From International Socialist Review, Vol.19 No.3, Summer 1958, pp.73-78.
Transcribed & marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).
Was the steep decline caused by “severe winter weather” and the “Russian sputniks”? The pundits explain why prosperity is still around the corner
THE fervent hopes and optimistic predictions of an early economic upturn, so widely expressed at the year’s beginning, have gradually faded away. Good evidence to sustain them has been lacking. Temporary fluctuations have suggested the glow of a silver lining, but these served only to illuminate more sharply the downward movement of all major business indices. The “experts” are confounded; uncertainty, confusion and conflicting views predominate.
Some optimism still prevails. But it is an optimism of simple faith rather than one based on facts. In this vein the renowned British economist, Colin Clark, recently assured a New York audience that “there are a number of beneficial factors which will pull the economy upward again.” “The recovery,” he said, “so far as we can now see, will begin before the end of 1958.”
Among the beneficial factors Clark named the “new phase of population growth” in the United States and the American farm problem which “at last appears to be within sight of solution.” Predictions based on such an anticipated “solution” can hardly be well founded.
In contrast, a survey conducted by the National Industrial Conference Board frankly admits that operation “at full capacity” for a number of major industries may not occur until the early 1960’s. The survey asserts that the boom years resulted in such a build-up of productive capacity that many industries have facilities to turn out products at a rate far outstripping present demands. An example cited is the estimate that the auto industry has the capacity now to produce 10 million cars and trucks per year. This is double 1957 sales.
But Sumner H. Slichter, professor of economics at Harvard University, flatly rejects any such notion. When interviewed by the editors of US News & World Report (April 4), he declared: “The view that we have today a general over-capacity is an illusion.”
Admittedly, all bourgeois economists work from the same basic set of relevant facts, and factual material is available in abundance; but they come up with widely different answers. Perhaps the reason is, as pointedly remarked by The Magazine of Wall Street: “Many are able, others are superficial and still others are paid propagandists.”
Rare indeed is the economist who seeks a deeper insight into the economic process as a whole and attempts to understand its laws of motion and development. Few show any desire to do so, while the great majority are simply engaged in apologetics designed to obscure the realities of class society and to justify the capitalist regime.
Even those who now recognize the symptoms of a serious recession, join with government and Big Business in affirming their faith in the “inherent soundness” of the free-enterprise system. Faith does not impose great mental exertion. All it requires is a few simple homilies such as were contained in a recent address by Arthur F. Burns, former chief economic advisor to the President.
Speaking before the management conference of Chicago University, Burns declared:
“Each setback of economic activity in the past has been succeeded by renewed expansion which, in time, carried our economy well beyond its earlier best performance.”
In other words, the normal operation of economic laws, under the system of free enterprise, will always project the economy to higher levels. According to Burns, this is the natural order of things, for he assured his audience:
“The basic forces that have shaped our extraordinary economy are still with us, and we can reasonably count on vigorous growth in the future.”
But it is precisely this contention that requires to be demonstrated. Neither. Burns, nor anyone else, has attempted to do this. Moreover, a serious examination of the inherent contradictions of capitalism, now appearing in sharpened form, will prove the opposite to be the case.
Before discussing this aspect of the question, it may be well to take note of the extreme concern about the relative positions of the American and the Soviet economy that now enters more openly into all forecasts emanating from capitalist sources. The deeper the recession here, the more painfully apparent are the tremendous forward strides of Soviet production capabilities. In government and Big Business circles every comparison of these positions arouses apprehension. Soviet economic expansion is viewed as a serious peacetime threat to the moral and political influence of the United States on other nations.
Burns, whom we quoted above, shares this apprehension. In the address mentioned, he cried out in anguish:
“In the present international situation, the continuance of prosperity in the United States is essential – indeed, absolutely essential – to the economic, political and military strength of the entire free world.”
This plea brought a crushing rejoinder. It was contained in the latest comparative economic data of the two major powers presented by the chief of the Central Intelligence Agency, Allen W. Dulles. He emphasized the following points:
The technical competence and progress of modern industrial nations is reflected in the way they apply nature’s resources to productive purposes. On this score Dulles could have added a good deal of salient factual material, which is readily available and need not be unearthed by secret intelligence. He could have mentioned, for example, the giant hydroelectric power developments in the USSR, the vast irrigation projects and applications of nuclear energy to peaceful purposes. All these surpass in their integral planning and magnitude similar projects in the United States. To this could be added the tremendous progress of Soviet education, both technical and academic, compared to which American efforts seem puny indeed.
It is significant, however, that the data furnished has primary reference, in both cases, to the dynamic sector of the economic structure – the capital goods industries that turn out the means of production. This sector is the fundamental factor in a sustained economic development. Its condition is a sure reflection of economic advance or economic decline.
One of the “cushions” which capitalist economists have boasted will help absorb the impact of any recession is the savings of the American people. The real score, according to Labor’s Economic Review (May 1958), is that the rich are sitting on most of the cushion:
How does the proclaimed “inherent soundness” of the free-enterprise system stand up in the face of these comparisons? Can this telling contrast between the two systems be considered a temporary phenomenon? On the contrary! The continuous and exceptionally high rate of expansion of Soviet industrial production, without interruption by recessions or depressions, is a fact now universally recognized. Recurring economic crisis, on the other hand, is a permanent and inescapable feature of capitalism. The glaring contrast furnishes a concrete example in actual life as to which is superior – the property relations of Soviet society or capitalist free enterprise.
As the contrast between the two economic systems becomes more pronounced it will attract ever greater attention among the peoples of undeveloped countries who see industrialization as a solution to their economic backwardness. Soviet factories humming to the tune of full capacity production and full employment cannot fail, in the long run, to have a powerful impact upon the unemployed workers in the United States and other capitalist nations. Increasingly it will appear to them as the vital difference between the socialist type of planned economy and the capitalist anarchy of production.
Production in capitalist society depends upon profit, upon the accumulation of capital and increasing opportunities for profitable capital investments. Profits are realized surplus value produced by labor; these are converted into capital and provide the basis for further accumulation. Expansion or contraction of production is determined primarily by profit possibilities and not by social needs; nor is production carried on for the benefit of the society of producers.
Capital is invested in industry in order to build new plants or modernize old ones and to create more efficient machinery and tools that will provide for higher productivity of labor, thus lowering production costs and thereby increasing the magnitude of profits realized. Full utilization of the means of production promotes fresh accumulations of capital. These become available for reinvestment in the process of production and provide the basis for further economic expansion.
But the realization of profit depends also upon increasing markets to absorb the commodities produced. Consumption is supposedly the ultimate objective of production; but in capitalist society consumption is an entirely subordinate consideration. Consumption by the overwhelming majority of the population can remain at a high level only so long as satisfactory profits accrue to the few who are the owners of industry.
During its decades of growth the dynamic process set in motion by the accumulation of capital operated with full force in the American economy. It did not, and could not, maintain a smoothly sustained equilibrium. But it did carry the economy through each low valley of cyclical breakdowns to new and higher peaks of prosperity. A constantly expanding market kept pace with the growing forces of production. It absorbed the rising output and this permitted the full realization of profits. However, the great depression of the thirties, by and large, marked the end of the growth phase and the onset of capitalist decline in the United States.
The great depression was overcome only by the creation of an artificial market linked to war production and the armaments race. The internal economy did not expand organically as in the past; it had to depend on fictitious means. This restored temporarily the dynamic sector of the economy. Fabulous profits were the fruits of enormous military expenditures, and these promoted an accelerated accumulation of capital. New opportunities for profitable investment drew capital resources into further expansion and the development of more efficient plants and equipment.
The results are now here in plain view for all who want to observe the process of capitalist production objectively. Excess productive capacity shows up to the extent noted by the National Industrial Conference Board, with the many industries having facilities to turn out products at a rate far outstripping present demands. The auto industry has an estimated capacity to produce twice the number of cars sold in 1957. The steel industry is limping along on an output less than 50% of capacity.
Out of the enlarged scale of production arose the exact opposite: curtailment and contraction. Because of the contradictions inherent in this system of free enterprise the dynamic sector of the economy generated the limitations of its own development.
The tremendous expansion of the productive forces engendered by the armaments economy now acts as a fetter on the further movement of accumulation, of employment and of prosperity. There is excess capacity of production while people’s needs remain unsatisfied. Factories, mills and mines stand idle, or operate with a reduced labor force, while millions of unemployed workers subsist on relief handouts.
Fully confirmed here is the Marxist analysis of the capitalist mode of production. From the general tendency of capitalist development – the increase of constant capital (machines and raw materials) at the expense of variable capital (labor power) – Marx drew the conclusion:
“The greater the social wealth ... the greater is the industrial reserve army ... the greater the mass of the consolidated surplus-population ... the greater is official pauperism. This is the absolute general law of capitalist accumulation.”
The present economic slump is not the result of miscalculations or mistakes in policy; it is the inevitable outcome of the capitalist mode of production. The forces of production have been developed beyond the capacity of consumption because of the limitations imposed on the latter by the profit system. Profits always tend to race ahead of wages, and wages fall relatively to output and profits, thus restricting the purchasing power of the workers. The capitalist mode of production “comes to a standstill at a point determined by the production and realization of profit, not by the satisfaction of social needs.”
This is the essence of the present recession. Whether it is called a recession or a depression matters little; the objective results are the same. It is centered in the dynamic sector of the economy which is related most vitally to its future expansion capabilities. As it deepens, the effects will spread in corresponding measure through the whole economic structure. In other words, the basic forces still counted upon to provide renewed and vigorous growth are now seriously impaired, the smug declarations emanating from capitalist pundits and politicians to the contrary notwithstanding. This very fact gives to the recession a significance far greater than most of them are prepared to admit.
Equally serious is the fact that the economic downturn occurs amid the general decay and crisis of the capitalist system as a whole. Economic decline in Western Europe is now further aggravated by the depressive currents flowing across the Atlantic Ocean. On the world market capitalism no longer wields its former unchallenged control and direction. More than one-third of the world has been definitely withdrawn from the capitalist orbit of exploitation. In what remains – a very much constricted world market, its equilibrium disrupted, its currency system debased – competition tends to grow more and more fierce. Trade barriers and tariff walls, born of competition between nations, now act as obstacles to the necessary free intercourse. These contradictions arise out of a condition wherein capitalist productive forces have long outgrown private property relations and restrictive national boundaries.
In response to a question at his press conference May 28 on whether he sees a “perceptible start” toward economic revival, President Eisenhower offered the following opinion, which we wish to commend for its accurate reflection of the thinking of the monopolists who run the country:
The enormous accumulations of capital in the United States, which have saturated the home market, impart special urgency to the search for new outlets for both capital and commodities. But there are few of these in sight. In addition, American capitalism must now meet the competition of the Soviet bloc, particularly in the still undeveloped areas of the world where industrial needs are the greatest.
The exceptional opportunities which once favored the rapid growth of the American capitalist economy are vanishing, never to return. Even the vast market created by production for war and for the armaments race has proved too narrow for the expanded productive forces that it called into being. Aside from its waste of material, of resources and of labor, the armaments economy led to dissipation of the people’s real income. A monstrous concentration of wealth in fewer and fewer hands fabulously enriched the capitalists while the country as a whole became poorer and more fantastically debt-ridden.
For the last twenty years the economy has been sustained very largely by armaments production. Tremendous government expenditures were poured into the country’s industrial arteries. Now, however, the indisputable fact remains: While the armaments market absorbed a vast industrial output, even this could not permanently sustain a prosperity level.
The question now arises: where are the new markets to be found which will provide the basis for a genuine upturn and further economic expansion? Without such expansion no economic upturn can reach very high levels. Much less can it have a lasting character. And to provide a basis for renewed economic expansion with an enlarged accumulation of capital, new markets would necessarily have to be of far greater dimensions than those hitherto found. Yet neither the savants of the capitalist school of economics, nor the spokesmen of government or Big Business have seriously posed that question.
In the absence of new and greater markets, is it not reasonable to assume that actual capitalist prosperity will become increasingly illusive? Lacking the stimulus of industrial growth the economy will inevitably sink lower. Production of capital goods now tends to be limited primarily to replacements. Accumulation of capital must, therefore, also proceed on a lower level, tending to restrict the production of surplus value and realization of profit. Opportunities for profitable capital investments are correspondingly diminished.
Serious cutbacks in capital investments have already taken place, and the indications are that this trend will continue for some time to come. Fortune magazine (April 1958) reports that between the third quarter of 1957 and the first quarter of 1958 capital spending fell by $6 billion, and by the end of this year it is expected to be $9 billion below the 1957 peak.
Figures from the authoritative McGraw-Hill annual survey differ slightly from the above forecast, but they emphasize the same basic trend. For the years 1958-61 the survey estimates that capital expenditures by private enterprise will be about 20% below the 1957 level. Manufacturing industry, the key factor in the economy, is expected to suffer the heaviest proportion of this drop.
Commenting on this survey, Business Week points to a major danger raised by the recession:
“If the decline in the economy becomes more serious than business is expecting, plans for capital spending might be revised downward even more drastically.”
With economic expansion curtailed, the contradictions inherent in the capitalist system of production become more malignant. The working masses go short of the means of subsistence because they have produced too much of them; bankruptcy follows upon bankruptcy; productive forces and production are enfeebled and squandered. On a lower economic level cyclical movements can continue, of course, though most likely with smaller upturns and steeper downslides. The incompatibility of social production with capitalist appropriation thus will become more pronounced.
This seems to be the outlook for the celebrated American free-enterprise system. Judging by the major economic indicators, it is headed for a period of chronic crisis with a number of permanent features and with temporary upturns becoming less significant. Most ominous, however, large-scale unemployment probably will be frozen into the system.
Yet this system counts among its ardent supporters most of the official spokesmen of labor. Their minds are as saturated with the free-enterprise philosophy as are those of the high moguls of Wall Street. It is only about a year ago that George Meany reaffirmed his faith in this philosophy before the Big Business-sponsoredIndustrial Development Conference at San Francisco.
Meany’s message declared:
“American labor believes that private enterprise has been and can be a great force for economic and social progress.”
To what extent American labor holds to such a belief at this moment may not be easy to determine. In any case, the chances are that the social and political effects of further economic deterioration will, before long, compel new thinking.
To be sure, the labor leaders are even now seriously concerned about the growing unemployment. It cuts deeply into union membership rolls and causes them to react more critically than is usual for them. A recent meeting of the AFL-CIO executive board even complained that neither the Republican Administration nor the Democratic Congress is living up to its responsibilities to halt the recession.
“Little has been done,” says the executive board statement. “As a result the nation is threatened with a depression. Employment, production and purchasing power have dropped month after month since the recession started last summer.” The statement demanded measures to place more purchasing power in the hands of consumers, including an immediate tax cut and extended unemployment coverage.
The charge levelled against both Republicans and Democrats is entirely true, of course, and a good deal could be added to what the labor bureaucrats have said. The Magazine of Wall Street (January 4, 1958) wonders whether the Administration is actually aware of the recession or misjudging its real meaning; and the magazine goes on to remind its readers: The Eisenhower Administration is the one that “ignored, misjudged or long minimized the significance of Russian advances in weapons and science.”
The President has let it be known that he “refuses to be panicked” about the recession. Like the Great Engineer who occupied the White House at the time of the 1929 crash, he sees prosperity just around the corner – or very nearly so. Eisenhower’s advice has been no more profound than that of Herbert Hoover. But the views and the attitude of the President differ in no essential respect from those of the whole Republican Administration. For example, when secretary of commerce Sinclair Weeks appeared recently before the House Appropriations Committee, he was asked to comment on the current economic recession.
“I am glad to,” replied Weeks, “I don’t know why we have to be concerned. This is no depression or even a recession, but just a business lull caused by the Russian Sputniks and the recent severe winter weather.” One Democratic representative retorted: “Thank you, Mr. Secretary. You have given us a good illustration of the kind of thinking in this Administration on the problems of our people.”
But spring came; the birds started singing. Yet, despite the demise of the first two Sputniks and the arrival of warmer weather, the recession, or the depression, continued its slow, grinding, but unmistakably downward, movement.
It is by now quite evident that the Republican Administration will take no effective steps to relieve the unemployment situation. The pleas of the official labor leadership barely command a polite hearing. But what has the Democratic Congress done? Talk about anti-recession measures has been plentiful, but action has lagged woefully behind the promises made. Proposals for extended unemployment compensation for the millions of jobless workers have been so whittled down as to become practically meaningless. There has been no lack of debate about a reinvigorated system of education, with federal aid for a major school construction program; but to date not one solitary dime has been spent. Tax-cut proposals have been dropped for the time being.
Appropriations actually passed by Congress either represent accelerated spending for projects already authorized, or else they are of the type based on the “trickling down” theory. A good example of the latter is the $1.8 billion housing bill. Whether it will serve to promote home building is rated doubtful; its only certain provision is the guarantee of loans by mortgage brokers at a higher rate of interest. Indeed, this record leaves no room for hopeful expectation. The kind of thinking in the Democratic Congress on the problems of the people does not rise to higher levels than the kind of thinking in the Republican Administration.
This is not surprising. The monopoly capitalists, who own and control the means of production, dominate not only the economic life of the nation, but all the levers of government as well. In the words of the author of America’s 60 Families: They are the real government, “the government of money in a dollar democracy.”
These dominant monopoly owners have no objection to government intervention in economic affairs. The only question that is of moment to them is: For what purpose, and for whose benefit does the intervention occur? Massive government spending for armaments, for war and for other imperialist ventures, is perfectly acceptable to them. It is an integral part of their cold-war policy which they are determined to continue at all costs. But the directors of monopoly concerns are bitterly hostile to spending for public-works projects; they make sure to keep these on a beggarly scale. Measures to place more purchasing power in the hands of the consumers is not their idea of government function. Such measures would tend to favor wages and salaries and consequently endanger profits. Demands for full employment are similarly suspect. The capitalist entrepreneurs know only too well that this tends to strengthen labor’s bargaining position, which is the farthest from their intention. Their primary concern is the working principles of capitalist economy. And the existence of an industrial reserve army of unemployed workers is precisely what prompts them to view this recession as a “healthy readjustment.”
In this the Bourbons of big industry see their opportunity to re-establish the indispensable norms of capitalist production. Translated into terms of practical reality, their kind of readjustment means to impose upon the workers such a standard of wages and working conditions as will assure continuation of the fundamental source of power and profit for the free enterprise system.
These are danger signals to the American workers. For them the present recession, or depression, is far more serious than has so far been admitted. The unfolding attack from the employers, added to the ravages of unemployment and inflation, is the greatest threat to their standard of living and working conditions since the days of the great depression.
Recognition of this danger has been evident in some trade-union circles, but it has not led to effective action. While several major unions have succeeded over a period of time in maintaining the escalator clause for wage increases in their contracts, as a safeguard against the rising cost of living, the need for a shorter work week without reduction in take-home pay never got beyond the stage of resolutions and indorsements. It became popularized in the demand for a thirty-hour week at forty hours’ pay. But the union bureaucrats, who enjoy the privileges and the handsome emoluments of their official positions, have now deserted the idea of the shorter work week to which they once pledged support – this at a time when it is most bitterly needed to counter the blight of growing unemployment.
Objections to the shorter work week without reduced pay comes from the owners of industry, of course. Their professional apologists join the chorus: The demand is unrealistic, they say; business cannot afford it! In their opinion only the interests and profits of business, of the wealthy corporations, are to be taken into account, and not the interests of the people. Following out this logic, the corporations have proceeded arbitrarily to lay off millions of workers and reduce the average work week of those still employed, below the normal forty hours. But the effect of this arbitrary action is that the wage standard threatens to fall below the subsistence level.
Facing this situation, what are the workers to do? They cannot give up their right to work. It is the only serious right that is still left to them in a society based upon exploitation, and they constitute the only force which can safeguard this right. When the market is saturated by overproduction, the only rational measure to maintain the right to work and relieve unemployment is to spread out the work that is to be done among all who are in need of a job. And the only way to maintain the standard of living, established through years of struggle, is to insist that the take-home pay remains unimpaired even when fewer working hours are required.
Adopting this as a policy would have a salutary effect on the whole trade-union movement. One could hardly think of a better antidote to the dangerous division so easily fostered between employed and unemployed workers. Making the work to be done the common concern of all would promote solidarity and mutual responsibility.
Objections to the shorter work week without reduced pay can be met effectively by very simple answers; and the answers are irrefutable. The richest country in the world can well afford a job for all who are willing and able to work. It can afford a decent standard of living for all who are engaged in producing the necessities of life for the nation. No rational society can afford to do less.
Today the American home market is saturated because of the limitations imposed on consumption by the profit system. But the people in the major parts of the world cry out for goods and for technical means to build industry and thereby elevate their standard of living. They want trade and they need trade. Extended trade relations with the capitalist world are sought by the Sino-Soviet bloc. And who would doubt that acceptance by the United States could serve measurably to relieve unemployment here?
Road to Where?
When questioned by reporters April 23 about his prediction of an economic upturn in March, President Eisenhower replied:
The growth of Soviet industry, instead of diminishing the USSR’s dependence on world economy, has increased it. Soviet industry depends on trade to a greater extent than ever before. And it has been made amply clear that the Soviet Union seeks extended trade especially with the United States. It desires to obtain machinery and manufactured products, and it is prepared to enter into mutually satisfactory long-term trade agreements.
An even greater quantity of products from American industry could find a market in the People’s Republic of China. It needs huge quantities of industrial and farm machinery to build up a modern economy. Emerging out of centuries of oppression, the revolutionary people of China have embarked on a program of industrialization to overcome the backwardness of the past and to lay the foundation for a society in which they can become masters of their own destiny. These people have asked for diplomatic recognition for their republic from the United States; they have asked for long-term credits to facilitate trade.
Credits are available in the United States. Then why are these not granted? What stands in the way of extended trade relations with the whole Soviet orbit? Only the cold-war aims of the Big Business government in Washington, and its opposition to the economic development of the non-capitalist world. With these policies the American workers can have nothing in common. On the contrary. Support of extended and active East-West trade would serve their own best interests. It would provide a positive and fruitful alternative to the reactionary demand of the trade-union bureaucracy for increased arms production, because such trade relations would tend to ease cold-war tensions.
As a means of alleviating the fearful consequences of unemployment here, the American workers would have much to gain by support of a program of free and unfettered East-West trade. It could provide many jobs producing the goods that the people in other lands want and need. Certainly, it would be preferable to dependence on an armaments program. Support by the workers of such a program would be in perfect accord with their need to defend their right to work. Without a doubt, it would find a hearty response from the workers in the non-capitalist world, and this would tend, in turn, to strengthen the bonds of international working-class solidarity.
The American workers cannot submit to conditions of everlasting insecurity, chronic unemployment and a life of bare subsistence. These are not conditions of their making. Such conditions grow inevitably out of the capitalist relations of production. It is the capitalist rulers who are unwilling to grant the workers the right to a job that affords them a decent living. They are callously indifferent to the needs of the people arising out of the calamities generated by their own system. Only the capitalist ownership and control of the means of production stands in the way of the economic well-being that the richest country in the world can and should provide.
When the workers realize the full import of this situation and make up their minds to fight for remedial measures, they will not hesitate to demand:
“If you, the owners of the great industries created by our labor, are incapable of maintaining production to satisfy the needs of the people, then let these industries be nationalized. Let them become national property, with the workers in control of production, and with production for use instead of for private profit.”
Last updated: 21.12.2005