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Arne Swabeck

Economic Roots of the Labor Crisis

(March 1951)

From Fourth International, Vol.12 No.2, March-April 1951, pp.49-54.
Transcribed & marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

American bourgeois economists tend to regard with contempt the Marxist analysis of the objective laws of capitalist production. They look upon it as antiquated, or, at any rate, as not applicable to economic developments in the United States. But an affirmation of the contrary is clearly indicated in such denials. And life itself furnishes us with a complete verification of Marxism. The unresolved and growing contradictions of American capitalism, above all, have impelled these sycophants of the ruling class to shy away from a scientific analysis of the present economic system of exploitation and to limit themselves to the mere presentation and classification of data, quite after the fashion of the Linnean botany.

With rare exceptions the method of thought in this field remains empirical and, at its worst, descends to downright deception and falsification. Bourgeois thinkers tend to obscure or deny the realities of class society in order to justify the established prerogatives of bourgeois private property and- to disguise its predatory character. As a result economics, especially in the United States, has remained strangely outside the current of modern scientific advance.

Essence of Marxist Analysis

Yet the actual process of our economic development, precisely because of the high technological level so amply illustrated by the empiric data submitted, offers the fullest confirmation of the analysis made by Marx. Nowhere else has this been so clearly demonstrated. Economic developments in the United States have become capitalism’s most perfect expression.

The very heart of the analysis made by Marx is the labor theory of value which Marx elevated from its crude beginnings under classical bourgeois political economy to the high plane of scientific precision. Wages, prices, rent, interest and profits center around this basic regulator of capitalist economy. Only the socially necessary labor-time can serve as the exact determinant of exchange values. All commodities produced by labor have one property in common: they are exchanged on the basis of the quantity of human labor expended upon them. Under capitalism, labor power itself becomes a commodity which is bought on the market by the owners of the means of production. Like all other commodities it is evaluated according to the quantity of labor invested in it, i.e., invested in the means of subsistence necessary to maintain the laborer and his family, and to reproduce his labor power.

But labor power, says Marx, is “a commodity whose use value possesses the peculiar property of being a source of value.” In the process of production labor creates new values over and above what it receives for its own maintenance. This is the portion which Marx calls surplus value.

Capitalist profits are realized surplus value. Profits are at the disposal of capitalism, through its appropriation of the products of labor, for conversion into capital; and profits furnish the basis for the further accumulation of capital.

Rise of US Economy

Despite the interruptions of recurrent crises during past decades, the rapidly mounting capitalization of appropriated surplus values in the United States made possible an advance in a uniformly upward curve to constantly new and higher peaks of prosperity for the capitalists and there was even a limited trickling down of benefits to various strata of the general population. This process permitted the rapid mechanization of old industries, the tapping of new raw material sources, the building of new industries and the industrialization of new regions, providing employment for an ever-growing labor force. In addition, surplus capital became available for investments abroad at a higher rate of profit American capitalism found exceptional opportunities for its development on a virgin continent. A constantly growing and stable internal market favored the most colossal expansion of its productive apparatus. Dwarfish and circumscribed individual manufacture was transformed into the mighty social means of production so well illustrated by the modern assembly line.

However, while the means of production and production itself had in essence become social, they remained subject to the individual (capitalist) form of appropriation.

What is this development if not a graphic illustration of the process as it was analyzed by Marx? With the incentive of ever greater profits as its motivating force, capitalism strives incessantly to reduce the cost of labor by enlarging the scale of production. New and more modern factories appear equipped with the latest in labor-saving machinery. Constant capital (equipment, materials) grows at a more rapid rate than variable capital (labor, wages). The organic composition of capital becomes higher. This is what has secured for capitalism in the United States an exceptionally high labor productivity.

Labor Productivity and Surplus Value

Thus from 1850 to 1929 it is estimated that labor productivity rose nearly 300 percent. More recent data, however, illustrate this upward curve more concretely. “Over the twelve years, 1929 to 1941, the nation’s output per man-hour increased 34%,” reports the US Department of Commerce. This is an average annual increase of 3 percent. And, according to data of the President’s Council of Economic Advisers, during the succeeding nine years, 1941 to 1950, labor productivity mounted another 34 percent, or as much as in the previous twelve years. This represents an average annual increase of almost 4 percent.

This growing labor productivity has permitted a constantly greater realization of surplus value. But it is notorious that statistical data made public by the major industrial concerns are not submitted in order to present a true picture of the status of capitalist production. Elements of political expediency have entered the realm of statistics as well as the realm of economic theory. Figures submitted tend to conceal more than they reveal. An accurate account of surplus value appropriated by the monopoly corporations might stimulate demands for higher taxes, or worse yet, demands for higher wages. Nevertheless, by using the method established by Lewis Corey in his important work, The Decline of American Capitalism – accepting surplus value as being roughly equal to total value of output less wages paid production workers, cost of raw materials and fuels, and depreciation of fixed capital – we arrive, by using source material contained in the Statistical Abstract of the United States, at the following approximation of the magnitude of surplus value realized by the manufacturers:

For the year 1914 surplus value amounted to $5.4 billions; for the year 1929, the height of the pre-depression boom, $18.7 billions; for 1933, the low point of the great depression, $7.7 billions. For 1947 (the latest year for which complete figures are available, no record being available for the highest point in more recent “boom” years) realized surplus value reached the amount of $41.8 billions!

Even allowing for the monetary depreciation during the period covered, the growing magnitude of surplus value is apparent. But the rate of surplus value, i.e., the ratio of surplus value to wages paid, records a decline over the same period, as could be expected. In 1914, the rate of surplus value was 142, in 1929 it was 172, in 1933 it was 157, and in 1947 it was 138.

Basis of Ruling Class Policy

But the capitalist appropriation of surplus value is the root source of exploitation and inequality. It is the axis around which the class struggle unfolds. American history in this respect also brings verification of the analysis made by Marx. Every page of our history registers the impact of the antagonisms of class society and the dynamics of class conflicts. Nowhere else have the contradictions engendered by the socialization of the productive process and its bourgeois appropriation reached such titanic proportions. The explosions which are bound to ensue from this relationship were delayed by the exceptional opportunities available for American capitalism only to erupt later with so much greater volcanic force.

Rising labor productivity accounts for the wealth accumulated by past generations. While this wealth is being recklessly dissipated by its bourgeois custodians, the mounting labor productivity still remains a seemingly inexhaustible source to draw on. It is the prime factor which has up to now made it possible for American capitalism to maintain a relatively high standard of living at home and to embark on a “Welfare State” policy. In addition it provided an available surplus for the injection of a blood transfusion into the sclerotic veins of the decaying capitalist system in the rest of the world.

For the bourgeois demagogues the foreign “aid” program became a new weapon in their arsenal of deception to disguise the predatory character of American capitalism. “The United States has no imperialist designs anywhere in the world,” they proclaim on every occasion. They want to make it appear that the motivating force for the export of capital is no longer to seek returns at a higher rate of profit by exploitation of cheap labor. Aid is furnished generously to capitalist competitors in the world market. Manifestly this would rule out any struggle for the redivision of the world. The great resources and the great accomplishments of American “free enterprise,” reinforced by its magnanimity, would appear to supersede the fundamental ideas of both Marx and Lenin.

Real Aim of US Imperialism

But the real situation presents an entirely different picture. American imperialism arrived too late on the stage of world history to find ready-made markets for investment and exploitation. Colonial peoples were already making it clear through large scale revolts that they would no longer accept the status of colonial exploitation. In addition, the capitalist economy was already suffering from acute paralysis and disintegration. This general crisis of the world market, the very decline and decay of the world capitalist system as a whole, compelled its American sector to utilize its resources of accumulated surplus capital, in the first instance, in an attempt to arrest this disintegration and paralysis. American capitalism found itself compelled to attempt to restore the shattered equilibrium of world economy. But it did so only to secure a beachhead in preparation for a more gigantic onslaught for complete and undisputed domination and exploitation of the whole world market – including, of course, the areas behind the so-called Iron Curtain. These are the real objectives of the Marshall Plan and its supplementary world rearmament plan. And no efforts have been spared to attempt to make the beneficiary nations completely subservient to the overall needs of this strategic objective.

All the essential imperialist characteristics of the North American colossus not only remain, but become constantly reinforced. Monopoly capitalism, resting on centralized command, has advanced to full maturity and supremacy. At this very moment the directors of the great industrial and financial corporations are extending their sway and their control over all the economic, political and military organs of the imperialist enterprise. And these pirates are firmly convinced that the overwhelming economic preponderance concentrated in their hands can find its full realization only through war. A normal, stable peacetime economy is now only a memory of the past.

The epoch of capitalist decline and decay is also the epoch of wars and revolutions. In face of the gigantic revolutionary upheavals in Asia the whole capitalist world economy is now being geared for war under American supervision and command. Economic, political and military strategic aims are integrated and merged into one single pattern. The struggle for capitalist survival rises to a higher stage. And this struggle manifests itself most acutely in the United States precisely because of the enormity of the contradictions generated by its highly developed productive apparatus.

The Insoluble Problem

Constant expansion is a prime necessity for the continuation of capitalist survival. But the American bourgeoisie faces this dilemma: the constant rise in labor productivity takes place in the face of a declining rate of capitalist expansion.

Approximately at the time of the first world war this rate of expansion began its downward curve. It was worldwide in character and it accounted in no small measure for the severity of the great depression. That depression was never really liquidated. It was overcome, however, by the great spurt in production linked to the requirements of World War II. Total industrial capacity expanded almost fifty percent; and, as already noted, the growing productivity of labor was further accelerated. Productive capacity was estimated in a survey made by the Twentieth Century Fund, Inc., to be two-thirds above that of the banner year of 1929. But during the war period, production for war accounted for as much as about forty-five percent of total output. This did not serve as an element of capital expansion capable of absorbing, on a permanent basis, a new and growing labor force – as had been the case during the earlier decades of economic advance in the United States. Nor did it provide for new industrialization anywhere else in the capitalist world.

The problem of finding new, adequate and lasting markets for the gigantic productive capacity thus built up remained unresolved. Moreover, there has been no significant capital expansion since. Consequently, after the immediate post-war period of catching up with accumulated consumers’ shortages the latent elements of crisis assumed a more malignant form.

Government Intervention: the “Welfare State”

Government intervention had to come to the rescue of private capitalism to generate and set into motion the forces that overcame the great depression of the Thirties, at first in the form of the New Deal program and later through the war drive. Private capitalism had exhausted entirely its progressive qualities. Government intervention has remained a necessity ever since. Moreover, the basic contradiction of capitalism – between social production and private (bourgeois) appropriation – has become so deep as to alter the entire course of the American economy.

After the end of the second world war, government intervention appeared in a new garb – the policy of the “Welfare State.” Farm subsidies were upheld; insurance to mortgage brokers intended to stimulate construction was extended; “social security” was expanded and benefits increased. Imposing plans for large-scale public works expenditures such as national superhighway construction, flood controls, water works, schools and hospitals, in order to maintain production at full capacity, received considerable attention. The US News and World Report said at that time: “Official planners estimate that a shelf of needed public works at this time could total as much as 127 billion dollars.” Government intervention set patterns for wage increases and appeared to encourage social welfare and pension plans, ostensibly in an effort to. maintain the level of purchasing power of the masses.

Labor made some actual gains; but these gains appear in inverse ratio to the promises emanating from the “Welfare State” policy. The more paltry the present gains the more glittering the promises for the future. Thus, President Truman forecast, in his Message to Congress in 1950, a trillion dollar economy by the year 2000, out of which the average American family could expect an annual income of about $12,000. Of course, the President made a slight miscalculation in assuming that the fruits of a trillion dollar economy would be distributed equally. The President went on, apparently in all seriousness, to forecast a gain of about $1,000 in income per family by 1955 which “would go far,” he said, toward “the complete elimination of poverty.” It only remains for the President to explain how his wage freeze of 1951 will speed up this process ...

The “Welfare State” policy embodies the most sanguine dreams of bourgeois liberals, middle class intellectuals, Social Democrats and labor bureaucrats alike – at least to the extent that such people are capable of sanguine dreams. It embodies their hope of a more balanced distribution of national income and a consequent softening of class contradictions. But these hopes fly in the face of reality.

Declining Rate of Consumption

The analysis made by Marx, that capitalism develops the forces of production more rapidly than the forces of consumption, was long ago proved to be correct. The latter are subject to different laws of development. Surplus value created by labor in the process of production represents nothing else but unpaid labor. This surplus value is appropriated by the owners of the means of production in the form of profits, and largely converted into capital. Only actual wages received by the workers serve as purchasing power to satisfy their needs as consumers. This disproportionate growth of constant capital relative to variable capital imposes limitations on the purchasing power. Wages always lag behind profits and wages always fall relative to output and profits. Consumer income rises at a slower rate than investment income. This measurably restricts the growth of the market. Even under the most favorable circumstances consumption of necessity lags behind production. Concretely this is expressed in the fact that in 1929, personal consumption expenditures were 75.9 percent of the gross national product, against 69.8 percent in 1948.

Ominous portents for American economy are implicit in these figures. The internal market, the primary sustaining factor of capitalist expansion in the past, is now definitely declining. Consumers of houses, automobiles and the variety of necessities of life can buy only a constantly diminishing part of all that the huge industrial capacity is equipped to produce. A declining rate of consuming ability correspondingly reduces the need for output of capital goods. The tendency toward excess industrial capacity in relation to the declining market, so pronounced during the Twenties and Thirties and measurably increased by the huge addition of plant during World War II, now appears as the basic critical factor. These are the elements of crisis of overproduction of capital so thoroughly analyzed by Marx.

“The last cause of all crises,” he said, “always remains the poverty and restricted consumption of the masses as compared to the tendency of capitalist production to develop the productive forces in such a way that only the absolute power of consumption of the entire society would be their limit.”

“Welfare State” Becomes “War State”

However, to develop such a power of consumption was not at all the real objective of the “Welfare State” policy. As early as 1948-49 elements of a crisis of overproduction reappeared. Only a stepping up of armament outlays, stimulated by the demands of the cold war, postponed a confrontation of the problem. The American bourgeoisie had no intention of submitting to the slightest curtailment of its lion’s share of the fruits of the economic system. It remained hostile to all of the ideas of the “Welfare State” policy, particularly its social features. Spokesmen for the bourgeoisie denounced it as “creeping socialism.”

So when the political crisis arising from the military disaster in Korea began to unfold, monopoly capitalism forced a complete turn of the rudder.

This did not invalidate the essence of government intervention – the effort to maintain full production. Only the character of the intervention changed quickly in response to the new turn. The grandiose projects and plans of the “Welfare State” were superseded by the program of armaments production. What else does this prove but the fact that in the final analysis relations of production are summed up in class relations?

The materialization of plans for public works projects and all the features of “creeping socialism” would tend to strengthen the labor movement and correspondingly weaken monopoly capitalism. An armaments economy, on the other hand, strengthens capitalism at labor’s expense. Monopoly capitalism has no objection to government intervention. The only question of serious account in its calculations is: for the benefit of which class does this intervention occur? Aside from exceptionally lush profits, the armaments economy aids the further concentration of wealth in the hands of the monopoly capitalists. Above all, it is the one important prerequisite for the imperialist aim of world conquest which can find its full realization only through war.

Truly the only alternatives offered by the capitalist system of production are now clearly posed as depression or war. This is the supreme expression of its decadence.

Class Nature of War Program

The program of armaments production, rising to ever higher levels of expenditures in utter disregard of the burdens imposed on present and future generations, may tend to postpone the actual manifestations of the crisis of overproduction. But it cannot provide the qualitative expansion necessary to sustain the future economic equilibrium. It produces no use-values that contribute to the wealth of the nation. On the contrary, the measures required to carry through this program must of necessity impose further limitations on the internal market. The basis will be laid for a crisis of more devastating proportions.

What the above-mentioned measures are to be the predatory monopoly capitalists have already decided. They are determined to exert new and greater pressure to increase not only the magnitude but also the rate of surplus value extracted from labor. An important part of labor’s purchasing power is needed to finance the armaments program of the bourgeoisie. A drastic reduction in the standard of living of the working class flows inevitably from this premise.

President Truman’s emergency proclamation paved the way for the many direct and indirect measures projected to reduce the standard of living, such as the wage-freeze, extension of the work-week without overtime pay, job-freeze, higher taxes and the austerity of scarcities in consumer goods. The armaments program itself implies further credit expansion by bank loans that create money out of thin air which flows into the economic structure unmatched by the products of labor which are destined for armaments – in other words, mounting inflation. By the realization of these measures the trick will have been performed. Labor’s share of the productive process will experience a further drop in relation to its total output. Conversely, what labor produces over and above what it receives for its own maintenance, will have been increased. The proportion of unpaid labor rises, the proportion of paid labor falls. The rate of surplus value is increased.

For the development of the armaments program the tasks of government intervention are thus clearly defined. The Marxist evaluation of the role and function of the state in relation to conflicting class interests within bourgeois society is fully confirmed. “The modern state,” said Engels, “whatever its form, is an essentially capitalist machine, the ideal collective body of all capitalists.” If anything needs to be added today, it is only the fact that direct control of the state by monopoly capitalism is now more complete.

Perspective of Social Struggles

The directors of the monopoly concerns, in their desperate choice of a war program, leave nothing to chance. From Charles F. Wilson, the head of General Electric, and now Mobilization Director, all the way down the line, they have taken complete charge of the execution of the program. They have done so, conscious of the fact that the struggle for capitalist survival permits less and less concessions on the home front.

All of these factors will combine to exert a terrific pressure on the working class that must inevitably explode in widespread resistance. On the other hand, the acute character of the present economic, political and military conjuncture will thrust the American bourgeoisie into attempts to deprive the working class of all possibility of initiative and independence of action by limiting, if not destroying, its concrete democratic rights. Militarization of the economy and the Garrison State with forced labor drafts, are already clearly indicated. The serious reverses inflicted on its position of world dominance will impel the American bourgeoisie toward greater ruthlessness at home. Above all, the increasing pressure of its own contradictions leaves the capitalist class no other way out than to attempt to defeat working class resistance and make the workers submit to all the consequences of the war program.

We can remain confident that the American workers will fight; they will fight most fiercely to maintain conditions and rights gained as a result of long and severe struggles. It is precisely the attempt to lower their standard of living and to curtail their democratic rights which becomes the greatest spur to resistance.

Role of Labor Bureaucracy in Economy

The realities of this whole situation lead to the conclusion that developments are now definitely reaching a turning point which will be reflected, above all, in sharpened class relations at home carrying the impact of deep repercussions within the trade union movement. America is entering a stage of profound social crisis.

The more or less stable equilibrium of class relations, which American capitalism has been able to maintain up to now, was sustained by its ability to give concessions to labor. We leave aside here the question of major interruptions, such as the great upheaval out of which the CIO emerged. During these interruptions the equilibrium was shattered for a time, only to reappear on a new basis, the capitalists having to deal with large and powerful new mass organizations. Unquestionably the role of the labor leadership became an important factor in this long continued relative stability. The union leadership grew fat and capitalist-minded on concessions gained and became transformed into a bureaucracy concerned above all with its own vested interests in capitalist enterprise! Exceptions to this rule occurred on the part of certain leaders only in regard to the degree and tempo of this transformation. On the whole the labor bureaucracy, in the course of its sway and development, assumed the characteristics of an intermediary historic force serving to impede the progress of labor toward consciousness of its class position. Objectively and subjectively it became a force of retrogression. It became a great burden of overhead expenses upon the working class. In the final analysis the existence of a labor bureaucracy is therefore itself an outgrowth of capitalist relations of production.

Because of their vested interest in the capitalist enterprise, the labor bureaucrats are incapable of an independent militant policy of class action. They accept consciously in theory and practice the policy of class collaboration. Only on this basis is it possible to understand their dull-witted, craven and mediocre character. Currently the policy of class collaboration is expressed on the highest political level in more or less complete reliance on the capitalist state to set the patterns of strictly limited wage increases, social welfare and pension plans in return for the bureaucracy’s support of all major bourgeois world enterprises such as the Marshall Plan, Truman Doctrine, Atlantic Pact, and rearmament. And it is this policy of class collaboration which has up to now constituted one of the greatest deterrents to working class political development.

Labor Crisis Reflects Crisis of System

The conclusion is inescapable: the capitalist onslaught at home will unleash the forces of class struggle which will set this deterrent aside. The ensuing struggles will strike terrific blows against the class collaboration policy at its most vulnerable point. As the working class moves forward in resistance against the onslaught on its standard of living and its democratic rights, the labor bureaucracy faces the alternative: to break its reliance upon and support of the bourgeois state, or to rupture relations with its own rank and file membership.

Whatever its decision may be, one thing remains assured: the social impact of this bureaucracy on the further development of class relations will henceforth be greatly impaired. Up to now it had drawn whatever strength and power it possessed essentially from the conditions that made it possible for capitalism to give concessions to labor. The dilemma now confronting this bureaucracy is thus a reflection of the crisis of capitalism itself. However, a power and strength stemming essentially from capitalist concessions can by no means be maintained, let alone reinforced, when the decline and decay of capitalism compels the rulers to turn toward more ruthless exploitation of labor and toward the destruction of labor’s democratic rights.

The projected capitalist onslaught poses the task before the organized workers of replacing this leadership with one which is thoroughly conscious of the interests of the working class and thinks and acts accordingly. The perspective before the labor movement does not provide a substantial or lasting middle ground. Only a new, class conscious leadership will provide the necessary corollary to the turning point in American economic development. The great quantitative growth of the labor movement will really begin to take on new, qualitative characteristics. The labor movement will rise to a new and higher stage. Every action of the government to reduce the working class standard of living and to curtail its democratic rights will of necessity intensify already deep-seated dissatisfaction with the American imperialist adventure in Korea, and growing distrust of the present foreign policy. Every move of the ruling class will provide evidence of the fact that the capitalist system has failed to justify its further existence. The ground will thus be prepared for the coming working class battle for control of the political state. That battle will be the beginning of the fundamental, socialist transformation of society the world over.

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