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Permanent War Economy

T.N. Vance

The Permanent War Economy

Part V – Some Significant Trends

From New International, Vol.17 No.5, September-October 1951, pp.251-266.
Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

Sacred to the operation of traditional capitalism is the ability of the individual capitalist to decide what and how much to produce, as well as the prices at which he will sell his commodities. Under the Permanent War Economy, however, the state assumes directive powers, through various types of controls, that largely supersede the power of the individual capitalist. The bourgeois is no longer undisputed master of his own house. He continues to produce commodities and to accumulate surplus values, in greater volume than ever before as we have previously shown, but only as a result of large-scale state intervention. The ability of the state to direct the economy is basic to the successful operation of the Permanent War Economy. As was shown in Part III, Increasing State Intervention, May-June, 1951, issue of The New International, the entry of American capitalism into the permanent crisis of world capitalism with the Great Depression of the 1930’s marked the beginning of the shift of power from the individual capitalist to the state apparatus, representing the interests of the bourgeoisie as a class. While the character of state intervention in depression differs from state intervention under the Permanent War Economy, both periods require large-scale state bureaucracies. To this extent, as well as the psychological preparation for increasing state intervention of both the bourgeoisie and the public at large, depression may be considered a necessary prerequisite to the war economy.

The New Deal served as a school for the development of numerous technical experts in the art of managing state monopoly capitalism and in the equally important area of planning the increase in state revenues required to sustain the expanding state bureaucracy. In 1929, for example, the number of Federal civilian employees was 227,000. In 1933, the figure was only 306,000. It almost doubled by 1939, reaching 571,000. This provided a solid foundation for the expansion that took place under the Permanent War Economy, described in Part III. Some of the key personnel were trained and, more importantly, the practice was begun of borrowing industrial and financial leaders from private industry to administer the various state programs. The New Deal, in short, was an essential framework for the development of the Permanent War Economy.

That a very significant shift has occurred in the role of the state in the economy is officially recognized in the 1951 edition of the National Income Supplement to the Survey of Current Business, published by the Department of Commerce. “The most notable change since 1929 in the use of the Nation’s output,” states this publication, “is a shift from private to government use. In terms of the current dollar estimates of gross national product, government purchases of goods and services, which absorbed 8 per cent of the gross national product in 1929, took 15 per cent in 1950. Personal consumption expenditures, on the other hand, dropped from 76 per cent of the total in 1929 to 6814 per cent last year.” This profound shift can be seen from the summary tabulation boxed below.





In billions of current dollars:


Personal consumption expenditures



Gross private domestic investment



Net foreign investment



Government purchases of goods and services






In billions of 1939 dollars :


Personal consumption expenditures



Gross private domestic investment



Net foreign investment



Government purchases of goods and services






It will be seen that the changes in the composition of gross national product were due in considerable measure to differential price movements. Nevertheless, on a constant dollar basis, the role of the state increased almost 50 per cent and occurred at the expense of both consumer outlay and capital accumulation. Actually, a better picture would emerge if the distribution were in terms of net national product, as has been our previous practice. The role of the state in 1950, according to these figures, is somewhat less than we estimated, primarily because our 1950 estimates understated the degree of inflation and the real increase in production that actually took place. We estimated gross national product at $278 billion, while the official figure is now revealed as $283 billion. None of these minor discrepancies in any way invalidates our analysis.

THE REAL SIGNIFICANCE OF THE CHANGE that has occurred is carefully overlooked by the Commerce experts’ desire to relate “comparable” years. The history of the last 22 years, despite serious inadequacies in the underlying data, is graphically portrayed by the changing relationship of government purchases of goods and services to total gross national product. (See box below.)





and Local

























































































* Breakdown does not necessarily add to total due to
individual rounding.

It can be seen that the depression of the 1930’s was accompanied by the first great advance in state intervention in the economy. While the proportion of total output, as measured by gross national product, that went to government purchases of goods and services reached in depression years the level that exists in the postwar period, the significant change that has occurred is the fantastic growth in the proportion going to the Federal government, i.e., the state. From an insignificant level of 1.3 per cent in 1929, it quadrupled during the New Deal, reaching a peak of 6.2 per cent in 1938, undoubtedly sparked by the realization that the “recession” of 1938 was largely due to the decline in state expenditures in the latter half of 1937. We are already familiar with the gigantic rise in war outlays that resulted from World War II, accompanied by a relative decline in the role of state and local government expenditures. The decisive change that has taken place is reflected in the fact that the ratio of Federal government purchases to total output in the postwar period markedly exceeds the prewar period. A ratio of 8 or 9 per cent, virtually all of which is accounted for by direct and indirect war outlays, in its own way signals the advent of a new epoch in the history of capitalism. Without continuing war outlays and state foreign aid, and in the long run these must be on an ever-increasing scale, the vaunted economy of American imperialism would grind to an abrupt halt. Roosevelt and Truman are absolutely correct when they reply to their bourgeois critics with the statement that they have saved capitalism. That capitalism is more “prosperous” than it has ever been, as Truman is fond of boasting, requires a very important qualification. It is true, as we have demonstrated, that profits reached an all-time high in 1950 and that the Permanent War Economy operates so as virtually to guarantee the profits of the bourgeoisie as a class.

The “prosperity” of the Permanent War Economy, however, is rather precarious. The state decides not only how many airplanes, tanks and munitions in general shall be produced, but of necessity determines how many automobiles, refrigerators, tractors, etc., shall be produced and, within limits, the prices at which they shall be sold. From a capitalist point of view, the economic development under the Permanent War Economy must be viewed as unhealthy. The patient achieves a form of recovery from what may be likened to shock therapy. But the treatment is far from painless and even the doctors cannot say whether the cure will be lasting.

The official hope is that “another two years or so” of controls will see American military output achieving sufficient magnitude so that the economy can sustain both the necessary level of war outlays together with a high level of civilian outlays without continued controls. This is clearly a consummation devoutly to be wished, but impossible of realization. An economy devoting 20 per cent or thereabouts of total output to war outlays cannot function without large-scale state intervention, requiring direct and indirect controls.

So powerful has been the development of the productive forces under American capitalism, that just as there is periodically an overproduction of the means of production and an overproduction of the means of consumption, it is not excluded that there can be an overproduction of the means of destruction under the Permanent War Economy. Normally, this does not happen in a war economy precisely because war consumes means of production, consumption and destruction more rapidly than they can be produced. Yet, prior to V-E Day, with a few exceptions, there had been accumulated a sufficient stockpile of many types of munitions to permit cutbacks and to enable the armed forces to fight for many months without additional production.

It was not only the dismantling of the war machine in large measure that produced the notable American inferiority in weapons vis-a-vis Stalinist imperialism at the outbreak of the Korean war. It was also, and perhaps more importantly, the high rate of obsolescence that obtains in the means of destruction. This gap is clearly in process of being overcome at a fairly rapid rate. Assuming, therefore, that large-scale warfare or another “Korea” does not break out, or that an armistice is concluded in Korea, the question arises whether American imperialism will not reach a point in the next few years where the warehouses will be bulging with all types of means of destruction and there will be no place to use them.

Such a development is a possibility. Present evidence, however, indicates that the high rate of military obsolescence, together with the talked-about expansion in the production of “fantastic” weapons, should offset for several years the tendency to accumulate an oversupply of munitions in the absence of total war.

A sharp reduction in war outlays in the near future is therefore unlikely and would in a remarkably short time cause a collapse of the economy. Moreover, it would certainly invite the very aggression of Stalinist imperialism that the military build-up is presumably designed to prevent. It may therefore be expected that American imperialism will continue on the only course open to it until the vast collision with Stalinist imperialism (World War III) takes place.

A STATE MONOPOLY CAPITALIST régime in the true sense of the term has developed under the impact of depression and war. It bears a certain resemblance to Bonapartism, but Bonapartism has been traditionally applied by Marxists to a temporary régime of crisis, which poses the issue of revolution or counter-revolution and which marks the end of parliamentarism. As Trotsky puts it in Whither France?, “The essence of Bonapartism consists in this: basing itself on the struggle of two camps, it ‘saves’ the ‘nation’ with the help of a bureaucratic-military dictatorship.” There is, of course, as yet no bureaucratic-military dictatorship in Washington, although there are possible tendencies in that direction. Nor can the present regime, given the tempo at which world history moves, be classified as temporary. There are, however, numerous features of state monopoly capitalism that possess all the earmarks of clearly discernible trends, and which warrant brief mention in this penultimate article in our series on the Permanent War Economy.

In his excellent analysis of the relationship between Bonapartism and fascism in The Only Road for Germany, Trotsky observes that:

“As soon as the struggle of the two social strata – the haves and the have-nots, the exploiter and the exploited – reaches its highest tension, the conditions are given for the domination of bureaucracy, police, soldiery. The government becomes ‘independent’ of society. Let us once more recall: if two forks are stuck symmetrically into a cork, the latter can stand even on the head of a pin. That is precisely the schema of Bonapartism. To be sure, such a government does not cease being the clerk of the property-owners. Yet the clerk sits on the back of the boss, rubs his neck raw and does not hesitate at times to dig his boots into his face.” (Italics mine – T.N.V.)

For the time being the fascist threat is absent, nor are the “soldiery” in a position of domination. Yet the domination of bureaucracy and the growing power of the police (the FBI) are increasingly evident. As we have remarked earlier, the inter-marriage between the big bourgeoisie and the upper echelons of the military bureaucracy is a basic characteristic of the Permanent War Economy. An important research project is available to someone ambitious enough to document this relationship in every detail. It suffices, however, to point out that innumerable officers were commissioned from the ranks of big business, such as “Generals” Knudsen and Sarnoff, and that many military leaders have become “captains of industry,” as, for example, Generals Somervell and Clay. Of decisive importance is the network of standing committees and organizations relating to ordnance and military procurement needs. These exist in every industry whose output is important to the war machine and is basic to the military planning of all parts of the armed services. Meetings are held periodically, information on latest military techniques and their impact on production requirements is exchanged, and pilot contracts are continually being let to facilitate research and development. Above all, industry is constantly being geared to achieve rapid and complete mobilization in the event of a supreme crisis.

In the event that American imperialism is constrained to maintain more or less indefinitely an armed force of 3,500,000 or more, the power of the military in its daily impact must grow and the alliance between the military caste and the big capitalists will solidify until the day may come when we can truly speak of a “Europeanization” of American politics. This entire development alone is ample reason for describing the present regime as state monopoly capitalist. There are, however, other and perhaps even more significant reasons for stressing this aspect of the Permanent War Economy.

In passing, it should be noted that much of the right-wing criticism of state monopoly capitalist trends is garbed in the raiments of liberalism. Consider, for example, General MacArthur’s Cleveland speech of September 6, 1951, in the course of which he stated that there has been “a steady drift toward totalitarian rule ... a persistent ... centralization of power in the Federal government ... ravenous effort to further centralize the political power ... a determination to suppress individual voice and opinion which can only be regarded as symptomatic of the beginning of a general trend toward mass thought control.” At an another point in the political spectrum comes the charge of Sidney Hook (New York Times, September 30, 1951) that we are experiencing a species of “cultural vigilantism” that threatens the foundations of our democratic structure. Such criticism, regardless of source, possess general validity. Their widespread character is symptomatic of the inroads already made in the body politic by the growing power of the state.

IT IS ABOVE ALL IN THE HANDLING of strikes and labor disputes that the monopoly capital character of the state becomes clear. Especially noteworthy has been the role of the state in the various rail strikes, with the Army actually assigned responsibility for running the railroads. There was a time not so long ago when the mere presence of armed forces in a strike, when the soldiers were so to speak performing a picketing function, evoked widespread criticism of threats of fascism and charges of military dictatorship. We have indeed traveled far along the road away from traditional bourgeois democracy when military force can be substituted for the normal process of the class struggle without even raising an outcry of “strikebreaker” in more than the radical press.

With production plans vital to the operations of the war economy, a strike in almost any basic industry immediately threatens to disrupt the war machine or vital war preparations. Hence, the appeals to national patriotism, the resort to fact-finding devices and, where necessary, the mobilizing of public opinion to support intervention by the police power of the state, whether it be coal, transport, airplanes, copper or other crucial industry.

The very technique used to control the class struggle, the widespread establishment of tri-partite wage boards, is in essence a device of monopoly capital. The state, represented by the “public” representative, attempts to resolve each dispute through the technique of arbitration, with the state posing as disinterested and above classes. In those cases where this classless approach fails to work, the power of another arm of the bourgeois state is invoked – the courts, through the use of the injunction. Finally, when no other card is left to play, the state shows that it is still the “clerk of the property-owners” by using its military-police power. Roosevelt was a past master in the use of this technique. But regardless of personalities it is the underlying trend that is significant. The erection of the tri-partite labor-board approach to solving specific class struggles into an entire system, with philosophic justification and techniques for handling every variety of dispute, is more than ample justification for planning the label “state monopoly capitalist” on the political regime under which the Permanent War Economy functions.

The labor bureaucracy willingly accepts its role as junior partner in the regime. It balks only when it either feels that it is being “unfairly” discriminated against in the handing out of administrative positions of power and prestige, or when the pressure from the ranks, under the lash of inflation, compels it temporarily to assert a position of independence. Despite these truths, the abortive history of the United Labor Policy Committee is not without interest.

THE UNITED LABOR POLICY COMMITTEE was organized in December, 1950, representing all segments of organized labor except Lewis’ United Mine Workers. Its first statement of December 20, 1950, spoke eloquently of “justice and workability” in stabilization measures, but the heart of its concern was its basic objective of equal representation in the organs of the state bureaucracy:

We are fully aware [state the representatives of the AF of L, the CIO, the Railway Labor Executives Association, and the IAM] of the grave emergency confronting our nation. We dedicate ourselves to help make our country strong and to use that strength to bring: peace and abundance to mankind.

It is imperative that labor be granted active participation and real leadership in every important agency in our mobilization effort. We regret that to date labor has not enjoyed opportunity for full participation in the mobilization effort. Free labor can make its fullest contribution only if it is permitted to serve at all levels of defense mobilization both with respect to policy and administration.

No one group has a monopoly of ideas in the mobilization of our resources. Each group has much to offer and cooperatively we can defeat the world-wide challenge of dictatorship. (Italics mine – T.N.V.)

This bid for changing the role of junior partnership into one of equal partnership for labor fell on deaf ears, as how could the bourgeoisie be expected to take seriously the position of a labor bureaucracy that appeared to be quite satisfied with its rôle of junior partner in World War II. The Administration, of course, should have had the political savvy to recognize that this bid for increased status stemmed not only from the hurt feelings of the labor bureaucracy, but also reflected dissatisfaction by the vast majority of trade-union workers with the increasing burden that inflation was casting on them. No one, however, has accused the Truman administration of genuine political sagacity. It was therefore quite appropriate for the Wage Stabilization Board to issue Regulation No.6 on February 16, 1951, establishing a 10 per cent formula that jeopardized both escalator clauses and productivity formulae in union contracts.

The promulgation of Regulation No.6 immediately prompted the United Labor Policy Committee to declare that a crisis existed and to withdraw from the Wage Board. We assume that our readers are generally familiar with the document issued by the ULPC on this occasion and therefore only reproduce the more interesting passages:

The price-stabilization program is a cynical hoax on the American people ...

Profit margins are being guaranteed. Every consideration possible is being given by government price agencies to enhance the position of business and to protect fat profits ...

The Congress is now considering a program to raise all taxes in such a manner that people in the lower income brackets will be forced to bear a still heavier share of the tax burden ...

So far, virtually the entire defense mobilization program, has been entrusted to the hands of a few men recruited from big business who believe they have a monopoly on experience, good ideas and patriotism ...

This was fairly strong language from a junior partner. Consequently, when Eric Johnston, Economic Stabilization Administrator, approved Regulation No. 6 on February 27, even though it was followed on March 1st with Regulation No. 8, designed to achieve a compromise on the escalator clause question, the United Labor Policy Committee had no choice but to make good its threat. All its representatives from all phases of the administration of the war economy were withdrawn and a policy of boycott established.

The United Labor Policy Committee statement of February 28th, announcing withdrawal of all labor representatives from the war program, carries out the theme of the February 16th statement; the language is even stronger:

On Feb. 16 we announced that we had become thoroughly disillusioned with the conduct of the defense mobilization program. We made the deliberate charge that big business was dominating the program, that the interests of the plain people of this country were being ignored and that the basic principle of equality of sacrifice in the national effort to protect freedom against Communist aggression had been abandoned ... After full and complete exchanges of information, our original convictions have been more than confirmed.

We are today confronted with a price order which ammounts to legalized robbery of every American consumer, together with a wage order which denies justice and fair play to every American who works for wages. The door has been slammed in our faces on the vital problem of manpower, which directly affects the workers we represent ...

We have also arrived at the inescapable conclusion that such representation which already has been accorded to labor in defense agencies and such further representation as is now offered are merely for the purpose of window dressing. (Italics mine – T.N.V.)

The gauntlet had been thrown down by the labor bureaucracy. Moreover, Wilson was an extremely vulnerable target. A way had to be found to preserve one of the cornerstones of the state monopoly capitalist régime. In less than two weeks the formula emerged for a tri-partite 18-man board, which would have jurisdiction over all labor disputes, not only wages. Labor was willing. Gone was its indignation over “big-business domination,” the “hoax” of price control, the “guarantees of profits,” the iniquitous tax program, etc.

But industry, as represented by the Business Advisory Council, the NAM, and the Chamber of Commerce, did not like the deal its representatives were cooking up for it. Accordingly, it issued a statement on March 13, 1951, aimed at reasserting its senior partnership. Advocating a clearly defined wage stabilization policy, the representatives of industry declared:

This may result in a number of strikes. It is obvious that strikes under such circumstances are not ordinary labor disputes between employers and employees; they are strikes against the government itself, designed to coerce or induce it into making concessions.

A firm policy in dealing with such strikes is essential to the maintenance of a sound stabilization policy and to preservation of a proper respect for government itself. Such strikes should not be met with appeasement or concession. They should be handled in accordance with existing law, including, where appropriate, the national emergency provisions of the Labor-Management Relations Act. (Italics mine – T.N.V.)

It sounded like industry was ready for a showdown. Wiser heads prevailed, however, and after a month of dickering, industry announced that it would accept the 18-man wage stabilization and disputes board “under presidential request, but protesting the wisdom of the entire set-up.” A compromise formula was put forward limiting the powers of the new board to recommendations in dispute cases, and another compromise was worked out with respect to manpower control. But, in so far as anti-inflation controls are concerned, labor achieved not one iota of its demands.

We have cited at some length the history of the United Labor Policy Committee, which then shortly fell apart as it had outlived its immediate usefulness in the eyes of the AF of L, because it is illustrative of a basic trend of state monopoly capitalism. It is also quite revealing of the role of the labor bureaucracy, whose indictment of big-business domination and economic inequality of the war economy remains entirely accurate, despite the victory on the question of the escalator clause.

A Marginal Note

A FRIENDLY CRITIC HAS QUESTIONED our conclusion regarding the standard of living on the ground that “empirical” evidence appears to indicate that workers are better off today than they were, say, in 1939. The statistical evidence presented, or the analysis flowing from the data, are not questioned. But there seems to be some feeling that our case has been overdrawn. After all, more workers have automobiles now than ever before. Many have television sets, which didn’t exist. We admit that unemployment is at extremely low levels, etc. “How, then, is it possible,” asks our critic, “for the workers to have experienced a decline in their living standards?”

In the first place, we have shown that the average per capita standard of living did rise – 17 per cent in 1950 over 1939. We did, however, calculate a slight decline in the per capita standard of living of the working classes – to be exact, a decline of 1.3 per cent from 1939 to 1950. Of course, at the same time, there was a marked improvement in the standards of living of the farming classes, the middle classes and the bourgeoisie. Moreover, it is obvious that with such a slight decline in the standard of living of the working classes, it is quite possible to find this or that worker whose living standards have increased.

We are, of course, not aware of the “empirical” evidence referred to in apparent refutation of one of the fundamental laws of motion of the Permanent War Economy: that an increase in capital, instead of causing an increase in unemployment, is accompanied by relatively full employment and declining standards of living. We suggest, however, that the “empirical” evidence be examined a little more closely. It will be found that the increase in employment far exceeds the increase in the number of families. In other words, the average working class family currently contains a much larger number of wage earners than in 1939. This is primarily due to the inability today of most workers to survive on the basis of one income per family, which was generally typical of the pre-Permanent War Economy period.

Two and three incomes per working-class family are far from being atypical in 1951. Naturally, in many such cases, it is quite possible for the family income, on a real basis, to exceed that of 12 years ago. This does not in any way upset our conclusion that the rate of surplus value has increased, or any other basic conclusion. Even the possible improvement on a family basis must be tempered by consideration of the profound change in income tax laws, not so much with regard to rates as to the decrease in exemptions for dependents. The result has been that the working classes now bear the major brunt of the income tax, whereas previously they were almost totally unaffected.

Seekers after empirical evidence should also interview workers, such as teachers and other civil servants, whose incomes are relatively fixed. They are part of our data on the working classes and they have suffered a catastrophic decline in their standards of living. It should also be remembered that for every working-class family that is able to have two, three or more separate incomes, there is almost an equal number who are not in this position and who, in order to make ends meet, find the one and only income earner forced to take on a second job. This abnormal increase in labor power, solely a product of the inflation, is also encompassed in our figures. All empirical evidence that we have seen supports our general conclusions. The consumer “buying strike” of the spring and summer of this year is additional evidence that the inflation has reached a critical point and that living standards are declining. The fact that redemptions of E bonds exceed purchases, and that liquid savings in general are at extremely low levels, are genuine empirical evidence that our fundamental thesis is eminently correct.

We have digressed at this point not so much to answer our empirical critic, but to observe that the relative stability of the price level during the past six months has eased somewhat the pressure on the labor bureaucracy, but everything, they said about the fraudulent price control program and the unfair tax program, etc., remains true to this very day. As the ratio of war outlays to total output continues to increase, there must be a renewed upsurge of the inflationary pressure. As Wilson’s third quarterly report of September 30, 1951, correctly puts it:

“Despite the present relative stability a critical period in our battle against inflation lies ahead. We must anticipate and prepare for the strong inflationary pressure that will be again encountered as defense spending grows and personal and business incomes mount.”

At that point, which should be reached early in 1952, the attempts to “freeze” the class struggle through tripartite labor boards may run into serious difficulties. If we base ourselves on Marxism, we should be concerned with such fundamentals as what is happening to real wages and real profits, with the basic trends in the class struggle, and not with episodic and invalid “empirical” evidence that dissolves into thin air at the first touch of reality.

CONTROL OF THE PURSE STRINGS has always been viewed by Marxists, and correctly so, as a crucial element in the power of any régime. Inasmuch as the American state must go through a tortuous process of Congressional hearings and committees before funds are appropriated, it may be objected that in this vital point there is no possible resemblance to monopoly capitalism. Such a view would be entirely superficial. In fact, one of the really distinguishing characteristics of the present state monopoly capitalist régime is the inability of the legislature to deny in general any requests of the armed forces for funds. This is obviously true in time of actual warfare. It is no less true today, when the need for haste is not as great. Aside from carping criticism against the number of oyster forks ordered by the Navy or a picayune reduction in state foreign aid, there is very little that the Congress can do in the face of a certified statement from the military that they need $60 billion worth of munitions in the next year or $100 billion in two years, or whatever the precise military requirements may be.

Even if all the details were made available, which they are not on grounds of military security in the case of atomic weapons, etc., and even if a Congressman felt himself qualified to question specific military requests, it is politically hazardous for a Congressman to advocate a reduction in this or that military item in the face of the customary statement by a representative of the armed forces that “this is the minimum required to assure the military security of the country; we will not be responsible for military safety if less than this amount is appropriated.” For all practical purposes, therefore, direct war outlays and most indirect war outlays are sacrosanct. The legislature can do little better than rubber stamp the military requests. De facto control of the government purse strings has passed into the hands of the state executive bureaucracy. Even in the present situation, with the Truman administration on the whole confronted with a divided and hostile Congress, the state power to obtain funds is effectively independent of any control by the elected representatives of the people.

It is thus a comparatively simple matter for the state monopoly capitalist regime to manipulate the national debt in a manner best calculated to advance its own political fortunes as well as the class interests of the bourgeoisie. The spectacular rise in the national debt has been one of the chief methods whereby inflation has been promoted and an excellent indicator of increasing state intervention in the economy. The total gross debt of the United States government for selected fiscal years (ending on June 30th) of historical significance is shown in the following tabulation:

(Billions of Dollars)





$  1.2

















World War I increased the national debt by some $24 billion, with the total reaching a peak of $25.5 billion in 1919. Under the influence of the last period of genuine capitalist prosperity, the national debt then declined to $16.2 billion in 1930, the beginning of the Great Depression. Under the New Deal, the national debt rose from $22.5 billion in 1933 to $40.4 billion in 1939, as state intervention in the economy commenced in a significant way. It remained, however, for World War II to cause an unbelievable increase of $219 billion by 1945 and $229 billion by 1946, when the national debt reached a peak of $269.9 billion – the increase in the debt exceeding one year’s total output at that time.

The national debt has become so large that any thought of ever paying it off has long been abandoned. The interest charges alone run to about $6 billion annually at the present time. Inasmuch as the national wealth exceeds the national debt by at least a 2:1 ratio, it may be thought that there is no danger in the existence of such a huge debt. In fact, some bourgeois economists of the Keynesian school have projected figures intended to “prove” that the United States can support a total debt, public and private, running into trillions of dollars. From an abstract point of view, it is possible to contend that the only economic limit to the size of the national debt is the ability to meet the annual interest bill. With interest rates considerably lower than what they used to be, under this approach the national debt could easily be doubled or tripled without any serious danger being encountered.

The government, however, does not borrow money merely through the device of printing bonds. If this were the case, it could simply print money – and there would be a galloping inflation of the printing press variety, where the value of the dollar would literally sink to virtually zero. Needless to say, an inflation of this type, of which there are many examples in history (Germany in 1923 being a classic case), places the question of social revolution on the order of the day. The government must sell its bonds. Approximately one-third of the national debt is held by the banks, so controlled under the Federal Reserve System that for all practical purposes they are forced to buy government bonds at the dictate of the Treasury. Under the banking system, these government bonds in the hands of the banks become the base for a tremendous expansion of bank credit, thereby feeding the fires of inflation. Moreover, in a very real sense, that portion of the national debt held by insurance companies, corporations and some individuals, represents prior accumulations of capital for which there is no profitable outlet. Of course, tax-exempt securities should be excluded from any such analysis.

While the national debt has actually declined during the first year of the Korean war, it reached a low of $254.7 billion in April, 1951. At the end of August, 1951, it was $256.7, an increase of $2 billion in four months. Further increases in the national debt may be expected as expenditures for war purposes continue to increase. With redemptions of E bonds (of which there is a total of less than $35 billion outstanding, with more than $19 billion falling due in the next four years) currently running about twice as high as new purchases, it remains to be seen whether the new savings bond drive will be sufficiently successful to prevent additional large-scale government borrowing from the banks. In the absence of a pay-as-you-go tax program, the state will naturally have no choice but to borrow the sums needed to finance war outlays.

This type of “creeping” inflation, it should be emphasized, has already reduced the purchasing power of the dollar by about 50 per cent since 1939. Until it gets out of hand, it may prove to be good politics for the incumbent administration, in so far as it generates a pseudo-prosperity conducive to corraling votes. In the long run, however, as maintenance of the Permanent War Economy becomes more and more expensive, and a greater and greater portion of the burden is thrown onto the backs of the working and middle classes, the inflation must continue, bringing with it the threat of a complete capitalist breakdown in general bankruptcy, i.e., unless war does not intervene first. Of course, long before general bankruptcy is imminent, the class struggle will erupt in a new and violent form as the impoverished segments of the population led by the proletariat attempt to throw off their intolerable burdens.

THE NATURE OF THE WAR against Stalinism being waged by the American bourgeoisie is such that anti-bourgeois-democratic aspects continually receive encouragement and nourishment. The aim of the American capitalist class is peace, but on a capitalist foundation. This not only dictates the necessity of destroying Stalinism root and branch, but of guarding against socialist developments in England, France and Germany, as well as preventing the nationalist and colonial revolutions in Asia from developing in an anti-capitalist direction. While the current political perspective is one of “neither peace nor war,” American imperialism is fully aware that the only method on which it can rely is the use of overwhelming military might.

Wherein, it may be asked, does this differ from World War II and the American aim to destroy German Nazi and Japanese militarism and imperialism? With respect to the mobilization of military force, there is little difference, except perhaps in a quantitative sense. Long and bitter as was World War II, American imperialism will be faced with an even more formidable foe in Stalinist imperialism. We are fully aware of American superiority in steel production, oil production, transport, and presumably in atomic energy developments. Yet, barring internal political collapse, there can be little doubt that Stalinism will be capable of mobilizing greater military power than the Nazis could at their peak. Moreover, Stalinism does not fight solely with military methods; it also employs political methods on a scale that neither the Germans nor Japanese could begin to approach.

The American bourgeois struggle against Stalinism may therefore require a greater proportion of output devoted to war outlays over a much longer period than was the case in World War II. If such be the case, it can only strengthen all the tendencies that we have already observed to be at work under the Permanent War Economy.

There can be no question, however, about the contrast between World Wars II and III on the political front. Fundamentally, the internal problem in World War II was one of preventing military and industrial espionage in the normal sense of the term. To be sure, a few German Bundists had to be rounded up and either deported or jailed, and, under the influence of hysteria, the Japanese-American population on the West Coast was interned in concentration camps in the interior. But there was no political movement that could penetrate significant layers of American society as a whole, providing not only an excellent nucleus for a possible Fifth Column, but an inexhaustible reservoir of American agents bound by political loyalty to a hostile foreign imperialism. Such, however, is the case with Stalinism.

It is precisely in its handling of the internal menace posed by the existence of a native Stalinist movement that the anti-bourgeois-democratic development of the American bourgeoisie stands most clearly revealed. One has only to cite the nature and manner by which the “subversive” list has been promulgated and used or the recent secrecy order to see how far along the road to authoritarianism, in this respect, American imperialism has traveled. Of course, the primary motivation is fear. But it is not only fear of Stalinism, but fear of any possible anti-capitalist development. It would have been a relatively simple matter, especially in view of the boasts of the FBI that it has its finger on virtually every Stalinist, to have immobilized every Stalinist organization and leader as actual or potential agents of an enemy imperialism. Yet, this was not done. Instead, decree power was used to blanket the most militant anti-Stalinist organizations together with Stalinists as enemies of American imperialism.

American imperialism is first and foremost concerned with preservation of its capitalist and imperialist base. If, in the process, the Bill of Rights, the heart of bourgeois democracy, has to suffer, that is perhaps regrettable, but not as important to the bourgeoisie as maintenance of its property and its system of exploitation. Imagine what the leaders of the American bourgeoisie in its progressive period would say in face of a secrecy order that gives any clerk in any government department the right to classify material as secret or confidential, without any right of appeal, in what is still ostensibly peacetime! We do not say that bourgeois democracy no longer exists in the United States. On the contrary, it does and we shall fight for the preservation of the democratic rights it affords against all its enemies, including the bourgeoisie. But it is important to note the political trends that are unfolding as the Permanent War Economy becomes more and more entrenched. The trend is away from bourgeois democracy. All that is needed is the emergence of a real threat of a militant working class movement, on the one hand, and on the other a fascist threat, and then the question of Bonapartism will become an actual one.

WIDESPREAD CORRUPTION IN OFFICIAL and private life has historically been an infallible sign of decadence. The disintegration of the moral fabric of civilization has its roots in a social system that fetters the productive forces and is no longer capable of playing a progressive role. Capitalism has never been particularly distinguished for the honor and integrity of its ruling class. One has only to recall the various methods employed by the “robber barons” in the eighteenth and nineteenth centuries during the stage of primitive accumulation of capital to understand why graft and corruption are an integral part of the capitalist method of production. Yet, it is difficult to find a parallel in modern history for the vast corruption disclosed by the Kefauver Committee and various grand juries. The honest public official becomes the rare exception, an occasion for editorial praise.

Bribery takes many forms and is not restricted to public officials tempted by inadequate incomes. On the contrary, American business has erected bribery into a symbol of aggressiveness and an accepted, if not quite legitimate, method of doing business. “Anyone and anything can be bought for a price” is the underlying philosophy. This prevails from a Jay Gould who boasted that he could hire one-half of the working class to shoot the other half to the modern buyer or purchasing executive in a large corporation who expects to be “smeared” if someone wants to sell him something and who expects to “smear” the supplier of something that is difficult to buy if he wants to buy it. It is therefore hardly surprising that virtually every political machine, Democratic or Republican, in any city of size is clearly linked with organized crime.

Every now and then a reform movement temporarily ousts the corrupt machine and, on occasion, a juicy scandal, such as the Teapot Dome affair, is revealed at the level of the Federal government. The present degree of corruption, however, is far more extensive and all-pervading than ever before, and necessarily so because of the development of state monopoly capitalism. This is the era of the “mink coat,” the “deep freeze” and other “gifts” that are generally accepted as the normal method of doing business in Washington. “After all,” says the typical bourgeois, “it is our government; it is there to be cheated and who cares if we cheat ourselves.” An exaggeration? We do not believe so. The American mores tend to condone successful bribery and corruption. It is only those who get caught who are looked upon with a degree of scorn.

With such a background, it is no wonder that as the state intervened more and more actively in all phases of the economy, bribery and corruption have mushroomed to the point where they have become a central political issue. If a businessman cannot do business without a piece of government paper, a priority for raw materials, an allocation, an export license, (a gas coupon), etc., his instinctive thought is to “buy” one. The larger the business, the more prone he is to think of this approach and the greater the possibility of his having the means to carry it out successfully. After all, if congressmen can be “bought,” in the interests of favorable legislation, why not “purchase” a piece of paper that is essential for doing business?

Official recognition of the importance of corruption was given by Truman in his special message to Congress of September 27, 1951, calling for disclosure of incomes of United States officers and employees. While the immediate motive was undoubtedly political, to protect the Democrats from the epidemic of public charges of corruption, the message confirms our analysis and reveals another important trend to which state monopoly capitalism under the Permanent War Economy has given rise. States the President:

As the burdens of the government increase during this defense period, and more and more citizens enter into business or financial dealings with the government, it is particularly necessary to tighten up on our regulatory procedures, and to be sure that uniformly high legal and moral standards apply to all phases of the relationship between the citizen and his government.” (sic!)

Why is this necessary? Perhaps, because officials in the RFC and other agencies, including the Bureau of Internal Revenue, not to mention the war procurement agencies, are lining their pockets at the expense of the taxpayer and then obtaining highly remunerative positions with the same companies they have helped to circumvent Federal regulations? Hardly this, although the President is “disturbed” because

“I am told that people all around the country are getting a mistaken and distorted impression that the government is full of evildoers, full of men and women with low standards of morality, full of people who are lining their own pockets and disregarding the public interest.”

On the one hand, it is apparently a deliberate plot to discredit the government service:

“Attempts have been made through implication and innuendo, and by exaggeration and distortion of the facts in a few cases, to create the impression that graft and corruption are running rampant through the whole government.”

On the other hand, there is pressure, and there are those who succumb:

“In operations as large as those of our government today, with so much depending on official action in the Congress and in the executive agencies, there are bound to be attempts by private citizens or special interest groups to gain their ends by illegal or improper means.

“Unfortunately, there are sometimes cases where members of the executive and legislative branches yield to the temptation to let their public acts be swayed by private interest. We must therefore be constantly on the alert to prevent illegal or improper conduct, and to discover and punish any instances of it that may occur.”

Truman therefore proposes that all elected and appointed officials receiving salaries of $10,000 or more, plus flag and general officers of the armed services, together with the principal officials and employees of the major political parties, as well as those government employees receiving more than $1,000 annually from outside sources, should be required by law to disclose their entire incomes from all sources, public and private. “The disclosure of current outside income,” states Truman, “will strike at the danger of gifts or other inducements made for the purpose of influencing official action, and at the danger of outside interests affecting public decisions.” Such information would also “be of obvious help in tracking down any case of wrongdoing.”

We doubt that such a law would be particularly effective in eliminating the prevailing widespread corruption, for its roots are much deeper than the president indicates. The “black market” mentality will simply discover new techniques to achieve its objectives. Nevertheless, in spite of the fact that there is little possibility of such a law being passed, we heartily support Truman’s proposal. As he says, “people who accept the privilege of holding office in the government must of necessity expect that their entire conduct should be open to inspection by the people they are serving.” We think that the people would like to obtain a few facts and figures on the extent of corruption that exists, and that they are entitled to such information.

It is undoubtedly sheer coincidence that on the very same day that Truman proposed his anti-corruption legislation, Senator Williams of Delaware, a kept lackey of the DuPonts, succeeded in having the Senate vote to eliminate tax-exempt expense allowances of the president, vice-president and members of Congress, and is quoted in the press as being motivated by the thought that:

Our country was founded upon the principle that the ruling class would be subject to the same laws as other citizens.”

This is a very touching thought, and we are happy to learn that there is a ruling class in these United States. As to how equitable the tax laws are, we must leave this very important subject to the next and concluding article in this series, when we shall also indicate our concept of a socialist political program to cope with the problems confronting the working class as a result of the development of the Permanent War Economy.

September 1951


Permanent War Economy

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