upward and downward movements in industry and finance, and interrupted the course established by the requirements of world economy. Now, in spite of a number of difficulties and artificial barriers, world economy again proves its powerful reality. And again, the dominant position occupied by the American sector within this general world framework stands out more clearly. Even in the question of applying Sanctions against Italy, the League of Nations’ powers found occasion to bewail the futility of actions not participated in by the United States. Notions of national seclusion and permanent economic self-sufficiency have suffered shipwreck more than once. In their place we have, as an established fact, the universal interdependence of nations, threatened once again – to be sure – with a major interruption, with a new world war. And the further extension of the present business revival will be most seriously affected by such a perspective. War preparations account today in a large measure for the wheels of industry being set into motion in a number of countries. This lends a profound emphasis to the capitalist nature of the recovery so far attained. In the case of an imminent major conflict for the redivision of the world, there can be no doubt that the course of the economic trends will again smash all calculations.

The lowest point of the crisis seems to have been reached about the early part of 1933. Now, with the end of 1936, the exuberant reports appear: In the United States production of steel ingots reached the largest volume last year since 1930. Automobile production is the largest since 1929. Railroad freight traffic is the heaviest in five years, or since 1930. Electrical power production last year set an all-time high record, surpassing even 1929. Farm income last year, as estimated by the government, was the largest since 1931. At the end of 1935 bank deposits in all national banks mounted above 24 billion dollars, or about the same as the all-time high record reached on Dec. 31, 1928. Wholesale commodity prices were in an uptrend throughout the world, and in the United States the index has been raised from the low level of 52 ruling in 1932 to remain stabilized at approximately 80 throughout the last year. Industrial corporation profits, as calculated by the National City Bank, were the highest since 1930. Stocks were at highest levels since 1931; that was also true of corporation bond averages. Since June, 1932, the low point in the stock market, the market valuation of listed stocks on the New York Stock Exchange has risen from $15,633,000,000 to more than $43,000,000,000.

Undeniably, these are signs pointing toward recovery. But, in quoting the above figures, and for that matter, in quoting any figures of economic development, it should be borne in mind that the figures of the various statistical agencies differ and it is well nigh impossible, in the space allotted, to give the source in every instance. On the whole, however, the differences do not upset the general trend, and that holds true also for the figures showing the reverse side of the recovery medal. Turning to this reverse side we find that a further perusal of reports bring out the dreadfully, monstrous contrast of labor’s position, when compared to that of capital, in this general picture.

In practically all major respects the ravages of the crisis continue to pursue the masses of the exploited with unmitigated re-lentlessness. Thus, in face of the crushing weight of unemployment, a survey made by the AF of L finds that from Jan. 1935 to Dec. 1935, the average working week of employed industrial workers had increased from 38½ to 40½ hours. Since 1929 the productivity of labor, measured per man-hour, is estimated to have increased 25% or more, (some estimates place this figure as high as 40%), or as it is stated by the same survey covering last year alone, the workers in industry increased their output 14% with a gain in employment of only 4%. In this difference of 10% is reflected the increased productivity by longer working-hours, by speed-up devices and by introduction of labor saving machinery. The AF of L survey further maintains that between July and December alone hourly wages dropped from 56.8 to 55.9 cents. Looking at the general trend of the working class standard of living we get perhaps the most clear picture from a composite index presented by the New York Federal Reserve Bank. Its estimate shows a comparison of increase of cost of living for industrial workers to gains of real wages for labor in manufacturing industry. The trend of the cost of living was: 1933 plus 5.6, 1934 plus 4.3, 1935 plus 3.3; the trend of real wages was: 1933 plus 9.1, 1934 plus 3.1 and 1935 minus 1.5.

Real wages, however, can be estimated only for workers who have jobs. What has become of the working class standard of living when measured on the basis of the large percentage of the workers still remaining unemployed and subsisting either on the dole or on the meager returns from relief work? No composite index ventures to give such estimates. And a picture of the actual condition could be drawn only when the real meaning of the enormous numbers, who search in vain for jobs, is fully comprehended. In regard to this situation the US Bureau of Labor Statistics tells us that while in 1936 the total employment in manufacturing industries, and the total payrolls, averaged over the twelve months, were higher than in any year since 1930, employment was still 22% lower than in 1929; weekly payrolls were 36% lower. At the end of 1935, according to AF of L estimates, which are generally accepted as reliable, and certainly cannot be said to err on the side of exaggeration, the unemployed army numbered still not less than 11,401,000. During January and February, 1936, these ranks were further swelled to a total of more than twelve and a half million. Nearly 20,000,000 people have still nothing else to depend upon for their subsistence than their small relief rations. And now the chief New Dealers further estimate that, on the basis of present industrial efficiency, a return to the 1929 production level would still leave 20% employable workers without jobs. Turned into simple figures, this would mean between 8 and 10 million unemployed under conditions of the highest prosperity peak ever known in the United States.

The main reason for this condition must be sought in the fact that in the general process of capitalist production the capitalization of surplus-values created by labor and appropriated by the exploiters does not proceed along the lines of an equal proportion between constant capital and variable capital. Constant capital grows more rapidly, and the disproportion to which this gives rise increases with greater strides than the growth of the total capital that is set into motion. Thanks to the growing application of machine technique the need for living labor diminishes relatively and the number of employed workers decline compared to the total capital investment.

So long as a certain rate of expansion of industry can be maintained, as for example in the period between the Civil War and the World War, when industrial expansion is claimed to have averaged about 5% per annum, each new expansion would create new employment possibilities. However, during the last couple of decades this rate of expansion began to decline. Correspondingly the relative decrease in the number of workers employed tended to become transformed into an absolute decrease of the number of workers necessary to the process of production. In one concrete instance this is already borne out through a report put out by the National Industrial Conference Board which shows from May to June, last year, industrial production increased 1% while unemployment simultaneously increased 1½%. There may have been, during this particular month, certain auxiliary factors which contributed to this result; nevertheless the illustration shows the general trend.

It is clear that new and profound changes have taken place in American national economy during the recent years. The question of recovery, and of a possible subsequent prosperity, can therefore not be answered merely by referring to past analogies. Before the present epoch each turn in the business cycle from its crisis phase witnessed new and unparallelled expansion of industry, of finance and of the markets. A mighty field for capital investment and for utilization of natural resources was available within the borders of the forty-eight states. From the time of the Civil War each industrial upswing became epitomized by new expansion of railroad transportation. The boom following the World War saw a particular extension of automotive transportation. And so commonly accepted is the idea that new industries can continue to emerge, and to expand sufficiently, to take off the constantly developing oversupply of human labor, that bourgeois economists indulge in speculation about where these industries are to be found. At the present time this speculation has proven futile. Not only is there no such magic industry in sight, but the present recovery phase has not been due to any new expansion of industry or due to any newly found markets. Still the tendencies of the business revival are unmistakable, but it is essential to understand their real nature.

Before the economic upturn could be assured it was necessary for capitalism to restore confidence in the continuity of the process of reproduction. And since the realization of surplus-values provides the only inducement to what is popularly called the possibility of profitable investments the necessary steps are taken in that direction. It was accomplished essentially by raising the rate of exploitation of labor. Economies of various kinds were instituted in industry to lower the cost of production, beginning with a low wage level, extending to the lengthening of working hours and increasing the speed-up of labor and of machine technique. Efforts were made to effect a rise of commodity prices and to stabilize the price level in order to stimulate the profit incentive. Credits were expanded, outstanding capital values liquidated and stock capital increased. These are among the well known capitalist methods of revival. However, in this instance the process could not be set into motion entirely on its own accord. It needed the assistance of state intervention.

This state intervention assumed two main forms. On the one side were the measures of regulation of industry and finance and on the other the large scale government spending by way of subsidy to corporate enterprise and expenditures for relief purposes. In both of these aspects the state intervention was of primary importance as an early impulse to the business revival. Moreover, it fitted admirably into the whole pattern of capitalist revival. Let us attempt to trace its course: First the banking holiday of March, 1933, wrote finis to almost 10,000 “feeble” banks. Many of these banks had served as the main support of a number of small industrial and commercial enterprises, which also went under, through bankruptcies, etc., and the elimination of all these “weak” structures paved the way for further consolidation. The devaluation of the dollar was followed by an uptrend in commodity prices, which brought new returns on surplus-values produced and provided a beginning for new capital investments. Through the passage of the Monetary Act of January 1934 whereby the dollar was stabilized at 59.06 cents gold, the sharp fluctuations of the inflation process came to a stop and a new impulse was provided. Shortly before this the NRA emerged. Despite its labor relations provisions, so much detested by most of the big employers, the NRA became a bridge for them to cross over toward the business revival, before they burned it behind them. This illustrates once again, clearly and precisely, the dialectics of capitalist production. Capitalism held on to the measures of the NRA when it was hardest hit by the rough seas of depression, but once the safe shores were reached, its demise served as a greater impulse to renew the untrammeled competition for profits. Freed from the restraints of the labor relations provisions, the big employers lost no time in lengthening working hours, slashing wages and speeding up labor and machine technique in order to lower the cost of production, it would, of course, be an exaggeration to say that these various measures of state intervention have been responsible for the degree of recovery attained. The New Dealers like to present their case in this manner, but such a contention cannot stand up. The main significance of these measures lies in the manner in which they served to aid effectively the general process of capitalist revival.

The second form of state intervention, the government spending for the priming of the pump, deserves special notice. Funds were allotted not only for relief purposes, but industry and finance was actually put on the dole. Corporate enterprise received its share through the enormous loans advanced by the Reconstruction Finance Corporation, which since its inception under President Hoover has mounted up to the stupendous sum of approximately eight billion dollars. This is amost double the amount spent for unemployment relief. During the crisis, however, loan capital performs the function of paying for previously contracted obligations to meet interests and amortization requirements. The loans advanced in that period went almost exclusively toward the sustenance of corporate enterprise, toward the liquidation of outstanding capital values and they were not turned into productive capital. For the major part of the RFC activities this is the case, and while capitalism naturally considers this to be an important prerequisite to an upturn, this aspect of government spending could only later become a direct spur toward the business revival. Out of the magnificent paper values created by the RFC loans the banks alone received not less than 555 million dollars for which they issued brand new preferred stocks. The railroad magnates received from the RFC between 550 and 600 million dollars, most of which was also cashed in by the financiers in payment of interests and maturities, for during the years 1932, 1933 and 1934, according to the Railway Association’s reports, the annual expenditures for maintenance of way were on an average $510,000,000 less than in 1929, a decrease of 59½%, and $585,000,000 less for maintenance of equipment, a percentage decrease of 48½. Owing to this the increased net operating income lifts the railroad magnates “out of the red”; but the steel corporations still complain that buying for railroad equipment was extremely light in 1935.

State intervention undoubtedly had its most far reaching consequences in relation to agriculture. In turn the increased purchasing power in the agricultural regions – which is indisputable – constitutes one of the important pillars in the present business revival. But this fact alone also illustrates one of its serious weaknesses owing to the purely temporary nature of farm “recovery” arising in the midst of a general and protracted agricultural crisis. Industry has attained an overwhelming preponderance in the United States, as compared to agriculture, and the benefits of the increased purchasing power in the farm belts have gone primarily into production of consumable? goods, outside of what went directly to the banks in payment of interests and principals on farm mortgages. And what holds true for industry applies also to agriculture – the methods pursued in attaining economic improvements have been typically capitalist in their nature.

In order to work off the huge “oversupply” of agricultural products so that the price structure could be strengthened, the Roose-veltian program proceeded by deliberate design to restrict acreage of cultivation, plowing under crops, slaughtering pigs and cattle together with outright government buying of wheat and cotton at prices above the world market level. In return for this restriction of acreage and wanton destruction a subsidy went to the farm regions on the allotment plan, mainly to the well-to-do farmers, and paid out of a processing tax, derived from the higher prices to the consumers, collected by this unique method of check-off on increased consumer’s prices through the packing house corporations and the wheat, cotton and tobacco merchants. As a result, the huge “carry over” of wheat, whose rise from 128,000,000 bushels in 1929 to 383,000,000 in 1932 had cut down seriously on merchant’s profits, was reduced to 152,000,000. Gross income for farm products, as estimated by the Agricultural Department, increased from $5,337,000,000 in 1932 to $7,800,000,000 in 1935. Farm operating cost was increased only by a half billion dollars. The index of average per unit purchasing power of the farmers, which fell from a standard of 100 in July, 1929, to 57 in February 1933, stood at 92 in November, 1935. Naturally this increase in farmers’ purchasing power, although definitely temporary in its nature, became one of the main-springs in the present business revival. It stimulated the profit incentive in industry and finance, not the least of which was the return of the hundreds of millions of dollars of the impounded processing taxes to the agricultural products and packing house corporations with the demise of the AAA. Agriculture, however, is becoming ever more subordinated to industry and finance and it experiences an upturn without its chronic instability and crisis being solved. Its further development is the more closely bound up with the question of recovery of American national economy as a whole.

As a result of all these developments, beginning with the very first steps taken in the direction of creating the possibility of profitable investments, industrial production began its upward movement. While this is not yet so strongly marked in heavy industry the general trend is clearly visible. The steel industry, from its lowest point in 1932, in which its total output was only one fourth of its 1929 total, passed last year at 50% of capacity production. Not less than 25% of the steel output of last year went into automobile production, the highest proportion ever reached by the automobile industry. As could be expected, a certain part of the steel output went into the farm implement industry to satisfy the increased demand on the farms made possible by the processing tax subsidy. But a more lasting foundation for business stability, say the steel manufacturers, requires a resumption of such activities as railroad construction and equipment, pipe lines, water mains, power plants, building, industrial plant rehabilitations, machinery replacements, highway construction, etc. Even the automobile manufacturers, who report gleefully their juicy profit increases, complain that most of the motor vehicle buying, since the beginning of the business revival, was of the replacement order type. Foreign markets absorbed 565,000 motor vehicles out of the total of more than four million produced in 1935. Both figures represent a substantial gain over those of the lowest depression years; but the replacement character of this increase in production is attested by the fact that the total motor vehicles registered for operation in 1935 were still more than half a million units under the peak achieved in 1930. The owners of this industry, among the most prosperous since the business revival, are worried about the problem of new expansion.

What stands out on the whole with ever more marked clarity in this present business revival is the fact that it is primarily due to government spending, most directly affecting consumption goods industries. This the bankers and the corporate interests recognize to be an “unfortunate” weakness that can be offset only by serious movements in the capital goods industries. At the same time they look askance to the enormous cost of government, to the unbalanced federal budget and to the mounting national deficits which have taken a jump since 1930 of $14,000,000,000. These financiers are worried about future heavy taxation. They point to the fact that the administration’s promises of rigid economy and drastic reduction of government expenditures have brought the exact opposite results. In 1934 the taxes, municipal, county, state and federal, brought a total revenue of approximately $9,5000,000,000 while the total cost of local, state and national government had mounted to $15,500,000,000. This latter figure was about four billion dollars above the 1929 cost of government. The federal government is therefore compelled to go in for constantly heavier borrowings.

For obvious reasons the financiers and the big industrialists want a stop put to any further state intervention insofar as this implies regulations of industry, provisions of labor relations and heavy relief expenditures for the unemployed. Continued subsidy to industry they will insist upon and let the government take the risk; but insofar as heavy relief expenditures are concerned, they fear the loss of a ready-made, cheap labor market. On the side of the already accomplished credit expansion, the ever increasing liquidity of money capital together with the continuing decline in the interest rate drive straight ahead toward a new credit boom bound for the blue sky of the financiers’ heaven – easy money will be available for borrowing purposes to stimulate the capital goods industries. New inflation will be in prospect as this boom starts on its merry course toward a new crash. Meanwhile replacements of obsolescent machinery will begin in earnest and the installment of more efficient high-speed equipment will further reduce the physical cost of production. We shall again witness an acceleration of the process of accumulation of capital and a sharpening of the contradictions of capitalist production, because such a development again reduces relatively the number of workers necessary to the process of production. Such is the inevitable course of an economic system, whose present recovery phase can be characterized only as a capitalist recovery in which the masses do not participate.

Finance capital has already strengthened its grip on the levers of production and distribution. Profits and dividends rise in every field of activity. There is no reason why the replacements in industry, and to a certain extent new construction, should not permit it a further considerable economic advance. However, it is not likely that this advance can extend to the point of changing the present decline in the rate of expansion of industry. Such a question depends now entirely upon the problem of redivision of the world and on the ability of American capitalism to reduce the ration in world economy of its rival powers. Foreign trade, according to figures compiled by the Department of Commerce, shows an increase in export for the last fiscal year, over the preceding year of nearly 8%. The favorable balance of export over imports, amounting to a total of $336,000,000, records a gain over the year before. But, as reported by the League of Nations Review of World Trade, America’s share in international trade, which during 1929 represented 13.84%, had in 1934 dropped to 9.53%. Moreover, the position of the United States as a creditor nation still meets certain obstacles by the defaults in payments and by the difficulties still in the way of favorable foreign investments. For this reason a large portion of the government relief expenditures went to new armament constructions under the pretentious name of allotments for public works. And for this reason also the new budget of military and naval expenditures has reached the stupendous sum of one billion dollars.

American capitalism is now experiencing a business revival without having appreciably reduced the tremendous unemployment and with the permanency of the unemployed army definitely established. A concrete illustration will easily remove even the slightest doubts on this score. Taking as our base the year 1935, we find by far the greatest economic advance of any one single year since the lowest point of the crisis. But who? which class benefited from this advance? This is for us the important question, and it is the only way to pose it if it is to make sense.

The answer to this question is given conclusively by facts and figures. Standard Statistics, for instance, points out that the profits of 237 large industrial corporations exceeded 1934 by 48%, and it adds the following significant comment: “In the first eleven months of 1936 there were 1,220 favorable dividend changes by important companies, including increases, extras, resumptions and initial payments. One compilation places total dividend payments for the period at $2,999,000,000.” Contrasted to these amazing gains figures available for industries employing 13,800,000 workers show that the drop in hourly wages from July to December from 56.8 to 55.9 cents represents a total loss of buying power amounting to $5,364,000 per week for these workers. Obviously this downward trend can only be further accelerated by the WPA system of reduced wage rates. And yet, this tells only a small part of the story. When we turn to the unemployment statistics once more the frightful conditions of the working class as a whole, contrasted to the gains of capitalism, become so much more glaring. The AF of L monthly bulletin now announces that total unemployment in February this year stood at 12,550,000 compared to 12,764,000 in February of 1935. Could more decisive proof of the permanency of unemployment be found? During a year of 48% gains in profits and an increase in the volume of industrial production, as presented by the Federal Reserve Board’s index, of about i5%, the unemployed army remains practically stationary. To vizualize in their entirety the frightful consequences of such a situation one must turn to a perspective filled with inevitable furious class conflicts of record breaking magnitude.

The main reason for this crying disproportion between the actual growth of production and the failure to reduce the number of unemployed is, as mentioned before, the increased application of machine technique and diminishing number of workers employed compared to the total capital investments. For a practical illustration of this fact but of real life, the automobile industry, which is typical of the present revival, furnishes a very clear example. General Motors corporation net profits last year amounted to $167,226,510, against $94,769,131 in 1934, a gain of 76.4%. The corporation’s payrolls last year reached a total of $323,030,699, compared with $263,204,226 in 1934, a gain of 22.7%. The total number of workers employed by the corporation last year was 211,712, against 191,167 in 1934, a gain of only 10.8%. In these figures we have a graphic illustration: Net profits increased 76.4%, total payrolls increased 22.7%, largely accounted for by an average increase in working hours of 11%, while employment increased only 10.8%. However, when we examine further into a few practical details of the typical disproportions of capitalist production cited above, the growing application of machine technique and its displacement of human labor becomes a great deal clearer. These examples we take from a report submitted by Leon Henderson, who headed Roosevelt’s NIRB committee to investigate the automotive industry. Among other things he states: In 1930, 260 men finished 100 motor blocks in a unit of time. Now 19 men finish 260 blocks in the same time. In 1929, the labor cost of one manufacturer’s door was $4.00. In 1936 it was 16 cents. Since 1929, body framing has dropped from $3.00 to 30 cents in labor cost, hand finishing from $3.00 to 20 cents and trimming from $12.00 to $4.00. When used full time, an automatic buffer in a hardware plant can displace 160 men. A new photoelectric inspecting machine dispenses with 10 to 20 human inspectors.

Of course, the automotive industry is not the only example of this labor displacing process. In the steel industry the increased efficiency of machine technique similarly takes its toll. The modern continuous strip-sheet steel mill, twenty-one hundred feet in length, with 32,000 H.P. of connected motors is rolling sheet steel, ninety-six inches wide, at the rate of 760 feet each minute. A few men on the control bridge tend the switches of this automatic giant of the steel industry, eliminating in each case hundreds of men formerly employed.

Even the most frightfully exploited section of the United States population, the Southern share croppers, are not exempted from the advance of the labor displacing machine technique. Plucking by hand the snowy cotton from the cotton balls is arduous toil and seldom does a man average more than hundred pounds in eight hours. That was yesterday. Now a newly invented cotton picker, propelled by an ordinary farm tractor, can pick the cotton from two rows simultaneously and accomplish approximately 3,000 pounds of picked cotton in eight hours. Many more and similar examples could be adduced from the development of capitalist production to illustrate the fact that in this process as a whole excess capital exists alongside of an excess of population and that they are conditioned on one another.

These trends of economic development have not remained without effect upon the working class movement. History has repeated itself. Usually, almost from the inception of the American labor movement, its course of development would follow lines parallelling the rise and fall of the economic cycle. In times of greatest industrial advance, when capitalism reaped the benefits of its prosperity and the cost of living rose, labor, determined to maintain its standard of living, engaged in strikes, sometimes political in character, to gain this end. Today the American working class again battles to maintain its standard of living. The strike movements have shown a steady rise in volume, in militancy and in determination since the lowest point of the crisis. In 1932 there were only 808 strikes involving a total of 242,826 workers. In 1933 the strike movements rose to a total of 1,562, involving 812,137 workers; in 1934 to 1,742 strikes, involving 1,353,912 workers and in 1935 the total estimated strikes were 1,819 involving 1,128,000 workers.

More significant, however, than the growing number of strikes and the growing number of workers involved is the general character of these struggles, linked up, as they are, with a growing consciousness of the need of union organization. Some important lessons from the crisis have penetrated the broad layers of the labor movement and are beginning to bear fruit. The conditions for union organization are favorable and this coming period may witness the beginnings toward the creation of a class movement of the American workers.


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