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Arne Swabeck

Boom Without Bust?

American Prosperity Undermines Itself

(Winter 1957)

From International Socialist Review, Vol.18 No.1, Winter 1957, pp.11-18.
Transcribed & marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

FIFTEEN years of relative prosperity in the United States, and the recent upturn in Europe, have given new impetus to the never-ending debate about the validity of the Marxist analysis of the objective laws of capitalist economic developments. Once again the bourgeois ideologists marshal their arguments to attempt to refute Marx. Some of them will concede, rather slyly, that the Marxist analysis seemed to have some justification during the time of the “dark satanic mills” in England of a century ago; but they insist that it has little or no relevance to the “new capitalism” of the twentieth century. None of the learned defenders of bourgeois interests possess the exuberant confidence that was displayed during the boom of the twenties; at that time the claim that Marx had been refuted by Henry Ford seemed to suffice. Yet what we witness now is the trotting out of the same old shibboleths, dressed in a more modern garb, but equally devoid of scientific or even rational content. “Marxism was the raw answer to raw primitive industrialism,” says Barbara Ward, former foreign editor of the London Economist and author of Faith and Freedom. But now, she insists, “a revolution has occurred in industry which has made modern capitalism in certain areas – chief among them the United States – almost unrecognizable in terms of nineteenth-century practice.” Now even the “profit motive ... is, in fact, fulfilling a social function or at least operating in conditions which help to make its function social in the proper sense ... the profit motive serves the mass market.”

The theme of a “capitalist revolution” appears on every hand. Even the “strong man” in the Eisenhower Cabinet, Treasury Secretary Humphrey, does not mind such terminology. In an interview with the editors of US News and World Report, January 14, 1955, Humphrey described “our wonderland economy”:

“Q. Doesn’t this prove that social revolution can come about peacefully in a democracy?

“A. Yes. Compared with the rest of the world, it is clear that this nation’s economy has grown right on past, and has left behind in the dust, both socialism and communism. We have progressed so that the basic interests of the wage earner and the small saver are today the same as the basic interests of the larger investor.”

This theme is elaborated in exalted prose by the well-known economist and corporation lawyer, A.A. Berle, Jr., in his recent book The Twentieth Century Capitalist Revolution. It is hailed in the publisher’s blurb as “A clear and conclusive refutation of Marxist philosophy.” Exultant about the power and “corporate conscience” of American capitalism, Berle declares that its “aggregate economic achievement is unsurpassed ... Its instabilities and crisis ... show indications of becoming manageable.” According to Berle this “capitalist revolution” is supposed to have resulted in fundamental changes in the spheres of both economy and class relations.

“People’s Capitalism”

All that now remains is how to define this phenomenon. Suggestions from bourgeois publicists have ranged from capitalism with “a balanced full employment economy” to “people’s capitalism.” And why not? According to some of the specious theories advanced, workers and capitalists both work, supposedly alike, only in different spheres. As a finishing touch to these ideas, the E.I. du Pont de Nemours and Co., which earned the name “Merchants of Death” as a result of the post-World War I probe conducted by the Nye Munitions Investigating Committee, is now being presented on Voice of America broadcasts as an example of “people’s capitalism.”

Philosophical justification is supplied by the type of panegyrics to the “new capitalism” of which Robert L. Heilbroner’s The Worldly Philosophers is representative. Compared to the crude sophistry of Barbara Ward, Heilbroner’s approach appears rather refined, but any resemblance to scientific method is purely coincidental. He pays his respects to the penetrating examination of the capitalist system made by Marx. Moreover, Heilbroner considers it frightening to observe the grim determination with which weakened European capitalist countries steadfastly hewed to the very course which Marx insisted would lead to their undoing:

“But capitalism here [in the United States] has evolved in a land untouched by the dead hand of aristocratic lineage and age-old class attitudes ... Here is a business community in which ‘public relations’ have come to be a paramount concern – in which, that is, business is engaged in explaining and justifying its place in society ... in the new world new attitudes have emerged: the idea of democracy, the idea of an impartial government seeking to reconcile divergent interests ... all this would have seemed only a wishful fantasy to Marx.”

Yet this optimism is by no means universally shared. Uncertainty and anxiety concerning the future appear repeatedly even within the very circles most fond of extolling the superior virtues of the “free enterprise” society of the dollar oligarchy.

The Debate Broadens

There are voices also from the left in this debate, claiming to speak in the name of socialism. Among these, the editors of the Monthly Review indicate that they are also slightly beguiled by the theme of a “capitalist revolution,” their own formal disavowals notwithstanding. In the issue of December 1954, the editors declare:

“... It should be obvious that our analysis provides no support for the view that there is likely to be a repetition of the Great Depression. It is to be anticipated that government will become a more, not less, important factor in the demand for goods and services as time goes on.”

Returning to the same subject in the April 1955 issue, the editors of Monthly Review recognize that the forces making for a crisis are in full operation.

“But they can be countered and, indeed, sooner or later they almost certainly will be countered,” say the editors, and they add: “All classes of the American people have learned at least one thing in the last decade and a half, that economic crises are not made in heaven and that the government can deal effectively with them if it is prepared to borrow and spend on a sufficiently grandiose scale.”

The editors of Monthly Review conclude that a large increase in government spending “points in the direction of the real problems and struggles ahead. Who is going to control this vast and growing, outpouring of public funds? What objectives will be served by it? What groups and classes will be the chief beneficiaries?”

The importance of the latter point is readily conceded. Likewise, there need be no doubt that the government will intervene more, not less, in economic developments. But whether or not the government can “deal effectively” with economic crises is another question which we will discuss later.

The Stalinist leaders of the Communist Party are no less equivocal in their appraisal of economic developments. In fact, it is difficult to judge what their actual appraisal is, but an indication is given in their confession of “left sectarian errors.” Some of these we extract from their present Draft Resolution for the 16th National Convention of the Communist Party scheduled for February 1957:

“Repeatedly since 1945, the Party has erred in assessing economic developments in the United States. In 1945, in 1949 and in 1954, it predicted that the current declines would develop into crises of major proportions.”

According to the draft resolution the party erred in appraising the effects of continued arms program, of investments in fixed capital, of the scope of unsatisfied consumer demand and the possibilities of credit expansion, etc.

“The Party’s judgment in each case was faulty because ... [of] applying the Marxist theory of economic crisis in a routine, formal and doctrinaire manner.”

This reason given for faulty judgment conceals more than it reveals. If a “routine, formal and doctrinaire” application of the Marxian theory was all that was involved a correction would seem possible. But the truth is that, due to the years of corruption in the Stalinist school, these leaders have long since forsaken Marxist theory. Proof of that becomes patently clear in their projected program to meet capitalist crises. But this question can be discussed more fruitfully following a careful examination of what is proclaimed to be “the greatest boom of all time.”

War and Armaments “Boom”

Admittedly, fifteen years of relative prosperity, interrupted by what turned out to be merely minor recessions, is unprecedented in capitalist history. Employment and total payroll is, at the midpoint of 1956, at an all-time high. The annual rate of production and services – gross national product – has now exceeded the $400 billion mark. For the year 1955 national income amounted to $322 billion, of which wages and salaries accounted for $208 billion (preliminary figures) [1]; corporation profits, garnered out of the products of labor, broke all records, reaching the total of $43.8 billion (before taxes). Yet these figures do not include additional concealed profits, such as huge reserves set aside for depreciation and for various unnamed contingencies. Even per capita disposable income for the whole population, measured in constant 1955 dollars, has increased from $1,066 in 1929 to $1,630 in 1955.

At any rate, so says the official record; but the same record also concedes that in 1953 there were 22,186,000 families, or 43.9% of all American families, who had an annual income of less than 84,000, which was considered a necessary minimum then for a decent standard of living. And, leaving aside for the moment the tremendous consumer indebtedness, it is true that today family home ownership is higher than ever; the same holds true for ownership of cars, television sets and home appliances. Viewed superficially, there seems to have been some justification for the claim made by the President’s message to Congress last January that “Our economy ... is at an unparalleled level of prosperity.”

However, this “greatest boom of all time” includes the tremendous cost in human lives and the immeasurable destruction of World War II and the Korean War. It includes the stupendous total in direct military expenditures by the US government, during these fifteen years, of $618.2 billion, or an annual average of $41.2 billion. No destruction ever touched an American industrial plant; instead, the huge military outlays served to prop up the otherwise sagging economic structure. A whole new activity ensued: building and tooling of government-financed plants, government purchase of raw materials and financing of the production of weapons of war.

Here then is revealed the primary underpinning for the relative prosperity. “The greatest boom of all time” rose and developed principally on the yeast cake of the war and subsequent arms economy.

What this signifies in terms of economics can be illustrated most effectively by comparing the present boom with the previous prosperity period of the nineteen-twenties. We take as our example the most important factors making up the total demand for production of goods and services: consumer purchases, private domestic investments and government purchases. Thus in 1929 consumer expenditures accounted for 76.5% of the total, private business investments accounted for 15.3%, while government purchases were only 8.2%. By 1955, however, this last item, government expenditures, occupied an entirely different position in the economy. The “sovereign” consumer’s share had now declined from 76.5% to 65.1% of the total, while private business investments remained constant at 15.3%; but government expenditures now accounted for 19.6%.

Government Expenditures

Viewing the above factors in their mutual interrelations we get a still clearer appreciation of what these government expenditures mean to the economy as a whole. As is well known, in capitalist society the purchase by consumers of goods to fill their everyday needs and the investment by business of capital for plants, equipment and materials, etc., form the more permanent basis for sustaining the economy. And so, in 1929 the gap left between these two items combined and the gross national product amounted to not more than $9.2 billion (1929 valuation); this gap was filled largely by government expenditures, primarily non-military in nature. In 1955, however, the gap between these two items combined and the gross national product reached the far greater sum of $79.2 billion (current valuation) ; again this gap was filled largely by government expenditures, to be exact, in the amount of $75.9 billion. The balance was made up by net foreign investments. But these government expenditures were primarily military in nature. In fact, during these fifteen years of relative prosperity, total government expenditures – of which more than two-thirds went for directly military purposes, with an unrevealed proportion of indirect military outlays – reached the enormous sum of $902.8 billion, or an annual average of f 60.2 billion. In other words, without these huge government arms expenditures, the American capitalist economy would experience a catastrophic plunge into depression and large-scale unemployment.

But private investments in production of capital goods have also kept abreast with the rising economic boom level. That this should be the case is not at all surprising for a period in which the insatiable demands of war accelerated all economic developments. Arms production and rationalization of industry, by dint of necessity, went hand in hand. Lush profits in production of weapons for war and for the arms race gave an immense impetus to greater investments in fixed capital for the building and expansion of plants and modernization of equipment. Application of electronics, complex automatic control devices and automation of whole industrial plants, formed an important part of these developments.

Industrialization of the South

And yet there is also a distinctly new aspect to the sustained private capital investment boom, an aspect of actual capitalist expansion: the industrialization of the South. According to US News and World Report, January 27, 1956, the Southern states at the turn of the century had only 9% of the country’s manufacturing facilities; now they have nearly one-quarter. Gains in manufacturing output, over the last fifteen years, range from 353% for Alabama to 533% for South Carolina; and industrial output for all of the Southern states climbed to close to $60 billion in 1955.

“War plants gave the South its first real shot in the arm,” says US News and World Report. The South was engulfed by a tide of so-called defense construction, running into billions of dollars, including a new H-bomb plant into which more than $1.5 billion have been poured for plant, payroll and community facilities.

Rolling, fallow fields are now checkered by new factories drawing their workmen from the farms. Agriculture has been industrialized; sharecropping has been reduced by, one-half. And where a sea of aching backs once moved through the rows of bursting cotton plants, heavy machinery has rumbled into the scene. The sharecroppers and plantation hands have been expropriated from the soil; they have become transformed into material elements of variable capital, furnishing labor power either for industry in the North or for the new plants in the South. From participants in old backward forms of production, they have become transformed into producers and consumers of goods pouring out of capitalist industry. As in the early period of dynamic capitalist expansion, when the frontier was constantly extended and industrialization of new regions followed, so now on a smaller scale, it became possible to repeat this process in the South. During these last fifteen years capital investments have taken over and transformed the old semi-feudal system of production in the South.

Foreign “Aid”

Finally to be considered, as a part of this “greatest boom of all time,” is the item called foreign aid. And this is not the least important part either, for it involves American efforts abroad to arrest the process of crisis and disintegration of the old and outlived social order as a whole. American capitalism, for its own survival, had to assume the responsibility of restoring the world capitalist equilibrium which was shattered by World War II; this included the task of restoring the war-dismembered world market and international division of labor. Above all, American capitalism had to take on the job of defending the decaying capitalist system as a whole against the extension of the October 1917 revolution.

In the light of such objectives there is no reason to assume that any part of this foreign aid, going chiefly to Europe, was dispensed for the benefit of workers abroad. On the contrary: the war-devastated industries and cities were rebuilt on the knuckles and bones of the workers. They were compelled to consume less and produce more; and incidentally, as in France, they were exhorted to do so by their Stalinist leaders when the latter held posts in the bourgeois government.

For the eleven-year period from July 1, 1945, to the end of the fiscal year June 30, 1956, total net US expenditures for foreign military and economic aid amounted to $55.5 billion. In this case also it is important to note that the overwhelming bulk of foreign aid went for military purposes in the form of weapons and auxiliary implements of war. Thus, for example, the highest of the annual appropriations made for this purpose, for fiscal 1952, was $8.5 billion of which $6.3 billion was specified for military weapons produced in the United States.

Over these years, each annual appropriation served as a government subsidy for American exports and, needless to say, private business and capital investments followed in the wake into the stabilized market. Moreover, the government subsidy served also as compensation to American monopoly concerns for their loss of exports to important sectors of the world market which were walled off by the fire of colonial revolution.

Viewing these developments, what stands out above all else is the importance of government expenditures for war and arms production as the major component in the present artificial prosperity. But to realize what this means and to foresee its consequences it is necessary to understand the nature of the epoch in which it occurs. The mechanism whereby the various aspects of the economy are at one period brought into balance and at other periods disrupted, reveals the objective laws of capitalism. But the operation of these laws, so thoroughly analyzed by Marx, yields, as he pointed out, different results in a developing and a declining economy.

Basic Cause of Crisis

For the capitalist economic system the general historical curve of development is no longer upward. That came to an end for the world system as a whole shortly after the turn of the century, and for the United States certainly with the collapse of the boom of the twenties. If there be any doubts about this, we need only recall the Great Depression from which American capitalism found a way out only by plunging into war expenditures on a vast scale. This, however, did not remove, or even mitigate, a single one of the basic causes of that crisis. Yet, within the general historical curve of capitalist economic development, there are short-range pulsations of expansion or contraction which may run counter to the general curve. What we have been experiencing during these last fifteen years is a series of such pulsations ; these have been quite extraordinary, to be sure, for they included large-scale production for World War II, for the Korean War and for the subsequent arms program; they included also a couple of recessions.

Not these pulsations, however, but the general historical curve of development foreshadows the future. And, it is important to remember, the basic causes of crisis, which exploded with unsurpassed fury in 1929, still form an integral part of the economic structure, although their operation is for the time being concealed.

On the surface, a harmonious, prosperous equilibrium exists between the three major factors of effective demand for goods and services. Government expenditures make up for the deficiency of private capital investments and consumer purchases in keeping the productive machinery running at its current rate. The government dispenses social capital coming out of tax revenues, which means, of course, that it comes out of the products of labor and is made possible only by the great productivity of labor. Even the taxes collected from the corporations have their origin in surplus value produced by labor and converted into profits by the corporations. The greater part of this social capital is returned as payments for arms production in the juicy contracts held by corporations. Further capital investments in plants, equipment and material is stimulated, and this is given additional incentive, moreover, by government grants of accelerated tax amortization for new plants certified as necessary to the arms program.

But these three major factors of effective demand for goods and services are directly interconnected; and in their development they produce mutual interactions of far-reaching consequence for the economy. In incipient form some of these consequences are already apparent. In the first instance, in the stimulation capital investments experience in the tremendous drive for greater profits through reduced costs of labor, productive capacity is driven beyond the absorbing ability of the market. On this particular point US News and World Report, March 11, 1955, made the following comment:

“Large unused capacities are indicated in almost all lines of industry and agriculture. Workers too are in surplus ... American industry in fact is able to turn out a much greater volume of goods than is now being produced.”

More Production, Less Jobs

The most important factor here is the virtual leap in productive capacity accomplished by the technological transformation that is now proceeding silently, but effectively, in major industries. What is taking place is not merely a quantitative extension, but the introduction of qualitatively new elements: automation of industrial processes. This is what Marx, about one hundred years ago, described prophetically in his analysis of machinery and modern industry :

“An organized system of machines to which motion is communicated by the transmitting mechanism from a central’ automaton, is the most developed form of production by machinery. Here we have, in the place of the isolated machine, a mechanical monster whose body fills whole factories, and whose demon power, at first veiled under the slow and measured motions of his giant limbs, -at length breaks out into the fast and furious whirl of his countless working organs.” (Capital, Kerr edition. Vol.I, pp.416-17.)

Early signs of the social impact caused by automation is illustrated by US News and World Report, April 20, 1956, in what it calls evidence of improved efficiency:

“Factory production hit a record high in 1955 ... American industry, apparently, was able to turn out 3 percent more goods than in 1953 with almost 6 percent fewer workers ... At present there are about 800,000 fewer workers employed in factories than at the same period in 1953. Yet output is higher.”

The report continues:

“These figures indicate that the effect of investments in new plant and in modernized equipment already are showing up. Business investment plans for this year point to an acceleration of this trend ...”

Here we have a telling illustration in facts and figures of what Marx explained as one of the laws of the capitalist mode of production : Progress in technology, in the form of more efficient machinery of production, affects directly the organic composition of capital – a qualitative change is introduced into the relation of its components. It increases the constant part (equipment and materials) at the expense of its variable part (wages, labor), and thereby reduces the demand for labor. The demand for labor “falls relatively to the magnitude of the total capital, and at an accelerated rate, as this magnitude increases. With the growth of the total capital, its variable constituent or the labor incorporated in it, also does increase, but in a constantly diminishing proportion.” (Op. cit., p.690.) Marx explains further: “The laboring population therefore produces, along with the accumulation of capital produced by it, the means by which itself is made relatively superfluous, is turned into a relative surplus population ...” (Ibid., p.692.) This is what Marx calls the industrial reserve army. Moreover, modern capitalist production, due to its cyclical movements of expansion and contraction, requires for its free play an industrial reserve army independent of natural limits of population.

Thus, in their immediate effect, the vast government expenditures for arms production and the heavy capital investments that these stimulate, have served to keep the economy on an artificial prosperity level. Their essence, however, will unavoidably become manifest, and with intensified fury, in technological overproduction of capital and large-scale unemployment. The tremendous productivity of American labor will beat against the barriers that the capitalist system of productive relations itself sets up.

The Credit Spree

But the mutual interaction between the huge government arms expenditures, capital investments for expanded productive capacity and consumer purchases is reflected also in the complex phenomenon that while the consumers’ share of total demand for goods and services declined from 76.5% in 1929 to 65.1% in 1955, this decreased share was maintained only by an inundation of consumer credit. By the end of 1955 this had reached the fantastic sum, including home mortgages, of $124 billion. Naturally this became a powerful stimulus to the economy; but the amount represented 46.8%, or almost half, of the disposable income for the same year, and it has since gone higher. More ominous yet, during these fifteen years of relative prosperity, consumer credit, or more exactly consumer indebtedness has increased almost twice as fast as disposable personal income. For the same period net savings out of total personal income declined from 11.1% to 6.3%. Installment credits have, no doubt, squeezed quite a few extra billion dollars out of the consumers’ market; but they have not created a basis for expanding it; on the contrary, they have laid the basis for its saturation and contraction. And for the workers, whose future income is thus mortgaged, the loss of jobs will be catastrophic – as it surely will be likewise for the economy.

Incidentally, total outstanding debts, public and private, at the end of 1955 exceeded the $675 billion mark. This is more than two-thirds of the wealth of the United States, estimated by the National Consumers Finance Association to be $1,000 billion. Translated into everyday terms, it means that more than two-thirds of the nation is in hock to the bankers.

But there is another aspect of the credit expansion which even more directly affects economic developments – the inflationary aspect. Bourgeois publicists usually attempt to create the impression that inflationary rising prices are generated primarily by wage increases. The real situation is rather the other way around: wage increases generally lag behind rising prices. Even Treasury Secretary Humphrey, in the interview with the editors of US News and World Report cited above, acknowledges: “Inflation is the situation in which the supply of money and credit grows faster than the supply of goods and services which you can buy. This produces a rise in prices.” Facts of life show this to be the case. From the boom year of 1929 up to the end of 1955, while gross national products increased by 274%, total deposits and currencies (which include a large share of fictitious bank-made money) increased by 303%. The supply of money and credit rose faster than production. And the real source of the process of inflation experienced in the United States since the beginning of World War II is the inordinately heavy government deficit-financing of arms production. [2]

What this means to the workers’ pay checks is illustrated by US News and World Report, July 20, 1956. After every war wholesale prices have declined except for the present period. Thus, eleven years after the Civil War there was a decline of 45%, eleven years after World War I a decline of 30%; but now, eleven years after World War II, wholesale prices have increased by 70%.

This is how inflation works. It presents another aspect of the mutual interaction between the various components that enter into economic developments. Expressed in monetary terms, it has created a situation in which, during “the greatest boom of all time” in the richest nation in the world, the mighty dollar, the universally recognized denominator for all bourgeois monetary exchanges, has lost almost half its purchasing power.

There exists today in high government circles a belief that by credit controls, applying alternately a government policy of “tight money” or “easy money,” not only every pain and pimple in the economy can be cured, but economic cycles actually can be mastered. This is dead wrong: it is dealing with effects without touching the fundamental causes. Back in 1929 the discount rate went up to 6% and “call money” rose as high as 20%; these rates went on their merry chase until the whole economic structure came crashing down on the heads of the financial overlords.

Capitalist Anarchy

Aside from the special feature of inflation, the basic causes that precipitated the crash of 1929 are now again coming to the fore. This is not surprising, for the immanent laws of capitalist economic development are far stronger and far more real than the most exuberant claim of a “twentieth century” or any other kind of “capitalist revolution.” The very factors which operated to generate the boom, and drive it to higher levels, are the ones that set into motion the forces that will cause the boom to collapse. Lavish government expenditures for weapons of war have stimulated a vastly disproportionate expansion of the means of production. Annual capital investments have increased more than threefold from 1941 to the end of 1955; and these have resulted in a higher organic com. position of capital, as we can see from the reports of new or improved plants, modernized equipment and greater output with less-labor employed. This is a bitter example of the planlessness and anarchy of capitalist production. Moreover, the market’s capacity for expansion cannot keep pace with the tremendously expanding capacity of production, for the market is primarily governed by laws which operate much more slowly.

It is this self-expansion of capital, carried on by the drive for greater profits, the motive and aim of all capitalist production, which promotes reckless speculation, overproduction, crisis and surplus capital along with a surplus labor force. Surely the American economy is headed straight for a crisis of far-reaching dimensions and explosive consequences.

It should be distinctly understood, however, that it is not in terms of human needs that elements of a crisis of overproduction are becoming apparent; on the contrary, it is in terms of capitalist relations of production. The productive forces are beating against the barriers set up by capitalist ownership of the means of production.

It should be remembered also that in historical terms the world capitalist order has entered its downward curve; it is beset by crisis everywhere. And the reality of the interdependence of nations in the world market remains in full force for the strong as well as for the weak. For American capitalism, the constant extension of its internal and external market, during past stages, acted as a self-sustaining process for expanded reproduction. This process is now being turned into reverse in a contracting world market from which 35% of the world’s population have been withdrawn from the capitalist economic orbit. Moreover, the nascent socialist world order is now entering into economic competition with world capitalism. These are some of the important characteristics of the present epoch which will have their deadly impact also on American economic developments.

But what about the much advertized built-in stabilizers, such as unemployment insurance, etc.? Will these be effective means against an economic downturn? It is quite true that for workers who lose their jobs, unemployment insurance helps to soften the blow for a short while; but neither this, nor any other so-called built-in stabilizer, can serve in a serious way to sustain the market, let alone create a new market. In fact we are provided already with an instructive example of what such measures can accomplish. The farm subsidies have helped, no doubt, to ease the present situation for the farmers, especially those on the bigger commercial farms; but they have not affected seriously the course of the farm crisis, nor have they served to remove the growing impact of the farm crisis upon the whole economic structure.

Yet further increases in government expenditures, in an effort to stem a serious economic downturn, are to be expected. More state intervention, including more government subsidies, regulations, management and control to rescue private capitalist enterprises – this is already clearly indicated. But to visualize what such a rescue mission, to be effective, would involve, we need only to recall the tremendous war expenditures required to pull out of the Great Depression. For the year 1943 the direct military expenditures reached the immense sum of $80.4 billion, and in 1944 they went even higher, to a total of $88.6 billion; yet these expenditures produced no use-values whatever for the consumer market. What they did produce, however, was the virulent inflation which cut the purchasing power of the dollar almost in half. Further government deficit-financing on a large scale will inevitably take the dollar on another dizzy inflation whirl. And the working class will face the twin scourge of unemployment and spiraling prices.

“Anti-Depression” Measures

Is this what the editors of the Monthly Review mean by their statement that the government can “deal effectively” with economic crisis? After all the only example that we have to go by is precisely these last fifteen years of government-sponsored artificial prosperity. It was born out of wars, sustained by expenditure for wars, for an armaments race and cold war, with all the terrible consequences that these entailed, including the threat of new imperialist wars. Moreover, this government-sponsored “prosperity” regenerated the elements of crisis which are now operating with increasing force. How the government will attempt henceforth to “deal effectively” with crisis is foreshadowed already by this very example. As in the past, so also now, be the scale of expenditures ever so grandiose, the objectives of government action and the groups or classes the action will serve are determined fundamentally by the interests the government represents. And what else is the government, the present political state, whether administered by Republicans or by Democrats, but the instrument of the owners of capital – their politically presiding executive body? The logic of this position is inescapable. Any government intervention against crisis will have as its essential objective the insurance against serious impairment of the capitalist system of free enterprise, and it will attempt to effect this by war or by any other means at its disposal no matter how ruthless. Conversely, any proposal for large-scale government expenditures which would genuinely serve the people can be expected to be fought by the owners of capital with all the powers at their command, as “socialism.”

The National Guardian of August 29, 1955, correctly made this particular point in argument against the anti-depression program advanced by the Stalinist leaders of the Communist Party. In response, Celeste Strack replied for the Stalinists:

“Certainly the content of even the most advanced economic program being put forward today does not require a change in the economic system. Therefore it does not involve socialism any more than does the demand of the American people for peace ... To project this as a political necessity for enactment of even the most extensive anti-depression measures is wholly incorrect.” (Political Affairs, November 1955.)

This type of miseducation has its root source in the perfidious policy of the Stalinist CP leaders, who try to subordinate the issues of the class struggle to their desire for peaceful coexistence with capitalism. This currently takes the form of treacherous attempts to block the working class from moving toward political independence, in order to remain shackled more firmly to the party of Tammany Hall and the Dixiecrats.

The Marxist Position

Caught in this treacherous web, Celeste Strack even tries to bolster her disavowal of the socialist way out of capitalist crisis by an unpardonable distortion of Marx. She quotes at some length from the concluding part of the paper addressed by Marx to the General Council of the Workingmen’s International Association in 1865. But she selected the parts that seemed to suit her purpose, letting Marx urge working-class struggle against attacks upon wages and working conditions, but leaving out Marx’s final sentence in which he sums up the essence of his advice to the workers – not to confine themselves to mere struggles for temporary improvements. Said Marx in the sentence omitted by Strack:

“Instead of the conservative motto, ‘A fair day’s wages for a fair day’s work,’ they ought to inscribe on their banner the revolutionary watchword, ‘Abolition of the wages system’.” (Published under the title, Value, Price and Profit.)

This is the authentic voice of Marx. For us this is a guide to action. And for Marxists there cannot be the slightest doubt that the period of capitalist crisis is precisely the time, above all others, to present the socialist solution, to raise the issue of socialism, to speak and act in terms of socialism and to fight for the socialist transformation of the economic, social and political system.

There remains to be added, in this renewed debate on the validity of Marx’s analysis of the economic laws of development of capitalist society, one more essential point. Marx stressed that what is of primary concern in the process of production is relations between men; that is, their relations in the process of production. Under the capitalist method of production these relations assume the form of relations between “things,” such as commodities, markets, finances, etc. In essence these production relations are relations between social classes. In these relations the capitalist class has long since turned into its opposite the progressive function it once performed in developing the social forces of production. The very anarchy of production that prevails today – the crises, wars and revolutionary upheavals that beset the capitalist system – point with imperative necessity to the socialist transformation of society. But capitalism also called into existence the very force that now holds the future in its hands – the modern working class. It is today the only progressive force in society. And for the American working class, it can truly be said that its mighty force has grown in organization and cohesiveness in inverse proportion to the decline and decay of capitalism. When the artificial prosperity bubble bursts, it can be expected that the political consciousness of the workers will develop at a swift pace into mass organization as they prepare the ground for taking hold of the levers of production, rooting out the anarchy of production and establishing a society of plenty for all.



1. All figures, unless otherwise noted, are from official government sources as presented by The Statistical Abstract of the United States.

2. I refer those readers who may desire a more complete explanation of inflation to my article Inflation and the Arms Economy, in Fourth International, May-June 1952.

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Last updated: 19.12.2005