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William Simmons

US Capitalism Heads For Bankruptcy

(June 1944)

From Fourth International, Vol.5 No.6, June 1944, pp.171-174.
Transcribed & marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

To the American working masses all questions concerning the coming post-war period are summed up in the single and simple proposition of jobs. The problem of what kind of social system shall prevail does not so far appear to them as a problem of practical reality. And yet, these two questions – jobs for all, and the kind of social system – are insolubly linked together.

For continental Europe it is readily granted that such a posing of these questions is in order, because of the much more acute nature of its social conflicts. But the United States of America! Does it not represent the very heart and life-blood of the capitalist system; nourished by seemingly unlimited resources?

This is true. But it is precisely because capitalism is here so highly developed and its productive powers so colossal that the question of jobs for all will under post-war conditions cut like a razor edge to the very roots of the social system itself. Because of the social relationship of capitalist ownership and control, this enormous capacity of production and jobs for all become utterly and entirely incompatible.

During the last six months of 1943, according to the US Department of Commerce, this nation produced goods and services at the rate of $188,000,000,000 a year. This is more than twice the previous high production peak reached in 1929. And it was accomplished at a time when about ten million young men were in the armed forces. Insofar as actual war production is concerned most figures are kept secret. But such figures as are available emphasize one thing above all – the enormous capacity of production.

The steel industry, for example, reached a total output in 1943 of 94,000,000 tons. This is about one third higher than any pre-war peak year. It is also more than the rest of the world can produce in one year.

The Maritime Commission reports that the last eight months of 1943 saw the launching of 12,000 merchant ships averaging 10,000 tons each. This means an output of five such ships every twenty-four hours. For the year the total tonnage reached twenty million, or ten times more than was launched in the United States during 1918 when the U-boat warfare was at its height in World War I. And all this is in addition to the building of a five-ocean navy which for the year 1943 alone, according to published figures, amounted to 1,600,000 tons of combat ships.

For the airplane industry the claimed annual capacity is now 125,000 planes. Conversion to war output stepped up the machine tool producing industry from an average annual rate of $40,000,000 for the years after 1929 (and including 1937) to the imposing figures of $1,320,000,000.

Naturally, such an increase in machinery and tools of production, together with what is popularly called more efficient methods, has brought about an increase of labor productivity. Since the beginning of war production this increase has taken place on a constantly rising scale from year to year. The output per man hour was 3.9 percent greater in 1940 than in 1935; 3 per cent greater in 1941 than in 1940; and in 1942 4.4 percent above 1941. The increase in output per man hour in 1943 over 1942 is estimated to be still greater, although final figures are not yet available. The Union Trust Co. of Cleveland asserts that labor productivity has risen from 100 in January 1943, to 136 by the end of that year.

One instance, typical of many others, of this same process has been widely publicized by one of the big automobile corporations now making an aircraft engine crankcase. The original daily output was met with a minimum of tooling and required 230 hours of work with the spoilage averaging 47.6 per cent. Through the addition of new machines the crankcase operations were mechanized and instead of 230 hours of manufacturing time the work was cut to 125 hours, while scrappage was reduced to 7 per cent. Tooling expansion, rationalization and efficiency methods kept pace. Machine time dropped to 40 hours, and finally to 32 hours. Such is the record: from 230 man hours of labor to 32 hours per crankcase.

What Will Happen If and When the War Ends?

Available figures of production do not cover a wide field and cannot therefore be considered as conclusive for industry as a whole. Nevertheless they do furnish a partial illustration of what present productive capacity amounts to. At the same time they serve as a portent of different things to come in the post-war period.

Summing it up in their minds, sensing the rhythmical, monotonous hum of machines everywhere, and aware of the flow of war materials that leave the factories, mills and yards in a steady and endless stream, Americans of all classes get an impression of a veritable ability to produce on a global scale. But the workman, who is the most important cog in this huge machine, also faces the question almost as ominous and catastrophic, as the war itself: What will happen when this war comes to an end? Simultaneously an additional query arises: If we can produce so magnificently for war, why can we not also do that for peace?

These are momentous questions. But outside the ranks of the Marxists nobody has dared, or wanted, to give a fundamental, realistic answer. Such attempts as have been made with regard to post-war planning have not set forebodings or uneasiness at rest. Nor can the American workers draw much comfort from plans advanced by official labor leaders. Because of their utter inadequacy these plans have been accorded only scant attention.

In fact, the elder statesmen of the AFL appear to view the coming post-war period as a matter of business as usual. They make no pretense of hiding their support of Big Business demands for speedy and complete restoration of “free enterprise.” They warn against what they call the tendency to tax “free enterprise” out of existence. At the same time, however, their practical suggestions, for example, for a housing program and other job providing enterprises, propose joint labor, management and government planning together with extended government financing.

CIO leaders are not less contradictory in their plans; but they start out from the premise of a high level economy of large governmental expenditures, extended government control, and then they wind up by accepting the Baruch-Hancock report which proposes a speedy restoration of “free enterprise.” CIO leaders also want joint labor, business, agriculture and government planning. Such planning they say must be for “large output at low prices and profits kept at reasonable levels and monopoly profits utterly prevented. To this end anti-trust laws must be enforced, patent laws must be improved, and new controls developed.”

Philip Murray and his co-leaders proclaim that the nation “has the knowledge, the skills, the machines and the resources to produce a gold standard of living to every American.” How? Very simple. They say that

“the only way to win the peace, when scarcities end, is to go on full rations for every man, woman and child in. the United States. Then farmer’s, factories and stores will have good markets and prosperity can. be general. High wages help the nation as well as the wage earner. With full production prices can be low and wages can be high.”

This would be entirely true if Murray and his co-leaders visualized and proposed an organization of productive society which would make it possible. Such, however, is not the case at all. Perish the thought. It frightens them.

But the capitalist owners of the American productive system have already made it abundantly clear that they have no interest in low prices and high wages as such; nor will they countenance extended government control or extended government financing in order to create jobs. And serving people’s needs has no place in actuality in their calculations. They will keep the factories running to produce commodities only to the extent that a profitable market is available. Moreover, capitalist production is governed by certain definite laws, not made in legislative halls, but engendered by the system itself and in turn submitting the system to the action of these laws.

Profits are the motivating force of all capitalist production. No other incentive is given any serious recognition. Production for profit and the people’s needs therefore become opposite poles. So long as the profit motive prevails as the single dominant factor in production, to which all other factors are subordinated, the needs of the people will naturally be utterly disregarded. What proof could be more telling than the last great world depression? And proof equally as telling is contained right in this war.

Capitalist production is not only carried on for profit, it depends for its very survival upon profit – upon ever increasing profits. It depends upon the accumulation of capital and constantly increasing opportunities for profitable investments. Realization of profits in turn depends upon increasingly larger markets to absorb the rising output of consumers goods which is a necessary condition for the absorption of capital goods. Thus continued expansion is a prime necessity for capitalist survival.

It is a prime necessity not only for capitalism in general but for American capitalism as well. And today this is even more urgently so. During the past century U.S. capitalism encountered no great difficulty in solving this problem for it enjoyed exceptional opportunities, and its rise and growth took place on a new continent. It had before it a constantly and naturally expanding internal market, an enormous population growth, swelled by immigration. It had before it constantly new raw material sources which, with the application of new scientific discoveries, made possible constant industrialization of new regions and building of new industries. All of these favorable factors, together with some brazenly-executed con-

quests, accounted for the rapidity of its development and the tremendous wealth it accumulated. From the civil war to the first world war the rate of growth of American capitalism showed a constantly rising curve and it averaged over five percent annually. Since then the rate of growth has been declining. Not only that, but each new prosperity peak was lower than the preceeding one. For example, the percentage of growth for the period from 1902 to 1906 was 7.6; for the period from 1909 to 1913 it was 4.6 percent, and for the period of the great boom of 1922-29 it was only 3.8 percent. In other words the constantly upward movement came to an end in the period 1909-13. The same holds true for capitalism on a world scale. In the United States the favorable factors of capitalist expansion, mentioned above, which were of a long range nature are now no longer available. They have been exhausted.

War Production, a Hypodermic Injection

Naturally, the expanding capitalism of the past stimulated an upward economic movement. Industrialization of new regions and the growth of new industries were a source of high profits because they made possible the use of large amounts of capital goods and a more rapid accumulation of capital. But, as could be observed during this whole period, within capitalist society expansion of production develops at a more rapid pace than and always tends to outstrip the growth of consumption, or the growth of the market. The latter is governed by quite different laws which act much less energetically. This is easily understandable when one bears in mind the fact that among the forces of consumption is the ever growing proportion of wage workers, and their dependents, who receive as compensation for their work only a part of what they produce. Relatively, that is in comparison to the expansion of the productive forces, the purchasing power of the workers tends constantly to decline.

The present period is witnessing a new production peak towering above all previous similar experiences. It represents a gigantic expansion of production. It is not, however, in any sense of the word a production expansion for a stable and growing market, but wholly and exclusively for war purposes.

Almost from its inception this war became a terrific accelerator of American production expansion. It is a patent fact that this present war production served as the only means of getting this country, as well as the other capitalist nations, out of the great world depression. The generally downward spiral of the capitalist business cycle fluctuated and took a sudden feverish upward leap owing to the hypodermic injection of gigantic government war orders, which now amount to almost $100,000,000,000 annually. Expansion in the means of production, in factories and in tooling, processes, i.e., constant capital, broke all records. Government building of new factories is alone estimated to have amounted to about $16,000,000,000. Including machinery and tools, etc., the total sum is in excess of $25,000,000,000. Fuller employment of every available worker and his family together with the extended workweek increased the volume of production. But labor productivity naturally went on a steeper upward curve due to this huge increase of constant capital. More work is performed more efficiently by machines. More raw materials are turned into finished commodities at a faster pace. At the same time, however, the most immediate result of this expansion is a higher organic composition of capital. This is a characteristic of all capitalist production. In the United States each prosperity peak has shown a growing disproportion between constant capital (equipment and raw materials) and variable capital (labor as represented by wages). During the period 1923-29 constant capital in manufacture rose four times as much as did variable capital: 24.4 percent as against 5.7 percent. The changes that have taken place in the organic composition of capital during this war prosperity cannot yet be illustrated in similar comparable figures. We can rest assured, however, that while there has been a great increase in payrolls, this increase is by far overshadowed by the enormous additional investments in constant capital. Government outlays alone serve as eloquent testimony.

The higher organic composition of capital increases the rate of surplus value produced by the workers. While living labor incorporated in a commodity falls, the unpaid portion, representing surplus value, rises. Under conditions of war economy, with its extraordinary pressure, production of surplus values mounts to dizzying heights. In fact, the fortunes and the vicissitudes of present day warfare depend directly and entirely upon productive labor. The very financing of war expenditures conies in the final analysis out of the production of surplus values. Capitalism knows no other way of meeting expenses. Taxation levies on employers and government borrowing from banks for this extraordinary financing increases only after there has been a previous rise in profits as a result of increased surplus values produced by labor. But the workers carry the cost not only in this indirect form. They pay directly as well. Even the compensation received by them, their weekly pay check – that part representing paid labor which is necessary for them to reproduce their own labor power – is being mulcted by ever steeper taxes, war loans and miscellaneous contributions.

Insofar as workers’ conditions are concerned it is perfectly clear that war restrictions have served to reduce the real wage. And nobody has dared deny that the deficit between the hourly wage rate and the steeply rising cost of living, and taxation, has been made up only through the lengthening of working hours and by the employment of greater numbers of the workman’s family. At the last AFL convention the Executive Council reported the average wage in durable goods industries to be $49.38, and estimated that the return to the 40-hour week would reduce this amount to $38.64. In non-durable goods industries the slash would be from $34 to $30.32.

While a higher organic composition of capital is the most immediate result of the present expansion of the productive forces, the latter also promotes two opposite developments which act in direct antagonism to this advance. In the first place, the growing disproportion between the volume of equipment and materials, on the one hand, and labor wages on the other imposes limitations upon the purchasing power and the consumption of the workers. Wages always fall relatively to output and to profits and thereby limit the market. In the second place, this change in the organic composition of capital, with the decrease of variable capital in relation to constant capital limits the production and the realization of surplus value in proportion to the total capital invested. The rate of profit on this total invested capital therefore tends to fall. Seemingly these laws, or these processes, are all upset, or nullified, by conditions of war economy. Production everywhere continues on its steep upward climb. Profits mount; workers have money to buy. The war market seems unlimited. But the upset is only in appearance, not in reality. As soon as the huge war orders cease the economic laws of capitalist society will be found to have operated in full force and the effects will stand out in their disastrous magnitude. The preponderant growth of constant capital will then appear clearly and indisputably as the outstanding factor in the American productive system. It represents an overproduction of capital which has now reached terrific dimensions. But it is typical of the capitalist mode of production. Inherent in the economic war upswing are all the elements of the coming depression and crisis.

No fundamental change has taken place in the spiral of the capitalist business cycle. It remains on its downward curve. Moreover, it is the decline and the decay of the capitalist system which produced the war. Inevitably the feverish war expansion, the hypodermic injections, will react most violently upon the capitalist decline.

At the conclusion of the war and the return to a “peace” economy excess capacity of production – excess because of the artificial fetters of capitalist ownership and control – will be expressed not only directly in bullet and gun factories, but also indirectly in steel, aluminum and other metal alloy plants, as well as in rubber, truck, airplane factories, shipyards, etc. Resumption of production of civilian goods, even if given full sway to fill what are called the banked-up demands, could only result in the glutting in short order of a drastically reduced market. The large addition of equipment and tools will require relatively less labor power than heretofore to fill this demand. And according to the U.S. Department of Commerce the employers will have 57 million employable workers to choose from: 12 million more than were employed in 1939.

War Prosperity, Harbinger of Crisis

The capitalist owners of industry will, of course, hire no more men or women than are absolutely necessary to produce the commodities of which they can dispose profitably in the available market. Failing a market in which to dispose profitably of the goods produced, the owners of industry bring wheels to a standstill: factories close. And the termination of the huge war orders will automatically separate millions of workers from their payrolls, thus reducing their purchasing power, not only relatively but absolutely. Other millions will be released from the armed forces and face the same prospect.

Overproduction of the means of production can no longer be turned into capital – it can no longer serve to exploit wage labor. As Marx and Engels, the founders of scientific socialism pointed out:

“The abundance of means of production becomes the source of wants and distress, the very thing that prevents the transformation of the means of production and subsistence into capital.” Therefore, “the real barrier to capitalist production is capital itself.”

The conclusion is inevitable. It is the capitalist ownership and control, and it is this alone, which stands in the way of the highest standard of living for every American.

Organization of production has become thoroughly socialized, even to the smallest details of integration within each separate factory, as well as within industry as a whole. But appropriation of the goods produced still remains individual. This contradiction between socialized organization of production and the individual capitalist appropriation inevitably leads to a violent explosion – the arrival of depression and crisis. Millions of workers without jobs, on the one hand, while on the other, fierce competition among capitalists for a narrowing market. However, with centralization and monopoly growing apace it is the small concerns which suffer the most. Many of them will be wiped out. Many more of the middle class will either be reduced to the ranks of the proletariat looking for jobs, or become declassed.

Inescapably the war prosperity will be transformed into its opposite. Like all things in society, and in nature, it is subject to change. But it is passing into its opposite not only as a result of changes in external circumstances – the change from a war to a “peace” economy. The forces of its own transfiguration were contained within it and developed within it. The overproduction of capital is a sure harbinger of depression and crisis.

Capitalism came into existence and rose to its zenith because of its ability to develop the material forces of production. Modern means of mass production, although an outcome of the insatiable lust for profit, nevertheless served as an aid to society. The higher composition of capital became an expression of economic progress; an expression of plenty. However, in terms of its social relationship, in terms of its capitalist ownership and control, it is also at the same time its exact opposite. It becomes the means of separating the wage workers from their jobs. It becomes the very means of condemning the wage workers to idleness, pauperization and starvation.

Capitalism has definitely reached its stage of decline and decay; it has become transformed into its opposite. It has become a deterrent to the further development of the productive forces, to the further development of society; and it has become a hindrance to the progress of mankind. This is the great contradiction of capitalist ownership and control. And it is so because the evolution of society has not kept abreast with the changing times. Or to put it more exactly: The change for which society has long ago matured has not yet taken place. Only a socialist society can guarantee jobs for all. Only when the producers of hand and brain take over the means of production, can production be planned and coordinated for people’s needs, for the well-being of the producers; for a standard of living undreamed of under capitalism. To paraphrase Engels: The social character of the organization of production, instead of being a source of periodic crisis, collapse and distress, will then be turned by the producers into a mighty lever for the further development of production itself. It will also be transformed into its – opposite.

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