From International Socialist Review, Vol.19 No.2, Spring 1958, pp.38-42.
Transcribed & marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).
Mounting layoffs and slimmer pay checks mark a transition in the economy. Is it a “breather” or the ominous prelude to a far worse decline?
THE SPOKESMEN for US capitalism call it a “recession” or “deflation,” a “rolling adjustment,” a “shakeout” or a “levelling off.” President Eisenhower soothingly describes it as “a breather.” But all such comforting appellations cannot lend brighter tints to the bleak picture or conjure away the facts. The downward movement is operating with increasing force and the elements of serious crisis are gathering within the weakened national economy.
By the end of 1957 it was widely conceded that the business slowdown was swifter, sharper and cutting deeper than had been anticipated. The production index fell to 136 from its peak of 147 in December 1956. Stock-market prices came tumbling down, recording the biggest decline since 1931. The number of unemployed climbed steeply upward.
Since then the impact of these depressing movements has been spreading like a nuclear chain reaction, and with cumulative effect, throughout the economic structure.
The same capitalist sources that belittled the size of the coming slump last year assure us now that an upturn will begin later in 1958. After that, they predict, prosperity will again roll on serenely, in accord with the natural pattern of the capitalist scheme of things.
Beguiled by the long, artificially bolstered prosperity, the mouthpieces of Big Business appear to be still in a trance. Apparently they need hypnosis to sustain their faith in this sagging phase of production. And why not? If big Don Newcomb, the Dodgers’ pitcher, successfully submitted to hypnotic treatment to overcome his fear of flying, why cannot they use similar means to get rid of their anxieties over the economic decline?
The boom has vanished; how can it be recovered? One economist, Sidney Alexander, has a simple prescription; it is called the “lost horse” technique. If you want to find a lost horse, go where he was last seen and then ask yourself: where would you go if you were a horse? Thus the economists are now rummaging through one component of the economy after another in their search for the “lost boom” and the signs of the beginning of a new one.
They are examining such factors as the extent of effective consumer demand growing out of the large baby crop of recent years and the increasing legion of old-age pensioners. It is considered helpful to know the disposition of consumer psychology; that might sell a few extra items. The views of purchasing agents are solicited for their estimate of perspectives. Inventories, at factory, wholesale and retail levels, are scrutinized for indications of business trends.
The “tightness” or “ease” of the money market, as well as the prospects for building contracts, are given close attention. Still more important is the question of how much capital investment in plant and equipment is in the offing, for this has direct bearing upon production and labor productivity. What is termed the “wage-price inflation spiral” is being carefully scanned. And finally, looming above all else, the vast government expenditures in the international arms race are being hopefully watched for clues to a reversal of the downward plunge.
It is indisputable that all of these elements have served as underpinning for the postwar boom and can contribute to any upturn ahead. But reviewing them one by one, or adding them together, will not suffice to give a reliable estimate of the direction of the main trends at work in the present phase of American economic life.
The mere compilation of empirical data relating to the major factors operating for growth and decline has little value without an understanding of the specific inter-connections between these factors and their mutual interactions; since these are tied up with the economic laws of motion in capitalist society.
This is what the highly optimistic forecast made in the President’s state-of-the-union message to Congress on January 9 fails to take into account.
“In a free economy,” the President said, “growth typically moves forward unevenly. But the basic forces of growth remain unimpaired. There are solid grounds for confidence that economic growth will be resumed without an extended interruption.”
Later the President boldly predicted that
“March . . . should mark the beginning of the end of the downturn in our economy, provided we apply ourselves with confidence to the job ahead.”
Should we remind the Chief Executive of the soothsayer’s warning to Julius Caesar: “Beware the Ides of March!”
Some Democratic members of Congress, eyeing the fall elections, do not want to seem so complacent. They have introduced bills to cut taxes, to increase state unemployment compensation and to set up a public-works program.
The principal premises that underlie all these predictions of an early upturn and renewed prosperity after the present “breather,” can be summarized as follows. A growing population will assure enough effective consumer demand. Excessive inventories will soon be worked off and renewed orders will again stimulate production. Government expenditures will go up rather than down – provided “peace” doesn’t break out and upset the arms manufacturers. The combination of these factors is expected to give a fillip to renewed capital investments which will propel basic industry forward at high speed.
At first sight this promised prospect may seem quite reasonable. However, what threatens to turn all the painstaking calculations along this line to naught are the gaping disproportions that have been developing during the boom period among the major segments of US economy.
The stability of any economy depends upon the maintenance of a certain proportionality in its vital sectors. Its survival and growth require a sustained balance among them. This holds true, for example, of the relation of production to consumption, of industry to agriculture, to transportation, communication, etc.
Three major components in the American economy go to make up the total demand for what is called the Gross National Product. These are: consumer purchases, private domestic capital investments and government expenditures. These separate elements are linked together in definite relations which are both quantitative and qualitative in character. These relations not only interact with one another but with the national economy as a whole and they extend, with similar effect, into the wider environment of the world market to which American capitalism belongs.
Let us examine the present interrelationship of these three decisive factors. We can gauge how great and ominous the current disparities are when we compare the boom after World War II with the previous extended prosperity during the 1920’s. In 1929, shortly before the crash, consumer purchases accounted for 76.5% of the Gross National Product; private domestic capital investments comprised 15.3%; while government expenditures were only 8.2%.
By 1955, however, the “sovereign” consumer’s share, upon which purchasing power ultimately depends, had declined from 76.5% to 65.1% of the total. Private capital investments remained constant at 15.3%. But government expenditures had mounted to 19.6% of the total.
Thus the consumer’s share of the national product has diminished while the share swallowed up by government expenditures, primarily for military purposes, has more than doubled. What is the significance of such a pronounced shift in the relations between these three basic components of the economy? The rise in the government’s share, which has occurred at the expense of the income of the people, supplies positive proof of the incapacity of monopoly capitalism to expand the standards of consumption on a par with the forces of production it sets in motion. The doubled portion of the national product expended by the government for unproductive purposes augments the polarization of wealth and poverty which is inherent in the system of production for profit. This lack of balance not only prevents the capitalists from maintaining the conditions for prosperity but dries them up at the very source.
How has this worked out in the present instance? The two main supports in capitalist society forming the more permanent basis for sustaining the economy are the purchases by consumers of goods to fill their everyday needs and the investment by business of capital for plants, equipment and materials. What has happened to the second item which is so fundamental to the functioning of capitalism, representing as it does the conversion of profits into capital and the accumulation of capital to enlarge the means of production in order to obtain more surplus value from the increased exploitation of labor?
Although the proportion of capital investments for 1955 was about the same in the total economy as in 1929, a sharp change became evident in the relation of this all-important sector to the others. Excess capacity of production had already begun to show up. The available means of production and the enormous productivity generated by American labor could turn out much more goods than could be absorbed under capitalist conditions by the purchasing power of the American people and the huge government expenditures combined! This is positive proof also that capitalism is incapable of continuous and planned utilization of the means of production that it creates.
The New York Times Annual Economic Survey points to the difficulty of estimating the ratio of output to productive capacity in exact terms, since the degree of technological obsolescence of certain industrial facilities is not easily ascertainable. Nevertheless, this survey and other reports generally agree on the following pattern.
When the two earlier recessions of 1948-49 and 1953-54 started out, industrial production was close to 100% of available capacity. When these slumps hit bottom, production had dropped to no more than 80-82% of capacity.
This time, however, the economic downturn began in the fourth quarter of 1957 with industry operating at only 82% of available capacity. From that point it has since plunged sharply downward. That is, the current recession started at the point where the previous downturns halted. This in itself must be sufficient cause for worry.
To make matters worse, steel production, the thermometer of industrial health, had dipped below 60% by the end of 1957. And now the bourgeois spokesmen, despite their hopeful posture, are becoming apprehensive lest the tremendous excess capacity of production act as a check upon further capital investment. A large-scale cutback in this field would curtail the free flow of the very lifeblood of capitalism at the point of its greatest debility.
The contradictions of capitalism tend to accumulate and multiply and come to a head at the points of greatest weakness. This renders the economic structure especially vulnerable, as the following brief survey of various departments of the economy bears out. Let us first look at agriculture.
Excess capacity of production, which developed in agriculture quite a while ago, has led to a chronic farm crisis. Huge farm surpluses pile up in the warehouses with little prospect of disposal. This particular disproportion presents the government with the seemingly insoluble problem of handing out ever-growing and never-ending subsidies to bolster sagging farm prices and meet the cost of running the farms.
Yet, while crop output matched previous peaks on the smallest acreage in years, one million persons left the farms between April 1, 1956 and April 1, 1957. They presumably fled the farm crisis to seek work in the cities. This flow of population tends to aggravate the swelling unemployment problem. The outlook for agriculture presages a recurrence of the harrowing experiences of the thirties when Iowa farmers were burning corn in their stoves because it was cheaper than coal while unemployed workers in Chicago were picking through garbage dumps to find food for their hungry families.
To the farm crisis and the blight of unemployment can be added the grim statistics of business bankruptcies. For 1957, according to Dun & Bradstreet, 13,700 small concerns went under. This was almost four times the failures of a decade ago. These concerns were forced to the wall mostly by the combined effects of growing monopoly concentration and the business downturn.
The “lack of financial liquidity,” which has grown out of manipulation of the credit system, is still another source of weakness. For consumers this means that their installment debts are higher than ever in relation to their income. Whereas in 1946 annual payments on such debts amounted to $6.8 billion, they have now increased more than sixfold to $42 billion! How, in the face of unemployment and short work weeks, are these small debtors to pay off their accumulated obligations, let alone take on new ones?
Even for business and financial institutions, the capital-liability relationships are weaker than they were during the two previous postwar recessions. This is entirely apart from the mountainous federal debt which is again climbing skyward now that Congress has lifted the national debt ceiling another five billion dollars.
Thus the cumulative effects of the artificial prosperity and its inevitable attendant inflation have penetrated and corroded every pore of the credit structure from the consumer level to the Federal Treasury.
An Ancient Custom
The Cynic philosopher, Diogenes of Sinope, saw at Megara sheep protected by leather jackets while children went naked. “It is better to be a Megarian’s ram than his son,” he said. That certain features in our highly modern America have not changed much since ancient Greece is shown by the following observation of E. Ginzberg and D.W. Bray in The Uneducated:
When we turn our eyes from the national scene to the world market and the status of American foreign trade, prospects are equally discouraging. The whopping rise in exports produced by the Suez crisis last year has turned out to be transient. Now the economic downslide at home is complicated by a rash of foreign exchange crises afflicting many lands. On top of these is the fact that Western Europe’s productive expansion has hit the ceiling while the undeveloped countries display less and less ability to buy on capitalist terms. Even the once-sure customers in the Western Hemisphere are complaining of the difficulties of reciprocal trade with the United States.
This summary review of the national and international economic trends indicates how closely interlinked are the crucial components of the capitalist system and how in their downward movements they react unfavorably upon one another. Already affected are all the segments of the structure: industrial and agricultural production, consumption, capital investments, income and indebtedness, government expenditures, etc. As they continue to pile up in the coming months, the adverse effects of these developments are bound to be felt more and more throughout the capitalist world.
Capitalism again is exposing itself as, not simply an exploitative system, but an essentially unstable one. The very forces which produced a dynamic equilibrium of its elements during the postwar boom have generated the counterforces which are disrupting that equilibrium. Despite government regulation and monopoly domination, anarchy continues to reign in capitalist production, which is subject to no other regulators, in the last analysis, than those of the market, of competition, of the mechanism of supply and demand and the subtle interplay of prices and credits.
What impact has the already drastic economic decline had upon the thinking of the bourgeois economists. Some have ventured to describe 1957 as “a year of transition.” It marks the end, they say, of one phase of the postwar era – the period of catching up with demand and of very rapid growth that always follows on the heels of war. The shortages that developed during World War II and the Korean “police action” are now overcome.
It is hardly deniable that the American economy has reached a point of transition. Transition to what? That is the ticklish question.
Although most economists are extremely hesitant to say what the next period holds, they exhibit considerable uneasiness. A typical example of such apprehension was expressed in an interview given to US News & World Report on January 3, 1958 by Murray Shields. He was introduced as economic advisor to one hundred big corporations; it is to be assumed that he voiced the views of this clientele in saying:
“The mood today is one of perplexity about our economic outlook. The international news has not been good. It certainly is not reassuring. Psychologically we are making a transition from a condition marked by great confidence in the short and long range outlook to one involving a mixture of fear about the domestic economic situation. And in that environment, retrenchment can become the order of the day.”
This anticipated resort to “retrenchment” betrays the lack of confidence in top capitalist brackets in any quick return to prosperity. They are reading the storm warnings and saying among themselves: “Let’s batten down the hatches and ride it out.”
Naturally the capitalists and their government are going to do what they can to stave off the ugly features of the new depression looming before them. It is to be expected that all sorts of devices will be proposed, and some will be tried, to stem and slow down the decline. But, in the best of cases, these can only serve as feeble props to shore up a sagging economic structure.
Topping the list of the pump-priming measures projected by the government is an increased military budget. But military expenditures would have to rise in geometric proportions to slow down the slump and bring back another burst of prosperity.
The main measures so far contemplated center on the race for missiles supremacy. The budget for the coming year provides a whopping $5.3 billion for this purpose. However, expenditures for manned aircraft are in for a decrease. B.F. Coggan, vice president of Convair division of General Dynamics Corporation, has rather grimly suggested how far this can go in reducing unemployment.
Production of Convair’s F-102 airplane required ten production workers for every engineer employed. But production of its Atlas intercontinental ballistic missile requires only one worker per engineer. In other words, far fewer workers are needed to make a billion dollars worth of missiles than for the same amount of manned airplanes.
Some Congressmen are talking about a tax cut. How far would that go to improve the situation? Whatever it might add to consumer purchasing power would be more than offset by the further unbalancing of the federal budget. The revenue lost by the government would then have to be made up by more deficit spending which would bring about a new whirl of inflation and higher prices. This in turn would offset the lowered taxes.
The predominant feature of the current turning point in the American economy is plain. It is a transition to lower levels of functioning under increasingly precarious conditions. The chances for a serious economic crisis are greater than at any time in the past two decades.
Even if the present powerful trends toward depression are checked, partly and temporarily, the economic crisis will be delayed and slowed down only to strike later with all the fiercer fury.
Today, as in the twenties, what has happened to the auto industry provides an excellent testing ground for the relative merits of the bourgeois economists and the Marxist analysis of capitalist operations. At the height of the boom during the twenties the choir boys of Big Business chanted that the theories of Karl Marx had been finally refuted by the practices of Henry Ford. His Detroit factories inaugurated the marvels of assembly-line production and created the mass market for low-priced cars. This myth that capitalist free enterprise and business genius guaranteed full employment and permanent prosperity was exploded by the stock-market crash of 1929.
The same legend has been revived with even more exuberance in recent years. This time the economy and the government, administered by General Motors through the Cadillac cabinet, had surely solved the problems of continuous production and economic security.
Tell that today to the auto workers! In Michigan, hundreds of thousands of workers have been laid off alongside a relative overproduction of capital in the form of idle machines and shut-down plants. Detroit, that citadel of modern technology, with 12.4% of its labor force unemployed, provides a dramatic verification of Marx’s analysis of the laws of capitalism.
Watch that Language
At his press conference last week President Eisenhower referred, no doubt inadvertently, to the present economic doldrums as a “depression.” So far, at least, the description doesn’t fit. Things are pretty bad – terrible, in fact, for the four to five million unemployed – but a real-scale depression has yet to show up.
The present plight of American economy is still further complicated by the effects of world capitalist decline and decay. Through the growing interdependence of national states in world affairs, the economies of the capitalist powers have been linked more closely, increasing the repercussions of major events. A serious and prolonged depression here would cause economic convulsions both among the Allied powers and the neutralist countries. This would in turn help undermine the whole world capitalist foundation.
No wonder that the growing Soviet economic penetration into one part of the planet after another is viewed with undisguised alarm in Wall Street and Washington. In his state-of-the-union message the President spelled out the all-embracing scope of this penetration to Congress: “Trade, economic development, military power, arts, science, education, the whole world of ideas.”
Still more frightening is the prospect of economic depression here while the Soviet Union, thanks to its nationalized property relations and planned economy, forges ahead to new industrial, technological and scientific achievements. For all the prayers of the pious John Foster Dulles, the Soviet Union might even succeed in raising the living standards of the Soviet people while millions of workers in this most favored of capitalist countries go without jobs.
Eisenhower urged everybody to put their shoulders to the wheel and apply themselves “with confidence to the job ahead.” However, more and more workers are finding that their only job is behind them. The Commerce and Labor Departments conceded a sharp rise in unemployment during January to a total of 4.5 million. And a still further rise is predicted by the same sources. The newspapers daily publish accounts of fresh layoffs in one branch of industry after another.
The official reports also disclosed that the average work week had declined to 38.7 hours with a corresponding drop in average weekly earnings. It should be noted that the government’s unemployment figures are never very complete; no records are kept of the millions working only part time.
The privations which inescapably come in the wake of unemployment take on varied forms, ranging from repossession of homes, cars or appliances, in default of payments, to subjection to the costly clutches of loan sharks. Relief agencies have heavier loads than their staffs and appropriations can handle. But these are only some of the more obvious ways in which the effects of a declining capitalist system are translated into terms of human misfortune.
Alongside of the deepening economic insecurity the working-class standard of living is actually declining. This is clearly expressed in what is designated as “real per-capita disposable income.” This term means total after-tax income, adjusted for price changes and divided by population. The New York Times Annual Economic Survey noted that there had been a perceptible drop in this real income about the middle of 1956. Even though the income figures, in current dollars, continued to creep upward, prices had gone up faster. As a result, real income began to decline.
Statistics for the more recent period are not yet available, but the mounting unemployment, the reduced average work week and the more extended part-time work tells its own story. Moreover, real per capita income is calculated on the basis of the whole population, embracing rich and poor alike. A drop in real income affects the living standards of coupon clippers very little. But even a small cut in real income is a very serious matter for the mass of the people.
This is how the capitalist relations of production work out, and the trend indicated above is bound to be accelerated. Wages, prices, interest and profits, together with taxes and inflation, become crucial elements of the sagging economic structure and the stepped-up arms race. They form the center of increasing conflicts. But such elements are capable of final explanation only in terms of the class relations which underlie them; in terms of the position each social class occupies in the productive process. And any decision concerning these questions is subordinated entirely to class interests.
Anti-depression measures which are being discussed in Washington are not motivated by any concern for the welfare of the working millions but rather by the requirements of the plutocrats. This is clearly evident in the bi-partisan demands for a massive increase in military spending. This type of depression dispeller serves three purposes. It assures continuance of lush profits for the arms manufacturers; promotes further concentration of wealth and power in the hands of the dominant monopolists; and implements their foreign policy of making the world safe for imperialist ambitions.
At the same time there is a persistent outcry from the same capitalist circles against too high wages and too great union power. Murray Shields, whom we quoted earlier, is likewise out in front on this issue. Speaking for his list of one hundred big-corporations, he insists:
“We haven’t had monetary inflation, we haven’t had budgetary inflation – what we have had is wage-cost inflation.”
Taking off from this absurd premise, Shields feels sure that “sometime business has to come to a point where it will refuse to negotiate long term contracts providing for automatic increases which cannot possibly be offset by increased productivity.” Significantly Shields adds:
“Something else I think we ought to do is to fight the four day week.”
This hired adviser of the big corporations does not stand alone. President Eisenhower recently repeated the demand that wage increases must not go beyond overall productivity gains. This trick of linking wages to productivity is merely a cunning device under which to hide an attack on prevailing wage standards. Wages have been moving upward only in labor’s belated and unsuccessful efforts to catch up with the rising cost of living. The fact that wages have not kept pace with the galloping prices is shown by the previously cited evidence of declining real per capita disposable income.
The capitalist leaders, caught in a declining economy amidst the world crisis of imperialist supremacy, are bent on unloading the consequences of their depression on the backs of the workers while making them pay for the arms race. That is the meaning of the President’s message to Congress demanding sacrifice from the American people. “Sacrifice,” he said, “must be made for the right purpose and in the right place – even if that place happens to come close to home.”
With minor variations, the spokesmen of the ruling class emphasize the same theme, and their aims are identical. Step by step these have taken on concrete form and more clearly marked direction. They are part and parcel of the offensive Big Business seeks to unleash against labor.
Any success in these efforts holds a serious threat to the working-class standard of living. Are the workers prepared to meet the threat?
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 during past decades. It is precisely the attempts to lower their standard of living and their right to economic security which will provide the greatest spur to resistance.
Potentially one of the most decisive social forces in the world, this massive working class will learn, in time, to draw the necessary political conclusions from the struggles it will be compelled to engage in. In time it will recognize also that the capitalist system has failed to justify its further existence. When that happens the American working class will be face to face with the only alternative, a socialist America.
Last updated: 21.12.2005