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Vance Archive | Trotskyist Writers Index | ETOL Main Page T.N. Vance Economic Prospects for 1956 Capitalist Stability versus Current Economic Trends (January 1956) From The New International, Vol. XXI No. 4, Winter 1955–56, pp. 215–235. Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). AMERICAN CAPITALISM ACHIEVED NEW PEAKS in production, employment and income during 1955. As the January 1956 Monthly Letter of the First National City Bank puts it: “The nation has ended its busiest and most prosperous year with the indexes of over-all business activity at the highest of the year. Latest figures on production, non-farm employment, consumption, income, and investment, indicate that the trend is still upward.” The New York Times’ financial editor, John G. Forrest, in the annual review of the nation’s business, on January 3, 1956, stated: “Boom all the way. That was 1955 for United States industry.” Mr. Forrest summarizes the performances of 1955 by stating: “When the tally is struck for 1955, it probably will show a gross national product of around $387 billion. That would be 7 per cent above 1954’s total and 6 per cent above 1953’s, the previous peak.” No matter what measure is taken, whether it be the Federal Reserve index of production or just such a simple index as the output of steel, or any other likely measure, there is no doubt that 1955 was the number one year so far as production is concerned in the history of American capitalism. This remarkable performance of the American economy, which to a certain extent is paralleled by the rest of the capitalist economy throughout the world, has persuaded some bold apologists for the bourgeoisie and some ex-socialists to reach the conclusion that there is no longer any class struggle in the United States; that depressions arc a thing of the past and that through some miraculous process (not quite clearly understood or explained by anyone) the millennium has arrived. There is no longer any need to advocate socialism because American capitalism, under the Eisenhower Administration, has produced a land of plenty and permanent prosperity. Some even go so far as to refer to this new utopian state of affairs as the “land of permanent peace and prosperity.” The process by which The Permanent War Economy becomes “permanent peace and prosperity” is a triumph for the semantic arts. The question remains, however, to what extent, if any, has capitalism under The immanent War Economy eliminated the business cycle, or, if you prefer, eliminated severe depressions? The interest in the subject is such that the Chamber of Commerce of the United States has devoted an entire pamphlet to the subject, entitled, Can We Depression-Proof Our Economy? This pamphlet refers to the adjustments and increases in production that have taken place since the end of World War II, and to the fact that there are “Numerous automatic built-in stabilizers or cushions which we did not have in 1929.” “All these factors,” the pamphlet concludes, “have lead some students to believe that we are more or less depression-proof; or at least, that serious general depressions are less likely to occur than formerly.” The question is then raised: “Is this optimism justified? Or, have we merely been the beneficiaries of exceptionally favorable postwar factors?” The United States Chamber of Commerce then proceeds to review the “evidence.” A Prentice-Hall release is cited in which it is stated that: “It is becoming crystal clear that serious depressions have been abolished in the United States by popular vote.” (Sic!) It is pointed out that the 1953–1954 recession was unusually mild and the fact that it did not degenerate into a full-fledged depression is most heartening and perhaps warrants the belief that there are some new factors on the scene in the form of these “built-in stabilizers,” and while no categorical statement is made, the presumption is that perhaps, at the very least, severe depressions are a thing of the past. On the other hand, the Chamber of Commerce proceeds to point out to those that arc unduly complacent that they should take heed from the warning issued by J.K. Galbraith published in Harper’s magazine, October 1954, to the effect that “important people begin to explain that it cannot happen because conditions are fundamentally sound.” From which Mr. Galbraith draws the conclusion that that is precisely the time to worry because another collapse, comparable to 1929, in his opinion, is definitely possible. The Chamber of Commerce, moreover, does not lose sight of the political importance of the subject. It points out that “if we attain this target [sustained prosperity], other domestic problems will remain manageable. For international reasons as well, the attainment of this goal is important. It will refute the Marxists’ criticisms of private capitalism both here and abroad.” The question of the so-called new perspective and economic outlook, that is, permanent prosperity, has engaged the President’s Council of Economic Advisers. In their 1955 economic report to the President, they review the experiences of the 1953–54 recession and draw the following lessons (quoted by the U.S. Chamber of Commerce): First, that wise and early action by government can stave off serious difficulties later; Second, that contraction may be stopped in its tracks, even when governmental expenditures and budget deficits are declining, provided effective means are taken for building confidence; Third, that monetary policy can be a powerful instrument of economic recovery, so long as the confidence of consumers and businessmen in the future remains high; Fourth, that automatic stabilizers, such as unemployment insurance and a tax system that is elastic with respect to the national income, can be of material aid in moderating cyclical fluctuations; Fifth, that a minor contraction in this country need not produce a severe depression abroad;

Sixth, that an expanding world economy can facilitate our own readjustments. Lest the apostles of the new religion of “permanent peace and prosperity under capitalism” jump to the conclusion that they have a real ally in the United States Chamber of Commerce, let us point out that immediately after the analysis presented above and the quotation from the President’s Council of Economic Advisers, the United States Chamber of Commerce states: “It would be difficult to find a single economist who believes, as some did in the late 1920s, that we are, indeed, depression-proof.” If the United States Chamber of Commerce is not ready to take the plunge into the new camp of “permanent peace and prosperity under capitalism,” there are others who are not quite so cautious. And that is pretty much the position of Sumner H. Slichter which he has expressed in various articles, including one published in the Atlantic Monthly for May 1955 entitled, Have We Conquered The Business Cycle? While Slichter likes to leave himself an “out,” he is also fond of making headlines. For example, in a recent article of The New York Times Magazine section of December 4, 1955, dealing with the relationship of our economy to politics, Slichter states: “A severe depression would undoubtedly sharpen the differences between the parties in the United States and would accentuate the influence of the left-wingers in the Democratic Party, but the days when this country can experience anything worse than moderate or possibly mild depressions are gone forever.” (My italics – T.N.V.) WHAT ARE SOME OF THESE “BUILT-IN stabilizers” that are supposed to have eliminated severe depressions and achieved a more or less permanent modification in the business cycle? They are summarized by the United States Chamber of Commerce in the aforementioned pamphlet as follows: (1) The quick offsetting reactions which occur in our tax structure, with the heavy reliance on the income tax; (2) Stability and size of the government expenditures; (3) The farm price support program; (4) Unemployment compensation; (5) The numerous private and public pension programs; (6) The Federal Deposit Insurance System; (7) The self-amortizing nature of most private debt; and (8) The volume of liquid assets held by individuals and businesses. To the extent that these factors mean anything – and they do mean something that is very important – what is being said here is that capitalism under The Permanent War Economy has achieved a life of more or less permanent government intervention and that this government intervention has modified the business cycle. Certainly the government’s Council of Economic Advisers takes credit for the fact that serious economic fluctuation or depression has been avoided in the past few years. Its chairman, Dr. Arthur F. Burns, puts it this way: These are the basic premises that have controlled our business cycle policy in the recent past. If governmental policy in the months and years ahead continues to adhere to these premises, if government steadily maintains a watchful eye on the state of business and consumer sentiment and if it gives heed to the need of avoiding inflation as well as depression; we may, I think, be reasonably confident that – although we are likely to continue to have fluctuations in individual markets, to some degree even in the economy as a whole – we will avoid in the future the business depressions that have marred our brilliant record of free enterprise in the past. This would seem to put the Council of Economic Advisers, an official government body, almost in the camp of Sumner Slichter. The United States Chamber of Commerce concludes its pamphlet on this question as follows: Are we, then, depression-proof? Prolonged and deep depressions are avoidable and will not occur again, unless we take complete leave of our wits – which could be. Minor fluctuations and rolling adjustments in industry after industry are inevitable. While having unfortunate aspects, they nevertheless perform a useful and essential function. Individual companies will face changing fortunes. Crises in international affairs can be upsetting. Domestic political uncertainties, threats of undue business regulation or taxation – these and many other factors could undo the promising developments in the field of stabilization. Stability has to be earned. (Italics in original only in the last sentence. – T.N.V.) Is this a new era or is it not? On the one hand, severe depressions are avoidable and will not occur, that is, “unless we take complete leave of our wits,” but apparently it is possible, according to the United States Chamber of Commerce, that we may take complete leave of our wits. And one suspects that taking complete leave of our wits has reference to such measures as increasing the minimum wage law, etc. Let us not be completely disheartened because later on in its conclusion the Chamber of Commerce makes the fairly bold statement: “If we have the courage to avoid excessive booms and the wit to use what we know, there is reason to believe that future instability can be kept within fairly tolerable limits.” (Sic!) In other words, if we can avoid depressions there will be no depressions. But how do we know we can avoid depressions? Lest anyone accuse the United States Chamber of Commerce of a definitive statement on a subject of this kind, we must quote the very last sentence in their brochure: “And, since the future can never be foreseen with certainty, it is always wise to watch out for surprises.” Lest there be any possible misunderstanding on this question, let us make it perfectly clear.

Lest anyone accuse the United States Chamber of Commerce of a definitive statement on a subject of this kind, we must quote the very last sentence in their brochure: “And, since the future can never be foreseen with certainty, it is always wise to watch out for surprises.” Lest there be any possible misunderstanding on this question, let us make it perfectly clear. If capitalism can succeed in eliminating the business cycle, i.e., in achieving permanent peace and prosperity, then not only has the class struggle been so transformed as to be unrecognizable but clearly there will be no need for a socialist form of society to organize the productive forces for capitalism will have guaranteed their permanent increase. The question, therefore, is of great theoretical and practical importance. If the performance of the economy in 1955 was at record levels, the outlook for 1956 is clearly relevant. Will this boom keep rolling on and on and on, so that memories of depressions fade into the dim and distant past and pretty soon there will be no living inhabitants who recall the depression of the ’30s or the rather severe recession of ‘47 and ’48 or even the mild recession of ’53–’54? The United States Chamber of Commerce is extremely bullish in its outlook for 1956. The forecast by its chief economist, Emerson P. Schmidt, states: “The expansion which began in the summer of 1954 carried through 1955. The high Christmas sales will start 1956 off with good levels of employment, production and general economic activity. The year 1956 may well be our best year in history.” (My italics – T.N.V.) There is no hedging here – “the year 1956 may well be our best year in history.” Of course, there is the qualifier “may,” but on the other hand the implication is that it should certainly be the best year in history. Mr. Schmidt is a brave man and he has made these statements in a publication of the United States Chamber of Commerce, entitled Nation’s Business, which receives rather wide circulation. He states: “To see unmistakably into the future, of course, is not given to man. Surprises – pleasant and unpleasant – are likely. But, in so far as it is possible to weigh and assess recent trends, optimism for next year is justified.” The same issue of Nation’s Business (December 1955) contains an article by businessman Henry Ford II on the same subject, Outlook for ’56. Mr. Ford, in answer to the query, How does business look to you in 1956? states: We are very optimistic. I think that it is a little early to tell about the whole year. Certainly the first half ought to be pretty good, but we have an election year coming up. People get preoccupied with candidates and issues in an election year and when feelings run high business has a tendency to run low. As a result 1956 might not be quite as big as this year – but I think it ought to be a good year. (My italics – T.N.V.) “1956 will be a very prosperous year, but perhaps not quite as good as 1955.” It is possible that businessman Henry Ford II’s outlook is colored by the fact that his firm produces automobiles. In answer to the question, How about the automobile business?, Mr. Ford states: The automobile business will have a fine year, too. My personal feeling is that it won’t be as big as 1955. How big the reduction is going to be is anybody’s guess. If we assume a 10 per cent reduction, we will still have our second biggest year. Ten per cent of what do you want to say, 7,600,000? That would still be the second biggest year after 1955. WE SHALL RETURN TO THE OUTLOOK for the automobile industry. Meanwhile, let us consider a few more general statements on the business outlook for 1956. The confidential Babson’s Reports issued early in November on the 1956 forecast for stocks and bonds shows a rather sharp disagreement with the extremely bullish statements that have emanated from most sources. States Babson: “For the year ahead we are forecasting that the Babson chart index of the physical volume of business will average around 150 – some five per cent below the record 1955 mark.” Babson amplifies its general prediction by stating: “We look for a decline in general business during the first half of the year which is likely to be somewhat more vigorous than the recovery which we anticipate will set in during the last half of the year.” The Babson forecast is unique in that all those who are cautious about ’56 other than Babson, state that the boom will continue to roll during the first half of the year and if there is a decline it will be in the second half. Babson, however, predicates its reverse forecast on the fact that it expects a decline in the automobile industry and that this decline will be concentrated in the first half of the year but in the second half of the year when 1957 models will be introduced very early, there will be a sharp increase. Babson also expects a sharp decline (about 15 per cent) in the home building industry in 1956. He feels that when this trend is apparent the government will then step in and take steps to revive building.

He feels that when this trend is apparent the government will then step in and take steps to revive building. There is a logical analysis here; whether it will prove to be accurate, of course, remains to be seen. The important point, however, is that here is a very reputable bourgeois outfit (whose reputation for accurate forecasting in the past is unusually good) that does not feel that the boom continues to roll on and on, but that 1955 was the peak. This, of course has important implications for the general question under analysis. Of equal interest with the Babson forecast is that of Fortune Magazine according to its own blurb, “the ne plus ultra of business publications.” Fortune’s own summary of its 1956 economic forecast contained in its January 1956 issue under the Business Roundup is to the effect that: “1956 may be a little rough on a number of businesses. This, despite the fact that it starts out as the best year yet: in ’56 the Gross National Product rate will edge up to around $403 billion from ’55’s sensational year-end rate of nearly $400 billion. But there will be a slight down-turn about midyear.” More interesting is Fortune’s forecast by major industries: If you’re in any branch of capital goods – machinery, plant, equipment – things look good. But home goods are slowing, steel will go down by midyear, home building starts will be off 100,000 units or so, car buying by a million or more. All consumer businesses are up against the competition of $35 billion in consumer debt repayments during ’56, up $4 billion from ’55. And unemployment could rise to over four million, since two million jobs will be cut out by increased productivity, and some 700,000 new workers will join the labor force ...” (Italics mine – T.N.V.) Most business men are optimistic about 1956. Retailers particularly reflect the results of a study made in October by the Survey Research Center of the University of Michigan which indicated that 71 per cent of all people expect good times to continue at least through the first eight months of 1956. At the recent meetings of the American Economics Association there was much discussion about this question, and it was noteworthy that there is now some hedging about the continuation of the business boom. As The New York Times in Mr. Forrest’s column of January 1 puts it: “Some economists last week differed on the 1956 business picture, with several leaning to the theory that the boom would reach its peak early in the year and that caution should be the watchword after that.” The only really discordant note was struck by Dr. Edwin G. Nourse, former chairman of President Truman’s Council of Economic Advisers. Dr. Nourse predicted (according to the same article in The New York Times): “We should contemplate a drop of 15 or even 20 per cent in business during 1956.” (Italics mine – T.N.V.) A drop of this magnitude would mean a decline of $60 to $70 billion in gross national product and a catastrophic increase in unemployment. Here we would have not just a mild depression, but from every point of view a rather severe one. There can be no doubt that Nourse was expressing what might well be termed “the Democratic point of view” on the business outlook. As a matter of record, this view was expressed by the supplemental views of the Democrats on the Joint Committee on the Economic Report in connection with the January 1955 Economic Report of the President. (Report No. 60, 84th Congress, First Session). This supplemental report showed that while they agreed that recovery had taken place from the trough of the 1953–54 recession, we were not really out of the woods, and that there was great danger that developments in the automobile industry and related industries such as construction could cause a downturn of fairly sizable proportions. To quote the Democratic members (Senators Douglas, Sparkman and O’Mahoney and Representatives Patman, Bolling, Mills and Kelley): Because the president’s confident expectations for the coming year are centered on a shift of inventory policy from liquidation to accumulation, on the recovery in automobile production, and on rising expenditure for new construction, it is necessary to examine carefully these areas. These may not be sustained throughout the year. A sharp cut-back in automobile production in the last half of the year would have pervasive effects in the steel, coal, textile, and accessory parts industries. Some analysts expressed uneasiness whether the recent rise in construction will persist. If, however, the automobile or construction industries should encounter heavy weather in the last half of the year, and if other segments of the economy do not recover sufficiently to offset them, it would be a matter of prudent and judicious action to fly the storm warnings. Economic declines are like landslides – it takes less to stop them early than after they gain momentum. The record shows that the Republicans were better forecasters in ’55 than 1956, but the Democrats have held to their basic analysis. What they are doing (and Nourse is clearly one of their most influential spokesmen) is to project into 1956 the forecast they had made for the later part of 1955. What does Nourse base his views on? Actually, he is basing himself on a better understanding of the long-run and traditional functionings of capitalism than many of our new apostles of the virtues of “free private enterprise.” Nourse has devoted some study apparently to some of the fundamental trends at work, particularly in relation to automation and increasing productivity. His testimony on October 28 before the Subcommittee on Automation of the Joint Committee on the Economic Report received a proper headline in The New York Times of October 29, 1955, namely: Economist Fears Overproduction. Dr.

Dr. Nourse’s testimony is worth study. He states: The real change came when we passed from this kind of continuous process mechanization to that in which electronic devices make it possible to dispense to considerable extent with the mental element in manual control and to use the feedback principle extensively. Under this principle electronic mechanisms make it possible to conduct more elaborate, more economical, and more precise continuous productive operations because the outcome of the process controls the process itself, starting, altering, or stopping it so as to make it produce a desired result. This should dispose of the cliche that automation is nothing new – just more mechanization. It has its roots in mechanization, to be sure, but something new was added when electronic devices made possible the widespread application of the feedback principle ... The issue which automation now raises is this: Will it alter present economic relations in such ways as to disturb these favorable conditions, or will our business system be able to translate these technological improvements fully and properly into still greater general prosperity and higher standards of living? It is evident it will change wage income both by numbers of jobs, some places up and some places down, and by wage rates upgraded here and downgraded there. It will obsolete some capital equipment and make important demands for new capital equipment. It will affect unit costs for some products, but not all; prices in some markets, not in others; profits and dividends, tax yields, and public spending ... In contrast to the preponderant attitude of business executives, labor union officials have been outspokenly concerned about the economic impact of automation on the well-being of the mass of worker-consumers in the years immediately ahead ... “But we believe that much study is needed by all parties if the gains are to be made as large and as steady as possible and the temporary dislocations and local burdens or losses made as small as possible and most equitably shared.” With this view I find myself in accord rather than with the idea that the problem will take care of itself or be disposed of automatically by the invisible hand of free enterprise ... When businessmen or others say that technological progress is good per se and that it takes care of its own economic process, they invoke a simple logic of the free enterprise economy. The entrepreneur seeks profit by adopting a device for raising efficiency. This lowers cost. Price falls proportionately and thus broadens the market. This restores the number of jobs or even increases them and raises the level of living or real incomes. This comfortable formula presupposes a state of complete and perfect competition in a quite simple economic environment with great mobility of labor, both geographical and occupational. But these are not the conditions of today’s industrial society, with large corporations and administered prices; with large unions and complicated term contracts covering wages, working conditions, and “security”; with complex tax structures, credit systems, and extensive government employment and procurement. The smooth and beneficent assimilation of sharp and rapid technological change has to be effectuated through intelligent and even generous policies painstakingly arrived at by administrative agencies, private and public ... (Italics mine – T.N.V.) Against the complacent picture presented by some witnesses at these hearings let us put the actual sequence of economic developments in postwar United States. Technology (with infant but growing automation) has been put to full use under conditions of extraordinarily high and sustained demand, public and private. Labor, viewing this unparalleled rise in productivity, has sought to capture the largest possible share in the form of successive rounds of widespread wage increases in basic rates, escalation formulas, and fringe benefits. As the unit cost of labor went up, management sought to maintain or improve its earning position by raising prices and/or by introducing labor-saving machines and administration. The first solution of management’s problem – that is, price raising – has been facilitated by our elastic monetary system, and we are now drifting along on a Sybaritic course of mild inflation as a way of life. The second solution of management’s problem of meeting labor’s wage demands has accelerated piecemeal mechanization, yesterday’s infant “scientific management,” today’s adolescent automation. [And still there are some who say the class struggle has disappeared!] ... I strongly suspect that we have already built up at many points a productive capacity in excess of the absorptive capacity of the forthcoming market under city and country income patterns that have been provided, and employment patterns that will result from this automated operation. We are told on impressive authority that we have not been making adequate capital provision for re-equipping industry in step with the progress of technology. This is probably true if it means making full application of electronic devices and univac controls generally throughout our industrial plant. But we have not yet demonstrated our ability to adjust the actual market of 1956-1957, etc., to the productivity of the production lines we have already “modernized.” They have not yet come to full production, but as they do we see incipient unemployment appearing. Since that, along with slight credit tightening, will tend in some degree to restrict the market appetite, it seems likely that next year will see a still further enlarged output somewhat out of balance with this reduced demand. Suggestions have been made that balance could be restored by lowering prices or by cutting the work week.

Suggestions have been made that balance could be restored by lowering prices or by cutting the work week. Both processes take time and present their own difficulties. Meanwhile, the current trend is toward higher prices reflecting wage advances already negotiated ... (My Italics – T.N.V.) In the course of these hearings various members of the committee and its staff have raised the question whether legislation should be recommended to deal with the problems created by so-called automation. The answer, I think, is an unqualified NO. To curb or redirect the process of scientific discovery and engineering application and the adaptations of businessmen and consumers to these changes would be utterly repugnant to the system of free enterprise and individual choice that have made our country great. None the less, every time the Congress passes a money bill, every time it revises our tax structure, every time it passes a regulatory measure for price maintenance (alias “fair trade”), farm price supports (alias “parity”), or stockpiling of copper, rubber, wool, or silver it is giving punch-card or tape instructions to some part of the continuous flow mechanism of our economy. Public policy on all these matters should be framed in the light of the fullest possible understanding of the integrated character of the price-income structure and behavior of our economy, with an eye single to promoting “maximum production, employment, and purchasing power” for the whole people, not to serve the immediate interest of any special group ... But in a free enterprise system human judgment is given play at most of the important points of interrelationship. Unless the responsible executives seek to integrate their operations to the prosperity of the whole economy and use the full apparatus available for gathering and processing the data relevant to policy determination our economic process will disintegrate into wasteful struggles for individual or group short-run advantage. Much of the potential benefit of technological progress (of which automation is one particular expression) may be lost through failure to make our economic structure and practices equally scientific. It is not necessary to belabor the point. There are sharp differences of opinion within the bourgeoisie itself on the outlook for 1956. The fact that some of the more eminent representatives of the bourgeoisie are not too confident about the outlook for 1956 or about the perpetual prosperity that the disciples of the new era proclaim, ought to give these disciples some pause. That it will, however, is highly dubious. They will have to encounter hard reality before their views are shaken. Perhaps the proper way to put it is that there is a form of malaise penetrating almost every sector of society. For example, The New York Times’ column, The Merchant’s Point of View, in its December 11, 1955, issue, states: “Industrial production, now leveling off after surpassing all previous peaks, will be unable to take care of a growing labor force. This will mean a rise in unemployment which can exercise a dampening effect upon buying enthusiasm.” (Italics mine – T.N.V.) If the business cycle has been eliminated, or if severe depressions are a thing of the past, relegated to the history books, one may logically ask, why does this feeling of malaise persist? The previously cited monthly letter of the First National City Bank of January 1956 observes: The economy does not yet show convincing signs that excesses have reached dangerous proportions, nor are they in any sense inevitable, but they could develop if we substitute enthusiasm for caution and emphasize prosperity to the extent that we forget its problems. The biggest problem of all is to slow down to a sustainable rate of growth without going through a cycle of boom and bust.” (Italics mine – T.N.V.) Is this merely a psychological hangover from the past history of capitalism or is there a realistic danger that depressions are still possible? It seems to us that the general feeling of cautiousness or malaise that has more recently penetrated the more knowledgeable circles of the bourgeoisie and its spokesmen, is not without practical foundation. The recent boom has rested in large part on the automobile and construction industries. If these industries are indeed headed for declines of 10 to 15 per cent, then there will be rapid repercussions throughout the economy. As for the outlook for the automobile industry, previously we cited the opinion of Henry Ford II. We now have the opinion of Harlow H. Curtice, president of the General Motors Corporation, that there will be a 12 per cent drop from the 1955 production total of 7,940,862 cars. This would be almost one million cars less to be produced in 1956 than in 1955. George Romney, president of American Motors Corporation, put the decline at 15 per cent. Only L.L. Colbert, president of the Chrysler Corporation is bullish among the automobile magnates. As The New York Times of December 11, 1955, put it: “Nobody in the industry talks about market saturation. But nobody denies that sales are becoming increasingly difficult to make.” As a matter of record, and as reported in The New York Times of December 25, 1955, the new car inventories have increased to the very substantial stockpile of 710,000, which is a record for this time of the year when new models have just been introduced. Even more significant is the fact that this large figure includes 325,000 new 1955 models which are likewise awaiting disposal. An Automotive News tabulation, according to The New York Times article mentioned in the preceding paragraph, shows that before the full production of 1956 models got under way the dealers had 569,335 new cars on hand. For December 1954 the total stood at 265,153 units. In other words, there has been a substantial increase in the stocks of available cars, or to put the matter in simpler terms, production is outstripping sales.

In other words, there has been a substantial increase in the stocks of available cars, or to put the matter in simpler terms, production is outstripping sales. Automobile dealers are being squeezed and are beginning to go out of business. It would appear to be the overwhelming consensus that American capitalism cannot in 1956 duplicate the almost 8,000,000 passenger car production of 1955. There will be a decline of 10 to 15 per cent. A decline of this magnitude is a matter not only of several billion dollars of automobiles, but of steel, parts and all the various supporting and allied industries, and has an accumulative effect for the simple reason that the automobile industry stands at the apex of the economy. If it were possible for capitalism constantly to increase the output of automobiles and allied products and to dispose of them, then there might well be hope for the “permanent peace and prosperity” school. The facts, however, are otherwise. The natural laws of capitalism assert themselves in relatively quick order and we find that relative over-production is today a current problem plaguing the automobile industry. Tomorrow, the problem will be unemployment in the automobile industry and its allied industries. As I told the editor when this article was requested, if he were willing to wait a few months history would provide all the answers needed to the nonsense that American capitalism has achieved permanent peace and prosperity. So far as the automobile industry is concerned, The New York Times of January 14, 1956, reveals that the manufacturers of automobiles are themselves not independent of economic facts, nor are they disposed to rely entirely on the verbiage of their public relations departments. The inevitable has happened, and sooner than expected. The headline, Big 3 Car Makers Cut Work Forces, makes it very clear that the predictions of a decline in automobile production in 1956 are about to be realized. The subject has far greater importance than the 8500 workers who have so far been laid off at 15 or so automobile plants. To quote The New York Times: A series of lay-offs was announced yesterday by the Big Three auto companies. As one of them put it, the lay-offs were ordered to “maintain a balance between passenger car production and market demand.” It has been no secret in the industry that sales of the 1956 models have been disappointing and new cars are piling up on dealers’ lots. Auto executives have frankly predicted some decline this year from the record sales and output of 1955, although they do not agree on how much of a decline it will be. In recent weeks, the industry has abandoned Saturday and other overtime work, which had prevailed almost without a break for more than a year. (Italics mine – T.N.V.) The automobile industry graphically illustrates the dynamic character of present-day capitalism, with its enormous accumulation of capital and consequent increase in productivity of labor. Just what has been the rise in the productivity of labor is a subject which baffles the specialists. The Bureau of Labor Statistics has worked out many different methods of estimating productivity, and they generally show an increase of 3 to 3.6 per cent annually, depending upon the method used. In some industries, however, depending upon the method used, there can be an annual increase of labor productivity of as much as 10 per cent or more, the automobile industry being one of the noteworthy industries in this respect. If, however, we take a very conservative figure of a little better than 3 per cent as the annual increase in labor productivity, and if we recall that we now have an economy where there are well over 60 million employed, it is clear that normal increase in labor productivity, which accompanies normal accumulation of capital, renders superfluous approximately 2,000,000 workers each year. That is, this number would be rendered superfluous unless the economy could increase its output sufficiently to absorb this amount. In addition to these 2,000,000 relatively displaced workers, for whom jobs must be found each year, there are, due to the increase in population, approximately 700,000 new entrants into the labor force each year. Here, then, is a measure of the problem that confronts American capitalism. Production must be increased sufficiently to absorb in the neighborhood of 2,700,000 workers annually in order merely to stand still so far as unemployment is concerned. Should there be instead of a five per cent increase in production, or a nine per cent increase which has been recorded in 1955, a decline of 10 per cent or even of five per cent, the results will be noticeable in very short order and will astound the advocates of the “permanent peace and prosperity” school. The tip-off, in its own way, that 1956 will indeed be a considerably different year than 1955 is seen in the Christmas announcement by General Electric that its appliance prices are being slashed up to 30 per cent. This constitutes a reduction, according to an article in The New York Times, December 25, 1955, of approximately $23 million at retail for G.E. products. For example, a G.E. vacuum cleaner that has been selling for $69.95 will now be listed at $49.95. A G.E. toaster that had been sold for $19.95 will now be available at $17.95. The automatic steam iron has been reduced from $17.95 to $14.95. And so it goes.

And so it goes. Already G.E.’s competition has been forced to toe the line and other appliance manufacturers have announced similar or identical, or, at the very least, comparable reductions. In part, undoubtedly G.E.’s move was designed to get a jump on Westinghouse, its major competitor whose production is considerably retarded by the present strike; in part no doubt, G.E.’s action is motivated by its desire to meet competition from the discount houses. But in part, and this is the most important part so far as we are concerned, the action of G.E. is predicated upon the fact that it has become increasingly difficult for G.E. dealers to dispose of G.E.’s enormous production. The squeeze is on, and as a matter of fact, the aspect of G.E.’s price reduction which received most comment in the business press is not the actual reduction in prices themselves, but the fact that G.E. took the revolutionary step of reducing the margins of profit available to the wholesaler and retailer. This is absolutely unprecedented in recent years and its consequences will indeed be far-reaching. The automobile situation and the appliance situation typify the growing crisis in consumer durables – one of the twin peril points confronting American capitalism as it enters 1956. THE OTHER PERIL POINT IS the agricultural crisis. Here, of course, there is no dispute about the fact that there is a crisis and that its political repercussions must be profound. Many competent observers, for example, interpret the large-scale Democratic victories in the by-elections of 1955 as due to the fact that the farm population, as a whole, has not participated in the boom; that the agricultural crisis has started much earlier and has deepened progressively as time goes on. This, of course, is in accordance with a typical capitalist pattern. It does not, however, alleviate the situation so far as the farmer or the political impact of the farmers’ crisis are concerned. For a measure of the agricultural crisis we can turn to the November 1955 issue of the Survey of Current Business, the publication of the U.S. Department of Commerce. This staid official government publication is certainly not going to exaggerate the proportions of the agricultural crisis. Yet, in an article by L. Jay Atkinson entitled Agricultural Production and Income, it is stated: The pressure of increased supplies has been such that a further decline has occurred in agricultural prices and in farm income. In the first three-quarters of 1955, cash receipts from farm marketings and CCC loans were about 4 per cent below a year earlier. Prices were about as much lower with the volume of marketings running about even with 1954. Production expenses have continued little changed and net farm income was down about one-tenth in the first 9 months of 1955 as compared with a year earlier. Further on Mr. Atkinson states: The decline in farm income and the small change in the asset position of farmers in recent years compares with a very substantial general advance in income and net assets in the non-farm economy. Although a gradual decline in the share of income from agricultural sources has occurred for a considerable period in the United States, a sharper drop in the past several years reflects a combination of curtailed exports of farm products and a considerable increase in output. The related influence of rising agricultural output throughout the world has effected a substantial reduction in world agricultural raw material prices and has limited any rise in United States farm exports during a period of stepped- up efforts at surplus disposal. These influences have lowered farm income from the high level attained after the end of World War II despite a rise in consumer demand for farm products. They have been accompanied by a considerable shift in workers from farm to non-farm areas. After allowing for the reduction in the number of persons on farms, income from farming per person living on farms is down about one-fourth from the postwar high, and per capita income of the farm population from both farm and non-farm sources is off about one-eighth. Meanwhile non-farm personal income per capita has continued to advance. Farm income per capita now bears about the same ratio to non-farm income per capita as in 1929. (My italics – T.N.V.) Of course, the record production has occurred in the face of all types of incentives to reduce production and more of the same is the only program that the Eisenhower Administration has to offer. It is clear that the relative position of the various farming classes has worsened materially in the post-war years and the end is not in sight. The course of farm production in recent years is shown by the following table: FARM PRODUCTION (1947–49 = 100) 1950 1951 1952 1953 1954 19551 Farm output 100 103 107 108 108 112 Livestock and products All livestock and products 106 111 112 114 119 121 Meat animals 107 114 115 114 119 123 Dairy products 101 100 101 106 108 109 Poultry and eggs 111 119 123 127 134 134 Crops All crops 97 99 103 103 100 106 Feed grains 104 97 102 101 104 112 Hay and forage 105 110 105 108 108 115 Food grains 83 81 105 96 83 78 Vegetables 101 95 96 100 97 100 Fruits and nuts 102 105 102 104 106 108 Sugar crops 117 93 95 106 116 108 Cotton 70 106 106 115 95 104 Tobacco 101 115 112 102 109 113 Oil crops 116 106 104 102 118 132 1.

The course of farm production in recent years is shown by the following table: FARM PRODUCTION (1947–49 = 100) 1950 1951 1952 1953 1954 19551 Farm output 100 103 107 108 108 112 Livestock and products All livestock and products 106 111 112 114 119 121 Meat animals 107 114 115 114 119 123 Dairy products 101 100 101 106 108 109 Poultry and eggs 111 119 123 127 134 134 Crops All crops 97 99 103 103 100 106 Feed grains 104 97 102 101 104 112 Hay and forage 105 110 105 108 108 115 Food grains 83 81 105 96 83 78 Vegetables 101 95 96 100 97 100 Fruits and nuts 102 105 102 104 106 108 Sugar crops 117 93 95 106 116 108 Cotton 70 106 106 115 95 104 Tobacco 101 115 112 102 109 113 Oil crops 116 106 104 102 118 132 1. Based on information available November 14. Source: U.S. Department of Agriculture, Agricultural Research Service. It will be seen that total farm output has increased 12 per cent during the past six years, which include the Korean war and the post-Korean war periods. The major increase has taken place in livestock and related products. Since the proposed incentives to reduce acreage will not in any way inhibit increases in livestock and related production, there can only be a further accentuation of this disproportion. The proof of the pudding, so far as the farmers as a whole are concerned, is reflected in the parity ratio – this dubious measure of the ratio of prices received to prices paid, going back to a base of 1910–1914. Whatever we may think of parity as a concept, the fact of the matter is that the trend in the parity ratio does reveal in one simple index what has been happening to the farming classes as a whole and is a relatively accurate measure of the extent of the agricultural crisis. The current agricultural crisis is hardly a new development. It had its roots in the last years of the Truman administration, as world agricultural production was restored to pre-war levels, thereby beginning the decline in the export of large quantities of surplus American farm products. Throughout the Eisenhower administration the problem of the farmers – which in turn is a direct product of their relatively worsening economic situation – has been one that is uppermost in the minds of the politicians and frequently makes the headlines of the daily press. The trend was quite clear almost three years ago when we wrote The Permanent War Economy Under Eisenhower in the March–April 1953 issue of The New International. On the subject of the parity ratio we had this to say at that time: The parity ratio, comparing prices received and paid by farmers, shows a perceptible decline during 1952. The figure was 105 in January 1952, but declined almost 10 per cent to 95 in January 1953. Since the parity ratio is based on average prices received and paid by farmers in the period 1910–1914, which was a rather good period for American farmers, a parity ratio below 100 does not indicate that farmers are starving. But a decline of 10 per cent in a year is precipitous, and when the parity ratio goes below 100 (which it did beginning November) political storms start brewing in the Congressional farm bloc. The latest figure available for November 1955 shows that the parity ratio has declined to 81. In November 1954 the parity ratio was 87. For three years the parity ratio has declined from 100 to 81 – a decline of 19 per cent, or better than an average of six per cent annually. This steady persistent decline in the parity ratio merely reflects the deepening agricultural crisis. It takes place because agriculture is the classic case where capitalist production quickly outruns available markets. It is taking plate, moreover, at a time when American imperialism is seeking to prevent the crisis in consumer goods from deepening and paralleling that in agriculture. Hence, there is a frantic search for export markets for the products of American industry. American capital investment abroad has doubled in the postwar period, private investments abroad reaching about 326.5 billion at the end of 1954. Of course, to the extent that American capitalism succeeds in alleviating the developing crisis in consumer durable goods by increasing the export markets for these products, to that extent will it aggravate the agricultural crisis. For in most cases the only manner in which these countries of the Western Hemisphere and western Europe can pay for the industrial products of America is through raw materials and agricultural products. The tremendous increase in the output of farm products is a result of the application on a constantly expanding scale of large-scale capitalist methods of production to farming. All kinds of new agricultural implements and labor-saving devices have been developed and produced, so that with a constantly falling farm population it has been possible steadily to increase the output of agricultural products. The process of government intervention has not ceased under the Eisenhower Administration.

According to The New York Times of January 11, 1956: “The Agricultural Department reported today that the Government’s investment in price- supported farm products amounted to $8,206,826,000 on Nov. 30. “This was an increase of $1,316,809,000 from Nov. 30, 1954, when the investment stood at $6,890,017,000.” In other words, during the past year there has been an increase of almost 20 per cent in the government’s investment in price-supported farm products – at a time when the parity ratio has declined another six points. It is only natural, therefore, that the farm problem is of sufficient magnitude to occasion a special presidential message – particularly since 1956 is a presidential election year. This message was delivered by Eisenhower on January 9. Its major feature is the establishment of what is euphemistically called a “soil bank.” This means that farmers will be paid in cash or surplus commodities for withdrawing surplus producing land and putting it into soil-saving crops. Producers of cotton, wheat, corn and rice will be paid in cash or in kind from government stocks for reducing acres already allotted to them under federal controls. Cash will also be paid to farmers who devote their acreage to the so-called soil-building crops. How this tepid proposal is to solve the agricultural crisis – assuming that it will be approved by the Congress, which is a large assumption indeed – is not at all clear, not even to the proponents of the proposal. It is both ironic and significant that the only person of any note to praise the program enthusiastically was Henry Wallace, former Secretary of Agriculture under Roosevelt, under whose auspices the AAA developed the classic capitalist theory of paying farmers to plow under every third row of cotton and wheat during the depths of the depression. In the agricultural crisis there has existed for decades one of the truly fundamental contradictions of American capitalism – for which there is and can be no solution under capitalism. It is theoretically possible for the American bourgeoisie to discuss a solution comparable to that which the British bourgeoisie instituted over a century ago with the repeal of the Corn Laws, whereby British farming was abandoned to its fate and British capitalists permitted their customers in other lands who were buying their industrial exports to pay for them through agricultural imports into Britain. While a comparable program might be considered to be the goal of certain sections of the American bourgeoisie, it is clearly too risky in this day and age when a world war can easily become a fact of political life. In fact, it is easy for the opponents of any such plan to argue that the abandonment of the American farmer to the tender mercies of unbridled competition would merely encourage Stalinist imperialism to unleash World War III. Thus the only thing that happens to the agricultural crisis is that it gets worse, and as it gets worse it has profound political repercussions and ultimately profound consequences on the entire economy. It is the agricultural crisis that provides the general background and setting for the developing crisis in consumer durables, both of which make it clear that to talk of permanent prosperity under capitalism is just so much poppycock. DOES THIS MEAN THAT A LARGE-SCALE depression in 1956 is a realistic possibility? Obviously not. There have been certain fundamental changes in the nature and functioning of capitalism, two of which must be singled out for comment at this time. One of them has to do with the so-called built-in stabilizers, unemployment insurance, etc., constantly referred to by the advocates of the “permanent peace and prosperity” school. These are real and they do help to introduce an element of a sort of planning, which certainly prevents any rapid downward tobogganing of the various economic indexes. As unemployment develops, for example, it does not have precisely the same cumulative depressing effect on the markets for food, clothing and other basic economic necessities as formerly. The ability to manipulate tax rates likewise is a stabilizing element which should not be minimized. Since the recent boom has to a large extent been supported by the phenomenal accumulation of capital in the form of vast expansion in plant and equipment, it is not too much to say that the new tax law, with its new provisions for rapid depreciation, has played a great role in encouraging accumulation of capital. Business borrowing has increased substantially, causing the government to raise the Federal Reserve discount rate to 214 per cent, a 20-year high. Interest rates in general have been rising. Bank loans increased about $3 billion during 1955, an increase of 16 per cent above the 1954 figure. One of the interesting aspects of the boom in accumulation of capital is that it has largely been financed out of profits and surplus values accumulated in past periods. As The New York Times of January 8, 1956, puts it: A detailed breakdown of long-term corporate financing in 1955 shows another striking phenomenon. Despite the sharp rise in business activity, external financing – raising funds from outside sources – did not increase. It ran at about $6,000,000,000, the same or a slightly higher rate than in 1954. It should not be forgotten, in passing, that the need for financing in 1955 was great indeed. Companies spent more than $24,000,000,000 on plant and equipment, some $2,000,000,000 more than in 1954. So where did business get the needed funds? The bulk by far, came from its own inner resources – earnings and depreciation allowances. Retained earnings in the first half of last year amounted to $4,700,000,000.

Retained earnings in the first half of last year amounted to $4,700,000,000. On that basis, for the year as a whole they totaled well over $9,000,000,000. When the final figures are toted up, that will probably set a new high record. And take depreciation allowances, a steadily increasing factor in meeting capital requirements. Last year they topped $14,500,000000, a jump of more than $1,500,000,000 above the 1954 level. Depreciation has bulked ever larger in corporate financial plans for several reasons. For one thing, the pressure of competition has forced constant additions to plant and equipment. Gross depreciable capital assets of non-financial corporations have soared to an astronomical $302,000,000,000. The high volume of new expenditures in recent years has meant that, after allowance for write-offs on worn-out and obsolete facilities, gross assets have risen at an annual rate of $20,000,000,000. Under a “straight-line” depreciation, this increase in assets would boost depreciation allowances by more than $750,000,000 a year. The actual increase, however, has been substantially greater. From 1950 through 1954 and into 1955, for instance, the government’s fast amortization program allowed thousands of defense-supporting companies to write off their depreciation in five years. Facilities valued at more than $30,000,000,000 were granted this rapid write-off privilege. The tax law of 1954 allowed all businesses to liberalize the basis on which they might depreciate capital assets acquired after January of that year. Previously, the straight-line method had required allowances to be spread evenly over the normal life of the asset; that might be twenty years or so. (Italics mine – T.N.V.) There can be little doubt that the tax swindle law of 1954, the major accomplishment of the Eisenhower Administration, has contributed in no small way to the recent boom. The acceleration of the consumption of capital, however, does not in the long run eliminate the business cycle. If anything, it tends to aggravate the business cycle, for one must never forget that the basic law of motion of capitalist economy is Marx’s general law of capitalist accumulation: the greater the increase in capital accumulation, the greater the increase in the industrial reserve army. We have analyzed for some years now, how the Permanent War Economy has tended to offset and to transform Marx’s general law of capitalist accumulation into one which reflects itself primarily in a relative decline in the standard of living of the working class. This, however, does not mean that the capitalist economy is either crisis-free or unemployment-free. What these trends do, of course, is merely to reinforce a fundamental capitalist trend toward increasing monopoly. As Marx has pointed out, capitalism constantly strives in the direction of reaching the ultimate goal of one monopoly capitalist, but never, of course, quite reaches that exalted state of affairs. In this connection it is interesting to note that now that the Democrats are in control of the committees of the Congress, the trend toward monopoly is receiving more publicity than previously. In a report published in The New York Times of December 27, 1955, we find that the sub-committee of the House Judiciary Committee investigating the question of monopoly – a committee headed by Representative Celler – agreed unanimously that “mergers were reaching a record for 25 years.” The Democrats, of course, blame the Republicans for this development, and the Republicans refuse to accept this responsibility. According to this report, since January 1951 more than 3,000 companies in manufacturing, mining, trade and services have “disappeared in the swelling merger tide.” It is true, of course, that the current wave of mergers is on an exceedingly large scale, and that it already has had the effect of confining the fantastic profits of the past few years to the largest corporations. We must remember, however, in any analysis of the economy that these developments are taking place under a new stage of capitalism, one which we have described as the Permanent War Economy. THE MAGNITUDE OF THIS THIRD SECTOR of the economy, i.e., outlays for the means of destruction as contrasted with outlays for the means of production or outlays for the means of consumption, is dramatically illustrated by a recent report of the Department of Defense, entitled Real and Personal Property as of December 31, 1954. We find that as of this date “the aggregate value of properties and inventories included in this report amounts to $123.9 billion for the Department of Defense.” This grand total is comprised of $34,082,000,000 for the Department of the Army; $56,428,000,000 for the Department of the Navy (including the Marine Corps); and $33,356,000,000 for the Department of the Air Force. Major equipment in use for the entire armed forces totals $48,539,000,000, over 60 per cent of which belongs to the Navy. Equipment and supplies in the supply system account for a slightly larger figure, exceeding $50 billion, and more than $21 billion is in real property inventories, with almost $3 billion in machine tool inventories. As The New York Times comments editorially on this report in its issue of October 31, 1955: “An inventory of our national defense system brings up the astonishing figure of $124 billion as the current level of our military assets. This, of course, is still not the total figure. It does not include the atomic energy establishments, nor by any means all of the military materials now in use.” It is, however, a staggering figure and the question logically arises, suppose that the Permanent War Economy did not exist and that instead of $124 billion of real and personal property belonging to the Department of Defense, the figure were only 10 per cent of this amount, what then?

So far as the business cycle is concerned, the postwar prosperity would have ended quite some time ago. It is worth trying to get some perspective on the extent of the military establishment and the nature of the investment that comprises the third sector of the economy, outlays for the means of destruction. We find, for example, the extent of the acreage controlled is vast. To quote the report: “The Department of Defense through the three military departments controlled a total of 29.4 million acres of land throughout the world on 1 January, 1955. This included land owned, leased, used on temporary permit, and various occupancy rights.” In the United States alone, the acreage controlled totaled 24,172,739 acres, costing the government over $17.5 billion and representing about 37,800 square miles, equivalent to 1.3 per cent of total land area in continental United States. The almost $3 billion inventory of machine tools, which admittedly is far from a complete tally, represents 2,494,363 metal cutting tools and 388,768 metal forming tools. If the military establishments had ordered only, say, 10 per cent of this quantity, what would be the situation in the machine tool industries today? Much the same question can be asked with reference to the more than $50 billion in inventories in the supply system throughout the entire armed forces. The size and extent of the military establishment of American capitalist imperialism is so vast that it is difficult to appreciate its precise economic and political weight. The virtual interlocking directorate that has been established between the leaders of big business and the leaders of the military establishment is, however, a fact. It could not exist without the development of the Permanent War Economy and its mere existence and continuation have caused a qualitative change in the nature and functioning of the business cycle. Of course, the direct investment in the establishments of the Department of Defense is not the sole measure of the importance of war outlays in the total economy. To this must be added the expenditures that are made for foreign aid, both military assistance and economic and technical assistance. In a very interesting article in The New York Times of December 1, 1955, James Reston analyzes the dispute that has taken place between the advocates of a flexible and limited program and the advocates of a permanent commitment to this type of program. As Reston puts it, the “Young Turks” (represented by such stalwart Eisenhower Republicans as Stassen, Nelson Rockefeller and Nixon): “... are enthusiastic about the foreign aid program, want it to be larger, think it is a good thing in itself, good for the United States, and good for the development of a healthy world economy, which helps the United States.” (My italics – T.N.V.) In the course of this article Reston supplies some convenient summary figures on the expenditures for foreign aid, as follows: Expenditures for Foreign Aid (in millions of dollars) Fiscal Year Economic and Military Assistance Technical Assistance Total 1950 $51.5 $3,437.2 $3,488.7 1951 933.6 2,802.2 3,735.8 1952 2,384.4 2,147.8 4,532.2 1953 3,956.1 1,766.6 5,722.7 1954 3,627.1 1,246.9 4,874.0 1955 2,292.6 1,973.1 4,265.7 1956 (projected) 2,585.8 1,801.4 4,387.2 Total $15,831.1 $15,175.2 $31,006.3 It will be seen that over $31 billion will have been spent for this purpose in a seven-year period. Again, we are dealing with a type of economic outlay which was unknown before the advent of the Permanent War Economy and one which is quantitatively not insignificant – either in its economic or political impact. THE ESTABLISHMENT OF PRODUCTION OF means of destruction as a significant sector of the economy, both quantitatively and qualitatively, has necessarily altered many of the fundamental laws of motion of capitalism. It has not, however, transformed capitalism into a system capable of producing permanent peace and prosperity. It has not eliminated the class struggle either nationally or internationally. It has not eliminated the need for a socialist organization of society. On the contrary. Despite the inflationary boom that has taken place during the past 18 months or so – let us admit that its size and extent have amazed us at least as much as it has amazed the leaders of the bourgeoisie – the process of atrophy that we have described repeatedly during the past several years remains at work. Government intervention in its manifold forms may possibly reduce what otherwise would perhaps be a level of unemployment of 10 million to one of 5 million (in a period of recession under the Permanent War Economy, which is in the process of developing) but it is entirely possible that the political impact of an unemployment level of five million in an economy so highly geared as the present, may have far more serious consequences for the class struggle than 10 million did in the 1930s. To put the matter another way, when the ratio of war outlays to total production declines, we find that the hypodermic effect of these injections into the economy is considerably more weakened than the mere recital of the figures would lend one to believe. It is, to use the metaphor of the drug addict, a case where a constantly increasing dosage is required to achieve the same effect, so that when a period arrives when the dosage is decreased the effects on the patient are startling. To say that the recent boom has been purely a peacetime boom, without benefit of war outlays, as do many of the advocates of the “permanent peace and prosperity” school, is to fly in the face of facts.

The ratio of war outlays to total production has undoubtedly declined somewhat in the last few years (the detailed computations and their analysis must await another article) but they still remain well above the 10 per cent level which we originally established as the significant dividing line. A precarious economic equilibrium has been achieved both domestically and internationally. The extent of the precariousness is about to be revealed. Despite the very sizable production increases of the past 18 months, factory employment is still below 1953’s highs, thereby revealing that the boomlets must necessarily be shortlived. Had not the Korean war intervened, the present measures of state intervention would long ago have been revealed as inadequate to achieve any type of capitalist stabilization. The forces of production are on the verge of breaking through their capitalist integument. The development of atomic power will require socialism. That is the true measure of the profound social crisis that exists in a very real sense throughout capitalist society today. That is why this feeling of malaise penetrates all sections of the bourgeoisie from the most prosperous to the least. They know that this prosperity is, above all, temporary. The precarious equilibrium of the domestic economy, in turn, rests upon an equally precarious international equilibrium. So long as this relative balance of forces is maintained between Stalinist and American imperialism, and so long as the fear of total destruction operates to restrain an immediate resort to military adventures, the precarious equilibria, both internationally and domestically, can continue. This, however, is clearly a very limited situation. An interesting document in this connection is a study prepared for the Joint Committee on the Economic Report by the Legislative Reference Service of the Library of Congress. It is entitled, Trends In Economic Growth, A Comparison of the Western Powers and the Soviet Bloc, and was published in 1955. It is not necessary to go beyond two of the important conclusions to realize that the international equilibrium is indeed temporary and precarious. In connection with power, which after all is crucial, the report states: “Atomic power, if it were to be systematically developed by either Western Europe or the Soviet Bloc at relatively low cost, could alter the economic balance between the two areas quickly.” Since both sides are feverishly straining to develop atomic power, how long will it be before one or the other succeeds in obtaining this relative advantage which would immediately upset the precarious equilibrium? So far as the growth of the respective economies is concerned, the report states that: “In the period 1938–1953, as a whole, the national product of the United States increased about three times as rapidly as that of independent Europe, and almost twice as rapidly as that of the Soviet Union. To a substantial degree, this difference reflects the varying effects of World War II. Between 1948 and 1953 the national product of the United States grew not quite 30 per cent faster than that of independent Europe and only two-thirds as fast as that of the Soviet Union.” (My italics – T.N.V.) In other words, in the real postwar period the economy of the Soviet Union has been outstripping that of the United States in a ratio of 3 to 2. No wonder the inheritors of Stalin’s empire prefer a period of “competitive coexistence,” for even if we assume that American output today, and the strength of America and its allies in general, is twice that of the Soviet Union, or of the Soviet Union and its allies, it would take less than 10 years – assuming that the Soviet Union maintains its relative advantage of an annual increase that exceeds that of the United States by a ratio of 3 to 2 for the Russian economy to surpass that of the United States. At the present respective rates of increase, even without the inevitable recession in the United States, it would take less than a decade for the balance of power to be radically altered. Once the precarious international equilibrium is basically changed, then the domestic equilibrium, if it has not already been upset, will surely be destroyed. It is entirely possible that the productivity of labor under Stalinism does not have to equal the productivity of labor under capitalism before the former has achieved military-economic supremacy over the latter. We do not, however, have to speculate about these matters. It is sufficient merely to postulate that the international equilibrium is precarious and necessarily short-lived. This, whether they admit it or not, destroys a fundamental postulate of the advocates of the “permanent peace and prosperity” school, for what they are really saying is that internationally the power blocs constituting Stalinist imperialism on the one hand, and American and allied imperialism on the other hand, can continue indefinitely their huge level of armaments. It is true, of course, that both Stalinism and capitalism require each other in order to exist. This is one of the paradoxes and contradictions of the present world situation. While the prospects of a resolution of this cosmic paradox may not seem too bright at this time, that they should not cause any elation in the camp of the “permanent peace and prosperity” school. There is no peace. And the prosperity of American capitalism is built on quicksand, as the future will demonstrate. January 1956 Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 15 August 2019

Vance Archive | Trotskyist Writers Index | ETOL Main Page Frank Demby Defense Housing Crisis Grows Acute Workers Forced to Live in Dingy Homes (December 1941) From Labor Action, Vol. 5 No. 50, 15 December 1941, p. 2. Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). The defense housing crisis is coming to a head. Newspapers are running articles on the situation; Congress has appointed committees of investigation. Within a few months the lid threatens to blow off on the biggest scandal since Teapot Dome. As an example of how serious the situation has become, it has been reliably reported in the capitalist press this past week that in one town in Connecticut where a lot of war factories are located over 700 children were found locked in automobiles or miserable shacks while their parents were working at jobs in nearby defense plants. The background of the housing crisis is quite clear. For more than a decade, as depression took its deadly toll, the housing shortage has grown worse and worse. Private construction of homes and apartments dwindled to virtually zero. Government efforts at low-cost housing projects and slum clearance were confined to a few large cities, were far from low-cost and represented a feeble drop in the bucket. The estimate made several years ago that one-third of the nation is ill-housed is extremely conservative. Workers Drift to Defense Centers Then, as billions of dollars were spent for war orders, mostly concentrated in a handful of cities, workers began to drift in from all parts of the country to these few defense centers. The existing housing shortage in such towns was accentuated a thousandfold. Trailer camps, miserable shacks and hovels, sprang up like mushrooms after a rain on the outskirts of a score of cities. Rents boomed sky-high as the landlord’s and real estate interests took advantage of the tremendous demand for living quarters. Charles Abrams, of the New York Post, summarizes the effect of the housing crisis as follows: “Today workers, unable to find quarters, are leaving their jobs in defense centers all over the country. Labor turnover exceeds 500 per cent in some vital areas. Skilled craftsmen in pivotal trades refuse to migrate because they might have to give half of their wages to landlords. Inefficiency, disaffection, work stoppages due to poor housing are already in evidence.” The government’s handling of this situation is a monumental example of capitalist inefficiency, duplicity and downright skullduggery. It was admitted that there was a need for the construction of 525,000 homes this year in defense areas. Private industry obviously could not be relied upon to build homes for the vast majority of workers who earn less than $2,000 a year; for private industry will naturally only build homes if there is a profit in it – and there cannot be any profit in building homes for workers who get $30–$40 a week. Consequently, the government undertook the responsibility for constructing 70 per cent of these needed homes, or about 360,000 houses. Of this number, only 10 per cent has so far been built! Too Many Fingers in the Pie At the beginning of the armament program, the only real housing machinery in existence was the United States Housing Authority, which possessed 600 local branches spread over 38 states. But the USHA was not used at all in 1940 and is only partially used now. There are a dozen different agencies of the government which have their collective fingers in the housing pie. The Public Building Administration, the Division of Defense Housing, the Defense Homes Corporation are some of the more prominent examples of bureaucratic duplication. In addition, the Army, the Navy and the Farm Security Administration also managed to horn in on the housing pie. Having tied itself up in a maze of red tape, the government tried to ease matters a bit by appointing Charles Palmer as Defense Housing Coordinator. Palmer, however, hasn’t done any coordinating at all. All he has done is to fight with the other two big-shots of the housing program, Nathan Straus, USHA Administrator, and John Carmody, Federal Works Administrator, who controls the Division of Defense Housing. Besides these eternal scraps, in which each accuses the other of incompetence and of sabotaging the defense program, Palmer’s main activity is seeing to it that as few government homes as possible are built. Palmer is typical of most of the officials in the “defense” program. He is a firm believer in private enterprise and doesn’t want to undermine it, even if this means that defense workers go without homes or live in slums. Palmer, it must be emphasized, is President Roosevelt’s man, appointed directly by the President to the top position in the housing pyramid. His credo is “business as usual,” which phrase, given its proper translation, means “profits for the bosses.” In spite of his support of the system of “free, private enterprise,” Palmer is accused publicly by Carmody and others of being a dictator. Straus blames him for sponsoring “the most vicious piece of legislation that has been enacted in the field of housing, under the spur and drive of selfish private interests.” Needless to say, Palmer is aided and abetted in his work by the dollar-a-year OPM representatives of monopoly capital, who have needlessly placed priorities on building materials. This has forced up the price of building materials, with a consequent rise in rents and the price of homes. It has also resulted in some very fancy speculative activities in the construction field. A Vicious Piece of Legislation The legislation to which Straus referred is, indeed, one of the most vicious laws ever to come out of a servile Congress. It is known as the Lanham Act The ostensible purpose, of course, was to encourage housing. It permits the Federal Housing Authority to guarantee 90 per cent of builders’ mortgages on houses put up for defense workers.

The effect of this provision has been to saddle workers with homes that they cannot possibly afford to keep. The workers are forced to buy them, even though they don’t want to, by being given the choice of being without a roof over their heads or buying these homes. In all such transactions, the builders and the bankers, who finance these homes, are given 100 per cent protection against any possible loss. The workers, of course, get no protection at all. Moreover, these are hardly low-cost affairs. The worker usually has to put down a payment of $100. His monthly payments, which take the place of rent, come to almost $60; when interest and taxes are included. To be able to afford such payments, a family should have a yearly income of close to $4,000 a year. Most of the workers who are forced to buy them, however, make half of this sum or less. Another provision of the Lanham Act, which is equally vicious in this application, is the appropriation of funds to the Federal Works Administrator for defense housing, provided that building costs are not over an average of $3,500 per family. The maximum on any housing unit is set at $3,950 under this provision. Since it is virtually impossible to figure “average” costs in advance of construction, specifications are cut down to levels below minimum health standards. The net result is that in many cases the government is actually building slum houses for many defense workers. And a Lot of Plain Graft On top of these difficulties and abuses, there is obviously a considerable amount of plain, ordinary graft taking place. In some cases, sites for housing projects are located in swamps or places where sewage is disposed of. Local authorities are incensed in many cities over the fact that the federal agencies do not deem it necessary to consult local officials about the housing projects. What the situation boils down to is that private industry cannot possibly build adequate homes for American workers. It is estimated that there is a real need for at least 12,000,000 housing units in this country today, for it should be obvious that it is not only the defense workers who need decent homes, but practically all workers. Unless the government immediately appropriates several billion dollars for real, low-cost housing projects (not the measly $300,000,000 that is being recommended) the overwhelming majority of workers will find that the “defense of democracy” means living in sub-standard dwellings. Democracy, it should be obvious, cannot thrive on slums which are injurious to the health. Labor Action is anxious to expose the whole rotten mess of the housing scandal. Only the fresh air of truth and vigorous protests can get decent housing for the mass of Americans. We should appreciate it if any of our readers who have reliable information concerning the housing situation – any data on rents, etc. – would send it to us. We promise to give it prompt publicity. Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 24.2.2013

Vance Archive | Trotskyist Writers Index | ETOL Main Page T.N. Vance The Permanent War Economy Under Eisenhower An Analysis of Economic Trends in 1953 (April 1953) From The New International, Vol. XIX No. 2, March–April 1953, pp. 89–99. Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). The Stalinist “peace offensive” has been a long time in coming, but it was inevitable so long as the military stalemate continued in Korea. Stalin’s death may have accelerated the new Kremlin line, although there is considerable evidence that the basic strategy and major tactics of the “peace offensive” were worked out under Stalin’s personal leadership during the past six months. Stalin’s heirs may require time to work out and consolidate the succession. They may also wish to take precautions against any bold foray by the advocates of “preventive war” in Washington; and in an atmosphere of “peace” counsels of military attack are not likely to make much of an impression. Above all, however, they must figure on the “peace offensive” strengthening already apparent deflationary tendencies in the American economy. Initial reactions in the United States show that the Kremlin’s strategists have not entirely miscalculated. A front-page article on April 8 by ace political reporter of the New York Times, James Reston, is headlined, Soviet Tactics Give U.S. Problem of Avoiding Slump if Peace Comes. The dependence of American prosperity on war outlays is expressed by Reston in these words: “So long as the Kremlin was waging war in Asia and crying havoc all over the world, the Western nations were able to achieve full employment at home and at least a measure of unity with each other.” After pointing out that a host of problems in the field of foreign policy are pressing for solution, Reston goes on to state: The drop in stock market prices immediately after the red doves were sent aloft in Moscow was another reminder to the Administration that the pace of its planning in the domestic economic field was also running behind the pace of world events. Labor union leaders, concerned about the talk here of cutting the defense budget, already have started appealing to the President to plan at once for the day when the vast Government orders for munitions will drop off. This same thesis is being heard within the President’s official family, particularly from those officials who have been studying the meaning of the recent Soviet moves. These officials see increasing evidence of an internal struggle for power in Moscow. They believe that, for the time being, the Soviet leaders may want to relax the tension in the world so that they can deal with these internal problems. But the observers think that at the same time the Soviet hierarchy is trying to bring the United States up against the major problem of keeping its people employed when it shifts to a modified peace economy. In the Soviet mind, the capitalist world cannot close the gap between its production and consumption without vast expenditures for war. The Russians insist on believing that Americans have learned nothing about distribution in the last fifty years and that the only answer to unemployment here is to create international crises that put men to work in the munitions factories. Even more forthright is Arthur Krock, in his column in the New York Times of April 5: Though tragic is the jest that what officials fear more than dateless war in Korea is peace, the jest has a real foundation. The vision of peace which could lure the free world into letting down its guard, and demolishing the slow and costly process of building collective security in western Europe while the Soviets maintained and increased their military power, is enough to make men in office indecisive. And the stock market selling that followed the sudden conciliatory overtures from the Kremlin supports the thesis that immediate prosperity in this country is linked to a war economy and suggests desperate economic problems that may arise on the home front. (Italics mine – T.N.V.) The possibility, even the probability, of a major change in the political and economic climate serves as an opportunity to review some of the major trends in the Permanent War Economy and to focus attention on some neglected aspects that are not without importance. First, however, it is instructive to recall the so-called “Varga controversy” that disturbed Stalinist circles in 1947. It will be recalled that virtually all Stalinist theoreticians took the position that there would be an immediate capitalist collapse following the cessation of military hostilities. Varga, however, disagreed. He maintained that there would be a short period of capitalist prosperity before any crisis developed. The dispute was important not only for its substantive features, but because it is alleged that Varga’s political mentor was Malenkov. According to the authors of one of the reports of a Zhdanov-Malenkov faction fight, Zhdanov was the “internationalist,” basing his “revolutionary offensive” on the prospect of postwar depression in the capitalist world. Malenkov, however, is supposed to have been the “nationalist,” advocating concentration on Stalinland’s internal problems. Varga’s views were supposed to have been anathema to Zhdanov and to have been welcomed by Malenkov.

Varga’s views were supposed to have been anathema to Zhdanov and to have been welcomed by Malenkov. When Varga was disgraced, it was presumably evidence that Zhdanov had the upper hand in his struggle with Malenkov. Why, then, Varga waited until 1949, after Zhdanov’s death in 1948, to recant is not at all clear. Be that as it may, if Varga played such an important role in the struggle for Stalin’s mantle, he has presumably been installed as number one economic advisor to the Kremlin now that Malenkov is premier. Thus reasons the “cloak-and-dagger” school of interpreting Kremlin actions, of which there are many and varied exponents in this country. Regardless of whether Varga’s views were or are of political importance in helping to determine Kremlin policy, he has been the leading Stalinist economist and a summary of his views may well be instructive in providing some insight into the motivation for the Kremlin’s “peace offensive.” An article by Evsey D. Domar, associate professor of political economy at The Johns Hopkins University, in the March 1950 issue of the American Economic Review, entitled The Varga Controversy, summarizes the essence of Varga’s predictions (published in September 1946), as: During the first decade after the war economic conditions will be a natural aftermath of the war itself. The impoverished countries of Europe and Asia will suffer throughout the period from what he calls a “crisis of underproduction.” The United States, Canada and other countries whose productive capacities were greatly increased during the war will enjoy a short, two-to-three-year prosperity after its end. This short prosperity will be followed by a sharp crisis of overproduction, probably more prolonged than that of 1920–21. When this crisis has been overcome, a new industrial cycle will begin. It will be not of the 1921–29, but of the 1929–37, type; i.e., its recovery will be incomplete. In its background there will be a sharp and prolonged agrarian crisis. (Italics mine – T.N.V.) The above analysis conforms rather well to actual events, if one assumes that the outbreak of the Korean war prevented the “recession” of 1949–50 from developing into “a sharp crisis of overproduction.” Actually, of course, neither Varga nor any other Stalinist foresaw the development of the Permanent War Economy, but Varga’s expectations of “a sharp and prolonged agrarian crisis” are prescient. For the agricultural crisis has already started, as the Republicans are beginning to discover. While the news of surplus butter, and threatened surpluses in wheat, cotton, tobacco, etc., is more dramatic, any Kremlin analyst working on trends in the American economy would be able to point up a number of significant developments indicating that a downswing in the economic cycle is at hand: The raising of the rate of interest. The Federal Reserve rediscount rate has been raised from one and three-quarter per cent to two per cent. This has the effect of reducing business loans by commercial banks and raising the bank rate. The Eisenhower Administration has also raised the interest rate on long-term (thirty-year) bonds to 314 per cent, the impact of which will reinforce the tendencies already at work to raise the average rate of interest throughout the economy. A rise in the average late of interest is normally deflationary; in fact, it is because of a mistaken fear of further inflation that the Eisenhower Administration has admittedly used state power to bring about a rise in the rate of interest. The falling backlog of orders in the machine tool industry. This was already evident at the end of last year, for the Wall Street Journal in its edition of December 29, 1952 was able to write: “The heyday of new defense business for machine tool builders is about running out, at least for the time being. This is in marked contrast to the deluge of orders that poured in a year ago on an industry struggling feverishly to expand production ... Backlogs, meantime, continue to be further reduced as rated productive capacity goes up and new business falls off. The industry now has enough business on its books to keep it working at capacity for 11 months, compared with about 18 months at the start of 1952. However, the backlogs are not evenly distributed. Only about one-fourth of the industry can boast a six-month-or-more backlog. Included in the remainder, in fact, are many companies looking for business.” And the machine tool industry, of course, is the prime mover in the production of means of production. The slight, but steady, decline in wholesale prices. The wholesale price index for all commodities of the Department of Labor (which has a base of 1947–1949 equal to 100) declined during 1952 from 113 in January to 109.6 in December. While this is a decline of only 3 per cent, it indicates that the period of acute inflation in the primary markets is passed. As a matter of fact, for several months now virtually every raw material has been in distinctly easy supply. The final evidence, of course, is the abandonment of the Controlled Materials Plan, revealing that there is an ample supply of basic metals. While the Eisenhower Administration boasts of decontrol as part of its philosophy, the truth of the matter is that the basic decontrol steps so far taken were planned under the Truman Administration.

While the Eisenhower Administration boasts of decontrol as part of its philosophy, the truth of the matter is that the basic decontrol steps so far taken were planned under the Truman Administration. The parity ratio, comparing prices received and paid by farmers, shows a perceptible decline during 1952. The figure was 105 in January 1952, but declined almost 10 per cent to 95 in January 1953. Since the parity ratio is based on average prices received and paid by farmers in the period 1910–1914, which was a rather good period for American farmers, a parity ratio below 100 does not indicate that farmers are starving. But a decline of 10 per cent in a year is precipitous, and when the parity ratio goes below 100 (which it did beginning November) political storms start brewing in the Congressional farm bloc. The deflationary attitude of the Eisenhower Administration as contrasted with the inflationary outlook of the preceding Truman Administration. This manifests itself in various ways, notably in announced programs to reduce Federal expenditures, to stretch out the defense program over a longer period of years, while at the same time there is an apparent refusal to reduce taxes and strict admonishment about the dangers in the expansion of consumer credit. The Eisenhower Administration is believed to be not averse to a mild deflation and to an accompanying modest rise in unemployment. It is only natural, therefore, that the Kremlin should be aware of growing signs of a deflationary trend in the American economy and should seek to take advantage of them. If its “peace offensive” encourages a larger reduction in war outlays than already planned, the possibilities of American internal difficulties diverting attention from consolidation of alliances and strengthening the military position of American imperialism abroad are that much greater. Moreover, no careful analysis of the American economy is required to arrive at the conclusion that deflation is at hand. It is only necessary to read the public statements of responsible spokesmen of big business and organized labor. For example, Fortune magazine in its March 1953 issue states: A majority of U.S. businessmen expect some sort of decline in business activity in the next couple of years, according to a recent Journal of Commerce survey, as do a majority of economists and analysts of business. Fortune looks for a slight downturn as early as the second half of the year. But as for the larger and longer-term worries about recession or depression sometime in 1954 or 1955, we believe the readjustment is apt to be mild, if relatively prolonged. After a discussion of semantics and defining a “readjustment” as a mild recession, Fortune takes an unusually forthright position (which accounts for this article being much quoted) by stating: The present outlook is for “a mild but prolonged readjustment,” perhaps lasting a year and a half, because non-durable goods and services should grow as taxes come down (along with defense outlays), and because public works and exports should offset a decline in capital expenditures. This readjustment would wind up, according to Fortune’s “reasonable” projection of 1955, with G.N.P. and industrial output distinctly below prospective capacity and with possibly five million unemployed. (Italics mine – T.N.V.) Unemployment of five million would mean an increase of 200 per cent over present levels, and would undoubtedly pose serious problems. Such a prospect naturally concerns organized labor, particularly its more articulate sections such as the U.A.W. One can, for example, quote at great length from the report of President Walter P. Reuther to the 14th Constitutional Convention of the UAW, held at the end of March at Atlantic City. A 20-page section on General Economic Conditions begins by stating: “The national economy is now headed for a long-postponed showdown with basic economic realities. Since 1939, when 9½ million unemployed walked the streets, there has been no real test of the stability of our economy. In all the years since, this country has not had to face up to the question of whether we can raise our living standards to match our power to produce, and then keep both rising together.” After recounting the increase in productive capacity (“Manufacturing capacity increased by 31 per cent from 1939 to 1946 and by 55 per cent from 1946 to 1952”) and the enormous currently unsatisfied needs of the American working class, as well as reviewing in a comprehensive manner the basic trends within the economy, Reuther concludes with an impressive non-sequitur that “our economy [must] move rapidly forward to constantly improved living standards, or collapse in depression.” One should not fall victim to one’s own propaganda. Everyone will agree that the constant improvement of living standards is a desirable goal, but the probability of such a development is rather small. In fact, under the Permanent War Economy it is impossible over any extended period of time. It does not, therefore, follow – as Reuther (and others) would have us believe – that the economy will “collapse in depression.” On the contrary, an understanding of the Permanent War Economy would reveal that a sizable depression is excluded. This does not mean that a downturn is impossible. We have shown in our original series of articles on the Permanent War Economy that “the changes [in the ratio of war outlays to total output] are rapid and qualitative in nature, which is another characteristic of the Permanent War Economy stage of capitalism. The figures suggest that about 10 per cent of total output must be spent in the form of war outlays before the latter become significant in their impact.” (The New International, January–February, 1951, p. 38) ACTUALLY, WHAT HAS HAPPENED IS THAT the ratio of war outlays to total output is beginning to decline. This trend was already evident prior to the start of the new Stalinist “peace offensive.” It appears likely that it will become more pronounced in the near future. There is still no evidence, however, that capitalism intends to abandon the Permanent War Economy.

There is still no evidence, however, that capitalism intends to abandon the Permanent War Economy. Both political and economic considerations clearly exclude such a variant. If we revert to the analogy of “habit-forming drugs,” used in the introduction to Part III of the series on the Permanent War Economy, Increasing State Intervention (cf. The New International, May–June 1951, p. 132), we can refer to the economy as a drug addict. War outlays are the drug which has sustained a high level of economic activity. As is apparently the case with pathological drug addicts, a constantly increasing dosage is required in order to maintain the same effects of activity as previously. The measurement of the “dosage” is the ratio of war outlays to total output. Even a stable ratio of war outlays leads to a process of atrophy setting in. The “appetite” of the economy for war outlays increases steadily. If the ratio of war outlays to total output, although significant, merely remains level, tendencies toward a slackening in activity begin to appear in various sectors. If, on top of this, an actual decline in the ratio of war outlays to total output is to be recorded, then deflationary consequences are unavoidable. How much deflation is, of course, another question. There can be deflation without depression, in any recognizable meaning of the term. War Outlays, 1949–1952 And Their Relationship to Total Output (Figures in Billions) Year Net National Product (1) WAR OUTLAYS Col. (4) as % of Col. (1) (5) Direct (2) Indirect (3) Total (4) 1949 $238.9 $13.6 $13.7 $27.3 11.4% 1950 262.6 14.2 11.7 25.9 9.9 1951 304.6 33.7 9.3 43.0 14.1 1952* 320.4 46.0 8.8 54.8 17.1 * Net national product is derived from gross national product for 1952, as shown in the March 1953 issue of the Survey of Current Business; war outlays are derived from the Commerce series on National Security, together with the Treasury series on National Defense and Related Activities. Our estimates, therefore, follow the procedure explained in the text and are dependent upon official government figures. Inasmuch as it is now more than two years since the basic calculations were made in the development of the theory of the Permanent War Economy, we can now substitute actuals for our estimates. This is done below for the period 1949–1952 inclusive. Our concept of measuring the ratio of war outlays by comparing direct and indirect war outlays to net national product remains as heretofore stated. Our concepts of direct and indirect war outlays, however, have undergone some modification because in the interim Commerce has redefined and republished the Federal war component of Federal government purchases of goods and services. This has been in the form of a series entitled “national security,” which is broken down into “national defense” and “other national security.” The definitions, contained in the July 1952 issue of the Survey of Current Business, are: “National defense purchases comprise the purchases of the Atomic Energy Commission, Defense Department, Maritime Administration (before 1950), National Advisory Committee for Aeronautics, and Selective Service System, together with purchases for the programs of defense production and economic stabilization, foreign military assistance administered by Mutual Security Agency (formerly Mutual Defense Assistance program), and the stockpiling of strategic and critical materials.” This is a broader concept than we previously used, and involves shifting from indirect to direct war outlays such programs as atomic energy, foreign military assistance and military stockpiling. There can, however, be no objection to this revised definition of war outlays. The “other national security” series of Commerce forms only one part of our concept of indirect war outlays, for it is defined as comprising those purchases of “the Maritime Administration (after 1949), National Security Council, National Security Resources Board, Philippine Damage Commission, and State Department, as well as purchases for the following foreign economic assistance programs: those now administered by the Mutual Security Agency, government and relief in occupied areas, India Emergency Food Aid, International Children’s Emergency Fund, and Yugoslav Emergency Relief Assistance." To this base, we have added purchases of the Veterans’ Administration, as well as certain minor governmental programs, as explained in Part I, p. 36 of the January–February 1951 issue of The New International. The differences between our revised calculations and our earlier estimates may be seen by comparing the ratios of war outlays to total output, as follows: War Outlay Ratios Revised Original* 1949 11.4% 10.60% 1950 9.9 10.9 1951 14.1 20.0 1952 17.1 21.1 * Taken from Table B of Part I, January–February 1951 issue of The New International. Not only did we fail to take into account the degree of inflation that actually occurred (in fact, we deliberately made no attempt to forecast the amount of inflation), but we also underestimated the real increase in production and overestimated the amount actually spent on war outlays, as there developed a considerable lag between military expenditure plans and actual purchases. There was, in addition, of course, the conscious stretching out of the defense program by the Truman Administration. The trend line of our new series differs markedly from the old. War outlays have not reached the 20 per cent level, and the necessity for direct controls on production and prices has diminished. Moreover, the rate of increase in the ratio of war outlays to total production has been significantly less than predicted, thereby encouraging the process of atrophy to develop.

The pronounced change that has occurred in the economic outlook may be seen quite clearly from examining the 1952 data on a quarterly basis, while remembering that in our original forecasts we had expected the peak ratio of war outlays to be reached in 1953, as was at that time the apparent plan. On the assumption that net national product will show the same trend as gross national product, and the further assumption that our total war outlay series will correlate closely in trend with the Commerce series for total national security, we can construct index numbers for the quarterly ratios in 1952, with the first quarter of 1952 as base. We then obtain the following picture: Index Numbers of War Outlays Ratio First Quarter 1952 100 Second Quarter 1952 107 Third Quarter 1952 106 Fourth Quarter 1952 102 As can be seen from the above tabulation, the incidence of war outlays during the current military build-up reached a peak during the second quarter of 1952. A slight decline during the third quarter of 1952 was followed by a more significant decline in the last quarter of the year. Present information indicates that this trend continued during the first quarter of 1953. Here, then, we have cogent economic reasons for the setting in of a deflationary trend. The fact that the ratio of war outlays to total output can change in both level and direction during the epoch of the Permanent War Economy is a factor of enormous importance in appraising current trends in the economy, and one of the more neglected aspects of the theory of the Permanent War Economy. On reexamination, therefore, we feel that our basic conclusions remain valid, although certain formulations may require modification and several of our short-term predictions are invalidated by faulty assumptions. We have, for example, referred to the chronic character of inflation under the Permanent War Economy. Over a period of years, this remains true; yet, as we did indicate, there will be ups and downs in the price level. Hence, a formulation such as “This rate of increase in the price level will continue to be maintained, regardless of controls, because inflation is unceasing and permanent” (Part II, Declining Standards of Living, March–April 1951 issue of The New International, p. 89) is incorrect. It has to be modified by the demonstrable fact that there is a marked variation in the ratio of war outlays to total output, and during the period when the ratio declines, the inflationary pressures are reduced and, in many cases, converted into their opposites – i.e., deflationary pressures. The decline in the cost of living, as measured by the Consumers’ Price Index, new or old, of the Bureau of Labor Statistics, is clear-cut evidence that the peak of the present inflation has passed. The manner in which several large corporations have used this decline in the cost of living to reduce wages should serve as a reminder that the class struggle has not disappeared. In retrospect, it is clear that our major error of fact was our gross underestimation in the amount of capital accumulation that could be expected to take place in the period following the outbreak of the Korean war. While we consciously underestimated in order to maximize the amount of civilian output available to sustain civilian standards of living, we neglected to take into sufficient account the fact that even at a 20 per cent level of war outlays there was room for sizable private capital accumulations that did not exist in 1943–1944, when the ratio of war outlays exceeded 40 per cent. As a consequence, we have underestimated the impact of capital accumulation in sustaining the inflationary boom. By the same token, we have not given full weight to the increase in productive capacity to which these unusually large capital accumulations have given rise. It may help, therefore, if we set the record straight by presenting revised Net Private Capital Formation, 1946–1952 (Billions of Dollars) Year Gross Investment Capital Consumption Allowances Net Investment 1946 $33.3 $12.2 $21.1 1947 39.1 14.8 24.3 1948 44.6 17.6 27.0 1949 34.0 19.4 14.6 1950 48.0 21.5 26.5 1951 58.7 24.6 34.1 1952 52.4 25.9 est.* 26.5 est. TOTAL 310.1 136.0 174.1 AVERAGE 44.3 19.4 24.9 * Estimated assuming the same ratio of net to gross national product in 1952 as in 1951. actual figures on capital accumulation in substitution for our previous estimates. As before, we equate capital accumulation to net investment in the Commerce private capital formation series. This procedure possesses several weaknesses, especially a dubious treatment of inventory accumulation, but it is the only handy official series and serves the purpose of providing a broad picture of what has happened in this vital sector of the economy. For the seven post-World War II years, 1946–1952, net private investment totals more than $174 billion, averaging about $25 billion annually. This means that on the average 10 per cent of the net output of each year has been added to the capital stock. There has, consequently, been an enormous increase in productive capacity. This substantial increase in capacity manifests itself first and foremost in durable goods, especially consumer durables. Passenger automobiles, for example, could be produced at a rate of seven million a year and production for 1953 is expected to exceed six million. Since this comes on top of six high production years in a row, there may possibly be some difficulty in disposing of the entire output. The Reuther report, previously cited, states (p.

64): “The industry as a whole, however, is becoming uneasy about future marketing prospects.” In fact, it is a rather open secret in the trade that what prompted the recent price reduction in the Chrysler line is that their cars are backed up all the way to the factory. In short, it may not be long before sales for the entire passenger auto industry fall short of production. Automobile production remains the bellwether of the civilian economy. A similar trend may be expected in several important durable goods lines, thereby adding to the deflationary forces enumerated above. In discussing the increasingly high organic composition of capital in Part III, Increasing State Intervention, in the May–June 1951 issue of The New International, we stated (p. 150): “Precisely where the breaking point is likely to be, no one can say, but it is clear that the composition of capital is already dangerously high and constitutes a sword of Damocles, hanging over the unsuspecting head of such a highly-geared capitalist economy that in a few years it is possible to produce all the automobiles, television sets, etc., that can be sold under capitalist conditions of production.” While precise figures are not available, all available evidence indicates that the composition of capital has continued to increase. Theoretically, these trends ought to result in a falling average rate of profit. Empirical evidence indicates that both the mass and rate of profit did begin to decline in 1952. If the net investment figures developed in the previous table are compared with net national product (total output) for the same years, 1946–1952, it will be seen that the ratio is 10 or 11 per cent in all but two years. These were 1949, when an “adjustment” took place, and 1952, when a plateau was reached and the beginnings of an adjustment are apparent. In 1949, the ratio of net investment to net national product was 6 per cent. In 1952, it was 8 per cent. The pressures previously cited that would lead to increasing reliance on state foreign aid, given the continued low level of private exports of capital, remain. To what extent the Eisenhower Administration will curtail state foreign aid remains to be seen. In any case, exports of capital, both state and private, are unlikely to increase and cannot offset the deflationary trends analyzed above. Some deflation is clearly in process of taking place. The question remains: how much? A sober consensus is given by Thomas F. Conroy in the New York Times of April 12, 1953: “While the economy appears to be entering a deflationary transition period which may involve some setback and certainly intense competition, business and industry do not face another 1929. There are too many favorable differences between 1953 and 1929.” In Part V of the Permanent War Economy, Some Significant Trends, September–October 1951 issue of The New International, we stated (p. 254): “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.” There seems no reason warranting change of this forecast. The ratio of war outlays to total output may decline to 15 per cent or thereabouts, but there is no indication that any sharp reduction in war outlays is in prospect. In fact, peace or no peace in Korea, according to Anthony Leviero in the New York Times of April 8th: “John Foster Dulles, Secretary of State, is planning to go to the North Atlantic Treaty Council meeting in Paris on April 23 with a restatement of this country’s defense policy predicated on ten or twenty years of tension.” (Italics mine – T.N.V.) It does seem possible, however, that at a 15 per cent level it is possible to dispense with most direct controls, although it is worth noting that the Eisenhower Administration has been forced to set up a permanent control establishment in the Office of Defense Mobilization. This agency will undoubtedly be responsible for introducing the stand-by controls in the event that they become necessary. While official forecasts are necessarily optimistic, indicating that there will be no deflation, it is apparent that some deflation, accompanied by rising unemployment, perhaps to the level of the five million forecast by Fortune, is the likely order of events over the next two years. There should, therefore, be a consequent eruption in the class struggle, with increasing strikes throughout the economy. Objective conditions are perceptibly ripening for a leap forward in the political level and class consciousness of the American workers, and it behooves the socialist movement to pay close attention to these awakening forces. Let us not go overboard with predictions of dire depression and mass unemployment. But let us not imbibe capitalist propaganda to the effect that “capitalism has learned how to solve the fundamental problems of the business cycle.” Both extremes are wrong and to be avoided in developing socialist policy for the current economic environment and that of the immediate future. April 1953 Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 27 February 2019

Vance Archive | Trotskyist Writers Index | ETOL Main Page Frank Demby The Breakdown of Soviet Planning Under Stalin (March 1941) From Labor Action, Vol. 5 No. 9, 3 March 1941, p. 4. Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). The recent 18th conference of Stalin’s “Communist” Party indicates that the Stalinist regime is near the end of its rope. Behind the more dramatic expulsions of Litvinoff, as a member, and Madame Molotoff, as an alternate, from Stalin’s Central Committee lurks the lurid self-confessed picture of bureaucratic bankruptcy. All the manipulations of statistics, which long ago became a “class” science in Stalinland – i.e., a propaganda device – cannot hide the fact that the regime totters on the brink of the grave. “The more honest we are in disclosing our shortcomings, the sooner shall we be able to get rid of them. Stalin daily teaches us this,” said the nonentity, Malenkoff, who delivered the main report, while “the great leader of the peoples, Stalin,” sat on the platform calmly watching his lackeys trying to explain away the awful mess into which his gangster regime has dragged the entire national economy. Hypocrisy knows no limits so far as these cynical grave-diggers of the revolution are concerned. “The regime of dirt, top-heavy bureaucracy, laziness, armchair administration, and chatter-boxes” has resulted, according to Malenkoff, in decreased output, increasing costs and threatened purges in such industries as building materials and lumber, oil, paper, railroad and water transport, aircraft, chemical, munitions, electrical, maritime and fishing. This picture of more or less complete chaos is then dressed up by Voznesensky, chairman of the State Planning Commission, as one of “new Socialist upsurge and further progress.” From Plan to Plan “On November, 1, 1940,” reports Pravda (as quoted in the Daily Worker of Feb. 18), “in eight industrial people’s commissariats, 33,000 machine tools stand idle. At 7,629 enterprises, 170,000 electric motors were not mounted. The cement industry last year worked only at 64 per cent of its capacity.” This presumably is an illustration of what Voznesensky means when he says (Sunday Worker, Feb. 23): “However, by no means all enterprises and people’s commissariats have utilized the possibilities for the growth of production created by the edict of the Presidium of the Supreme Soviet of the USSR, dated June 26, 1940.” (This refers to the industrial peonage laws which I described in Labor Action of Feb. 3.) In spite of the fact that Voznesensky’s report is carefully enveloped in percentages and figures expressed in rubles, and in spite of the omission of certain vital figures, it is possible, on the basis of what is given and what is known about the situation of Soviet economy at the end of the Second Five Year Plan in 1937, to obtain a fairly reliable picture of the extent of the breakdown of Soviet economic planning during the last three years – years of almost constant and perpetual purges, the Soviet-Finnish war and the Hitler-Stalin pact, which has resulted in Soviet economy becoming more and more dependent on German economy The Second Five Year Plan was begun on Jan. 1, 1933, with the fond expectation of “overtaking and outstripping the capitalistic countries” by the end of it, in 1937. One must rub one’s eyes with amazement at the proposal of a Fifteen Year Plan, which emanated from the recent conference, and has for its purpose “outstripping the leading capitalist states in the per capita production of pig iron, steel, fuel, electric power, machinery and other means of production and articles of consumption.” The fact that per capita production in the Soviet Union declined during the last three years and that it admittedly lags way behind production in the advanced capitalist countries (three to four times, according to Voznesensky, and much more in reality) may not disturb the equanimity of Stalin and his hierarchy. But surely the Russian workers and peasants do not feel overjoyed at the prospect of facing 15 more years of Stalin’s rule of promises mixed with forced slavery. The Third Five Year Plan (1938–1942) was not even mentioned during the year 1938. Except for the fact that it was supposed to be approved by the Council of People’s Commissars by July 1, 1937, one would never know that a Third Five Year Plan was even contemplated. In January 1939, however, it was admitted that “difficulties of reorganization” had delayed the publication of the Third Five Year Plan, but it was nevertheless operating “satisfactorily.” The plan was formally approved at the 17th Congress of the Communist Party in March, 1939. Aside from an oblique reference by Molotoff to the fact that the Third Five Year Plan called for a 100 per cent increase in heavy industry and producers’ goods during the lifetime of the Plan, one could have legitimately questioned the existence of a Third Five Year Plan, even on paper. After years of constant sacrifice, the promise that Stalin made to the Russian masses that a temporary period of sacrifice would result in the creation of a land of plenty is completely belied by the official figures on national income given by the same Voznesensky. The national income of the USSR was 125,500,000,000 rubles in 1940, or a per capita annual income of about 650 rubles. The national income in 1937, at the end of the Second Five Year Plan, is now officially announced as 96 billion rubles, or a per capita annual income of about 600 rubles. The increase of 29,500,000,000 rubles is thus almost entirely negated by the increase in population, which is a product of Stalin’s expansionist policy and his reactionary social laws, such as virtually making abortions impossible and using the fascist technique of bonuses for large families.

But this fails to take into account the purchasing power of the ruble and what has happened to the purchasing power of the ruble during the last three years. The most conservative estimates available indicate that the ruble’s purchasing power has declined by at least half since 1937. This indicates that the average standard of living of the Russian people has declined by at least 46 per cent during the last three years. And since the inequality of income in Russia is notorious, this means that the overwhelming majority of workers and peasants suffered a much greater decline in their standard of living. It is highly probable, therefore, that the standard of living of the Russian workers and peasants today, more than 23 years after the Bolshevik Revolution, is decidedly below that which existed under the Czar and can only be compared with that of the Chinese coolie. This decline in the standard of living is in sharp contrast to the growth of the productive forces. Production Lags When Voznesensky reports that Soviet production is 534 per cent of 1929 production and goes on to make such a terrific hullaballoo about this tremendous increase as compared with the very small increase in production in the United States between 1929 and 1940, it is first necessary to make a few important corrections and then to give the figures the proper interpretation. In the first place, on the basis of rough estimates which I made for 1929 production in the USSR, production in 1940 was 283 per cent of 1929 – and not 534 per cent In the second place, the decisive portion of this very considerable increase took place during the first and second Five Year Plans – not during the first three years of the third Five Year Plan. The increase during the last three years is only about 15 per cent. In the third place, production during the first three years of the third Five Year Plan was supposed to have increased by about 60 per cent. It only increased 15 per cent. In other words, the plan, if it exists, has only been fulfilled about 25 per cent so far, and this does not take into account the terrific disproportions in Soviet economy caused by the bureaucratic commands entering into the economy as a result of underfulfillment of certain plans and the drive to overfulfill others. Fourthly, and most important of all, according to official Stalinist estimates, production at the end of the second Five Year Plan (1937) was estimated to have increased anywhere between 8 and 12 times from the productive levels of 1929. So that, even if we accept as entirely accurate the Stalinist figure of 1940 production as being a little more than five times the 1929 production, the regime stands convicted of a considerable decrease in production. The crisis in the Soviet economy has reached such proportions that it cannot be concealed. That is the real meaning of Stalin’s 18th Party Congress. And this was only to be expected, for genuine economic planning requires thoroughgoing democratic control of the planned economy by the working population. This, of course, is utterly excluded as long as the totalitarian bureaucracy exists. Correcting mistakes in the plans and flaws in the economy becomes impossible when life is organized on the basis of: Produce according to the dictates of the Kremlin or be shot. The idle boast that the USSR is now independent of capitalist economy is given the lie by the official figures for Soviet production and by the steady efforts made to import machines and machine tools from Germany and the United States. Stalin can only hope to offset the economic crisis, expressed in declining standards of living, declining productivity of labor and the slowing down of the growth of production almost to a standstill, and thus preserve his tottering regime, by engaging in new foreign adventures. Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 4.12.2012

Vance Archive | Trotskyist Writers Index | ETOL Main Page Frank L. Demby New Crisis Hits People’s Front Gov’t in France (October 1937) From Socialist Appeal, Vol. 1 No. 9, 9 October 1937, pp. 1 & 6. Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). The rapidly approaching cantonal elections and the October 2 communiqué of the French cabinet serve once again to focus the eyes of the politically conscious on France. The long-smouldering crisis bids fair to break out into the open with far-reaching consequences for France and the entire world. P.J. Philip, Paris correspondent of the New York Times, describes the recent cabinet meeting as having “altered the whole course along which France has been traveling since the Popular Front Government came into power fifteen months ago.” Signs of the coming crisis and indications as to its nature have not been lacking. Already, during the last months of the Blum cabinet, it was not difficult to see that the major political parties in the Peoples Front were being subjected to different social pressures, which, together with the exigencies of diplomacy and political maneuvering, were tending to pull the People’s From apart – or, at least, sufficed to show that the honeymoon period was over. The Radicals, conscious instrument of French finance imperialism, have steadily pulled in the direction of a Bonapartist regime – at first, due chiefly to the requirements of foreign policy (alliance with England, strangling of the Spanish Revolution, rapprochement with Germany), but soon the internal situation (especially financial) forced the Senate (dominated toy the Radicals) to kick over the traces and to replace the Blum cabinet by the Chautemps cabinet. In between, the SP has been trying to make the class-collaborationist policy of the People’s Front palatable to the workers and to maintain harmony within its own ranks. In any case, if one doubts the depth of the dissension within the Peoples Front, or, perhaps even the existence of a crisis, the smoke that has not ceased to obscure the political skies since the coming to power of Chautemps leaves little doubt as to the existence of the crisis, and, to -a lesser extent, of its nature. Socialists Continue Old Line The National Congress of the SP at Marseilles (July 10–14) openly revealed the crisis. Coming on top of a postponement which facilitated the CAP (Permanent Administrative Committee) in making the decision to support the Chautemp cabinet, after having cracked down on the youth by dissolving the Seine Federation and its paper, La Jeune Garde, and expelling the youth leaders, after having illegalized Pivert’s “Revolutionary Left”, there was bound to be fireworks and the Blum-Faure bureaucracy had to exert all its bureaucratic pressure to maintain its majority. But little did anyone think that the “Socialist” government bureaucracy would be so hard-pressed to maintain its majority, nor that there would be such violent incidents as the fist-fights and other turbulent scenes that many times threatened actually to stop the proceedings. The most interesting aspect of the Congress was undoubtedly the existence of the three tendencies – Blum-Faure, Zyromski-Bracke and Pivert. To be sure, there was no opposition to the People’s Front in principle – all such opposition having already been expelled or thoroughly squelched. The differences of opinions, therefore, all took place within the framework of class-collaboration, and are, at most, the differences between reformism and centrism. The actions of the first People’s Front Government, “under Socialist leadership,” were overwhelmingly approved by 4,549 to 26. The major debate, front page news throughout the country, was over the Blum-Faure motion to continue participation in the Chautemps cabinet. It was carried after a tumultuous session by 3,484 mandates against 1,866. The differences became clear, however, only on the debate over general policy, which included perspectives for the future of the party. Blum-Faure again carried the day for their outright reformist policy, receiving 2,949 mandates. Zyromski-Bracke received 1,545 mandates for their positions, which was to support Chautemps but to prepare immediately for the replacement of Chautemps by another Blum cabinet. In the words of Zyromski: “The Chautemps government is not in the image of the People’s Front, but is a poor substitute (ersatz) for a People’s Front Government.” Pivert indignantly denied that he was a “Trotskyite” and proposed a “fighting government” – i.e., the formation of another Blum government immediately, for which he received 894 mandates. The victory of the right-wing bureaucracy was sealed with the election of the new CAP, on which there are 18 supporters of Blum-Faure, 9 of Zyromski-Bracke and 6 of Pivert. The Stalinists, having toyed with the slogan of “Thorez to power” (Thorez being the General Secretary of the CP and its outstanding leader at present) on July 14th, were the next to cause the political pulse to rise when, on July 29th, L’Humanité (official organ of the CP) ran a front-page editorial for the immediate consummation of organic unity. “The workers want the united party. It was a mistake to have split in 1920.” All this of course, with one eye cocked on the cantonal elections; for, under the French system of run-off elections and the People’s Front agreements organic unity would mean that the unified party (which the Stalinists would be sure to dominate as they have in Catalonia in the case of the PSUC) would gain at the expense of the Radicals. Radicals Divided The Radicals, themselves, were meanwhile being torn in two. The so-called left wing, dominated by Daladier-Herriot and using the notorious Chautemps, of Stavisky scandal fame, as their mouthpiece, were confident that they could continue to use the alliance with the CP and SP to their own advantage.

Fortified by increasing support from the big bourgeoisie (including Le Temps) they have so far kept the upper hand as against the so-called right wing, led by Caillaux, Bonnet and Delbos, who want to break with the CP and form a center government with Flandin, Laval and Co., more or less on the model of the old “cartel” governments. The People’s Front has entered its stage of permanent crisis. The government must more and more function openly for what it is – the conscious instrument by which the bourgeoisie maintains its oppression of the masses. That is the real significance of the communiqué of Oct. 2. What else can it mean when “the government recalls to all citizens the necessity for public order and social discipline,” when it makes an appeal to the workers “to renounce definitely ... all occupation of factories,” when it is “resolved to put an end to the agitations and activities of certain foreigners on the soil of the republic”? All the parties of the People’s Front are afraid of one thing above all – that the workers will become fed up with the continued treachery of the People’s Front and will take matters into their own hands again, as they did in the glorious days of June 1936. That is why all the various proposals, contradictory and self-contradictory as they are, must yield before the imperative necessity for the French bourgeoisie to complete the establishment of l’union sacrèe, the national unity which will permit them to enter the coming war without any internal dissension at home. The cantonal elections are important only insofar as they will elect the people who will then elect the members of the Senate. Undoubtedly, they will witness a “victory” for the People’s Front, especially for the Stalinists, now the strongest single party in France. Apropos of the Senate, it is necessary to recall that part of the new program of the SP, published after the Marseilles Congress, was for the reform of the Senate. When I asked Maurice Paz, member of the CAP and authoritative spokesman for Blum, “How can you expect the Radicals to carry out your new program, when the first program hasn’t been carried out,’’ he replied: “If the Radicals don’t accept our new program, we must then finish the first program.” Somewhat perplexed by this “logic,” I took my question to Jean Longuet, grandson of Karl Marx and an important cog in the reformist bureaucracy. This worthy stated quite baldly: “We have entered into an alliance with the Radicals. This entails certain responsibilities on our part, which we must be prepared to carry out.” Such is the leadership that the French workers have today! Sharp Struggles Ahead What a picture France presents today! The crisis is evident. Mass revolutionary leadership does not yet exist. The fascist movement is divided within itself and not yet prepared to take power. The bourgeoisie continually lower the standard of living of the workers by depreciating the franc, and incidentally weaken the position of the government as the elections approach. Hundreds of workers and peasants are being massacred in the French colonies, in Indo-China, in Algeria, in Morocco. Bonapartism rears its ugly head. Bourgeois democracy has outlived its historical usefulness. The counter-revolution is being prepared behind the backs of the People’s Front. The results of the elections can only intensify the crisis. If the workers enter the path of direct class struggle action in the near future, the bourgeoisie may be forced to rely upon a Blum-Thorez government to strangle the revolutionary initiative of the masses. Otherwise, if war does not intervene, the government may witness a steady drift to the right. In any case, complicated as the French political scene is, we do not hesitate to predict that Chautemps will fall in the not-too-distant future and that the French workers will be face to face with a ferocious reaction, wielded by the Stalinists, militarists or fascists, or any combination of the three. No, the course has not been altered by the French cabinet! It is simply that the French bourgeoisie are preparing for tomorrow. Will the workers be ready? Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 23 November 2014

Vance Archive | Trotskyist Writers Index | ETOL Main Page T.N. Vance Notes of the Quarter The Eisenhower Recession The Causes and Depth of the Economic Decline (March 1958) T.N. Vance, The Eisenhower Recession, The New International, Vol. XXIV No. 1, Winter 1958, pp. 3–9. Transcribed by Ted Crawford. Marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). What kind of recession? It is now clear that the Eisenhower recession is no mild, inventory adjustment. In six months, from August 1957 to February 1958, the Federal Reserve Index of industrial production has declined from 145 to 130 – a decrease of more than 10 per cent. Unemployment in February is officially placed at 5,173,000 – an increase of about two million in six months, placing official unemployment at the highest post-World War II level, exceeding by an appreciable amount the 4,700,000 reached in 1949-1950, prior to the break of the Korean war. Steel production is at 52.4 per cent of capacity against 93.5 per cent a year ago. Weekly steel production is currently at 1,415,000 tons – almost a million tons a week less than a year ago. Motor vehicle production is running at 101,266 units a week, compared with 161,865 vehicles in the comparable week 1957. Oil production and freight car loadings are off substantially. In fact, all durables show a 10 per cent decline from February, 1957 to February 1958, with consumer durables down 20 per cent. Business failures are way up, and the pressures for the Federal government to “do something” are increasing daily from virtually every class and every segment of society. It appears likely that March figures will show further declines. Aside from Fortune magazine and certain other Republican spokesmen for the big bourgeoisie, most analysts and commentators are ready to concede that this is the most serious post-war recession (in fact, before public relations became the chief science of government, this would have been called a depression) and that there will be no immediate upturn. Writes a New York Times financial columnist in the issue of March 23rd: “As the week ended, it was clear that the recession was still in progress, though slowing perhaps. While some of the key economic indicators are still sharply depressed from year-ago levels, their recent rates of decline have slackened. This has led to the belief in some quarters that a ‘bottoming-out’ of the downtrend might be imminent. But little hope is held for any marked up-turn before the fourth quarter of this year or early 1959.” (Italics mine – T.N.V.) To be sure, this is not 1929–1933, but it is also not 1948–1949 nor 1953–1954. One should not forget that the recession of 1948–1949 was undoubtedly cut short by the timely (from an economic point of view) arrival of the Korean war. And the recession of 1953-1954 was probably held to minimum duration by the passage of the “tax swindle” Revenue Act of 1954 providing, among other things, for accelerated depreciation. It is also an open secret that major forces within the Eisenhower administration preferred to ignore the signs that the economy was softening and attempted, through strict credit controls and high interest rates, to induce a “little” depression. The big bourgeoisie, whose captive Eisenhower is, has simply been pursuing the class struggle in its own interests. As we said in our article in the Summer 1957 issue of The New International (p. 178): “The big bourgeoisie demand a halt to inflation, or rather they use the concern of the working classes to prevent inflation as a device for getting the government to raise interest rates and to place a squeeze on small and medium-size business.” It goes without saying that among the calculations of big capital is the expectation that a working class with 5,000,000 or so unemployed will be more docile and its unions more “amenable to common sense” when negotiations for new contracts take place. Like a breath of clean fresh air, the Eisenhower recession has suddenly swept away all the nonsense about capitalism having achieved “permanent prosperity.” It is clear that the Eisenhower recession is a major cyclical downturn in the epoch of the Permanent War Economy. Its severity is not to be compared with the Great Depression of the 1930’s, but only because capitalism has entered a new stage, which we have named the Permanent War Economy. As we forecast at the conclusion of our previously-quoted article in the Summer 1957 issue of The New International: “The impossibility of continuing to expand in all three departments of production will lead to a deteriorating economic situation and in the relatively near future to the beginnings of a first-rate political crisis.” The deteriorating economic situation is at hand and the political crisis is about to unfold. II What has happened to the war outlays ratio? In the epoch of the Permanent War Economy stage of capitalism, a prime mover becomes the ratio of war outlays to total production, as we have explained on numerous occasions in these pages. In our article in the Summer, 1957 issue, we presented up-to-date calculations, from which we extract merely the ratio of war outlays to total production from its peak in 1952 through 1956: Ratio of War Outlays to Total Production Year Ratio % 1952 16.9 1953 16.8 1954 14.5 1955 13.0 1956 12.7 We estimate that this crucial ratio remained the same in 1957 as in 1956, namely, 12.7 per cent.

In our article in the Summer, 1957 issue, we presented up-to-date calculations, from which we extract merely the ratio of war outlays to total production from its peak in 1952 through 1956: Ratio of War Outlays to Total Production Year Ratio % 1952 16.9 1953 16.8 1954 14.5 1955 13.0 1956 12.7 We estimate that this crucial ratio remained the same in 1957 as in 1956, namely, 12.7 per cent. How, then, could there have been such a sharp decline taking place during the latter part of 1957? A year, of course, is a rather long period of time and such a unit of measure tends to blunt the cyclical fluctuations. These can be seen by examining quarterly movements within the economy, as is also the case for the overall picture of economy. Gross national product, for example for the year 1957 (see the February 1958 issue of the Survey of Current Business) is estimated at $434.4 billion almost a five per cent increase in prices over the $414.7 billion figure of 1956. To be sure, practically all the increase represents the inflation in prices, but the fact is that for the year as a whole 1957 set a production peak. 1958, of course, will be another story. Yet, if one examines the quarterly movements, the steady upward trend reached its peak in the third quarter, with GNP at a seasonally adjusted annual rate of $440 billion, declining in the fourth quarter to a level of $432.6 billion. We can thus pinpoint, so far as gross national product is concerned, the third quarter of 1957 as the start of the Eisenhower recession. And August appears to be the month in which most meaningful indexes turned downwards. If we examine the ratio of war out-lays to total production in 1957 by quarters, we obtain the following picture (using estimates of the Department of Commerce, in accordance with methods set forth in the Summer 1957 and March–April 1953 issues of The New International): 1957 Quarterly Ratios of War Outlays to Total Production I Quarter 12.9% II Quarter 13.0% III Quarter 12.5% IV Quarter 12.5% Thus, a decline of about four per cent took place in the war outlays ratio between the second and third quarters of 1957. The decline was based on the planned reduction in war outlays by the Eisenhower administration, under the influence of the budget-cutting drive spearheaded by big business organizations and representatives. This, of course, occurred at a time when total output was still increasing and helped to bring about the end of the boom and the beginning of the recession. A war outlays ratio of 12.5 per cent brings us back almost to the pre-Korean level and materially weakens one of the major sustaining props under the economy. As was to be expected, the Kremlin came to the rescue of sorely beleaguered American capitalism with the Sputnik and the manner in which it was launched. Immediately, the budget-cutting drive ceased and an increase in “defense” expenditures was sanctioned by all classes in American society. The difficulty is that the Federal bureaucracy is a ponderous machine and it takes time for it to move. It will still be several months, before the planned increase in war outlays will be realized in the form of increased production and employment. Meanwhile, the clamor for immediate action steadily increases. A tremendous debate has arisen between the advocates of increased public expenditures (in which camp are most of the leading Democrats) and the supporters of an immediate tax cut (in which camp are a number of Republican leaders). Many Republicans, of course, still favor doing nothing; and the Administration has stated that it will wait another month before deciding whether special government intervention measures are required. In this connection, it is interesting to note the position of Professor Arthur F. Burns, formerly Eisenhower’s chief economic advisor. He stated in a speech delivered in Chicago on March 22, and reported in The New York Times of March 23, 1958: “If, on the other hand, we delay more than a very few weeks, in the hope that economic recovery will come on its own by midyear, we shall be taking the risk of having to resort later to drastic medicine.” Burns, it should be noted, is on record as favoring an immediate and permanent “broadly based” $5 billion tax cut. While a tax cut does not possess the “multiplier” effects of an increase in the war outlays ratio, it can have some hypodermic effect, depending on the nature and size of the tax cut. Neither approach, by itself, carries any promise of arresting the decline in capital accumulation – and it is this, more than any other factor, that bothers the more knowledgeable defenders of the bourgeoisie when they glibly predict that the recession will be of short duration. III Why the decline in capital accumulation? The figures on capital formation or accumulation always leave much to be desired. Nevertheless, the present trends are unmistakably clear and disputed by no one. Capital accumulation turned downward in 1957 and will continue downward throughout 1958. If we take the figures on gross private domestic investment in constant (1947) dollars of the Department of Commerce, we get the following totals: Gross Private Domestic Investment (in Billions of 1947 Dollars) Year Billions of Dollars 1953 38.5 1954 37.9 1955 46.6 1956 47.6 1957 44.4 Here, the effects of the accelerated depreciation provisions of the Revenue Act of 1954 are apparent in 1955 and 1956.

Yet, a decline of almost seven per cent set in 1957, and all forecasts for 1958 reveal the expectation of further and sharper declines. If we confine ourselves to plant and equipment expenditures, the most decisive portion of capital accumulation, we find a dramatic rise from $26 billion in 1954 to over $37 billion in 1957. Yet, here, too, the quarterly analysis of 1957 figures shows a decline from a third quarter seasonally adjusted annual total of $37.75 billion to a fourth quarter level of $37.47 with a sharp decline expected to be shown once the first quarter of figures become available. The economic crisis is revealed, above all, in the sudden decision of capitalists to forego planned investments in plant expansion or decision of big corporations to reduce sharply expenditures for new plant and equipment. It is as if all of a sudden the capitalist class, or at least large segments of it, has reached the conclusion that present capacity is more than ample to take care of existing demand. In this respect, the Eisenhower recession is typical of a classical capitalist depression, albeit it takes place in a different epoch and with the economy operating at very high levels. The fact is, however, that this is a durable goods crisis. In virtually every such industry, idle capacity under capitalist conditions of production exists. In some cases, such as the railroads, the industry is permanently sick and an intelligent bourgeois would take the lead in favoring nationalization. The American bourgeoisie, however, especially its Republican wing, is so immersed in the fetishism of private capital that it will drive some of its leading elements to suicide rather than permit its state to socialize the losses of an important basic industry. Having accelerated depreciation allowances over the last three years thereby borrowing from future capital accumulation, the bourgeoisie is in a quandary. Another “gimmick” of this nature is not in the cards, although watch for certain advocates of a tax cut to stress the “necessity to provide a stimulus for investment, for those who make jobs.” And with capital accumulation in a state of obvious decline, the only real remedy that the bourgeoisie has is to increase government expenditures, which again brings them face to face with the fetishism of private capital that dominates especially the more Republican sections of the bourgeoisie. Hence, the indecision of the Eisenhower administration, and its plaintive hope that by postponing a decision as to a tax cut or sizable increase in government expenditures, or both, the economy will suddenly right itself, thereby avoiding the necessity of a decision. IV What about the built-in stabilizers? The answer is that despite much room for further improvement, above all the need to increase the amount of unemployment insurance and its duration, as well as other aspects of government – supported purchasing power, the built-in stabilizers have worked. An interesting and essentially correct article on this subject appears in the Review of the Week section The New York Times of March 23, 1958 by economics reporter Edwin L. Dale, Jr. Comparing the postwar slumps with that of 1929, aside from the fact that the decline in production was greater and more severe in 1929, Dale properly points out that the main difference has been that personal income, due to the built-in stabilizers, has declined much less. He puts it this way: In 1929–30, personal income fell off about 8 per cent in the first seven months of the slump. This meant a sharp and severe drop in purchasing power. Since that time there have been added unemployment compensation, other social security payments affecting mainly the aged and farm price supports. These “income cushions,” otherwise known as built-in stabilizers, have worked beautifully in the postwar slumps. Compared with the 8 per cent decline in personal income in 1929–30, the decline in 1948–49’s first seven months was 3.1 per cent, while in 1953–54 it was 1.9 per cent and 1.3 per cent in 1957–58. This means that purchasing power in each postwar slump has fallen far less than production and considerably less than employment. Of course, without the development of the Permanent War Economy, these built-in stabilizers would be helpless to stem the tide of recession. By themselves, unemployment insurance and other purchasing power supplements would be relatively powerless and, as in the case of Germany under the Weimar Republic, would simply be swept away by a desperate and impoverished middle class driven to the support of fascism. That Dale is not so sure of the outlook can be seen from the conclusion of his article: This postwar experience is an illustration of why the present situation is such a difficult one. True, the gods have once again provided a lucky break – the post-Sputnik increase in defense spending. But there is real doubt that this will be enough. Hence the widespread belief that this recession is providing much the most severe test of whether modern American governments can and will take the right actions to cure successfully a serious slump. (Italics mine – T.N.V.) V Whose anti-recession program and for whom? The significant fact is that the Eisenhower administration, despite its being the creation of the fetishists of private capital, has already taken governmental action to try to stem the tide of recession. The government has lowered the rate of interest, through its control of the money markets, and attempted to ease credit. It is clear that these actions by themselves will not suffice. Certain foreign economic measures, as well as certain military expenditures, are presented as necessary to stimulate economic recovery, a tactic that riles the more orthodox Republicans. Gestures are being made in the direction of trying to persuade the states to extend the period of unemployment insurance benefits.

Gestures are being made in the direction of trying to persuade the states to extend the period of unemployment insurance benefits. All this is a far cry from the last Republican administration under Hoover. Naturally, the Democrats do not suffer nearly to the same degree from the fetishism of private capital, and hence (especially as an opposition political party) they are developing all kinds of proposals for large-scale public expenditures. Since the most optimistic economic forecast merely hopes for a leveling off at the bottom during the second quarter and perhaps a slight upturn by the end of 1958, and since 1958 is an election year, it is quite apparent that there will be some type of tax cut in 1958, possibly a temporary one along the lines of the Committee for Economic Development proposal. Naturally, any flat percentage tax cut will be of greater benefit to the upper income groups than to the lower. As always, when major economic policy questions become matters of practical politics, the class struggle has an ugly habit of intruding itself, to the despair of the “classless patriots.” A tax cut can have art immediate effect, but the question of “for whom?” is most relevant. Instead of the trade-union movement making pious representations to Eisenhower, it is time that labor developed a hard-hitting political-economic program, divorced from both the Democrats and Republicans. Among the planks that such a program ought to include are the following: Developing the responsibility of society for the existence of unemployment and the support of the unemployed by raising benefits to a minimum of one-half of the previous wage and increasing the duration of unemployment insurance benefits from the present maximum of 26 weeks to 35 weeks. A program of this type should be financed by a capital levy (five per cent would be more than adequate on all aggregates of private capital in excess of one million dollars. Nationalizing those industries whose output is essential to the public welfare and which can no longer be operated profitably under private capital. The starting point should be the railroads, with an immediate perspective of including all interstate transportation. A large-scale public Works program, starting at $5 billion for the first year, to help build such institutions as schools, hospitals, roads etc. Take the profit out of war industry by limiting profits to a maximum return of six per cent on invested capital. Nationalize those industries whose output is 100 per cent for military purposes. Reducing Federal personal income taxes by increasing the dependency credit from $600 per dependent to $900, thereby eliminating the lower income groups from the burden of Federal income taxation, and making the existing burden more equitable than at present. There are other measures that unionists and socialists could advocate. The important point, however is that the pressure of the unemployed and the rank and file on the trade union leadership is bound to increase. As these economic pressures develop and the longer the Eisenhower recession lasts, the more powerful will the pressures become, the sooner will become apparent to broad sections of the American working class that only through class political action can even the most elementary of economic demands be satisfied. The forthcoming political crisis will usher in a period of regroupment of political forces among all classes. Now is the time for labor to lay the foundations of independent political action! T.N. Vance March 1958 Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 15 January 2020

Main NI Index | Main Newspaper Index Encyclopedia of Trotskyism | Marxists’ Internet Archive New International, November 1938 Correspondence 1 From New International, Vol. 4 No. 11, November 1938, p. 351. Transcribed & marked up by Einde O’Callaghan for ETOL. (Note: Comrade Demby recently returned from a trip to Europe where he had an opportunity to observe the labor and revolutionary movement.) EVERY COMRADE in Europe, partisan of the Fourth International or even bitter opponent (excluding, of course, Stalinists) who can read English, reads The New International and eagerly awaits the next issue. What impressed me most was the universal acclaim with which The New International is received. It is everywhere regarded as the outstanding Marxist journal in the world. The comrades read it from cover to cover and discuss its contents. In fact, issues are passed around from one to the other and put to great service. I have seen comrades in most of the countries of Europe go without meals and pool their pennies in order to raise enough money for a subscription to The New International. Considering the number of comrades and sympathizers who can read English, the circulation of The New International in Europe is certainly much higher than in the United States. Actually, it has done far more for increasing the prestige of the SWP than anything else we have done. Further, The New International is the best organizer that the Fourth International has. Not only individual comrades, but in some cases, entire groups have been won to the Fourth International on the basis of The New International, a copy of the magazine having found its way into their hands in some way or other. I only wish that our own comrades would appreciate The New International as much as the European comrades do, and as much as The New International deserves. Frank DEMBY Top of page Main NI Index | Main Newspaper Index Encyclopedia of Trotskyism | Marxists’ Internet Archive Last updated on 2.4.2013

Vance Archive | Trotskyist Writers Index | ETOL Main Page Frank Demby Congress Throws Burden of War Billions on Labor (July 1941) From Labor Action, Vol. 5 No. 29, 21 July 1941, pp. 1 & 4. Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). As the July 1 deadline to begin the new fiscal year approached, the duly elected representatives of the people put on their annually astonishing burst of speed and voted the largest federal budget in the history of the United States. Almost 70 per cent of the 1942 fiscal budget will go for war preparations. What has been happening to the federal budget can readily be seen from the table: (Expenditures in millions of dollars) Total Expenditures War* Normal % Budget for War Fiscal year 1940 (actual) 8,998 1,559 7,439 17.3 Fiscal year 1941 (actual) 12,710 6,948 6,662 41.6 Fiscal year 1943 (planned) 22,269 15,500 6,768 69.6 * Expenditures for war (exclusive of debt retirements) include only those directly listed by the Treasury under “National Defense.” However, many hundreds of millions of dollars appropriated for other agencies will directly and indirectly aid in war preparations. More money will be spent for war preparations from July 1, 1941, to June 30, 1942, than was spent for all purposes during the past fiscal year. The total expenditures for the coming year are expected to exceed the previous record, during 1938–1939. by almost four billion dollars. Moreover, this total will undoubtedly be exceeded as the drive toward entry into a “shooting war” accelerates, requiring the passage of huge deficiency appropriations. From 1940 to 1941, direct appropriations for war increased about 400 per cent. From 1941 to 1942 they will increase at least 250 per cent more. These figures simply mean that the United States has truly entered upon a long period of war economy. Representatives of the government and the boss press have been thundering at us for the past several months what this will mean to the working population of the country – gasless Sundays, reduction in the use of electricity for the home, no more aluminum pots and pans, etc. But it will mean much more than a few inconveniences in our normal habits of consumption. The burden of the war economy will be thrown onto the backs of those who toil and sweat for a living – that is the real meaning of this war budget. One of the first direct indications of this was the cutting down of the total relief appropriation to $910,905,000. This means a reduction of more than $457,000,000 from last year’s relief appropriation. Translated into human terms, it means that 700,000 of the 1,700,000 persons now on WPA will have to be dropped immediately. The New York Times, in its report of this step, says: “In both Houses, the majority contended that in the coming year defense industries will absorb many of those dropped from the rolls, but at the same time, Congress was told by WPA officials that 5,500,000 persons will be unemployed during the next twelve months and that because of the uneven distribution of defense contracts many thousands were bound to suffer because of the relief cuts.” (Emphasis mine – F.D.) We can be not exaggerating the number of unemployed. Labor sources indicate a much higher figure. Moreover, dislocations in the war economy produced by the shifting of many factories from the production of peacetime consumer goods to war-time producer goods and the inability to procure some necessary raw materials for war production will undoubtedly throw many additional thousands of workers into the ranks of the unemployed. This, however, is only the beginning of the story of how the developing war economy will mean a catastrophic decline in the living standards of the masses. War costs money. World War I cost the United States, according to the late President Coolidge, $100,000,000,000. The tremendous increase in man’s capacity for destruction in the intervening quarter of a century means that World War II will cost the United States a much greater sum. It is expected that revenues for the 1942 fiscal year will total about $12,000,000,000, about five billion dollars more than the past year, but still ten billion dollars short of what is to be spent. The deficit, of course, will be covered by government borrowing. This will raise the national debt by June 30, 1942, to an expected $57,500,000,000. It probably will be much larger coming close to the present statutory limit of 65 billion dollars on the federal debt. Interest payments on the national debt during the past year amounted to $1,111,000,000. The overwhelming majority of these payments went to the banks and insurance companies. This year these companies will receive even more. A rising national debt, particularly one based on a war economy, greatly increases the danger of inflation. Already Leon Henderson, federal price control administrator, speaks of the price situation as “very serious.” He believes that the cost of living is bound to go up and that far-reaching controls will be needed, particularly over wage rates. The cost of living has already gone up almost 5 per cent during the past year, more than nullifying most of the wage increases that some sections of the working class have won through strike action or the threat of strikes. An indication of what is in store for the workers is shown by the wholesale commodity index of the U.S.

Bureau of Labor Statistics, which has risen almost 50 per cent since the outbreak of World War II. Retail prices always follow wholesale prices, as a rule, even though they lag behind somewhat. In other words prices, especially prices of necessities, will continue to rise during the next year – meaning a further and really substantial decline in the standard of living of the American workers and masses. Nor is this the whole story of what the war budget means. The increased revenues will be covered only in small part by increased yields from existing taxes. The House Ways and Means Committee has not yet reported out the new tax bill. When it does I shall analyze it in detail. In will be raised through new excise taxes, which will be passed on to the consumer in the form of higher prices. Practically all of these will bear most heavily on the workers and those in the low income brackets. In addition, the bulk of the increased revenue from income taxes will come from the middle classes. The most damning indictment of the proposed that it proposes a mere 10 per cent increase in the rates for the excess profits tax. This is a drop in a bucket and still leaves the excess profits tax as a pure swindle. The opposition of the Workers Party to the war budget flows from our opposition to the imperialist war toward which Roosevelt is heading us. All sections of the working class should therefore oppose this war budget. The workers, especially the organized workers through their trade unions, must oppose this war budget because it means death and strangulation for them. It means a tremendous decline in their standard of living at the same time that the big capitalists are raking in fantastically high profits. It means a steady undermining of the hard-won rights and civil liberties of the workers as the capitalists try to solve the budgetary crisis by a more and more open drive to institute a rigid totalitarian regime in this country. We are not in the habit of giving run their government. But we have the right and the duty to point out to the workers that there is absolutely no reason why the main burden of the war should be shouldered by the workers and masses. There is no rational reason why people should be unemployed and starving in this country of wonderfully abundant resources and highly developed technical skills. There is no reason why prices should go up, why indirect taxes, which fall most heavily on those who can least afford to pay them, should increase. In short, there is no reason why the standard of living of the working population should go down while a few build up huge fortunes, except that this is the way the capitalist system functions, particularly in war-time. Let the capitalists pay for their war! They can afford it! Let the government levy a 100 per cent excess profits tax. Take all the profits out of war. Nationalize the war industries and place them under control of the workers. Place a capital levy on the accumulated fortunes of big business men, wrung from the sweat and blood of the workers, and there can be a steadily rising standard of living and the preservation of democratic rights! Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 5.1.2013

Vance Archive | Trotskyist Writers Index | ETOL Main Page Frank Demby Await Nazi Move in Czechoslovakia Hlitler Threat Arouses Extreme Nationalistic Fervor; Workers View British Efforts with Skepticism (August 1938) From Socialist Appeal, Vol. II No. 35, 27 August 1938, p. 3. Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). PRAGUE, Czechoslovakia, Aug. 10. – This magnificent city, the juncture between East and West, has been literally overwhelmed by an influx of newspaper correspondents since the beginning of this month – the occasion, of course, being the arrival of Lord Runciman and his entourage. On the surface, Prague is calm; the people do not seem unduly excited in view of the critical situation. They know, at least, that regardless of the results of Runciman’s mission, there will be no war while Runciman is here, so they calmly pursue the even tenor of their ways, take vacations, sip their beer in the many pleasant cafes and talk – mainly of the Russo-Japanese situation, rather than of Runciman and Hitler, whom they would like to forget. The experienced observer, however, is not fooled by the easy-going disposition of the Czechs. There are countless bits of evidence which reveal the tension beneath the surface and explain the highly surcharged atmosphere of Prague, when compared with London or Paris. One can stroll any evening down the stately Vaclavske, Prague’s Broadway and Fifth Avenue, and notice the number of soldiers who walk briskly past, saluting each other. The population, from capitalist to worker, eyes them with pride. One can almost read behind the gleam in their eyes their obvious thoughts: “There go our soldiers. Look how strong and well-trained they are. If Hitler thinks that he will take Czechoslovakia like he took Austria, he is making a big mistake. We will fight, everyone of us; and our army, almost a million strong, is the best-equipped in the world.” How many times now have I heard such thoughts from the lips of various people, representing every social strata and class! Speak No German It is obvious that an intense wave of nationalism and patriotism has swept over this small, elongated state, artificially created by the Treaty of Versailles, and now already half inside the jaws of Hitler’s Greater Germany. Instances are too numerous to mention, but one made a profound impression upon me. I knew that Czechoslovakian is a Slavic language and would be so much gibberish to me, but I did not anticipate any language difficulties as I took it for granted that almost everyone in Prague would speak German. Time after time German drew no response at all. Finally, I asked a comrade to explain this. He replied: “Oh, yes! Most Czechs speak German, but they will not do so nowadays if they can avoid it.” The reasons for this chauvinistic sweep are not hard to find. Hitler’s annexation of Austria made the Czech bourgeoisie realize that they were next. Relatively far more powerful and clever than the Austrian bourgeoisie, the Czech bourgeoisie was determined to fight for the preservation of their internal imperialist domain, the right to exploit the nine millions of Germans, Slovaks, Ruthenians, Hungarians, etc., who comprise a definite majority of the total population of 15,000,000. When the general mobilization was called on May 21, there were many misgivings in foreign capitals, even, it is rumored, in the Presidential Palace. Only the General Staff of the Army was confident that the mobilization could be achieved. They knew the strength and training of the army, and the superiority that the famous Skoda munitions works gave them. It turned out to be a master stroke. Everything went off like clockwork. In some towns in the Sudeten areas when soldiers began to appear, they thought it must be the advance guard of Hitler’s legions The Henleinists turned out to welcome them, only to be immediately disillusioned. Hitler took pause and decided that that was not the moment. The result was to raise Czech patriotism to a feverish pitch. Class Lines Forgotten But far more important than the strategy and propaganda of the bourgeoisie in the development of the nationalistic spirit here has been the complete degeneration and capitulation of the mass workers’ organizations, the Communist Party, the Social Democracy and the trade unions. They have completely solidarized themselves with Benes in an unwritten People’s Front and, with the exception of the German Social-Democratic Party (in Sudeten Czechoslovakia), have abandoned even making a pretext to fight for the self-determination of the national minorities. While the Stalinist apparatus is concentrated in Prague, having nothing at all in the Sudeten areas, its 40,000 members wield a far greater influence proportionately than the 180,000 members of the Czech Social Democratic Party and the 40,000 German-speaking Social Democrats. It is important to note, however, that while the Stalinist influence is on the increase, it is largely amongst the intelligentsia and the petty-bourgeoisie. Prague is already the second (next to Spain) largest concentration point of the G.P.U., outside of Russia, and the gangster apparatus, although a present quiet, is waiting for the time when it will be more politic for it to move more openly and freely. In fact, it is only the small voice of the Fourth International that is raised here against the dictatorial war plans of Czechoslovakia and the chauvinistic poison that has been injected into the bloodstream of the proletariat by these so-called workers’ leaders. Economic Crisis The present crisis is equally re vealed, although perhaps not so dramatically, in the economic field. True, the two gigantic enterprises of Czechoslovakia, the Skoda munitions works and the Bata shoe factories, are still showing profits, but at a diminished rate.

True, the two gigantic enterprises of Czechoslovakia, the Skoda munitions works and the Bata shoe factories, are still showing profits, but at a diminished rate. The currency is depreciated, the Czech kronen being placed in the category of the “blocked currencies,” along with the German mark and the Italian lire. This makes it quite advantageous for foreigners to visit but in spite of this the tourist trade of Czechoslovakia, which annually draws hundreds of thousands to its famous baths, has dwindled to practically nothing, and most of the baths are closed. Unemployment is increasing steadily, and the government has made absolutely no provision for relief. “Join the army or starve” is, in reality, the slogan of this “democratic” government; and of course, neither the C.P., S.P nor trade unions lift a finger in defense of the unemployed. As a matter of fact, the trade unions controlled by the Social Democracy, do not even exercise the strength which their number permit them, working hours being very long and wages low. The average Czech worker earns about $5.00 a week; Czechoslovakia may be a tourist’s paradise but hardly a worker’s. In true Rooseveltian Popular Front style the entire burden of the crisis and the war preparations is placed on the backs of the workers. What will Runciman do? This question I have propounded to many workers. Invariably they reply: “I don’t know. We hope for the best, but we do not expect anything from him.” In this, the Czech workers show admirable good sense and a healthy distrust for the chicanery of British diplomacy. The newspaper correspondents are beginning to chafe at the lack of news, but those on the inside predict that these conversations of Runciman will bring the Henleinists and the Government together over the same table, the object being a formula which will appease the situation for a time, as the notorious lag in England’s rearmament has even handicapped her in trying to achieve the Four-Power Pact. The difficulties are many. Believe War Inevitable England has no qualms about giving Hitler Sudeten Czechoslovakia. After all, it doesn’t belong to her, but it must be done “peacefully.” That requires time. Can Hitler wait a year to carry out the policy of peaceful penetration that is to be proposed? Moreover, while the Czech government is quite willing to grant the Nazis almost a free hand in the municipal administrations in the Sudeten area, such proposals will weaken their authority considerably, and they have already indicated that they will insist that control of the police, army and financial departments in the Sudeten cities remain in their hands. Whether Runciman can find a formula (and any formula must be at the expense of Czechoslovakia) that will be agreeable to both Henlein and Benes remains to be seen. The population here is skeptical, but in any case it believes that war is inevitable, and sooner rather than later. Meanwhile, absolutely no steps are taken by the government to arm the workers or to solve the nationalistic problem in an effective manner. Nor can any capitalist government do so, without unleashing a workers’ revolution. It is this that the Fourth International realizes, but which the Czech workers do not yet realize. The instinctive hatred of the workers for Hitler is legitimate and progressive. But they must be made to realize, as the new united organ of the Fourth International, Proletarske Noviny, points out that Hitler cannot be defeated, nor the independence of Czechoslovakia maintained, without at the same time pursuing an intransigent policy of class struggle against the Czech bourgeoisie. Only a workers’ state, part of the United Socialist States of Europe, can save Czechoslovakia. Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 14 September 2015

Vance Archive | Trotskyist Writers Index | ETOL Main Page T.N. Vance The Crisis in Distribution (May 1955) From The New International, Vol. XXI No. 2, Summer 1955, pp. 86–98. Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). While the economy keeps rolling on to new peaks of prosperity, with high levels of production and profits, there are some clouds on the horizon. These may be small, but they can grow. Moreover, they are discernible to more or less orthodox supporters of the present system. Above all, they perturb the defenders of small business. The Annual Report of the Select Committee on Small Business (of the United States Senate, 84th Congress, 1st Session, Report No. 129) in its report of March 1955 has this to say in its introduction: A searching appraisal of the position of small business within our economy during 1954 does not provide a basis for viewing the future of small, independent enterprises with complacence. In a sense, 1954 was a “normal” year. No war galvanized the industrial community. No depression swept large numbers of small enterprises out of existence. Indeed, the somewhat slower tempo of business activity which became apparent in 1953 and carried over into the first quarters of 1954, quickened perceptibly during the closing months of 1954. It may be assumed that a well-founded spirit of optimism about the immediate business outlook was responsible for the 11,981 business incorporations in December, the highest monthly total since January of 1947, and for the full-year total of 117,164 incorporations which exceeded those of each year since 1947. On the other hand, 10,300 fewer businesses of all types started in the first 6 months of 1954, compared with the same period of 1953, and Dun & Bradstreet recorded 2,224 more failures involving court proceedings or voluntary action likely to end in loss to creditors in 1954 than in 1953. Your committee realizes, however, that it is easy for selective indices to mislead those who hold that what seems good for the economy as a whole must of necessity also be good for small business. The fate of small, independent businesses is not chained by natural law to the more narrowly fluctuating fortunes of the larger and hardier units within the industrial complex. Countertrends are not only possible, but clearly discernible. To a businessman, the proof of the pudding must be in the profits. And it is precisely in the profit position of smaller manufacturing enterprises that your committee detects one of the basic aspects of the current small-business situation which is most disturbing. Whether measured by percentage of stockholders’ equity or by percentage of dollars of sales, the profits of smaller manufacturing corporations, after taxes, have shrunk since 1952, while, with few exceptions, the profits of the largest corporations have increased ... Profits as a percentage of dollar sales present a similar picture for the first 6 months of 1952, compared with the first half of 1954. On this basis, the smallest group’s money-making ability declined 60.9 per cent, while the biggest corporations showed an increase of 10.5 per cent. In addition, the small manufacturer’s share of total sales has drifted downward from 19 per cent in 1947 to 14 per cent in 1953, a trend which, if unchecked, can easily assume alarming significance. These and other factors strongly suggest to your committee that there are obscure, complex, and underlying forces at work within our economy that are inimical to the future of small, independent enterprise. To discover and correct these causes of the mounting disadvantages facing the small-business man should be a major concern of all who want to see preserved the vigor of our free-enterprise system.... Your committee has long been deeply disturbed over the multiplying evidences of concentration of economic power in the managements of a relatively few huge corporations. Oligarchic control over groups of vital industries, even though such control may be exercised within the letter of the law, must inevitably exert a contracting influence on freedom of endeavor. In each of its annual reports since 1951, your committee has stressed its belief that the threat of monopoly has not lessened, not remained constant, but has, in fact, assumed more menacing proportions. It would, indeed, not be stating the case with excessive emphasis to say that your committee’s uneasiness of former years has turned to grave apprehension.” (Italics mine – T.N.V.) The above findings, it should be emphasized, are those of the Senate Small Business Committee. Their concern over the growth of monopoly and the consequent weakening of small business is reinforced by the still more recent study of the Federal Trade Commission. As reported in The New York Times of May 20, 1955: “Business mergers, while still well below the pre-depression levels of the late Nineteen Twenties, are running at three times the 1949 rate.” The FTC “gave two major reasons for the current merger wave: an urge to expand production and an inability of smaller companies to get adequate financing for expansion.” (Italics mine. – T.N.V.) The tremendous accumulation of capital that has taken place in recent years is beginning to be accompanied by a fall in the rate of profit – attacking first the smaller capitalists.

– T.N.V.) The tremendous accumulation of capital that has taken place in recent years is beginning to be accompanied by a fall in the rate of profit – attacking first the smaller capitalists. The process is not an unexpected one. In discussing the relationships between accumulation of capital and the rate of profit, Marx states (Capital, Vol. III, p. 283): A fall in the rate of profit and a hastening of accumulation are in so far only different expressions of the same process as both of them indicate the development of the productive power. Accumulation in its turn hastens the fall of the rate of profit, inasmuch as it implies the concentration of labor on a large scale and thereby a higher composition of capital. On the other hand, a fall in the rate of profit hastens the concentration of capital and its centralization through the expropriation of the smaller capitalists, the expropriation of the last survivors of the direct producers who still have anything to give up. This accelerates on one hand the accumulation, so far as mass is concerned, although the rate of accumulation falls with the rate of profit. It may be objected that profits increased in 1954, but the increase did not help the rate of profit. This, moreover, is true of leading corporations. In the annual study of the National City Bank, contained in the April 1955 Monthly Letter, the return on net assets declined (for 3,442 leading corporations) from 10.6 per cent in 1953 to 10.3 per cent in 1954 despite a four per cent increase in reported net income after taxes. Imagine what the results would have been if not for the tax swindle law of 1954! States the National City Bank: In the manufacturing industries, which in number of companies and capital investment comprise over half of the totals for all lines of business included in our tabulation, the 1,778 reporting companies show combined net income up 4 per cent. Tax details given by the larger companies indicate that in 1954, on an overall volume of sales about 5 per cent lower than in 1953, pre-tax earnings were down 10 per cent. Liability for federal income and excess profits taxes declined by 25 per cent, with the portion of pretax earnings absorbed by such taxes in the two years declining from an average of 53 to 45 per cent.” (Italics mine. – T.N.V.) The dependence of private capitalists on the capitalist state for maintenance of the profits of the bourgeoisie as a class is thus shown in a relatively new and graphic form. Profits, of course, remain the end-purpose of economic activity (“the proof of the pudding”) under capitalism. One of the main props of the prosperity in the first half of 1955 has been the automobile industry. Never before in history has American capitalism produced automobiles at such fantastic rates. According to Dun’s Review and Modern Industry for May 1955, More cars were produced in the first quarter than in any other quarter in history. The record total of 781,000 cars reached in March was almost matched in April (a shorter month) as production continued at, the starting rate of about 30,000 cars per day, which means that cars have been rolling off the assembly likes at the rate of one each three seconds, night and day ... During the first half of 1955 more than 4 million cars will probably be made. Before 1949 there had been only one year – 1929 – in which more than 4 million cars were made during an entire year. Profits of the big three (GM, Ford and Chrysler) have been huge. The smaller automobile companies have been forced to merge in an attempt to remain alive. Meanwhile, what has happened to the dealers? They are not doing so well; in fact, they are not sharing in the profits of the big automobile manufacturers at all. Nor is the outlook likely to improve, as dealers have been forced to take unprecedented quantities of cars from the manufacturers. The same analysis in Dun’s goes on to say: The supplies of new cars with dealers rose noticeably to 624,277 in the beginning of April, to reach a postwar peak. However, at the present rate of sales which have been outrunning output, new car inventories are entirely reasonable. Notwithstanding the expansion in sales, The National Automobile Dealers Association reports that operating profits for new car and truck dealers are the worst in fifteen years. (Italics mine. – T.N.V.) IT IS NOT ONLY the small manufacturer, but the small business man in general whose position is steadily worsening, while monopoly capital is steadily strengthened. These fundamental trends of a capitalism that has outlived its historical usefulness more than a generation ago are reinforced and accelerated by the development of the Permanent War Economy. War outlays are necessarily concentrated in large aggregations of capital.

War outlays are necessarily concentrated in large aggregations of capital. The Senate Small Business Committee, in the previously cited report, states in the chapter on Military Procurement that “all business and Government agencies have experienced dislocations due to the conversion from the highly geared war economy of the Korean war period to a reduced defense-production economy. This transition period has been fraught with changes in Government buying policies, which have caused much concern within the ranks of small business and among Government officials charged with the responsibility of procurement functions.” Later on, it becomes clear that the concern is with “negotiated” contracts, as small business is suspicious of all contracts awarded by negotiation. When to this attitude is added the fact that “Since 1950 approximately 90 per cent of the dollar value of all purchasing has been awarded by negotiation, and the emergency exception has been widely used to justify this sharp departure from the basic method of advertising,” it becomes clear that despite all the double-talk small business has not been doing so well in receiving military contracts. Perhaps, if large-scale war outlays do not mean increased business for small enterprises at the manufacturing level, small retailers benefit from the existence of the Permanent War Economy. Not very directly, according to the Hoover Commission Report on Business Enterprises, for the digest published by the Research Department of the Citizens Committee for the Hoover Report bemoans the fact that government is allegedly taking business away from private enterprise by various forms of government enterprise. The magnitude of the competition is indicated by the volume of business done by commissary stores and post exchanges. The annual figures cited are as follows: 199 commissary stores in the US $185,000,000 239 commissary stores abroad 121,000,000 450 post exchanges in the US 470,000,000 2,700 post exchanges abroad 540,000,000 Thus, over $1.3 billion of sales are “lost” by retailers. The Hoover Commission observes that The whole operation [of commissary stores] is at least a vivid illustration of how bureaucracy can expand against the intent of the Congress, accompanied by a failure to include real costs. The real justification of the continued operation of most of these stores is a “fringe benefit” to the military personnel and their families. The question arises as to whether ... increased salary payments ... would not be more consonant with sustaining our economic system. What hurts is not only the loss of business, but the fact that millions of servicemen, and through them their families, are able to purchase a variety of commodities at substantial reductions from prevailing retail prices. From the point of view of the military budget, it would obviously be poor economy to raise military salaries in order to provide military personnel with purchasing power comparable to civilians. Such considerations do not intrude upon the cerebrations of the Hoover Commission, who conclude by asking: “Is this [government enterprises] ‘creeping socialism’?” The answer is a model of its kind: “Most of these projects were started for what, at the time, appeared to be justifiable operating reasons. Therefore, we cannot say that they were socialistic in intent. However, their perpetuation beyond the emergency period has led to the tremendous increase in the rate of growth of government wealth – as compared to private wealth – which the Harden Subcommittee cited. This is certainly an alarming symptom. Further, the rate is such as to suggest that ‘running’ is a more apt description than ‘creeping’.” Not only is large-scale manufacturing prospering, but retail business is running about 8 per cent ahead of a year ago. Perhaps there has been some slight decline in the rate of profit, and perhaps small manufacturers are having their problems but, state the apologists of the bourgeoisie, 1955 will be the best or second-best year on record. Not only will we have “two cars in every garage” (who was it who said “two chickens in every pot”?), but eventually “every family will have three cars.” This pious wish is supposed to solve the problem of maintaining the present high rate of automobile sales in the latter part of the year. The first signs of trouble occur as a rule, not merely in the difficulties that small businesses have in surviving, but in wholesale distribution. Marx puts it this way (Capital, Vol. III, p. 359): Hence we note the phenomenon that crises do not show themselves, nor break forth, first in the retail business, which deals with direct consumption, but in the spheres of wholesale business and banking, by which the money-capital of society is placed at the disposal of wholesale business. The manufacturer may actually sell to the exporter, and the exporter may in his turn sell to his foreign customer, the importer may sell his raw materials to the manufacturer, and the manufacturer his products to the wholesale dealer, etc. But at some particular and unseen point, the goods may lie unsold. On some other occasion, again, the supplies of all producers and middle men may become gradually overstocked. Consumption is then generally at its best either because one industrial capitalist sets a succession of others in motion, or because the laborers employed by them are fully employed and spend more than ordinarily ... the production of constant capital never takes place for its own sake, but solely because more of this capital is needed in those spheres of production whose products pass into individual consumption. However, this may proceed undisturbed for a while, stimulated by prospective demand, and in such lines the business of merchants and industrial capitalists prospers exceedingly. A crisis occurs whenever the returns of those merchants, who sell at long range, or whose supplies have accumulated also on the home market, become so slow and meager, that the banks press for payment, or the notes for the purchased commodities become due before they have been resold. It is then that forced sales take place, sales made in order to be able to meet payments. And then we have the crash, which brings the deceptive prosperity to a speedy end. (Italics mine.

(Italics mine. – T.N.V.) To be sure, Marx was discussing the turnover of merchants’ capital in the above passage, and describing the development of crisis in a fairly simple, undifferentiated type of capitalism that prevailed a century ago. He could not have foreseen the development of the Permanent War Economy stage of capitalism in decline, where production of the means of destruction becomes an integral “third” department of the economic scene. Constant capital is currently not only produced when needed by industries “whose products pass into individual consumption,” but also – and with equal social acceptability – when needed by industries whose products enter into military consumption. In some cases, the individual product that enters into military consumption is identical with that which enters into individual consumption. The ability of the state thus to subsidize whole industries (mining, for example) materially helps to stabilize the entire economy. Depending on the character and degree of state intervention in the economy, the traditional course of the capitalist business cycle becomes considerably modified. The possibilities of the boom culminating in sudden, abrupt crisis are remote so long as the political preconditions, nationally and internationally, of the Permanent War Economy obtain. Moreover, economic fact-gathering and knowledge have progressed to the point where any unsold goods are fairly conspicuous. They are either agricultural surpluses bursting out of government warehouses or automobiles bulging in dealers’ showrooms – to mention the two major points where quasi-crisis conditions are presently in the process of developing. Nevertheless, Marx remains eminently correct in stating that crises tend to originate with the wholesale level of distribution. In this connection, it is most interesting to examine the latest figures on business failures (as published by Dun’s, op. cit., p. 32). There were 2,854 failures during the first quarter of 1955 compared with 2,895 during the first quarter of 1954 – a decline of almost two per cent in number of failures. The liabilities represented by these failures declined from $134.6 million to $121.1 million during the year under comparison – a decline of ten per cent. Yet, against this favorable performance for the economy as a whole, wholesale trade is the only sector of the economy where the number and dollar volume of failures rises significantly from the first quarter of 1954 to the first quarter of 1955. The number of failures in wholesale trade increased from 289 to 337 – a rise of 17 per cent; while the dollar volume of the liabilities involved in these failures rose from $12.9 million to $13.7 million – a rise in excess of 6 per cent. By themselves, these figures could be merely episodic. Yet for the month of March – the latest month for which figures are available – business failures rose 12 per cent over February 1955. According to Dun’s, “Casualties were higher only once, in March 1954, in the entire postwar period.” This is the type of cloud on the horizon that may only be a speck today, but tomorrow can be very sizable. THE FUNCTION OF DISTRIBUTION, the turnover of capital in retailing and wholesaling, is fundamentally to realize the values and surplus values embodied in capital employed in production. Only in this manner can the capitalist cycle of M–C–M be completed and the capitalist achieve the profit that is his sole aim in business. When production increases faster than consumption (unless military expenditures consume the entire disproportionate excess of production), there is another cloud on the horizon that is symptomatic of quasi-crisis if it continues to grow. That all is not serene for the American capitalists may be seen from a glance at the figures on retail and manufacturing sales. Retail sales in 1946, the first postwar year, are reported at $102,488,000,000; in 1954 they were $170,664,000,000 – an increase of 67 per cent. Manufacturing sales, on the other hand, rose from $151,402,000,000 in 1946 to $287,707,000,000 in 1954 – an increase of 90 per cent. As a matter of fact, if the comparison is made with 1953, the postwar peak, the increase in retail sales remains the same, 67 per cent, while the increase in manufacturing sales reaches 100 per cent, as manufacturing sales for 1953 are estimated to have reached over $303 billion. While a portion of the increase in manufacturing must go to replace the constant capital that has been used up in prior production, and a portion (about $20 billion) goes into increased inventory that is presumably salable, it is clear that a sizable portion of the increase in commodity production (capital) has been immobilized by the state principally in the form of military stockpiles and government storage of agricultural surpluses. The use of state power, no matter how haphazard or inefficient it may be, for such equilibrium purposes introduces an aspect of planning into the anarchic system of capitalism that neither Marx, Lenin nor Trotsky could have foreseen in detail, as fundamentally the decisive aspects of state intervention and “planning” are products of the Permanent War Economy. Eliminate the threat of Stalinist imperialism, remove the social acceptability to all classes of the huge expenditures for war outlays, destroy the political basis for state intervention in the economy on such a huge scale, and the pre-World War II violent swings in the economy are immediately restored. The “triumph” of American capitalism today lies not so much in its ability to maintain an historically outmoded social system, but its ability to persuade the masses of the population that the Permanent War Economy is really the Welfare State. This, however, is a separate subject outside the scope of this article. Another way of expressing the fundamental economic developments that have taken place during the past decade as a result of the huge accumulation of capital is to refer to the increasingly high organic composition of capital, with its consequent rapid increase in productivity of labor.

Another way of expressing the fundamental economic developments that have taken place during the past decade as a result of the huge accumulation of capital is to refer to the increasingly high organic composition of capital, with its consequent rapid increase in productivity of labor. These tendencies we analyzed in Part III, Increasing State Intervention, of the original series on the Permanent War Economy (cf. The New International, May–June 1951, p. 150): “Precisely where the breaking point is likely to be, no one can say, but it is clear that the composition of capital is already dangerously high and constitutes a sword of Damocles, hanging over the unsuspecting head of such a highly-geared capitalist economy that in a few years it is possible to produce all the automobiles, television sets, etc., that can be sold under capitalist conditions of production.” Labor productivity, according to an unpublished study of the Federal Reserve Research Department, may have reached the fantastic figure of between four and eight per cent last year in manufacturing, against a normal current rate of increase of three per cent. The resulting rise in national income has, in turn, given rise to significant increases in personal savings. The forms of savings have recently been studied by Raymond Goldsmith. As reported by Will Lissner in The New York Times of May 29, 1955, “The information already developed has been credited with aiding in the formulation of policies that moderated recent tendencies toward boom and slump. Economists in close touch with the research going on predict that within five years enough will be known about the business cycle to banish major depression from the American economy.” What these economists ought more profitably to study is how to sustain the economy once production of the means of destruction declines appreciably below present levels. This is not to be interpreted as a forecast that such will happen. The basic decisions are now political in nature. But the Stalinist peace offensive has as one of its objectives the promotion of a political climate in western Europe and the United States that will bring about a reduction in war outlays on the part of American capitalism. It is by no means excluded that the Stalinists will achieve some degree of success in this part of their strategic aim. Without speculating about substantial reductions in war outlays, however, there are already evident signs of stress and strain in the field of distribution. The size of the average capital engaged in retail or wholesale trade is smaller than in manufacturing. Its return on sales is less, as it depends on a higher turnover of capital to maintain its share of the average rate of profit. By the same token, however, capital engaged in distribution is more vulnerable to minor changes in the business cycle. From the point of view of monopoly capital, the overwhelming majority of the almost four million enterprises engaged in retail and wholesale distribution are at best necessary evils. If a substantial percentage of merchants’ capital were to disappear, provided that the process did not rock the capitalist boat, monopoly capital would not be unduly concerned. Except for propaganda phrases, consequently, monopoly capital is not at all alarmed about the “mounting disadvantages facing the small-business man,” nor for that matter is monopoly capital the “vigorous defender of the free-enterprise system” that it poses as. As a matter of historical record, the decisive majority of commodities intended for consumption by individuals is produced by a relatively small number of monopoly capitalists. These manufacturers, except in the case of a few large aggregations of merchants’ capital, are able to ignore with impunity the desires and aspirations of retailers and wholesalers. During the Great Depression of the 1930’s, when the capitalist structure was rocked to its foundations by the ravages of the crisis, monopoly capital engaged in the production of consumer goods sought legislation to enable it to withstand the vicissitudes of competition. The result was the passage of the Miller-Tydings Act of 1937, which exempted manufacturer-retailer price fixing contracts from anti-trust prosecution. This was really the origin of the Fair Trade movement, whereby monopoly capital attempted direct control of the pricing activities of merchants capital. Under Fair Trade agreements, if a manufacturer enters into a minimum pricing agreement (price fixing agreement) with one retailer in one of the 48 states (there are at present 42 states where this monopoly practice is legal), all other retailers in that state who are selling the same commodity – whether they have signed a Fair Trade agreement or not – are bound to the schedule of prices dictated by the manufacturer. The main argument in favor of Fair Trade has always been that the manufacturer needs protection against those retailers (and wholesalers) who follow the practice of loss leaders; i.e., the manufacturer of a nationally branded and advertised product claims that he has spent considerable sums to establish consumer preference and desire for his product, and the “unscrupulous” retailer sells this product at a loss in order to lure customers into his store, on the theory that once they are in the store they will purchase other merchandise on which he makes his normal profit or more. Certain retailers, especially department stores, have been the main supporters of such price-fixing agreements, as they find it difficult to cope with the competition of specialty stores and discount houses who slash prices on branded merchandise. The fact that the consumer pays more under such monopoly practices as Fair Trade is, after all, relatively unimportant to the monopolist so long as his profit position is adequately maintained. The legislative history is important in only one respect – as the supplies of civilian products on the market increased in the postwar period, advocates of Fair Trade attempted to solve the problem on a state by state basis, once the Supreme Court declared that the Miller-Tydings Act could not be used to support Fair Trade. They found, however, that this would not work as there was an immediate and obvious conflict with the Federal antitrust laws. Consequently, Congress passed the McGuire Act in 1952 which exempts state Fair Trade laws from the provisions of Federal anti-trust laws. The McGuire Act gives permission to monopoly capital to establish price-fixing agreements at the wholesale and retail level on a state by state basis without fear of prosecution under Federal anti-monopoly laws.

THE GROWTH OF FAIR TRADE has been accompanied by an immediate and parallel rise in discount houses, much like the passage of the Prohibition Act was accompanied by the growth of bootlegging. Discount houses are no longer confined to New York and a few large cities. They have spread across the entire country. Everyone is “discount-conscious.” Every commodity that has a list price, or suggested list price, or whose retail price can be established in the minds of the consumer through advertising or any other device, is immediately sold at a discount. The havoc that this process has caused among various types of distributive outlets has given rise to what may properly be termed a veritable crisis in distribution. Discount houses are not to be confused with retail outlets that have periodic sales. A proper definition would have to confine the term to those retailers that are selling as a regular daily occurrence Fair-Traded merchandise at less than the Fair-Traded prices. How extensive is this practice? The surprising, or perhaps not so surprising, thing is that nobody knows. The estimates vary so widely as to be almost meaningless. Yet, unless there are some quantitative measures, it is impossible to analyze the current crisis in distribution. The same Annual Report of the Senate Small Business Committee, previously cited, has an interesting chapter on the Distributive Trades, in which we find the following illuminating discussion of the extent of discount houses: Various estimates have been made of the extent to which these discount houses have made inroads into more normal retail outlets. Spokesmen for the Toy Manufacturers’ Association and the National Retail Dry Goods Association, both of which operate in areas especially vulnerable to the competition of discounters, have provided your committee with their guess that the total sales volume of discount houses is about $5 billion. On the other hand, the United States Chamber of Commerce has given a figure of $25 billion, or five times as great, as its best guess of the extent of business being done by these outlets, most of whose business is done in fair-traded items. On this point, incidentally, the American Fair Trade Council feels that over 80 per cent of the discount houses’ revenue comes from prixe-fixed merchandise, and there seems to be no reason to doubt that the 80 per cent figure is close to the mark. Your committee, however, has no means and no data by which it could come to a decision on the relative reliability of either the $5 billion or $25 billion annual revenue estimate. Since it is generally agreed that only 10 per cent of total retail sales in the Nation are in fair-traded goods, the total amount of such business would come to about $18.7 billion with total sales of $187 billion. (Dun’s figure for total retail sales is about $170 billion, but the difference is not significant for purposes of this analysis.) Therefore, it would seem that the Chamber of Commerce figure overstates the income of the discounter, but your committee is unable to find any mutually agreed upon level between the $5 billion and $25 billion estimates. Naturally, precise information is not available, since the discount houses do not file reports with any agency of the Government or with any private association regarding the extent of their sales. (Italics mine. – T.N.V.) On the other hand, Housewares Review, a trade publication, in its May 1955 issue has an article by the editor on the Distribution Revolution. In it, he refers to 10,000 discount houses doing an annual volume of $500 million. To be sure, there are other types of discount operations, including supermarkets and mail order and catalog operations, but the figure given by Housewares Review for gross volume of discount houses looks like they placed the decimal in the wrong place. An annual volume of $500 million divided among 10,000 discount stores (the figure seems to be extremely conservative) would yield only $50,000 gross volume per store. A genuine discount house could not exist on such a small volume, as the key to a successful discount operation is large volume on a small mark-up, resulting in a much faster turnover of capital than the average retailer. Surely, a $500,000 average annual volume is more apt to be correct for the typical discount house than $50,000. On this assumption, the annual volume would be $5 billion, coinciding with the estimate of the Toy and Dry Goods Associations cited by the Senate Small Business Committee. Whatever the actual figures, it is clear that a very substantial percentage of the volume of many commodities, especially certain types of consumer durables, is sold at discount. In fact, E.B. Weiss, one of the main trade analysts of “off-list” selling, in a comprehensive article in Advertising Age for April 18, 1955, states: The president of Webster-Chicago had declared that “in the New York City area, 85 per cent of all major appliances were sold by discount houses in 1964.” That figure is correct as applied to the discount operation: not as applied to the discount house. He also said that the discount house is “tending to become more like a conventional dealer every day” – a statement that is not quite factual. A small handful of discount houses are opening more luxurious outlets and giving more services. But the total discount operation is far from conventional. If anything, the contrary would be a more accurate summation – in other words, the conventional outlet is tending toward the unconventionality of the discount operation – witness the circusy warehouse sales of department stores. While, as Housewares Review puts it, “The factory list price, made into a legalized point of reference for the discounter, became the discounter’s chief asset,” the fact remains that the average discount house works on a gross margin of 10–20 per cent, whereas the average department store requires a mark-up at least twice that of the discount house. How does the discount house do it?

How does the discount house do it? Masters, one of New York’s largest discount houses, has made its figures publicly available. They are analyzed by Housewares Review, as follows: DISCOUNTER AND DEPARTMENT STORE Costs as a Percentage of Sales PAYROLL 1952 % 1953 % Dept. Store 17.8 18.5 Masters 6.1 5.8 Excess 11.7 12.7 ALL OTHER EXPENSES Dept. Store 14.8 14.8 Masters 6.1 5.5 Excess 8.7 9.3 TOTAL COSTS Dept. Store 32.6 33.3 Masters 12.2 11.3 Excess 20.4 22.0 Thus, assuming that merchandise costs are identical (and many of the large discount houses receive larger quantity discounts from most manufacturers than do department stores), the discount house has definitely lower selling costs, lower overhead, and above all lower payroll. With a margin of 20 percentage points, or thereabouts, there is little wonder that the average discount house can undersell the average department store by an appreciable amount – enough to attract the average consumer. THE DISCOUNT HOUSE, and the discount method of operation, have been growing. This is not to imply that all discount houses are prospering and all department stores suffering. Many department stores are doing quite well, and recently a number of discount stores have gone into bankruptcy. Still, however, some old and honored names in retailing have disappeared from the scene: McCreery’s, Wanamaker’s and Hearns in New York, Loeser’s in Brooklyn, O’Neill’s in Baltimore, Famous of Los Angeles, and Alms & Doepke in Cincinnati. There is no doubt that a squeeze is beginning to operate on retail distribution. This is the central aspect of the crisis in distribution. The frantic seeking of other distributive outlets, the general chaos that prevails, are merely symptoms of the falling average rate of profit in distribution at large. Fair Trade was supposed to have protected the profit margins of the distributor and retailer. Properly policed it was supposed to have eliminated the discounter. At least, that was the theory on which the manufacturer sold the concept to the retailer. When the Supreme Court ruled in 1951 that the Miller-Tydings Act of 1937 applied only to those retailers who actually signed price agreements with manufacturers, large-scale price wars broke out in most major cities, with the result that retailers took the lead, assisted by manufacturers, in pushing through the McGuire Act of 1952. The vote was overwhelming in Congress, 196 to 10 in the House and 64 to 16 in the Senate. Yet after three short years of operation, Fair Trade would seem to be on its way out. States the Senate Small Business Committee, after reviewing the disparity of statistical estimates on the size of discounting: Even with that degree of statistical uncertainty, though, it is apparent that discounters do account for a sizable share of the retailing pie. Furthermore, any increase in their sales during the coming year which even closely approximates the growth of the past 12 months will undoubtedly provide a most definite and pragmatic answer to the question of what happens next in the fair-trade puzzle. In the opinion of your committee, a more serious challenge to the fair-trade laws than was ever presented by any court decision arises in the shape of these ever-expanding operations of discount houses located in those States which have resale-price-maintenance laws. Based on current observations, your committee concludes that favorable court actions against individual price cutters have proved ineffective in halting such retail outlets. While protracted litigation was under way which was aimed at forcing 1 operator to respect the fair-trade price of 1 manufacturer’s articles, hundreds and thousands of discount houses were cutting prices on hundreds and thousands of fair-traded articles. This air of hopelessness of the official watchdog over the health of small business merely reflects the economics of the situation. Discounting on a large scale is here to stay. It exists not only with the tacit support of manufacturers, but with their complete cooperation. It goes without saying that discount houses could not survive for one day without the benevolent support of manufacturers. Many manufacturers supply discount houses openly. Many more use one or more indirect or surreptitious methods of supplying discount houses, so that they can piously inform their more conventional distributive outlets that “they” are not selling the discount houses. THE ENORMOUS INCREASE in the productive capacity of American capitalism has led to a frantic search for every type of market. It is this which is fundamentally responsible for the chaotic condition in distribution. It should be clear that no legal device, Fair Trade or its repeal, or any other patented formula, can serve as a nostrum to remedy the crisis in distribution. Meanwhile, however, the government appears to be getting ready to sponsor repeal of Fair Trade. The Federal Trade Commission recently, according to Electrical Merchandising (a McGraw-Hill publication) for April, 1955, in an article entitled, Is Fair Trade Dying?, released a letter to retailers refusing to enforce state Pair Trade laws.

The Federal Trade Commission recently, according to Electrical Merchandising (a McGraw-Hill publication) for April, 1955, in an article entitled, Is Fair Trade Dying?, released a letter to retailers refusing to enforce state Pair Trade laws. And to add insult, the Commission advised retailers they could “with impunity” ignore the state laws where they were not being diligently enforced. The FTC said that if a manufacturer persists in discriminatory or lax enforcement of his Fair Trade contracts “he has forfeited his rights to enforcement and there is no longer any legal obligation – or at least any legally enforceable obligation – upon a retailer to observe the manufacturer’s fixed prices.” The commission went on to advise retailers to “resort to various avenues of self-help.” Among the avenues suggested: disregard the fixed price “and compete on a price basis with the discount house.” The FTC concluded, “It cannot seriously be suggested that price competition is morally reprehensible. A retailer forced to cut prices to compete ... could do so with impunity.” Hard on the heels of this FTC letter came Attorney General Brownell’s long-heralded and long-delayed study. Formed in 1953 to review the whole structure of anti-trust legislation, the Brownell committee was composed of 60 top lawyers and economists. In strong words, the committee’s report attacked the federal laws which exempt Fair Trade agreements from antitrust action. The report said, “We regard the Federal statutory exemption of Fair Trade pricing as an unwarranted compromise of the basic tenets of national anti-trust policy. The throttling of price competition in the process of distribution that attends Fair Trade pricing is, in our opinion, a deplorable yet inevitable concomitant of Federal exemptive laws. “We therefore recommend Congressional repeal both of the Miller-Tydings amendment to the Sherman Act and the McGuire amendment to the Federal Trade Commission Act, thereby subjecting resale-price maintenance as other price-fixing practices, to those Federal anti-trust controls which safeguard the public by keeping the channels of distribution free.” (Italics mine. – T.N.V.) The Administration is thus squarely behind repeal of Fair Trade. Whether immediate legislation will result is doubtful, but it makes little difference so far as the over-all problem is concerned. While some manufacturers will state that they favor continuation of Fair Trade, more and more retailers are moving in the direction of advocating repeal of Fair Trade. In fact, Attorney General Brownell in a speech before the Annual Conference of the NRDGA (reported in Retailing Daily of April 4, 1955) tried to convince the department store owners (apparently, without too much resistance) that they would be aided in their fight against discount houses by repeal of Fair Trade. He suggested that the discounter probably owes more to fair trade than anyone else since it gives him a fixed ceiling and makes it a simple matter to undersell those retailers bound by fair trade contracts.... “It may be that elimination of fair trade would hamper the operations of discounters to a greater extent than it would hurt those who have so earnestly sought the protection of fair trade!” ... The Attorney General’s declaration constituted his first detailed discussion of fair trade “price-fixing” as the Justice Department sees it. Included in his reasoning were these fundamental points: Although fair trade legislation was supposed to help small retailers compete with chain stores and other large outlets, “the anticipated benefits have been somewhat illusory.” Fair trade handicaps those small retailers who cannot afford extensive advertising, or elaborate establishments or services and whose best hope of attracting customers is in charging lower prices ... The argument of some manufacturers that fair trade is needed to protect the small merchant has “a somewhat false ring” when they admit they have engaged in manufacturing for sale under private brand an article identical, except for a different brand name, with the fair traded item. One of his major conclusions was when “He said it ‘seems evident’ that the absence of competitive pricing under fair trade results in higher prices for the consumer and that consumers are deprived of the opportunity of ‘shopping around’ for the same product priced competitively and advertised freely by different retailers.” It would thus seem fairly clear that despite the development of state monopoly capitalism and the Permanent War Economy, with all the modifications that have taken place in the structure of capitalism, some of the basic laws of capitalism still operate. The trends toward concentration of capital, and its increasing organic composition, that Marx observed and analyzed are still at work. Competition is still cannibalistic in its impact, especially on smaller aggregations of capital. The crisis in distribution and its continuation are both inevitable and incurable. They are a reflection of the fact that American capitalism, despite its tremendous wealth, is in reality a sick economy. The fact that capitalist crisis does not appear in traditional form, as a sudden curtailing of credit at the peak of a boom, with resultant forced liquidations on an extensive scale, does not at all mean that capitalism has solved the problem of the business cycle, or that capitalist prosperity is permanent. On the contrary, as we have repeatedly observed, unless there is a constantly increasing ratio of war outlays to total output, the equilibrium becomes more and more precarious until it is finally upset. The dead weight of mass unemployment will become more and more a powerful social and political lever, despite the fact that the increase in unemployment is uneven and gradual, and despite the fact that the labor movement has lost much of its militancy. In 1949, unemployment reached a postwar peak averaging 3.4 million for the year. The equilibrium of the economy was certainly endangered at that point. But, fortunately for American capitalism, the Korean war was launched by Stalin at just the right time. Unemployment which had averaged 3.1 million in 1950, declined to 1.9 million in 1951, 1.7 million in 1952, and 1.5 million in 1953, but in 1954 unemployment rose to an average of 3.2 million.

It is impossible to predict at what level (four, five or six million) unemployment will become such a dead weight on the entire economy that the far-reaching nature of the present crisis will be apparent to all. The fate of small business may be of only passing interest to monopoly capital, but its decline tends to aggravate the unemployment problem, and of course its demise is hastened by rising unemployment. If 1955 becomes the most prosperous (profitable) or the second-most prosperous (profitable) year in the history of American capitalism, with unemployment remaining at about the three million level, then what will happen to unemployment when there is a 5–10 per cent decline in production? And the crisis in distribution is a sure sign that in the not-too-distant future there will be a fall-off in production! May 1955 T.N. Vance Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 15 August 2019

Vance Archive | Trotskyist Writers Index | ETOL Main Page Frank Demby A Capitalist Looks at the Economics of War (November 1941) From The New International, Vol. VII No. 10, November 1941, pp. 283–5. Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). American Industry in the War by Bernard M. Baruch New York, Prentice-Hall, Inc., 1941. 498 pp. ALONG LAST, Mr. Baruch, Wall Street speculator, big business man, financial advisor to the duPonts, formulator of the “M-Day” plans and one of the outstanding representatives of the American bourgeoisie, has set forth his views on war economics. It is not a book intended for mass consumption. The circulation of American Industry in the War will undoubtedly be limited to libraries, serious economists, a few Washington bureaucrats and perhaps a handful of Marxists. This is not to say that Mr. Baruch’s book is not deserving of wider circulation. It is. First of all, it is a useful reference book concerning some phases of America’s economic mobilization during World War I. Secondly, and above all, it contains Mr. Baruch’s program for the administration of the American war economy during World War II. The book is invaluable as a class-conscious presentation of the point of view of the bourgeoisie. Just how representative of the opinion of the big bourgeoisie Mr. Baruch is, is difficult to say. But it is not without significance that the newspapers continue to report Baruch’s visits to Roosevelt, that the Canadian plan for preventing inflation, involving the freezing of all prices, including wages, is openly referred to in the American press as an experiment to determine the validity of Baruch’s ideas, and that Representative Gore’s plan, which also involves an overall ceiling on prices (wages included), is admittedly inspired by Baruch. Baruch starts with the assumption that war, especially modern war, is a very serious business. He says in his foreword: Total defense must plan to fight, to win and above all to survive war. This means some plan along lines similar to the experience tested by the United States War Industries Board of 1917 and 1918. It must mobilize men. money, materials, morale – all resources – to give to the war-making agencies and those allied with them, such as shipping and blockade, what they want when they want it, without unnecessary deprivation or exploitation of civilians. Thus Baruch knows, and the experiences of the last war and of this one to date confirm him, that capitalist imperialist war in the epoch of the decline of capitalism necessarily involves totalitarian economic and political forms – that is, if the war is to be prosecuted successfully. Everything must be at the service of the state. The employment of all resources, material as well as human, must be planned. “Business as usual” must give way to “all-out” defense. To be sure, exploitation as usual will remain, but it must not be insensate and too grasping. Moderation, centralized direction, efficiency – that is the only way to preserve capitalism. This thesis runs through the book from the very first page to the last. That it involves a lower standard of living for the masses, increased power for monopoly capital, and complete control of all aspects of life in the hands of an all-powerful administration in Washington is perhaps regrettable. But, and Mr. Baruch is 100 per cent correct, reasoning from the basic premise of preserving capitalism, this is inevitable. Mr. Baruch does not use the famous phrase adopted by Marxists from the German general, von Clausewitz: “War is a continuation of politics by other means.” However, he clearly understands the content of this expressive sentence. He is trying to convey its meaning to his fellow-capitalists, to persuade them, in other words, to continue their politics, their exploitation of the workers, by methods adapted to the war. “Taking Profit Out of War” – A Deception Baruch calls his plan, written in magazine form as long ago as 1931: “A plan to mobilize effectively the resources of the nation for war which shall eliminate war profiteering, prevent wartime inflation, and equalize wartime burdens.” To mobilize the country’s resources, Baruch would extend and improve upon the methods used in the last war. On the subject of eliminating war profiteering – that is, on how to accomplish it – he is delightfully vague. But we shouldn’t be too harsh. After all, it sounds nice. In fact, Mr.

In fact, Mr. Baruch originally entitled his plan: Taking the Profit Out of War. It is enough that a representative of finance capital realizes the necessity for keeping profits down to a respectable level. On page 380, for example, he says: “The inflationary process affords opportunity to individuals and corporations to reap profits so large as to raise the suggestion (sic!) of complacency if not of actual hospitality toward the idea of war.” We shouldn’t expect him to propose a practical plan (like a 100 per cent excess profits tax, or government ownership of all war industries) for achieving this admittedly desirable aim. Nor should we be surprised that Mr. Baruch didn’t find his conscience plaguing him when he advised the duPonts to take their millions of dollars of war profits and buy 10,000,000 shares of General Motors common stock. In other words, for purposes of preserving popular morale, the bourgeoisie should not be too greedy. Otherwise, the masses may begin to suspect the truth. “These people actually favor war because they profit from it,” the workers will be saying to themselves; and such thoughts are what the Japanese would characterize as “dangerous” thoughts. Says Baruch: Our plans should eliminate war profiteering and they ought to provide that each man, thing and dollar shall bear its just proportion of the burden. They should be designed to avoid the prostrating economic and social aftermath of war and, finally, they should be laid with full recognition that modern war is a death grapple between peoples and economic systems rather than a conflict of armies alone, and to that end we should merit for industrial America something of what Field Marshal von Hindenburg in his retrospect of the World War had to say of its efforts in 1918: “Her brilliant, if pitiless, war industry had entered the service of patriotism and had not failed it. Under the compulsion of military necessity a ruthless autocracy was at work (my italics – F.D.) and rightly, even in this land at the portals of which the Statue of Liberty flashes its blinding light across the seas. They understood war.” (Page 377) The purposes and methods of capitalist war are clearly understood by the bourgeoisie, German as well as American. Would that they were as clearly understood by the workers! That would truly succeed in abolishing war. The Nazis Adopt American Plan This profound respect and admiration that Baruch has for German bourgeois and military opinion is seen in another connection, which is more revealing of what the American war economy has in store for us this time than any other single sentence from anyone’s pen. In his foreword, after pointing out that France fell because she lacked real economic mobilization, and that England is having difficulties because she is only partially mobilized, the author says with considerable triumph: “German military experts have said, ‘Except for a few minor changes, the German economic mobilization system was conscientiously built in imitation of the similar American system.’” (My italics – F.D.) What happened, apparently, was that the lectures that Baruch and others gave to the American War College in the period around 1931 were later formulated as the “M-Day” plans and published for the edification of American bourgeois and military opinion. The Nazis, never loathe to borrow an idea which they could use to advantage, borrow the American mobilization plans in toto. Perhaps this explains the eager, and yet wishful, manner in which the American General Staff follows the progress of the German armies. One begins to suspect that is more a matter of the author’s pride than of advancing American military science. Be that as it may, a system which is good for the Nazis cannot be very good for the preservation of the democratic way of life! “War is economically the greatest and most scandalous of spendthrifts” (p. 74). “This sapping of economic strength will, in future wars, be the determining cause of defeat” (p. 380). “In modern war, administrative control must replace the law of supply and demand” (p. 382). Here, in three brief sentences, is expressed all the wisdom of the bourgeoisie and, at the same time, their complete bankruptcy in the face of social problems that have outgrown the confines of private ownership of property and production for profit. The capitalist class, in the interests of its own self-preservation, is compelled to waste the “blood, sweat and toil” of the masses. It dooms humanity to incalculable exhaustion. No one can predict how many years it will take to recover from the devastation wrought by World War II. One thing is certain, however: the law of supply and demand (free, competitive capitalism and its political superstructure, bourgeois democracy) is doomed. It is not merely a question of its temporary suspension during the war. The World War, which is now threatening to make the last war appear as a localized incident, will bring in its wake proletarian revolution on an international scale and the tremendous leap forward toward socialism, or totalitarian state monopoly capitalism (fascism). Mr. Baruch has a premonition of this, although, of course, he cannot bring himself to say it clearly and openly, when he says (on page 104): “This legislation (anti-trust legislation – F.D.), while valuable for immediate purposes, represents little more than a moderately ambitious effort to reduce by government interference the processes of business so as to make them conform to the simpler principles sufficient for the conditions of a bygone day.” (My italics – F.D.) Inflation and the War Economy As for preventing inflation, all that can be said for Mr. Baruch is that he at least recognizes it as an inevitable accompaniment of capitalist war. His plan to prevent it is thoroughly reactionary and, in the long run, will not succeed in preventing inflation. The Baruch plan, known as the overall price ceiling, would simply freeze all prices as of a certain day and use the government’s powers of compulsion to enforce this 100 per cent totalitarian idea. In his own words (page 473): “When industry has reached full capacity and price-fixing is admittedly necessary, this ceiling should be clamped down, and all prices, wages, rents and other forms of remuneration limited to the highest levels obtaining on a certain specific day.” This, of course, involves freezing existing inequalities, accepting the capitalist concept of full capacity as the most effective economic organization possible, and instituting such far-reaching totalitarian controls as to make present-day Germany look like a democracy.

But it will not prevent inflation. It will create a huge governmental bureaucracy and possibly slow down the rapid drive toward inflation, but as long as private appropriation of the fruits of other people’s labor remains (that is, while the capitalist system remains), it can only result in a concealed inflation, as Germany has discovered. Rapidly rising prices will give way to rapidly deteriorating quality in merchandise, to vast (and, unofficially, government-organized) “black bourses” or bootleg markets, where capitalists and government bureaucrats, who have the fat pocketbooks, can still live off the fat of the land. It will mean widespread corruption, such as to make the carpet bag era following the Civil War a model of virtue and restraint. As for equalizing wartime burdens, Mr. Baruch expresses an admirable sentiment when, in the only place where he expatiates on this point, he says (page 469): “The need for preserving civilian morale forbids that necessities should be given only to those with the longest pocketbook. For this reason, food, clothing and all other vital elements that go to make up the cost of living, if they become scarce, must be rationed equitably among all consumers. The most satisfactory method is a system of ration cards together with the licensing of wholesale and retail distributors.” True, but you can’t make capitalism equitable, by decree or otherwise. However, Mr. Baruch is not particularly serious about this, or, if he is, he has his own, or capitalist, concept of social justice. For the major part of his book is devoted to a report of the War Industries Board, submitted in 1921, where Baruch cites with approval virtually all the experiences, dealing with virtually every commodity, of the Board, of which he was chairman. And, as every schoolchild knows, the conduct of the American war economy in World War I by the War Industries Board was hardly distinguished by its fairness and equal distribution of wartime burdens. The Warning to Labor It is when he comes to labor that Baruch, the industrialist, loses some of his objective pose. The mailed fist inches out of the white kid glove. Strikes, of course, are taboo, but the capitalists “shouldn’t take advantage of labor.” (That is, they should stop being capitalists.) Conscription of labor is not to be countenanced (Messrs. Bevin and Hillman, please take note!). The argument is rather interesting. “As long as our present industrial organization maintains, industry is in the hands of millions of private employers. It is operated for profit to them. The employee therefore serves in private industry operating for gain. Enforced and involuntary service for a private master is and has been clearly and repeatedly denned by our Supreme Court as slavery inhibited by the Thirteenth Amendment to the Constitution of the United States” (page 471). But, if the capitalist state drafts industry, as it has the power to do, and as is proposed in the “M-Day” plans, which Mr. Baruch inspired, won’t the state then have the “right” to conscript labor? Mr. Baruch can never forget that he is a class-conscious bourgeois. Time and again it creeps out and destroys his “impartial, patriotic” approach. No better illustration is needed than the following: “The war had scarcely begun when the IWW, stimulated no doubt by the enemy, appeared as a menacing factor, particularly in the mountain regions and on the Pacific Coast” (page 88 – my italics – F.D.). How long will it be before government officials openly substitute the letters CIO for IWW? American Industry in the War will be studied carefully by those who wish some factual information concerning the last war (the book, incidentally, has some valuable appendices) and by those who want to obtain first-hand the mature opinion of the most advanced sections of the American capitalist class. It will be ignored by those who wish to preserve their illusions concerning the “democratic” organization of a capitalist war economy. Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 29 October 2014

Vance Archive | Trotskyist Writers Index | ETOL Main Page Frank Demby Workers in Russia (July 1941) From The New International, Vol. VII No. 6 (Whole No. 55), July 1941, pp. 157–8. Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). Workers Before and After Lenin by Manya Gordon New York. E.P. Button & Co., 1941, 524 pages Manya Gordon has written an extremely interesting, valuable and well documented book about the conditions of the Russian workers. Unless one has read equivalent material (which would be much more difficult to gather), Workers Before and After Lenin is a MUST book for anyone who wishes to discuss the Russian question or who merely wishes to be conversant with what is taking place in Russia today. “Without political freedom all forms of workers’ representation will continue to be a fraud. The proletariat will remain as heretofore in prison.” – Lenin, 1905, quoted by the author on the frontispiece. It is impossible to overemphasize this statement. Contrast it with the attitude of Stalin, as expressed by one of his journalists in Za Industrializatziu, April 9, 1931: “We are not in the habit of worrying about people. Rather we feel that of that bounty – people – we have more than enough.” This callous, bureaucratic indifference to the fate of the people has assumed monstrous proportions during the past decade, making the Stalinist regime one of the most hideous and oppressive in all the tortured history of mankind. The Author’s Bias The book, unfortunately, is much more than a factual study from official Soviet sources on the standard of living of the Russian workers. Miss Gordon, wife of Simeon Strunsky, ex-member of the Socialist Revolutionary Party, ex-member of the Socialist Party, current supporter of La Guardia in the American Labor Party, has a political axe to grind. Her thesis is a very simple one. The Russian workers never should have made the revolution. Look how bad their conditions are today. Had capitalist democracy been permitted to survive in Russia, the gigantic strides made by the Russian proletariat after the 1905 Revolution would have resulted in just as much production as exists in Russia today and, in addition, there would be freedom for the masses instead of slavery. Besides, the Russian workers really didn’t want to make the October Revolution. Lenin, “the crafty demagogue,” “the clever opportunist,” “the master politician,” took advantage of the Russian workers and slipped the October Revolution over on them against their will and, certainly, against their best interests. This thesis runs through the book like a red thread. It appears in one form or other in virtually every chapter. Even if the author were correct in her appraisal of the October Revolution, which we don’t admit for one moment, it would still represent a serious blemish on an otherwise excellent work. Repetition becomes tedious, even when it is a sound historical statement that is constantly reiterated. In this case, however, it is a compound of the Menshevik thesis that Russia was too backward for a socialist revolution, of the current bourgeois slander that Stalinism represents an inevitable and logical outgrowth of Leninism, and of the author’s plain ineptitude and ignorance in interpreting history. One example will suffice. On page 355, in discussing Lenin’s Imperialism as a theoretical justification for the Russian revolution, the author states: “He (Lenin) insisted that monopoly is the final phase of capitalism which during a war is inevitably converted ‘into an era of proletarian revolution.’ Lenin had no difficulty in finding these conditions in Russia. Because of its large-scale production, its cartels and syndicates and their affiliation with the banks, Russia like western Europe was ripe for the socialist revolution. Later, in 1920, when Lenin was faced with closed banks and huge empty plants he forgot completely his previous statements about Russia’s readiness for the socialist scheme of things. But it was too late, or rather, Lenin died too soon, and as a result the Russian people had to pay for his folly.” The Nature of the Russian Revolution It would be difficult to crowd more errors in interpreting history into one short paragraph than Manya Gordon does in the above. The Bolshevik leadership did not conceive it possible to build socialism in Russia alone. Russia, to them, was the weakest link in the capitalist chain. Being the first link to break, Russia would become the starting point of the world revolution, which was an indispensable prerequisite for the building of socialism. And, certainly, capitalist society as a whole was and is rotten-ripe for the building of socialism. The theory of socialism in a single country was a Stalinist perversion of Marxism. The Bolsheviks were hardly to blame if Noske and Scheideman, Manya Gordon’s political counterparts, slaughtered the main base of the first world revolution in Germany. The NEP was a necessary retreat, but an organized retreat. That Stalinism came to power during this period does not prove that the revolution should not have been made, but that the Russian workers were too weak after three years of imperialist war and four years of civil war (for which the bourgeoisie were responsible, not Lenin and the Bolsheviks, Miss Gordon) to withstand the inroads of Stalinism.

That Stalinism came to power during this period does not prove that the revolution should not have been made, but that the Russian workers were too weak after three years of imperialist war and four years of civil war (for which the bourgeoisie were responsible, not Lenin and the Bolsheviks, Miss Gordon) to withstand the inroads of Stalinism. Moreover, it seems to me that the author, anxious to prove her case, overstates it substantially when she speaks about the decade of progress under Czarism prior to the revolution. Time and again, in referring to the advanced labor legislation adopted under the Duma (and won by the magnificent fighting power of the Russian workers), she is forced to admit that it remained largely or entirely on paper. For the sake of argument, however, I can grant all that Miss Gordon says about the progress of industry and the standard of living under Czarism. This does not prove that had a bourgeois democratic regime maintained itself in Russia after the overthrow of Czarism that there would have been just as much industrialization (with a comparable rise in the standard of living). Why should a capitalist Russia have made any more progress during the 1920s and the 1930s than the rest of the capitalist world? And, if the argument is made that Russia would have been a young capitalist country, one can point to China, or India, or Canada, or Australia or other young outposts of capitalism and demonstrate that the progress of their industrialization during the last two decades, particularly the last one, has been absolutely feeble in comparison with that of Russia. The Standard of Living Declines Under Stalin The real value of Miss Gordon’s book is certainly not its political interpretation of Russian history, nor even the light it throws on the economic conditions in Russia under Czarism and prior to the beginning of the first Five Year Plan. Rather, it lies in the painstaking and detailed picture of the Russian standard of living since the introduction of the first Five Year Plan. And this, in spite of an inadequate economic analysis of the development of Russian industrial and agricultural production. No wonder the Stalinists have condemned the book. It constitutes a damning and irrefutable indictment of the Stalinist regime. At one stroke, out of official Stalinist sources, it destroys all the myths carefully nurtured by the kept Stalinist press and then: bourgeois dupes such as the Webbs and the Dean of Canterbury. While production has increased considerably, the standard of living in this “paradise for workers,” conducted by the “genial and greatest of the great,” Stalin, has declined by about one-half since the introduction of the first Five Year Plan in October 1928. Facts are stubborn things, as Lenin was very fond of saying, and it is a fact that the standard of living of the Russian workers and masses has declined tremendously since Stalin came to power. No amount of fake statistics and idiotic rationalizations can get around this fact. It requires a separate economic analysis to deal with the facts concerning the declining standard of living and the reasons for this phenomenon. Remember that Russia under Stalin represents the first country in the history of the world where a tremendous increase in industrialization has been accompanied by an equally tremendous decline in the standard of living. Those who are interested in learning something about the real situation of the Russian workers today, about wages, nominal and real, housing, clothing, medical care, education, child and woman labor, food budgets, social security, the depreciation of the rouble, taxes, hours of work and conditions in the factories will read Workers Before and After Lenin. Those who wish to perpetuate their own illusions and demonstrate their ignorance in discussing the reality that is Russia today will ignore Miss Gordon’s book or shrug their shoulders and dismiss it as the work of an enemy of the Russian revolution. Genuine Marxists, however, will understand the value of Miss Gordon’s book for it has made available in English a valuable compendium of facts concerning the status of the Russian worker today. Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 25 October 2014

Vance Archive | Trotskyist Writers Index | ETOL Main Page Frank Demby Economic Notes (29 September 1941) From Labor Action, Vol. 5 No. 39, 29 September 1941, p. 4. Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). Washington Merry-Go-Round of September 19 declares that President Roosevelt was positively shocked when Representative Carl Vinson, chairman of the House Naval Affairs Committee, furnished a confidential report on shipyard profits. “One company making ordnance instruments for the Navy netted a neat 208 per cent! Some plane manufacturers are making as high as 150 per cent. Big shipbuilders are averaging 72 per cent on government contracts.” Some people do surprise easily. But what else could be expected when the Vinson-Trammell Act, limiting profits on naval orders to 8 per cent, was repealed at the start of the war program? Rumor hath it now that Vinson will propose to limit naval profits to 7 per cent. We WILL be surprised if such a measure goes through! * “Combined net profits of 112 producers of consumers goods in the first half of 1941 amounted to $165,734,689 after all tax provisions and other charges, compared with $141,260,170 in the same period last year, reflecting better gains after taxes than mast of the heavy industry groups thus far reviewed for the period.” (Kenneth L. Austin in the New York Times, September 21) And Mr. Austin has already reviewed the situation of some of the biggest war profiteering industries, such as chemicals. The profits of the big bosses are getting so big in all industries that they can’t even conceal them any more! * The above items attain real significance only when compared with the 1941 revenue bill, which was signed by the President on September 20. I have previously pointed out the gross inequities in this “Soak the Poor” bill. The conference between the House and Senate over their respective versions made virtually no changes of any importance from the Senate bill, as had been universally predicted. The income tax and excess profits tax provisions were unchanged. The burden of additional taxes is thrown almost exclusively on those who can least afford to pay. There were merely a few minor changes on some of the “hidden” or excise taxes. The tax on telephone calls, for example, is fixed at 6 per cent on local telephone bills, 10 per cent on long-distance calls costing more than 24 cents, and 10 per cent on telegraph, radio and cable messages. This “fair and equal” treatment of services used by the lower middle class and the workers, such as local telephones, with those used by the very wealthy, such as radio and cable messages, is typical of the perverted sense of justice that permeates the entire bill. Unless the trade unions and workers launch a real campaign for a genuine, 100 PER CENT EXCESS PROFITS TAX, WITHOUT ANY LOOPHOLES, they might as well resign themselves to footing the entire cost of the war. * The real boss of World War I, Wall Street’s white-haired boy, Barney Baruch, testified last week in connection with the pending price control bill. This outstanding representative of the ruling class in this country painted a very dark picture of what happens under inflation and what the aftermath of war may lead to. He was delightfully vague, however, on how to prevent these dire things from happening. The profit must be taken out of war. Yes, we agree, but how? Just establish price ceilings and everything will be hunky-dory. Freezing wages will not affect labor’s right to strike or the right of every worker to bargain collectively. No, it would just render the major weapons of labor absolutely useless. Fairy tales aside, what Mr. Baruch was trying to tell the political representatives of the bosses is that if you want to lick Hitler you’ve got to use Hitler’s methods – that is, under capitalism. Said the duPonts’ family adviser: “If we are to keep the war from reaching these shores or win any war into which we are thrust, it will not be done by ‘business as usual’ but by the full mobilization of our economic resources as in 1918 and it must not be too little or loo late.” That he really didn’t mean the modest mobilization of 1918 but Hitler’s type of mobilization, which was swiped from the American Army’s M-Day plans, can be seen from the very next sentence: “Full mobilization means transforming American industry from a highly competitive economy to a practically single unitary system under which all producers will cooperate, sharing trade secrets, pooling patents, resources and facilities.” Monopoly capitalism must be placed firmly in the saddle. This is the program recommended by Mr. Baruch. Anything or anybody that stands in its way must be pushed aside, crushed. This is the program of the National Association of Manufacturers and the big capitalists. It gives the lie to Baruch’s conclusion: The status quo of all should remain until the war is ended.” No, when things are changing very rapidly, as at present, no power on earth can keep the face of the world as it has been. Either the workers make up their minds to take what is their just due or the bosses will impose an American form of fascism on them. * A dispatch from Berlin, printed in the financial section of the New York Times, September 21, says: “Announcement that the Reich has sold its controlling interest in the Hamburg-American Line and in the North German Lloyd to a group of business men in Hamburg and Bremen took the financial market here by surprise. The step itself may be. in line with the accepted policy of the Nazi government, which on various occasions, has stressed its aversion to government ownership and to the operation of business concerns.” (Emphasis mine – F.D.) And some people still think that there is a “new” social order in Germany! It is still capitalism, to any but the blind, but it represents a further and logical development of capitalism – namely, state monopoly capitalism. Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 27.1.2013

Vance Archive | Trotskyist Writers Index | ETOL Main Page Frank Demby Prosperity Around the Corner? (August 1940) From Labor Action, Vol. 4 No. 18, 12 August 1940, p. 3. Table from p. 1. Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). As usual, the important news is being buried by the capitalist press in the corners of their financial pages. While you and the average worker may be worrying about how to feed your families decently, how you are going to pay the rent and send the family on a much-needed vacation at the same time, while 9,000,000 (latest official figure) unemployed are still gazing wistfully at “No Help Wanted” signs; and, incidentally, while the Government is spending billions and billions of dollars on “Defense” and occasionally worrying about where the money is to come from, the big corporations of the country are raking in profits at a terrific rate – reminiscent of the boom days of 1929. What? You didn’t receive your quarterly dividend check? The mailman must have mistakenly given it to your neighbor. Better check up on him tomorrow. Just in case you belong to the 90% of the population who don’t own stocks and clip coupons for a living and the almost equally large proportion of the population who have never been educated to the importance of reading the financial pages, I’ve drawn up a few figures and comments for you to mull over in your mind after a good, heavy dinner (see box below). That the corporations listed are by no means exceptions is shown by the fact that the first 100 companies reporting earnings for the first half of 1940, according to a compilation made by The New York Times, had an aggregate net income of $113,658,828 – or a net gain of 60.5% over the first half of 1939. An Associated Press compilation of the first 150 corporations to report for the second quarter of 1940 shows an aggregate net income of $168,902,000 – or a net gain of 39% over the second quarter of 1939. Excluding A.T.&T., the net gain becomes 52%. And this, mind you, excludes such great corporations as General Motors, which, during the previous ten (depression) years made over $1,000,000,000 net profit. While, to quote The New York Times’ comment, “The tone of corporation executives’ letters to their stockholders, which accompanied the earnings statements, was predominantly optimistic,” union demands for increased wages have almost uniformly been met with a categorical “No!” At the same time, activity on the New York Stock Exchange during the month of July declined to the lowest figure in more than two decades! What does it all mean? First, note that the more corporations that are included, the smaller becomes the increase in the rate of profit. In simple English, this means that every year fewer and fewer of the great corporations are making more and more of the profits. The Story of Steel If further proof of this fundamental fact is needed, let us look more closely at the statement of U.S. Steel. One might think that with an increase of 1,743 per cent in profits there might be, if not a corresponding increase in wages, then, at least a substantial increase in wages, For the first half of 1940, U.S. Steel employed 242,144 workers with a total payroll of $198,871,911. For the corresponding period of 1939, the figures were 208,133 workers with a total payroll of $163,461,751. What are the workers bellyaching about, anyway, Mr. Stettinius and his successor, Mr. Olds, undoubtedly want to know? Didn’t we pay out over $36,000,000 more in wages this year? Aside from the fact that these figures are for employees, which includes high-salaried executives, so that it is impossible to figure out the real average wage per worker, THESE FIGURES REVEAL AN INCREASE OF ONLY $40 PER EMPLOYEE. That is to say, by hiring a few thousand more workers, paying them an average of less than $7 per month more than they got in 1939, PRODUCTION WAS STEPPED UP OVER 94% OF CAPACITY AND PROFITS ROSE SKY-HIGH. The story of U.S. Steel is symbolic and representative of what is happening in American industry today, and also what ails this country today. During the last decade, American industry has gone through such a tremendous process of rational lotion, introducing the most up-to-date labor-saving devices that very small increases in the laboring force and in wages result in tremendous increases in production and absolutely phenomenal increases in profits. Millions of workers are now permanently useless to the industrial process under capitalism. The recovery in profits is not only the story of the remarkable technical skill and efficiency of American industry but equally the story of millions of unemployed and even more millions trying to eke out a living on starvation wages. In other words, PROFITS ARE LITERALLY BEING COINED OUT OF WORKERS’ SWEAT AND BLOOD. The recovery in profits is due to many factors, but the factor which dominates at the present time is the war. It is significant that the big profits are being shown by the heavy industries and the railroads. The U.S., following the example of Europe, has entered upon an armaments economy. What this means, I shall try to show in detail in subsequent articles. For the present, let me conclude by pointing out that the abnormally low volume of sales on the Stock Exchange in the face of these unusually high profits merely reveals that Wall Street is well aware of the fact that the “prosperity” in this country is based on the war and the continuation of the war, and during July Wall Street was unable to make up its mind whether the war was going to continue or not.

For the present, let me conclude by pointing out that the abnormally low volume of sales on the Stock Exchange in the face of these unusually high profits merely reveals that Wall Street is well aware of the fact that the “prosperity” in this country is based on the war and the continuation of the war, and during July Wall Street was unable to make up its mind whether the war was going to continue or not. Perhaps Messrs. Molotoff, Hitler, Churchill and Roosevelt will furnish them with an affirmative answer. You Earned It – They Got It Corporation Net Profits During First Half of 1940 Increase Over First Half of 1939 % Increase United States Steel $36,315,003 $34,344.692 1743. Remington Arms 1,219,000 1,075,000 746. Republic Steel 6,449,453 5,366,142 495. Tidewater Oil 5,904,865 4,698,455 388. Glen Martin Aircraft 4,291,490 3,323,866 343. Youngstown 2,423,212 1,877,019 343. Minnesota Paper Co. 1,120,788 881,852 327. Atlantic Refining 5,266,000 3,913,000 289. Bethlehem 21,698,457 15,466,471 247. Douglas Aircraft 3,388,857 1,992,065 142. Commercial Solvents 1,046,551 608,451 138. Libby-Owens-Ford Gloss 5,176,748 2,521,935 95. General Electric 25,871,572 9,501,380 58. Caterpillar Tractor 3,509,514 1,194,134 51. Chrysler 30,494,274 5,148,503 23. E.I. DuPont de Nemours 46,853,695 6,982,160 17. General Motors 115,575,460 12,588,929 12. American Telephone and Telegraph 44,933,952 4,563,033 11. Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 23.9.2012

Vance Archive | Trotskyist Writers Index | ETOL Main Page Frank Demby American Capitalism Gets an Outline of Its Economic Program for the War (January 1941) From Labor Action, Vol. 5 No. 1, 6 January 1941, p. 3. Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). Ever since the last war, the intelligent capitalists of this country have been analyzing the experiences of World War I in preparation for the inevitable outbreak of World War II. These analyses involve not only military preparation, but also economic preparation. The fruits of the economic investigations are to be found in a little book, called Wartime Control of Prices (written by Charles O. Hardy and published by the Brookings Institution, Washington, B.C. in September 1940 – price $1.00). Mr. Hardy proposes a very simple program – rigid control of prices. This includes all prices, not only the prices of the commodities which we have to buy and which the Government must buy in order to carry out the military program, but wages and rents as well. The only exception to this program is profits. In order to concentrate all energies on the war effort, all restrictions on the efficient (cheap) mobilization of both human and natural resources must be abandoned – at least, for the duration of the “emergency” period. Reforms Go First That this is the real program of the American capitalists can be readily seen from a few comparisons of what is recommended by Mr. Hardy with what is actually going on now. Mr. Hardy proposes that the “Walsh-Healey Act be suspended for the duration of the war emergency.” The Navy Department has recently made this proposal, because it has made more difficult the letting of contracts by the Navy. In other words, one of the key reforms of the New Deal – that companies serving the Government should maintain “adequate” standards of pay and working conditions – is to be thrown into the waste paper basket because capital is insisting that the sky is the limit for profits. What a commentary on this Second World War for Democracy! Mr. Hardy, in effect, is for outlawing strikes in “national defense” industries. This has not as yet been enacted into law, but what a campaign the capitalists and their agents are putting on to accomplish this. Only the conscious and determined opposition of organized labor can prevent this undermining of one of the fundamental and hard-won democratic rights of labor. Similarly, for the 40 hour week, time and a half for overtime, WPA, relief and virtually everything else that can possibly be considered progressive. If the workers permit the capitalists to carry out their program, all of these will be abolished. The experiences of World War II to date shows that in many ways the civilian population (if one can speak of a civilian population as separate and distinct from the armed forces) plays a key role in the maintenance of national morale. When prices rise substantially and the real income of the population declines, the capitalist understands that it is more difficult to convince the population at large of the justness of the war. Fragmentary reports that have reached us so far indicate that, on the average, prices’ have risen 50% and the standard of living has declined by at least one-third in all belligerent countries. To be sure, the cost of the war must be borne by the people in the form of declining standards of living, for from an economic point of view, war is sheer and unadulterated waste. The problem, however, is to sugar-coat the declining standard of living so that it appears not to be as great as it is. This is made especially necessary by the experiences (still within the living memory of many adult citizens) that every belligerent country experienced during and after the last war with inflation, catastrophic declines in living standards – a few making millions in sharp contrast to the remainder of the population – and the general economic breakdown which is the inevitable aftermath of war. To all these considerations, there is added another, which makes the current problem of price control even more fundamental than at any in the history of capitalism. Capitalism has clearly entered upon its period of decline. Discussion of what the new order of things will be after this war is unavoidable. The ruling class, as a whole, is keenly aware of the impact of the war upon their established order of society. They wish to make as certain as they can that any controls introduced – in fact, any governmental measures of any type whatsoever – shall not alter the basic foundations of capitalism. A Blueprint for War During the First World War, the cost of living rose some 60% in the United States. Certain commodity prices, such as sugar, butter and meats, rose between 100% and 200%, and in some of these cases rationing was required. In all the warring countries today, on top of the substantial price rises and inferior quality of many commodities, rationing of many essentials is already in effect. The Government is not only interested in this problem from the point of view of its effect on the standards of living and, therefore, on civilian morale, but in the most direct way it is concerned with the cost of the war effort. The more prices rise, the greater is the cost of the war to the Government. The greater the cost of the war, the greater the necessity for increasing taxation of all sorts. Increased taxation is always a difficult measure for any popularly elected government to resort to, because it is sure to raise a storm of protest from one or more sections of the population. Hence in a very practical and direct way, the government is interested in such a study as Mr.

Hence in a very practical and direct way, the government is interested in such a study as Mr. Hardy has made from the point, of view of cutting down the cost of war to it. What emerges as outstanding in Mr. Hardy’s discussion is that although he is speaking about controlling prices during the present period – that is, one of national “defense,” when formally speaking, the country is not at war – he himself makes the admission that the problems which confront the organization of the “defense” effort are substantially the same as they would be if the United States were actually engaged in war. So what we have is a primer or a blueprint of what is in store for us during the next five years – which is the legal limitation at present of the “emergency” period. The second outstanding fact that Mr. Hardy, and we may be sure the members of the government as well, realizes is that: “The problem of economic organization in time of war differs from that in time of peace in that it is essential to concentrate productive energies on an abnormal emergency objective – that of winning the war.” All energies must be devoted to this end. Everything else is secondary, including to be sure, the preservation of those democratic rights, for which, presumably, the war is to be fought. Sees Tight Control Since controls were required during the last war, Mr. Hardy correctly assumes that even more extensive controls will be required this time. The only question in his mind is the character of these controls and the efficacy of some of these controls as compared to others. The conclusion implicit in the book is that far more extensive controls will be required this time than last. While the author does not say so directly, in view of the criticisms he makes of the methods used during the last war, the implication is clear that such far reaching controls will be required this time that the difference between the economic setup in the United States at war and that which prevails in totalitarian countries will be very slight indeed. Another outstanding feature of the study is that no matter what proposal is discussed or proposed, there is always a conscious emphasis on the necessity for maintaining profits. Even in discussing the price-ceiling plan of Mr. Bernard Baruch, who was Chairman of the War Industries Board during the World War and also a member of the Price-Fixing Committee, the necessity for establishing such prices which will yield profits even to the high-cost producer is made quite clear. This, in spite of the title of the book (privately printed) in which Mr. Baruch presents his views – Taking the Profits Out of War. For example, in summarizing the lessons of the last war, Mr. Hardy states: “There was undue reliance on the excess profits tax to correct unnecessarily high prices paid by the government.” From a technical point of view one of the few shortcomings of the book is that it omits any real discussion uf profits and their control during wartime. But what else can be the meaning of the passage quoted than a defense of the necessity of industry making profits in order to organize a war effort “most efficiently?” And, of course, the experiences of the last war and the present war to date show very clearly that war is a profitable undertaking for the capitalist class, or at least for the most powerful sections of it, even if it means untold misery and privation for the masses of the population. Labor Takes Rap That the plans discussed in this book are thoroughly reactionary from the point of view of labor and the mass of peoples is not surprising. But what is surprising is that the entire reactionary program of the war department should here be set down in black on white for all those with eyes to see. First of all, the author advocates “compulsory labor at wages which the worker is not free to reject” for those directly employed by the government. It should be obvious that the number of people directly employed by the government represents a far larger proportion of the total population this lime than in the case of the last war. Since the conception of the war effort which Mr. Hardy has, in common with the rest of the capitalists, is that all that matters is winning the war – not how the war is won and what the effects of the various methods will be, he quite logically proposes, for example, the suspension of the Walsh-Healey Act If one has any doubt of the intentions of big business, just read very carefully the following excerpts from Mr, Hardy, which clearly speaks for them: “To take the position that labor should make no contribution toward carrying the economic burden of the war would be indefensible ... If labor is to make any economic contribution to the cost of the war. the cost of living must rise more than the wage rates.” Again, “Unemployment benefits should sot be permitted to act as drag on re-employment.” Hence out of the window with WPA, relief – and perhaps even with unemployment insurance. Since Mr. Hardy, (erroneously) attributes the 1937 collapse to increases in wages, it is only natural that he is against any wage increases during the war period, except in a few exceptional cases. The Government would be given by Mr. Hardy the authority to review and decide all collective bargaining agreements now in effect. “All restrictions on hours of labor, except those that serve a bona fide purpose of protecting workers’ health, must he abrogated.” Compulsory payments of time and a half for overtime must be abolished. By not-too-well-concealed implications, Mr. Hardy is also for the outlawing of strikes. Shades of Hitler! This is the real program of the capitalist class, for which the workers of America will be told to lay down their lives. This investigation of the experiences of American imperialism in controlling prices during the First World War, with recommendations for price control during the Second World War, was undertaken at the request of the United States War Department. Therein lies the tremendous significance of the book. It represents the policies which the capitalists are considering and proposing in relation to the economic control of the nation. It goes without saying that labor cannot look to its own defense unless it knows and understands the plans of the Government. The book should really be compulsory reading for every trade unionist – indeed for everyone who does not live off the fruits of other people’s labor. Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 22.11.2012

Vance Archive | Trotskyist Writers Index | ETOL Main Page Frank Demby For Workers’ Control of Price-Fixing What to Do About the Rise in Prices (August 1941) From Labor Action, Vol. 5 No. 31, 4 August 1941, p. 2. Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). The developing war economy in the United Slates has finally reached the point where every person in the country will feel iis effects in the most direct and immediate sense. It has been announced from Washington that price-fixing legislation will be introduced into Congress this week. The immediate reason for this drastic step is that the inflationary movement of prices is threatening to get out of hand. This would cause a tremendous increase in the cost of the armaments program, as well as a serious weakening of civilian morale. The experiences in World War I and since have taught the capitalists that rapidly rising prices must be prevented at all costs, if they would preserve their system from social disintegration. Labor Action has repeatedly pointed out that the capitalists are face to face with a dilemma that free, competitive capitalism cannot solve. The spending of billions and billions of dollars for war purposes means either inflation or totalitarianism. There is no escape from this dilemma under capitalism. Leon Henderson, director of the Office of Price Administration and Civilian Supply, has already admitted that voluntary control of prices is breaking down. Many corporations simply refuse to abide by the price ceilings, that is, the maximum prices set by Mr. Henderson. Others are getting around the price ceilings by producing articles of inferior quality – without, of course, advertising this fact to the consumer or to the government. Still others are developing a very refined illegal or bootleg trade, especially in certain key raw materials. All of ‘this’ is perfectly natural and inevitable under a capitalism where the urge to obtain profits takes precedence over everything else. More Money to Buy Less Goods If a manufacturer finds that his costs have increased due to (1) increased wages as a result of labor’s drive to improve its standard of living or simply to maintain living conditions at existing levels (2) higher prices for raw materials, as a result of higher shipping costs imposed by the war and higher prices for agricultural raw materials as a result of the government’s farm program, or (3) higher taxes, as a result’ of the government’s attempt to defray somewhat the cost of the war program, he will not voluntarily content himself with a reduced profit. He is in business to make the maximum profit possible and his concept of patriotism gives him the moral right, and even the obligation, to pursue his profit-making instincts to the utmost. Moreover, if he should attempt to curb them, he will soon find himself swallowed up by a bigger capitalist. Consequently, he raises the prices of the things he produces and sells. This development is clearly shown by the fact that wholesale prices have risen almost 50 per cent since the outbreak of World War II and by the current rise in retail prices which is rapidly threatening to equal that of wholesale prices. This development is absolutely irresistible as the war economy expands in size and scope. For it has meant a tremendous increase in available consumer purchasing power, accompanied at the same time by a considerable decrease in the production of consumer goods. The shift from consumer goods industries to war industries is only beginning to get under way in this country, but it will now proceed at a very rapid rate. Putting the matter in its most simple terms, more people have more money with which to buy less and less goods. Prices must go up under such circumstances unless controlled by the government. Alternatives Under Capitalism Government control of prices, however, is not a simple matter – as the British and American governments have already learned. If done on a piecemeal basis, it is incomplete and only serves to create antagonisms and dissatisfaction without preventing inflation. “It is realized by the Administration,” says a dispatch to the New York Times of July 18, “that unless prices are strictly controlled or consumer buying is kept down by some other means, inflation can scarcely be averted. A study of German methods of price control, recently published by the Commerce Department indicated, however, that control of prices is not effective unless (1) all prices are controlled, (2) wages, rents and dividends are also controlled.” Here, the capitalists run squarely into the second horn of the dilemma. If prices are not controlled, there will be inflation, with all its catastrophic consequences. On the other hand, if prices are controlled, it must be a strict and complete control in order to be effective. Half-way measures will not suffice, as the experience of England clearly shows. The only way that inflation can be prevented under a capitalist war economy is to follow the German method. Rigid control of all prices means complete government control of the entire economy. The government will decide how much profit the capitalist will make, how much rent the landlord should receive, how much wages the worker should get. The government, in effect, will decide where industries are to be built, whose capital and how much of it will be used to build the necessary war industries, what workers will work and where they will work, and under what conditions they will work. Such a complete ordering of ‘people’s lives, by a government, in this era of capitalist decay, means totalitarianism – no matter how pleasantly it may he dressed up by clever propagandists. In other words, the only way that inflation can be prevented under capitalism is through the adoption of fascist, totalitarian methods. This is already understood by certain sections of the population. It will soon be understood by everyone with eyes to see, for price-fixing means arbitrary control of the dollar. Arbitrary control of the dollar means an attempt to freeze the class struggle. At present, each class in society and each group within each class uses its own peculiar methods of struggle to obtain more dollars. The dollar, so to speak, organizes the class struggle in an orderly manner.

The dollar, so to speak, organizes the class struggle in an orderly manner. If the dollar ceases to have this function, as would be the case under complete price-fixing, a substitute must be found; otherwise, the existing society disintegrates. The only substitute that can be found under existing conditions is the armed might of the state. Soldiers with bayonets and policemen with clubs and revolvers, backed up by the courts and the prisons, will enforce the price-fixing decrees. To be sure, a workers’ state, that is, a state organized and controlled by the majority of the population in their own interests, could take care of production and price problems through the method of democratic economic planning. This is not in any way to be confused or identified with the barbaric, bureaucratic and totalitarian planning that exists in Stalin’s Russia. In fact, a genuine workers’ state in this country of virtually unlimited natural resources and a very highly developed technique of production based on a high productivity of labor, could probably maintain a war economy, necessitated by the requirements of the struggle against Hitlerisrn, without any decline in the standard of living whatsoever. In fact, a proper utilization of our immense resources, both human and natural, would probably witness a rising standard of living – even under a war economy. Big Business Defends Its Interests Unfortunately we do not have a workers’ state at present. Mr. Roosevelt heads a capitalist state. Under a capitalist state, the whole program becomes transformed into one of getting the prices in which you are interested favorably fixed in relation to all other prices. This explains the heavy influx of dollar-a-year big business men into various governmental posts in Washington. “If there must be price-fixing,” say the capitalists, “we’ll do it. Then we can be sure that there will be no interference with our profits.” Senator Bankhead, a representative of the big cotton plantation owners, is reported in the press as having challenged any move toward pegging (fixing) prices of agricultural commodities unless controls were fixed all along the line on wages, salaries, rents and industrial commodities. He also warned that any effort to put a maximum price on cotton, either by direct action on the staple or by fixing a price on manufactured cotton goods which would operate to depress the price of raw cotton below 20 cents a pound, would meet “strenuous and determined opposition from the friends of the farmers in and out of Congress.” The price of cotton, it must be added, is at present about 16 cents a pound, having risen about 6 cents since the beginning of the year. This represents the highest price raw cotton has reached in a decade. Thus we see the representatives of capitalists and farmers descending on Washington in droves to defend their respective interests in this all-important matter of price-fixing. What are the leaders of the trade unions doing about the matter? So far, except for some pious declarations by Murray and Green against control of wages, the working class has been absolutely silent, as if it were totally unaware that the problem exists NOW. What the Workers Must Do The workers cannot take the position that there should be no control of prices, for the workers suffer more than any other section of society from inflation. And yet, of course, the workers would be the real losers from a totalitarian development. This does not mean that the situation is absolutely hopeless. Certain actions can and must be taken First of all, the workers must be educated to understand what is involved in this question of price-fixing. This is primarily the responsibility of the trade unions. They, if they are to do this educational job properly, must immediately get away from the absolutely fatal notion that a totalitarian system developed as a result of the necessity to fix prices will disappear once the war is over. This is 1941 – not 1918. The war is clearly going to be a long and costly one. Even if American imperialism emerges the victor, it will be far too weak to give up the totalitarian controls instituted during wartime. Secondly, the workers must send their delegations to Washington to defend their own interests in regard to the fixing of prices. The trade unions clearly have the power to do this, provided they have the will. Thirdly, and most important, the workers must insist on workers’ control of price-fixing. After all the workers represent the overwhelming majority of the population. Why shouldn’t prices be fixed in the interests of this vast majority, rather than (as is now the case) in the interests of a small, exploiting minority? Big business men will never fix prices in the interests of the workers. The democratic method would have the majority fix the prices – since they must be fixed – in the interests of the majority. This could be done very simply in the case of commodity prices, by having a price control board for each commodity or each group of related commodities on which the majority represents the workers. Again, for the fixing of basic prices for wages, rent and interest, there must be a general price control board firmly controlled by the workers. Only in this way can the workers have any guarantee at all that the twin evils of inflation and totalitarianism will be avoided. Of course, in the long run, as I have tried to make clear, the real solution of the problem calls for an end to capitalism and the establishment of a workers’ state as a necessary transitional stop on the road to socialism. Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 13.1.2013

Vance Archive | Trotskyist Writers Index | ETOL Main Page Frank Demby Stalin Supplies the Hitler War Machine The First of a Series of Articles on Russia (January 1941) From Labor Action, Vol. 5 No. 3, 20 January 1941, p. 3. Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). The recent Russian-German trade agreement once again focuses attention on what has been happening within the Soviet Union. The following is the first of a series of articles by Frank Demby on developments within the USSR since the outbreak of World War II, with special emphasis on the economic situation. – Ed. * Many, indeed, were the speculations concerning the trip of Soviet Premier-Foreign Commissar Vyascheslaff M. Molotoff to Berlin last November and his conversations with Hitler and other high Nazi dignitaries.’The first visible result has been the signing of an “enlarged economic agreement” in Moscow on Jan. 10, 1941, by Molotoff tor the USSR and Ambassador Schulenburg for Germany. This treaty includes a settlement of the Russian-German boundary and an agreement on property claims in the former Baltic states. The treaty is subject to ratification in Berlin in the shortest possible time. “The new agreement is based on the Soviet-German economic agreement of Feb. 11, 1940, and constitutes a further step in execution of the economic program outlined by the two governments in 1939. The agreement regulates the trade turnover between the USSR and Germany until Aug. 1, 1942. It provides for an amount of mutual deliveries considerably exceeding the level of the first year of operation of the agreement. “The USSR delivers to Germany industrial raw materials, oil products and foodstuffs, especially cereals; Germany delivers to the USSR industrial equipment. “The negotiations passed in a spirit of mutual understanding and confidence conforming to the friendly relations existing between the USSR and Germany. All economic problems, including those that arose in connection with the incorporation of new territories into the USSR, were solved in conformity with the interests of both countries.” (Quoted from the text of the agreement, released by Tass. and published in the N.Y. Times of Jan. 11, 1941 – my emphasis – FD) Closer Relations In an era where economic problems are steadily multiplying, it is very refreshing to see that two countries have solved “all economic problems.” The new Soviet-German accords, official bombast and vagueness aside, do, however, indicate steadily closer economic relations between Russia and Germany. How much actual material was delivered by the Soviet Union to Germany during the ppst year is impossible to determine. But there are some indications given of the size of the trade expected during the coming year. “The Soviet Union is said to have agreed to furnish Germany with 2.500,000 tons of grain and fodder, barley and 1,500,000 tons of oil in exchange for German finished goods.” (Percival Knauth. from Berlin, in N.Y. Times of’ Jan. 11) These figures, passed through the Berlin censor, may merely reflect German expectations. On the other hand, there is just as good a reason for believing that they give a good indication of the size of German-Russian trade relations. If the entire 2,500,000 tons of grain are considered as wheat, this would be the equivalent of about 92,000,000 American bushels. This is no insignificant sum, nor is the figure given for oil one to be ignored in estimating Russia’s current role as a supplier of the German War Machine. According to German sources, the amounts involved will “run into billions of marks.” Acts as Broker A further indication of Russia’s role may be seen from the fact that Russia has recently emerged as a fairly large buyer in the American market, and is reported as trying to negotiate trade treaties in many other countries, notably China, Argentina and other South American countries. During 1940, according to the U.S. Department of Commerce, Russia bought approximately $100,000,000 worth of goods here – about double the 1939 figure. This very substantial rise in American exports to Russia has virtually all occurred since the outbreak of the war, and has given rise to the suspicion that most of these imports are being shipped through Siberia to Germany, or are being used to release equivalent amounts of Russian commodities for export to Germany. This suspicion is reinforced when one considers the particular materials that Russia is importing from the U.S. Russian foreign trade policy, ever since the institution of the first five-year plan in 1928 has been aimed at importing machinery, parts, machine tools and similar technical equipment – for the purpose of furthering the industrialization of Russia. It is very rare that raw materials are imported. On the contrary, Russia has paid for her technical imports with gold and raw materials. Hence, the imports of 139,591 bales of cotton (since Aug. 1, 1940), of 108,955.000 pounds of copper (in 1940), of more than 1,000,000 barrels of oil (which figure is steadily increasing) – all point to the conclusion that Stalin, willingly or unwillingly, has become an important part of the German war machine. According to C. Brooks Peters, from Berlin, in the N.Y.

Brooks Peters, from Berlin, in the N.Y. Times of Jan. 13, “The Russians have agreed to facilitate the transit of German products to the Far East, as well as lighten the tasks of commerce between Iran and Afghanistan and the Reich.” Also, “The treaty is said to stipulate that Russia will deliver to the Reich goods whose origin is in a third country.” This undoubtedly is part of the “fresh proof,” of which Pravda speaks, “of the durability of good-neighborly relations between the two greatest European states.” Stalin has not only agreed to act as a supplier of vital materials for the German war machine, but, in addition, he is undertaking the role of German broker! Depends on Hitler The Germans claim “the reciprocal agreement was reached in favor of the Reich.” This claim is reinforced by the German admission that their deliveries of industrial equipment during the life of the previous treaty were behind schedule. And yet, Stalin contracts for “deliveries considerably above the level of the first year.” Why? The answer lies in two factors that are becoming increasingly important in understand the evolution of the Soviet Russian economy. The first factor is one of geography. Or, as Gedye, writing from Turkey in the N.Y. Times of Jan. 12 puts it: “Thus the old fear of Germany’s mechanized forces still holds Soviet Russia in check – and this fear has, it is known, led her to speed up deliveries recently, deliveries that the Nazis need.” (My emphasis – FD) The other factor may prove even more important in trying to estimate the direction in which Soviet economy is now moving. Russia’s fundamental economic weaknesses, the virtual breakdown of her system of economic planning, the introduction of peonage labor decrees, visible faults in the structure of collective farming, all force Stalin to depend more and more on German industry and German technicians. German experts “are now acquainted with the special problems involved,” and thus may be expected to play a steadily more important role in the Russian economy. Even if Stalin were separated by vast oceans from Hitler’s Germany, the fact remains that the economic weaknesses of Soviet Russia force him to depend more and more on Hitler. These economic weaknesses, and the direction in which they are leading, will be analyzed in subsequent articles of this series. Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 21.11.2012

Vance Archive | Trotskyist Writers Index | ETOL Main Page Frank Demby Aircraft and Finance Capital (June 1941) From The New International, Vol. VII No. 5 (Whole No. 54), June 1941, pp. 103–6. Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). THE KEY INDUSTRY of the war, fast becoming the leading industry of the country, is aircraft. Moreover, its strategic rôle and importance are not confined to war. Its potentialities for peacetime transportation and commerce may be somewhat obscured at present due to the destructive capacities of aviation as revealed by the blitzkrieg, but aircraft is clearly marked as the industry of the future. By August 1 of this year, more than half a million workers will be employed in the industry. The industry has a backlog of more than $4 billion. Its expansion has been absolutely phenomenal, more so than any other industry in the history of American capitalism. Much discussion has filled the press about the President’s goal of 50,000 planes a year and why the United States is so far from filling it at present. More pertinent, however, would be the query: Why is it that the United States, whose inventive genius produced this remarkable invention at the turn of the century, should now lag way behind in the production of airplanes? The answer to this important question is to be found in the history of aircraft, an obscure story but one which is replete with scandals, greed, intrigue, financial manipulation, patent pools, fabulous profits, government subsidies, and monopoly control. How the Industry Began In spite of the fact that The Hague Peace Conference had unanimously voted to outlaw the airplane as a weapon of warfare, the bourgeoisie was so entranced with the military potentialities of the airplane that all nations engaged in research and experimentation with this end in view. But from 1909–1913, while the United States spent $435,000 on airplanes, with the result that at the outbreak of World War I, the Army had 28 planes on hand; Germany had spent $28,000,000 during the same period and had 4,000 planes on hand. Thus, the birth of the aircraft industry in the United States coincided with the outbreak of World War I, the period when far-reaching monopolistic controls of virtually all American industry were being developed. The pioneers of the industry were the original inventors and their successors. As soon as the Allies began to place orders for airplanes in the United States, and the prospect of tremendous profits opened up. Wall Sreet speculators and automobile manufacturers began to take an interest in the production of airplanes. A patent pool was formed under the aegis of the Manufacturers Aircraft Association, the first trade association in the aircraft industry. The association collected a blanket royalty fee of $200 per airplane and apportioned the patent fees among the basic patent owners, the Curtiss Aeroplane & Motor Co. and the Wright-Martin Aircraft Co. These two companies collected over $2,000,000 each from patent fee alone. The MAA secured the ear of official Washington through the persons of Howard E. Coffin, vice-president of Hudson Motor Co. (one of the automobile companies directly interested in the manufacture of airplanes), who became chairman of the Aircraft Production Board, and Edward A. Deeds, an individual with an extremely notorious record, who was one of the leading people in the organization of the Dayton Wright Airplane Co. Through their efforts over one billion dollars was appropriated by Congress to supply the U.S. Army with airplanes. At least 29,000 planes were expected as a result of this huge appropriation. However, only 196 actually saw service in Europe! The Manufacturers Aircraft Association was attacked as a trust and a terrific scandal broke in the newspapers and finally landed in the halls of Congress. President Wilson felt compelled to appoint a committee of investigation headed by Snowden H. Marshall. This committee brought in a verdict of “no truth in the charges.” Instead of subsiding, however, the stench began to rise. Deeds was court-martialled; but, through the intervention of Secretary of War Newton D. Baker, Deeds, was acquitted and the reputation of the industry was saved.

Baker, Deeds, was acquitted and the reputation of the industry was saved. Even this did not end the matter, as after the Armistice Wilson felt constrained to appoint another committee to investigate the aircraft industry – this time headed by Justice Hughes. This committee “found nothing to criticize” in the conduct of the aircraft industry. How the Profits Grew The end of the war also saw the end of the huge profits reaped by the insiders. The scandals of the war period and the crashes of army fliers resulted in loss of confidence on the part of the public, especially the investing public. The aviation industry remained in a state of doldrums until Lindbergh’s historic flight of May 20, 1927, which fortunately coincided with the beginning of the stock market boom. Public interest awakened; confidence in the future of aviation grew and aviation stocks began to be sold. By the end of 1929 the public had swallowed over a billion dollars in aviation stocks. By 1932 the value of these stocks had sunk to a low of fifty million dollars! Some people undoubtedly lost a lot of money, but again the insiders reaped huge fortunes. For example, Charles W. Deeds, son of Albert A. Deeds invested $40 in 1926. At the 1929 high this was worth $5,550,000. F. B. Rentschler (now chairman of of the board of United Aircraft), brother of the future president of the National City Bank of New York, probably made the biggest killing of all. His investment of $253 in Pratt & Whitney stock was worth a cool $35,000,000 in 1929. Pratt & Whitney Corp., organized after the war with a capital of $1,000 made, according to the Nye Munitions Investigating Committee, a profit of over 1,300,000 per cent in ten years! During all this time, of course, the actual production of airplanes was infinitesmal; other countries had forged way ahead of the U.S. By 1929, through a combination of mergers, stock watering, holding company setups, and general financial chicanery, finance capital had achieved complete control of the aircraft industry. The 150 companies manufacturing aircraft were dominated and controlled by the following five companies: Curtiss Aeroplane & Manufacturing, United Aircraft & Transportation, Wright Aeronautical, Western Air Express and Aviation Corporation. During the past decade, more than half the companies have been eliminated. The remainder are dominated by three powerful, well-integrated finance capital units. They are, in order of their size (based on total assets at the end of 1940): Curtiss-Wright, $202,000,000; United Aircraft, $132,000,000; and North American Aviation, $54,000,000. Interlocking Relations Monopoly’s baby has come of age. Each of the three leading systems is a top-holding company for an entire system, two of them, Curtiss-Wright and North American, representing General Motors – that is, the Morgan-duPont finance capital interests – and the other, United Aircraft, representing the National City Bank group. Curtiss-Wright, formed as a result of a merger between Curtiss Aeroplane & Manufacturing and Wright Aeronautical in 1929, now claims to be the world’s largest group, with 29 subsidiaries and 18 affiliated companies. Indirectly controlled by General Motors, Curtiss-Wight has a maze of ties with virtually all sections of American industry through the more influential members of its board of directors. The chairman of the board, George Armsby, adorns the directorates of a mere 22 corporations, the more significant of those outside of aircraft being Vickers, Tide Water Associated Oil, Standard Gas & Electric, Petroleum Corporation, American Maracaibo, California Packing, and Loew’s. Edgar S. Bloom is a very important member of its board. His 10 directorships help to establish cordial relations with Manufacturers Trust and Western Electric. In passing, it should be noted that Bloom is the director of purchases of the British Purchasing Commission, making him a rather useful person for an aircraft company to have on its board. Other members establish connections with Sperry Gyroscope, Ford Instrument, Douglas Aircraft, Transcontinental Air Transport, Empire Trust, Fisk Rubber, Hayden, Stone & Co., Girard Trust, Ken-necott Copper, Mack Truck and Adams Express. Manufacturers Trust, one of the Morgan banks, is represented through several men, especially the president of Curtiss-Wright, G.W. Vaughn.

Vaughn. Finance Capital Dominates United Aircraft acquires most of its importance through its control of Pratt & Whitney and Pan American Airways, although Hamilton Standard Propellers and Vought-Sikorsky are becoming increasingly important. It work is spread out among 650 vendors, scattered over twenty states. Its list of directors is not quite as imposing as Curtiss-Wright, but its key men, Rentschler, Eugene R. Wilson, who is president, Morgan B. Brainard, Byron C. Foy, William B. Mayo, provide links with National City Bank, Dime Savings Bank, Chrysler, some smaller automobile companies, New York, New Haven & Hartford Railroad and other transportation interests, Swift & Co., and the Cleveland-Cliffs Iron Co. The most significant group, however, is probably the one headed by North American Aviation, for it was organized and is directly controlled by General Motors. Directly under its control are Ford Instrument, Sperry Bendix and Douglas. It controls Western Air Express and has great influence in Curtiss-Wright. Its strategic importance to General Motors can be seen merely from the fact that one of its directors is Henry B. duPont. The chairman of the board is Ernest R. Breech, a member of the board of General Motors and one of its key figures in the aircraft industry. It is also linked with International Nickel. The other companies which serve to round out the picture of concentration in a few hands are the Aviation Corporation, which controls Vultee and American Airways, and is bossed by Victor Emanuel, one of the leading lights in the Rockefeller group. Bell and Lockheed appear to be independent corporations, but are, in reality, completely controlled by General Motors through one of its smaller holding companies, National Aviation. Consolidated is clearly controlled by Lehman Brothers. Its board of directors is loaded down with Lehman men, including Robert Lehman. The two other important companies, Martin and Boeing, have not escaped the long arm of capital, either. On Martin’s board of directors appear John W. Castles, a partner in Smith-Barney & Co., and John W. Hanes, one of the most influential of Morgan representatives. Boeing apparently does not have any direct links with the better-known sections of finance capital, but is controlled by local Pacific Coast representatives. American finance capital thus enters World War II with a firm grip on the aircraft industry. In 1938, 95 per cent of the total value of the industry’s product was produced by the 13 leading companies. In 1940, 90 per cent of the greatly increased production was produced by the eight leading companies. With the aircraft industry tied up with virtually every other American industry (technically, this is necessary as aircraft represents the synthesis of all industry), with its dollar-a-year representatives in Washington performing meritorious services comparable to those of Coffin and Deeds in World War I, with the excess profits tax removing the ceiling on profits from the aircraft industry, with an escalator clause on prices in all contracts with the U.S. government, the latter, in effect, paying the cost of plant expansions, and with England and the Allies paying higher prices and cash in advance for, in many cases, inferior planes, it is no wonder that the industry is having a field day. World War II is presenting the industry with even larger profits than in the case of World War I. A scandal is in the making, which may not be concealed even by the secrecy which surrounds the industry today, and which, if it breaks, will dwarf that of the last war. Phenomenal Profits the Rule The financial pages of the newspapers daily reveal how the aircraft industry is utilizing the tremendous subsidies and favorable contracts which it is receiving to demonstrate that “patriotism” pays off in hard cash. The following table (taken from the New Republic, Feb. 17, 1941) shows the annual rate of return on net worth of selected aircraft companies (in per cent): 1940 1939 First Quarter Second Quarter Third Quarter Total 9 Months Curtiss-Wright 15 28 44 24 32 Douglas Aircraft 21 52 46 113 70 Martin, Glenn 23 48 47 11 36 North American 74 22 77 41 47 United Aircraft 29 29 47 37 38 1940, as is well known, was a banner year for American capitalists. The aircraft industry, however, made the rest of American industry look as if it was in a state of depression. According to a report in the New York Times of April 27, 1941: “Twenty-four makers of aircraft last year earned $69,866,405, more than double the profits shown in 1939, nearly three times 1938 results and more than five times their earnings in 1937. Each of these years set a new high record for the industry and further peaks are likely under the national defense effort.” (Italics mine – FD) Moreover, 14 of these companies made slightly more than $60 million of the total, or more than 85 per cent of the total profit in aircraft went to these 14 companies. And the four largest companies made a total of $47 million, or over 67 per cent of the total profit. Many companies showed profits considerably above the 100 per cent increase that the industry as a whole shows over 1939. Two of the larger companies and two of the smaller companies in this category are: Company 1940 Profit $ 1939 Profit $ % Increase Bell Aircraft 284,745 9,203 3,000 Curtiss-Wright 15,932,000 5,322,000 199 Douglas Aircraft 10,831,971 2,884,197 275 Vultee Aircraft 374,457 25,488 1,370 In addition, it should be pointed out that none of the figures on profits give any indication at all of the tremendous bonuses and salaries that the aircraft companies have been paying their executives.

Two of the larger companies and two of the smaller companies in this category are: Company 1940 Profit $ 1939 Profit $ % Increase Bell Aircraft 284,745 9,203 3,000 Curtiss-Wright 15,932,000 5,322,000 199 Douglas Aircraft 10,831,971 2,884,197 275 Vultee Aircraft 374,457 25,488 1,370 In addition, it should be pointed out that none of the figures on profits give any indication at all of the tremendous bonuses and salaries that the aircraft companies have been paying their executives. Nor, do they take into account the well-known fact that virtually all the aircraft companies have watered their stock to an unprecedented degree. Perhaps the most important index of how the merchants of death profit at the expense of the workers can be seen if the rate of profit is compared with the rate of surplus value. Figuring the rate of profit on the basis of total assets (which yields the smallest percentage possible) and taking the three dominant companies as the basis for calculating the rate of profit (for the rate of profit for the industry as a whole must be larger than that shown by these three, as these have the largest investments in constant capital) we get the following picture: (From the 1940 financial statements) — Company Total Assets Net Profit Rate of Profit Curtiss-Wright $202,298,846 $15,932,251 8% North American $ 54,017,638 $ 7,090,336 13% United Aircraft $132,214,877 $13,139,983 10% The rate of profit for the industry as a whole is, therefore, at least 10 per cent. That this is a conservative figure is shown by the fact that the average return on sales for the industry as a whole is about 20 per cent. In other words, if the average airplane (of the important military types) is sold to the government for about $100,000 per plane, the cost per plane to the manufacturer is about $80,000 (this, of course, makes no allowance for the phony bookkeeping of the capitalists) and the net profit per plane will run around $10,000, In view of this situation, it is hardly a surprise that statistics concerning prices and costs of airplanes are considered a “military secret.” The Rate of Surplus Value While it is difficult under these circumstances to calculate the rate of surplus value, it is possible to arrive at a fair approximation, which is important in estimating the degree of exploitation of labor in the industry and in understanding how finance capital operates. Maximum estimates of the average wage per employee in th industry are given by Fortune (Mar. 1941) in its over-zealous whitewash issue of the aircraft industry is about $1,800. It is undoubtedly much lower than this as the minimum wage paid by most aircraft companies is 50¢ an hour or an annual wage for the worker and his family of $1,300. Taking the figure of $1,800 as the average wage, and assuming that the value of the constant capital transferred to the value of the finished commodity by the application of labor power is also equal to $1,800 per worker (it is certainly no larger than this), we find that the amount of surplus value produced by each worker is equal to $2,184 on the average for 1940. This is based on an estimate of $5,784 as the value of each workers’ output given by Donald Ross in his An Appraisal of Prospects for the Aircraft Industry. Dividing the amount of surplus value produced by each worker on the average by the average wage, the rate of surplus value in the aircraft industry for 1940 was over 120%, and, it must be emphasised, this is a conservative figure. The same methods show a rate of surplus value for 1939 of about 100%. Consequently, the rate of surplus value increased by, at least, 20% in 1940 as compared with 1939. No wonder profits increased phenomenally during the past year. The growth in profits has paralleled the increase in employment. “Three years ago the building of aircraft required only 30,500 men – 10,500 less than the knit-underwear business. Today over 200,000 workers are on aircrafts payroll – an increase of 150,000 in two years. Estimates from the Bureau of Labor Statistics indicate that by August 1 (1941) employment will exceed 550,000 – 15 per cent larger than last year’s average employment in steel and nearly 25 per cent more than motor vehicles, the present giants. The acceleration has been tenfold in thirty months, compared to a sevenfold increase in shipbuilding durinng the four years of the last war.” (Fortune) The height of the expansion during the last war required only 175,000 workers in 1918. Today, it is estimated that by the end of 1943 when the industry expects to be producing at the rate of 50,000 planes a year, over 1,000,000 workers will be employed in the aircraft industry. Aircraft’s Labor Policy The bosses have reinforced their policy of low wages and bad housing conditions by one of the most vicious company union and anti-Negro and anti-Semitic policies of any section of American industry. When Consolidated’s company union program collapsed in Buffalo during the NRA days, the company dismantled its plant and moved to the more attractive labor climate of California. Douglas broke two strikes through the use of thugs and armed vigilantes. As long as the labor force remained small and fairly stable, the aircraft manufacturers were able to escape the strike waves of recent years.

The industry was firmly in the grip of finance capital, with the single exception of Brewster, which signed a union shop contract with the CIO-UAW in 1937. Otherwise, there wasn’t a cloud on the horizon. However, the expansion of the past two years brought on by the outbreak of World War II disturbed the equanimity of the aircraft manufacturers. Called on to expand production at a terrific rate, they found themselves surrounded by various monopolistic interests, such as Mellon’s aluminum monopoly, that felt they could make more profit by getting every last cent out of present capital investment rather than building new plants. Consequently, the expansion of the entire war economy of American imperialism has been much slower than military necessity dictates. After all, profits come first. Cross-patents with German capitalists, such as in the case of beryllium, also interfered with the necessary expansion. Then, the automobile industry, which is closely linked with aircraft and has somewhat of a stranglehold on it, as I have shown, feared the consequences of rapid expansion. Hence, the rejection of the Reuther plan. To be sure, the aircraft manufacturers themselves were not loathe to follow this general policy of finance capital. All the entreaties of the Government to sub-contract production of airplanes and parts have been met with stubborn resistance on the part of these “patriots.” Not even Knudsen’s plea at the end of 1940 that aircraft production was 30 per cent behind schedule moved them. What really disturbed the equanimity of the aircraft manufacturers was that with the influx of workers necessitated by the expansion that was being carried on, there also came a concerted drive on the part of organized labor to organize the industry. The heart of this union drive has been the Aircraft Division of the UAW, which began serious attempts to organize about a year ago. The focal point in the UAW’s drive was Vultee. The success at Vultee, in spite of the combined opposition of the bosses and the government and a vicious newspaper campaign against the union, was the key to the 1941 strike wave and has led to several other contracts in the aircraft industry, mostly with small plants. The only dosed shop so far achieved by the CIO is with Brewster, when its original contract was renewed earlier this year. Although, there are many progressive features in this contract, which the CIO is using as a model for the industry, the union prejudiced its chances with the workers by accepting a minimum wage clause of 55 cents an hour, thus compromising one of its basic demands – a minimum wage of 75 cents an hour. Alarmed by the threat of the CIO, the bosses openly invited the AFL Machinist’s union to come in and organize the workers in those plants where their company union setups proved of no avail against the CIO. With this as an opening wedge, and aided by a few strikes, the Machinists have made great headway in aircraft – already having contracts with Boeing, Lockheed and others. The Machinists probably have more contracts than the UAW, and the terms of their contracts appear to be as good. The jurisdictional situation is loaded with dynamite, but it is doubtful if the aircraft manufacturers will be able to maintain their company union policy, in spite of this serious division in organized labor’s ranks. Anti-Semitism and Jim Crow That which reveals the reactionary character of the aircraft manufacturers more than anything else, however, is their openly anti-Negro and anti-semitic policy. As Fortune delicately puts it: “The industry also has its prejudices. You will find an almost universal prejudice against Negroes – and in the West Coast plants against Jews. This statement stands the test of observation; you almost never see Negroes in aircraft factories nor do you see Jews in the West Coast plants except in some engineering departments. There is little concealment about the anti-Negro policy – the National Negro Congress did indeed receive a letter from Gerard Tuttle of Vultee stating that ‘it is not the policy of this company to employ people other than of the Caucasian race,’ a frank statement that undoubtedly bespeaks the industry’s belief that white workers have prejudices (sic). Anti-Jewish sentiment in Los Angeles is scrupulously denied, and if it exists, it is probably because the managers suspect all Jews of being infatuated intellectually with Communism in the between-wars world.” (Italics mine – FD) The selfish, reactionary and, at times, just plain stupid policy of finance capital in aircraft only partially explains why the U.S. lags behind Germany in the production of military planes. The rest can be explained by the extreme conservatism of the Army General Staff. (For the previous history of how military short-sightedness resulted in the cashiering of General Billy Mitchell, and for a fairly good account of the general aircraft swindle prior to the outbreak of World War II, see The Aviation Business – From Kitty Hawk to Wall Street by Elsbeth E. Freudenthal). The Germans, because of technical and economic deficiencies have, for example, discovered that for the purpose of laying waste cities and gaining military objectives the most effective method – and therefore the most efficient method – is to build cheap, poor quality planes in as huge quantities as possible. The average flying time of the average German military plane is thus based on an expectancy of about 48 hours. Compare this with the rigid requirement of the U.S. Army that American military planes must have a life-expectancy of 1,000 hours flying time, and the difference in approach is clearly revealed. However, this is a disputed military question, which is not a subject of this article. It is not an exaggeration to say that developments in aircraft will alter the face of the globe. From a military point of view, this has already been amply demonstrated. The future course of the war will only reinforce this view. What should not be lost sight of, however, is that with the expansion of the aircraft industry, the economic and political struggles centering around aircraft will have a profound effect on the future course of American society.

What should not be lost sight of, however, is that with the expansion of the aircraft industry, the economic and political struggles centering around aircraft will have a profound effect on the future course of American society. The workers, if fascism is to be defeated, must take a leaf from the book of finance capital and embark on a bold, militant policy in the aircraft industry. The central point in the program of the workers must be the nationalization of the aircraft industry, under the control of the aircraft workers, the maintenance of a high level of struggle for unionization, increased wages, lower hours, and a general improvement of working conditions. Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 25 October 2014

Vance Archive | Trotskyist Writers Index | ETOL Main Page T.N. Vance The Myth of America’s Social Revolution (May 1953) From The New International, Vol. XIX No. 3, May–June 1953, pp. 167–172. Transcribed by Ted Crawford. Marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). Shares of Upper Income Groups in Income and Savings By Simon Kuznets, assisted by Elizabeth Jenks National Bureau of Economic Research, Inc. 1953, 725 pp., $9.00. The political economy the United States of America is indeed strange, as has frequently been remarked by analysts with varying points of view in the political spectrum. Moreover, in no other country is public relations and the art of sweeping exaggeration been carried to such refined lengths. This social environment helps to explain why a crude statistical work achieves front page publicity in the New York Times. When the preliminary findings of the Kuznets study were released early in 1952, the New York Times gave them substantial coverage in its issue of March 5, 1952, starting with a front-page headline: Shift in Income Distribution Is Reducing Poverty in U.S. The lead paragraph by economic reporter Will Lissner stated: The United States has undergone a social revolution in the last four decades, and particularly since the late Thirties.” To be sure, the same newspaper, in an article by the same reporter one month later – to be precise on April 3, 1952 – carried an article with the headline: Living Standards Off 4 per cent Since Korea. This is the conclusion of a study by Dr. Julius Hirsh on the impact of price rises and tax increases on the moderate income city worker’s four person family – “the type of family ... that occurs most frequently in the varied structure of the American urban family.” The “social” revolution apparently was not too profound, or at any rate it proved to be rather short-lived. Perhaps history was rather unkind to the advocates of the American “social” revolution by launching the Korean war before the findings of the Kuznets study were made public, and before the advertising agencies could use these findings to launch a campaign for reduction of taxes on the upper income groups. What are the Kuznets’ findings? Lissner summarizes them with reasonable accuracy in the above-mentioned article, as follows: As a result of little-appreciated changes in the distribution of a rapidly growing national income, the United States has gone about half the way toward eliminating inequities in incomes. But it has done this, not by leveling down, but by leveling up. These are some of the changes: The very poor have become fewer by two-thirds of their 1939 number. The poor have become better off. Where three out of four families had incomes of less than $2,000 a year in 1939, only one out of three fell into that class ten years later. The well-to-do and the rich have become more numerous. In the late Thirties one family in about fifty was in the $5,000 and over income class, and one out of 100 was in the $10,000 and over class. In the late Forties, one family out of six was in the $5,000 and over class, and one out of twenty in the $10,000 and over class. Over the years, the very rich have become poorer because the rise in labor incomes has been accompanied by a decline in property incomes. The share of the upper 1 per cent of income receivers in total income has declined in thirty-five years from 16 per cent to 9 per cent. The Kuznets study, of course, is concerned primarily with what has happened to the upper income groups – the top one, five or seven per cent of the population. In his article in the May 1, 1953 issue of the New York Times, based on release of the entire study, Lissner provides a more up-to-date summary of the major findings of Kuznets’ statistical analysis and identifies the source of interpretation of these income changes as a “social” revolution. The decline in upper group shares of total individual income was sharpest for the top 1 per cent of income receivers in the total population. This group had per capita incomes of $5,500 and up in 1948 and thereafter, and typical family incomes of $22,000 and up. Its share, before Federal income taxes, dropped from 12 per cent in 1939–40 to 8½ per cent in 1947–48. After taxes, the drop was from 11 to 6 per cent ... From 1913 to 1948 the per capita income of the top 1 per cent little more than doubled. The Consumers Price Index rose two-and-a-half times its 1913 level; the upper group failed even to maintain its real income. The per capita income of the mass of the population, the lower 99 per cent group, rose to four times its 1913 level, making a vast improvement in its real income. This was much more than a mere consequence of the shifts in income distribution which have been reducing poverty in the United States, reported in detail in The New York Times of March 5.

This was much more than a mere consequence of the shifts in income distribution which have been reducing poverty in the United States, reported in detail in The New York Times of March 5. These shifts, called “a social revolution” by Dr. Arthur F. Burns, Economic director to the President and research director, on leave, of the National Bureau would have produced only a moderate proportional decline. Inasmuch as there have been more profound statistical studies than this, including several by Kuznets – none which has received notice outside the professional journals – one forced to the conclusion that it is label “social revolution” that is largely or exclusively responsible for widespread dissemination of the findings of the present study. And it is not without interest that Burns, also carries the title of Professor of Economics at Columbia University, is now chief economic adviser to the President. Whether Burns is aware of the meaning of the phrase, “social revolution,” we do not know. Certainly Kuznets is not in any way responsible for this remarkable label. He merely presents his findings in a technical manner, hardly intended for the lay reader, surrounds them with the usual caveats and tables of derivatives and substantiation almost without end. The suspicion must remain however, that Burns was well aware of the fact that referring to changes in income distribution as a “social revolution” would result in extraordinary publicity and presumably in support for redistributing the tax burden – a goal that Burns apparently favors. Consider, for example the following paragraph from the first Lissner story: He, Arthur F. Burns, who directed an important part of these investigations, concludes that we have about reached the limit of the usefulness of the income tax as a device for redistributing income. To raise the large revenues required for security at home and abroad, the tax must be heavily on the brackets where income in concentrated – moderate-sized incomes. The “social” revolution thus fades into something far short of the expropriation, or even the impoverishment of the bourgeoisie. It would seem to center around the high individual income tax rates and the reduction in the proportion of national income going to dividends and interest – developments flowing from the development of the Permanent War Economy. The most important development of the Permanent War Economy, in so far as Kuznets’ findings are concerned, is clearly the sharp reduction in unemployment. States Kuznets (p. xxxvii of his Introduction and Summary): This recent decline in upper group shares, which for its magnitude and persistence is unmatched in the record, obviously has various causes. The most prominent are the reduction of unemployment and the marked increase in total income flowing to lower income groups (particularly farmers and wage earners); shifts in the saving and investment habits of upper income groups which may have curtailed their chances of getting large receipts from successful mature capital and equity investments; lower interest rates; and steeper income taxes. But conjectures alone are possible, and the discussion in the report is limited to a statement of facts.” (Italics mine – T.N.V.) It is more than a coincidence that the basic economic program of the Eisenhower Administration is to reverse this so-called “social” revolution by reducing taxes on the upper income groups, raising the rate of interest, stimulating venture capital and thereby encouraging higher dividends, and stimulating a slight case of unemployment so that labor will not be so demanding and wages can be reduced. Only the exigencies of the class struggle can account for the absolutely unpardonable use of the term “social revolution” in connection with the relatively insignificant changes that have taken place in income distribution since the development of the Welfare State and, more recently, the Permanent War Economy. Nevertheless, it is still of considerable interest to examine the changes that have taken place in the distribution of income. Of more interest than the findings of Kuznets are the reports of the Census Bureau. These are based on Census surveys and may be considered to be much more reliable than data based on income tax returns, as is true of Kuznets. The Census data are before taxes and limited to wage or salary recipients. Dividing the latter into five groups, we get the following picture in percentages for selected years from 1939 to 1951: Wage or Salary Recipients 1951 1950 1949 1948 1947 1945 1939 Lowest fifth 3.0 2.3 2.6 2.9 2.9 2.9 3.4 Second fifth 10.6 9.7 10.1 10.2 10.3 10.1 8.4 Middle fifth 18.9 18.3 18.7 18.6 17.8 17.4 15.0 Fourth fifth 25.9 25.7 26.2 25.5 21.7 25.7 23.9 Highest fifth 41.6 44.0 42.4 42.8 44.3 43.9 49.3 In other words, so far as wages and salaries are concerned, accounting for about 70 per cent of total income payments to individuals, the middle income groups have gained – not only at the expense of the upper income group, but also at the expense of the lower income group. At any rate, regardless of what interpretation one cares to make of the above figures, there is clearly nothing that can justify the use of the term “social” revolution. Kuznets, of course, is concerned primarily with the upper income groups. His figures show a higher decline for the top 1 per cent than for the top 5 per cent – and it is clear that no definition of the upper income groups can properly extend as far as the top 20 per cent. But the major decline has taken place since 1940–41, and this is precisely the period in which individual income tax rates have been raised enormously. The question of the reliability of the estimates is an inevitable one, and Kuznets is greatly bothered by it, spending an entire chapter of 75 pages, including appendix tables, in justifying his methodology.

The chapter starts, however, by stating (p. 435): We cannot measure the probable errors in our estimates directly because our basic data are either by-products of tax administration or products of censuses, subject to all the imperfections of social records. Some defects are obvious and the adjustments discussed in preceding chapters were designed to correct for them as far as possible. But after all these adjustments, errors inevitably remain, and we are faced with the difficult task of appraising them. This discussion of the reliability of our estimates must necessarily be incomplete and inconclusive. (Italics mine – T.N.V.) If it is inconclusive as to whether the estimates are reliable, it may be wondered why the study was made. Kuznets indicates that the choice between using income tax returns and abandoning the study, and he obviously feels that the basic trends revealed by his study are correct. If by this were meant the small relative improvement in the position of the middle income groups, as shown by Census data, empirical evidence would clearly confirm such findings. For the average number of income earners has increased sharply among factory and white collar workers’ families as unemployment has decreased and the percentage of women employees has risen to an all-time high. In other words, on a family basis there can be little doubt that there has been increase in the average standard of living since 1939. This is also true on a per capita basis, but it is not so pronounced. When, however, the claim is made that the upper income groups one per cent or five per cent) have experienced both an absolute and relative decline in their income shares, therefore presumably in their standards of living, one should look with a rather skeptical and jaundiced eye on an analysis that depends completely on the reliability of income tax data. After many comparisons and reliability tests, Kuznets refers to a sample audit study of 1948 income tax returns (which show a minimum of 70 out of 100 returns in the $25,000 and over bracket as containing errors) and concludes (p. 466): The audit study, as far as the recent results go, warrants an inference that such underestimation is within a 5 cent margin for incomes at the to 5 per cent level, and within a 10 per, margin for incomes in the 2nd through to 5th percentage bands. (Italics mine – T.N.V.) The difficulty is that the results do not go very far. They cannot do justice the extensive legal tax avoidance practiced by the upper income groups as analyzed in some detail in Part VI of The Permanent War Economy: Taxation and the Class Struggle, cf. November–December 1951 issue of The New International). Our own private sample study of millionaires (the only reliable method of estimating what has happened to the incomes of the bourgeoisie) indicates that they are managing to survive although the fees to tax accountants and lawyers have increased rather sharply. Mansions costing in excess of $100,000 are still being built – in fact, in larger numbers than in any period during the last 25 years. Of course, vacations are frequently transformed into business trips – or is it vice-versa? Profits are frequently allowed to remain in corporations, in the expectation that the Eisenhower administration will ultimately reduce the surtax rates in the upper income brackets, so that it will “pay” to retrieve the dividends that are waiting to be declared. Some of these factors Kuznets tries to take into account, but the majority (and they are cumulatively decisive) are beyond statistical analysis. We can only conclude that in a period of high tax rates any analysis of upper income groups based on tax returns is not only necessarily inconclusive, but tends to be unreliable. Kuznets, moreover, bases his analysis on a per capita approach. Aside from certain statistical difficulties in converting income tax returns to a per capita basis, the procedure as a measure of what has happened to upper income groups is exceedingly questionable. While the size of families in upper income brackets is smaller than in lower income groups, an upper income group with a large family might well be excluded from Kuznets’ array of the data on a per capita basis. If the purpose of the study is to discover something about standards of living, and not just to collect a lot of figures, then the facts of economic life have to be considered. Using the Kuznets approach, a single individual with an income of $25,000 annually would be part of the upper one per cent in 1948, but a family of five with the one income earner admitting to an income of $100,000 for the year might be excluded since the per capita is only $20,000. Such an analysis overlooks the fact that one mansion is usually sufficient for a family of this type; in any case, five mansions are rarely used. An analysis of shares of upper income groups necessarily involves a ratio of two quantities. The numerator, of course, consists of the amount of income going to the upper income groups, however income is defined. And it makes quite a difference as to what is or is not included in income. The Kuznets data necessarily contain a downward bias (probably on the order of twenty to thirty per cent) in the amount of income currently (since 1943) going to the upper income groups. The numerator of the income ratio is thus understated. But the ratio also depends on the size of the denominator. Here Kuznets uses what amounts to his own estimates of national income. This tends to overstate because of its inclusion of income in kind, imputed rent and other such concepts that are clearly not part of any analysis of the performance of a capitalist economy. If the numerator is noticeably smaller than it should be, and denominator somewhat larger than is proper for analysis, the resulting ratio is necessarily considerably smaller than it ought to be. Unfortunately, we do not have available the statistical resources of the National Bureau of Economic Research or the Department of Commerce, but the decline in the shares of upper income groups since 1939 is not nearly as large as reported.

Unfortunately, we do not have available the statistical resources of the National Bureau of Economic Research or the Department of Commerce, but the decline in the shares of upper income groups since 1939 is not nearly as large as reported. Such decline as has occurred, moreover, is principally confined to the period upper income groups since 1929 is not Permanent War Economy. [This is in the original. – Note by transcriber] The bourgeoisie have not been destroyed or impoverished. They have succeeded, so far, in preserving their basic wealth, income and property. Nor has there been any diminution in the political power of the American bourgeoisie. What has happened, as we pointed out in the November#8211;December 1951 issue of The New International (p. 338), is that: “The state however, whose function is more and more to protect the rule and the wealth of the bourgeoisie, is being financed in steadily increasing measure by the workers and lower middle classes. Therein lies the secret role of taxation under the Permanent War Economy, while equality of incomes remains just as much a mirage on the horizon as it ever was.” (Italics in the original.) Kuznets has contributed data that may be useful to income analysts. He is the real pioneer in national income data, and as one who justifiably claims to be a scientist in his field, he should blush at the “social” revolution that Burns has produced from his highly qualified data. Above all Kuznets ought to investigate why his data are being used as part of the drive, spearheaded by the NAM to reduce the tax burden of the upper income groups. T.N. Vance Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 27 February 2019

Vance Archive | Trotskyist Writers Index | ETOL Main Page Frank Demby Economic Notes (August 1941) From Labor Action, Vol. 5 No. 32, 11 August 1941, p. 3. Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). Dividends on stocks listed on the New York Stock Exchange were 8.2 per cent HIGHER in the first halt of 1941 than in the first half of 1940. Not bad, considering that 1940 was the most profitable year since 1929. But look at the increase in the war babies. Aviation stocks increased their dividends by 104.6 per cent in this period. The shipbuilding industry came next with a vise of 94 per cent, followed by the steel industry with a rise of 74 per cent. All told. 543 listed common stocks yielded approximately $956,705,000 in dividends in the first six months of 1941. This suggests that those industries that have granted wage increases due to the fighting power of the workers not only can easily afford it, but can afford much more. This conclusion is heavily reinforced when it is recalled that most of the profits nowadays are not being paid out in dividends, but are being salted away as war chests in surplus accounts as well as being paid out to officers in the form of bonuses. The argument that was made by the steel companies, for example, that a 10 per cent wage increase would bankrupt them unless they raised prices a corresponding amount is thus shown up for the fraud that everyone knew it to be at the time. Also, it is worth pointing out that the fears of the companies that higher taxes would eat up all their profits have likewise proved to be groundless. If the government is looking for more money from taxes, it seems to us that the logical thing to do is to raise corporation tax -- not the 5 per cent proposed, but SUBSTANTIALLY. This, plus a 100 per cent excess profits tax, would raise, more than enough money so that there would be no necessity for increased excise taxes on necessities, or for cutting off 700,000 workers from WPA. For higher taxes on industry, and higher wages paid by industry! * The excess profits tax proposed by the House Ways and Means Committee remains a fraud in spite of the additional levy of 10 per cent. In the first place, a tax running from 35 to 60 per cent on profits in excess of “normal” is hardly one which will prevent the accumulation of huge fortunes from war orders. Further, the rejection by the committee of the President’s proposal to eliminate the average earnings method of computing excess profits means that corporations still retain the choice of this method or the capital investment method. The latter method, at least, would consider all profits over 8 per cent of the capital invested as excess. The average earnings method, it will be recalled, considers profits above the average earned from 1936 through 1939 (with some “liberalizing” amendments already passed) as excess. For many of the big corporations, who have most of the “defense” orders, the average earnings method allows them a “normal” profit far in excess of 8 per cent! The real indication, however, of the fact that Congress has no intention of passing a real excess profits tax is the inclusion of a provision which adds 25 per cent exemption – to the existing 100 per cent exemption – on new capital invested by corporations. Previously, it cost a corporation absolutely nothing to build a new plant, on which, of course, it would make its customary profit. Now, corporations are to be paid, in reality, to build new plants or expand old ones! * Ten days after American exporters charged the British with re-selling American Lend-Lease materials to Latin America, the British agreed to restrict their trade competition with the United States. The incident furnishes a revealing sidelight on how imperialism conducts its war for “democracy.” American exporters have repeatedly complained that they have been meeting with increasing British competition in the South American market, particularly in such lines as steel, machinery, rubber, paper and textiles. In most cases, the items were those in which the British are reported to have a shortage and which they have been importing from the U.S. under the Lend-Lease Act. The Americans claimed that the British were either re-exporting these American-made products or were using the American products and shipping an equivalent amount of British products. The Americans didn’t at all like the idea of the American government financing their rivals, even if they were allies. When private complaints brought no results, they decided to make the matter public. “The crowning blow in the succession of incidents, according to exporters, came three weeks ago when a company in Buenos Aires which was on the British blacklist entered the market for quantities of paper. According to exporters, the order was substantial and at the insistence of an English supplier the name of the Buenos Aires buyer was removed from the blacklist long enough to enable the British company to bid for the business, and get its money, whereupon the company was put back on the blacklist again.” – (New York Times, July 6) Comment on this would really be superfluous, but we suggest, in the interests of free trade for American capitalists, that perhaps the President ought to include British firms on his export blacklist. * General Robert E. Wood, chairman of the board of Sears, Roebuck & Co. and national chairman of the America First Committee, has resigned as chairman of the Economic Policy Committee of the National Association of Manufacturers. This resignation, “caused by inability to find time to devote to his duties as chairman of the NAM committee,” was made about a month ago but it was not announced until the committee meeting of July 11 when Thomas E. McCabe, president of the Scott Paper Co., was chosen as General Wood’s successor. In announcing his acceptance of the chairmanship, Mr. McCabe said: “The impact of guns, shells, tanks and planes upon our heretofore peaceful butter-and-egg economy may have greater repercussions than any bomb deliberately fabricated to create havoc. It is not at all improbable that hundreds or even thousands of manufacturing plants will be shut down within the year unless they are able to convert their production to defense work.” (Emphasis mine – F.D.) The chairman of the most important committee of all American industry thus sees as the only alternatives for the consumer goods industries – either stopping production, or shifting to instruments of war. Out of their own mouths the capitalists stand convicted as the bankrupt managers of a bankrupt social system. Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 13.1.2013

Vance Archive | Trotskyist Writers Index | ETOL Main Page Frank Demby “Everyone” Must Sacrifice: Specially, Every Worker Wall Street’s Government Agents Look About for Ways and Means of Unloading the War Cost on the People (March 1941) From Labor Action, Vol. 5 No. 12, 24 March 1941, pp. 1 & 2. Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). As soon as the ink was dry on the President’s message to Congress last week asking for seven billion dollars to implement the “all-out aid to England” program, the proposals as to how this money should be raised came thick and fast. Rumor has it that they boil down to two main propositions Either or both is being given serious attention by those “patriots” who measure the extent of their patriotism by the degree to which they can increase their bank accounts. One is a 5 per cent payroll tax to be levied each week on all those earning $25 a week or more. This tax would be deducted at the source. That, is, the employer will deduct it from your paycheck and you will get your regular weekly pittance minus; the 5 per cent. In the course of a year, it is estimated that such a tax can raise several billion dollars. The other proposal is for a national sales tax to be placed on all articles that enter into commerce. A two or three per cent sales tax on everything you buy could also raise several billion dollars. Very Noticeable Inconveniences If either or both of these measures is adopted the government’s credit will be maintained in a sound position, industry can go ahead and “pay-triotically” produce the munitions required to save democracy without worrying about its incentive to produce being destroyed, for there will no longer be any necessity to talk about higher taxes on corporations and excess profits taxes and such annoying things. Isn’t this a small sacrifice to maintain our way of life? Besides, you won’t even notice it. This argument of the reactionaries was given sharp emphasis by the President in his “Aid to Democracies” speech on March 15, when he said, in speaking about everybody sacrificing: “Yes, you will feel the impact of this gigantic effort in your daily lives. You will feel it in a way that will cause lo you many inconveniences.” And these “inconveniences” will be very, very noticeable: A worker making $25 a week would have $1. deducted from his payroll every week, if the payroll tax goes through. If the national sales tax should also be passed, that will place an additional burden on the worker, who is already having a hard enough struggle to feed, clothe and shelter his wife and children. Assuming that $20 out of a worker’s $25 weekly income spent on goods and services that would be subject to sales tax, that would mean (on the basis of a 2 per cent sales tax) an additional 40 cents a week cut in wages. $1.65 a week, or more, in new taxes may not sound very much, but for a worker getting only $25 a week, this is tremendous sum. someone getting $125 a week or a corporation executive receiving the measly stipend of $2,500 a week can very easily afford to pay five times, or 100 times, what the worker making $25 a week can afford to pay. Both a payroll tax and a sales tax are vicious, reactionary types of taxes. The burden falls most heavily on those who can least afford to pay them. this is a direct violation or the accepted principle of taxation, that taxes should be based on ability to pay. Moreover, this does not take into account at all the fact that prices are rising and promise to rise much more rapidly in the future. Wholesale commodity prices arc already more than 29 per cent higher than they were at the outbreak of World War II on Sept. 1, 1939. Retail prices are beginning to catch up to wholesale prices. Meat prices have risen, in some cases, more than 25 per cent in the same period. The cost of living on the average throughout the country has gone up more than 3 per cent and will now start to rise in all earnestness. To which must be added the fact that with the establishment of priorities in aluminum and other metals, we will just begin to feel the impact of the war economy in coming months in the form of shortages of many things that the consumer needs. Some will grant that these new taxes are very unfair, but, they want to know, how else can we pay for the cost of the war program? The answer is simple. The big corporations in 1940 made the highest profits they have made since 1929, even after making deductions for higher taxes. Why not, Mr. President, take these billions of dollars of profits and use them to pay for the cost of your and their “Aid to England” program? And if the 60 families that run this country and control the lion’s share of the wealth won’t turn out munitions to preserve “democracy” unless, they can make their 8, 10 and more per cent profit, WHY NOT, MR. PRESIDENT, HAVE THE GOVERNMENT TAKE OVER THEIR FACTORIES AND PLACE THEM UNDER THE MANAGEMENT OF THE WORKERS? You won’t do this, Mr. Roosevelt for the simple reason that your desire to defeat Hitler is, and must be, subordinated to your desire to maintain the profit system. If you dared to take any steps against profits, your real bosses – not the American people, but Wall Street and the 60 families – wouldn’t like it. They might even get rid of you as no longer useful to them. We say that you can’t preserve democracy and profits, Mr. President. One or the other will have to go. And by the way, did you know that while you were speaking about all of us sacrificing to help the cause of democracy (read: American imperialism), your Congress is considering ways and means of lightening the burden of the excess profits tax? Yes, this same excess profits tax that was such a swindle last October that you couldn’t count on it to raise more than a little chicken feed in a year when corporations were making huge profits, is now to be reduced. New exemptions and deductions are to be allowed. If the meaning of this isn’t clear to you, Mr. Roosevelt, it certainly will be clear to the workers of this country. When you speak of sacrifice, what you mean is that the workers should sacrifice. They should pay for the cost of your war; they should stop striking to improve their conditions so that nothing will interfere with your program of making American imperialism supreme throughout the world. This is pure hypocrisy and we are confident that the workers of this country will recognize it for what it is and will act accordingly. Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 4.12.2012

Vance Archive | Trotskyist Writers Index | ETOL Main Page F.L. Demby War Crisis Curbs Strikes in France French Bosses Use National Defense Plans to Break Strikes and Chain Workers to War Machine (September 1938) From Socialist Appeal, Vol. II No. 39, 24 September 1938, p. 3. Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). What has happened to the recent strikes of the French workers against the extension of the working week to 48 hours by the Daladier Government? Two weeks ago the red flag was reported waving over factories in Amiens, a general strike of the 50,000 textile workers was threatening and the Marseilles dock workers were conducting a two-month-old militant strike. Has the French government used the international crisis to mobilize its war apparatus, calling the workers to the colors and thus putting an end to the strike movement? We do know that the National Committee of the C.G.T. (trade union federation) has approved the national defense plans of the bourgeoisie. The contrast between the morale of the French proletariat today and last year, between the course of the class struggle today and a year ago, is really amazing. Gone is the enthusiasm, spirit and militancy of the French workers. In its place reigns discouragement, disinterestedness in politics, and all the obvious characteristics of a period of social reaction. The miserable showing of July 14 was one example. The steady drift of the workers away from the C.G.T. (General Confederation of Labor) is obviously proof of the reaction. It is easy to read the minds of these workers. They say to themselves: “We had everything. Now we have nothing. We cannot even trust our leaders. Daladier does not represent the People’s Front. Maybe the People’s Front is no good. What can we do? We might just as well enjoy ourselves in the short time that remains before we have to fight against Hitler.” This reaction and chauvinistic sweep is, of course, the logical fruit of the People’s Front. But the French proletariat does not, as a whole, yet understand this elementary truth. It is easy for us to trace the origin and course of this reaction, because we predicted it. It is not so easy to estimate the extent and duration of the reaction. That depends on too many variable factors. True, there is certainly a legitimate economic base for a strike wave at present. But are the present strikes merely the tail-end of the whole preceding period of sharp class struggles, the last desperate gestures on the part of the leaderless workers before the vise of the reaction clamps down completely? Or, on the contrary, do these strikes mark the end of the reaction and the beginnings of a desperate upsurge on the part of the working class? A third element, which cannot be neglected, is the possibility that (as was the case in April of this year when the Blum government fell and the Daladier government came into power) the Communist Party is principally responsible for the strikes. The Hand of the C.P. That the C.P. is the driving force behind the strikes may seem strange, but not if one knows what has been happening recently. We know that the Stalinists did not hesitate to use the magnificent strike action of the French proletariat as blackmail against the French bourgeoisie when they thought that the formation of the Daladier government meant the abandonment of the Franco-Soviet pact and the entry of France into the politics of the Four-Power bloc. We know, too, that the 73 deputies of the C.P. voted for Daladier only on the basis of an agreement that no open steps would be taken by the French bourgeoisie to break the Franco-Soviet Pact during the summer period. If, as is quite, possible the British-French “sell-out” of Czechoslovakia is to be used as a step towards the formation of a Four-Power pact, then the motivation for previous Stalinist-in spired strikes and for the reported present opposition of the C.P. to the Daladier government is definitely understandable. Aside from the possible repercussions of the international situation upon French domestic affairs, there is, however, another reason which might cause one to suspect the Stalinists. For the past four or five months there has been a steady drift of the French workers away from the C.P. and its periphery apparatus This has been part of, and one of the signs of, the general reaction. Numerically, the C.P. has compensated for these defections to a certain extent by extending its base amongst the petty-bourgeoisie, intellectual and lumpen elements. The bureaucracy, however, knows that not only will they not be able to exert any pressure on the French bourgeoisie if they continue to lose their working-class following, but also that not all the workers who leave their ranks will retire into political inactivity. Some will find their way to the revolutionary ranks, the Fourth International. Hence, in order to keep their following, the Stalinists are forced into action. Economic Battles Inevitable In spite of all the variable factors which play a part in the present struggle in France, and which are so difficult to estimate precisely, it is absolutely inevitable that the present reaction and general discouragement amongst the workers must give way to stormy battles either in the immediate present or in the very near future, unless war intervenes. The economic struggle alone, that is the general and rapid worsening of the living standards of the masses, is forcing the French working class once again onto the path of extra-parliamentary action. A pre-revolutionary situation goes through many ups and downs before the final crisis is reached, but inevitably it merges into a revolutionary crisis. Whether the progressive elements in the C.G.T. will succeed in calling an extraordinary congress to prepare for the present struggles remains to be seen. The French workers still have time to prepare for their decisive battles these decisive battles might take place before, during or after the war), but their time is becoming increasingly short. The People’s Front has not only wasted valuable time in the last two years, but it has also, while entrenching the reaction, disarmed the workers ideologically, weakened their fighting organizations, criminally sabotaged the struggle in the colonies and placed the officers’ corps (solidly fascist) in a commanding position. What were once very favorable conditions for a revolution in France have become definitely less favorable, due especially to the betrayal of the workers by their leaders. One thing, however, which must not be overlooked is that the French working class has a long and militant tradition of class struggle behind it. It is definitely anti-fascist. This, of course, is to guarantee that fascism will not triumph in France, but it gives the revolutionary forces an advantage. The fascist movement itself has not grown and, as a matter of fact, has had great difficulty in maintaining its positions. All forces, from extreme left to extreme right, recognize the gravity of the present situation in France, and intimate that they expect decisive battles in the fall. The present Daladier government will surely fall then, although it is not excluded that Daladier himself will again be chosen to head the new cabinet, this time possibly a national union government. One gets the feeling, however, from a stay in France that, in spite of everything, the biggest unknown factor is what will the French workers do. It is the French working class which will have the decisive say in the coming momentous battles in France, and it is here that the great opportunity for the P.O.I. (French section of the Fourth International) lies. Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 14 September 2015

Vance Archive | Trotskyist Writers Index | ETOL Main Page T.N. Vance A.A. Berle’s Capitalist Revolution Qualitative Changes in American Capitalism (Spring 1955) T.N. Vance, A.A. Berle’s Capitalist Revolution, The New International, Vol. XXI No. 1, Spring 1955, pp. 34–41. (book review) Transcribed by Ted Crawford. Marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). While Berle’s 20th Century Capitalist Revolution [1] has been loudly criticized by all types of critics as a very shallow and superficial study – one which fundamentally repudiates his basic work on the modern corporation which he wrote together with Means in 1939 – it would be a mistake to dismiss his series of lectures as merely a panegyric in favor of the large corporation and state monopoly capitalism. That, of course, it is, but Berle does succeed in raising some very interesting questions even if he cannot provide the answers. Moreover, in passing and in developing his general thesis, Berle provides some very interesting and useful information. For example, he quotes fairly extensively from a study on concentration of economic power by Professor M.A. Adelman of Massachusetts Institute of Technology, in which it is stated that “135 corporations own 45 per cent of the industrial assets of the United States – or nearly one-fourth of the manufacturing volume of the entire world. This represents a concentration of economic, ownership greater perhaps than any yet recorded in history.” Adelman seems to be of the opinion that this is a relatively static situation with little change from year to year. Berle indicates at the end that he is not entirely in agreement. It is clear, of course from the current merger movement that the situation is far from static. Berle is concerned with the fact that in most industries: “Two or three, or at most, five corporations will have more than half the business, the remainder being divided among a greater or lesser number of smaller concerns who must necessarily live within the conditions made for then by the ‘big two’ or ‘big three’ or ‘big five’ as the case may be.” In other words, no matter what figures are cited, as Berle says, “There will be little dispute however, with the main conclusion: considerably more than half of all American industry – and that the most important half – is operated by ‘concentrates.’ Slightly more than half is owned outright by not more than 200 corporations. This is calculated on the coldest basis – the amount of actual assets owned by the corporations involved.” There is, of course, nothing new in this brief description of concentrated capital accumulation in the United States. What is new is Berle’s assertion that progress in the interests of the entire population, not only of the United States but of the world at large, rests upon these 200 private corporations, who are performing a constructive role in helping to organize the entire process of industrial production and distribution. At one point, Berle puts it this way: “Mid-twentieth-century capitalism has been given the power and the means of more or less planned economy, in which decisions are or at least can be taken in the light of their probable effect on the whole community.” In other words, Berle has discovered state monopoly capitalism and has declared that the assumptions of multiple competing units that were the foundation of Adam Smith and classical bourgeois economics no longer hold true. Consequently, the “judgment of the market place” is no longer – in Berle’s opinion the motive power of the economy. Berle also perform a useful function in calling attention to the study by the National City Bank on sources of capital accumulation. This study covering the eight years from 1946 through 1953, estimates that a total of $150 billion was spent for what might termed capital expenditures, namely, modernizing and enlarging plant and equipment. Sixty-four per cent of the total of $150 billion came from “internal sources” – that is to say from – surplus and depreciation reserves. Of the total of $99 billion financed through such “internal sources,”retained earnings were by far the largest proportion. Of the remaining $51 billion, or 36 per cent of the total, according to Berle, one-half was raised by current borrowing, chiefly bank credit. This accounts for about $25½ billion. Of the remainder, $18 billion or 12 per cent of the grand total was raised by issue of bonds or notes. Although half of this amount was probably privately placed, Berle is willing to admit that a large portion of this capital was forced to run the gauntlet of so-called “market-place judgment” The astonishing fact is that “6 per cent or $9 billion out of a total of $150 billion was raised by issue of stock, Here, and here only, do we begin to approach the ‘risk capital’ investment so much relied on by classic economic theory. Even here a considerable amount was as far removed from ‘risk’ as the situation permitted: without exact figures, apparently a majority of the $9 billion was represented by preferred stock. Probably not more than $5 billion of the total amount was represented by common stock – the one situation in which an investor considers an enterprise, decides on its probable usefulness and profitability, and puts down his savings, aware of a degree of risk but hoping for large profit. “There is substantial evidence, which need not be reviewed here, that this is representative of the real pattern of the twentieth-century capitalism. The capital is there; and so is capitalism. The waning factor is the capitalist. He has somehow vanished in great measure from the picture, and with him has vanished much of the controlling force of his market-place judgment.

He has somehow vanished in great measure from the picture, and with him has vanished much of the controlling force of his market-place judgment. He is not extinct: roughly a billion dollars a year (say five per cent of total savings) is invested by him; but he is no longer a decisive force. In his place stand the boards of directors of corporations, chiefly large ones, who retain profits and risk them in expansion of the business along lines indicated by the circumstances of their particular operation. Not the public opinion of the market place with all the economic world from which to choose, but the directorial opinion of corporate managers as to the line of greatest opportunity within their own concern, now chiefly determines the application of risk capital. Major corporations in most in-stances do not seek capital. They form it themselves.” (Italics mine – T.N.V.) The existence of what is sometimes termed monopolistic competition or oligopoly or any of the other choice phrases used, does not of course mean that capitalists no longer exist. But Berle is correct in pointing out that capitalism has changed its form considerably during the twentieth century, and capitalism has introduced an aspect of planning which was surely not envisaged by Marx or early Marxists. There is, above all, the role of the state which makes present-day capitalism differ qualitatively from nineteenth or even very early twentieth-century capitalism. Berle correctly points out, for example, that “the development of atomic energy, perhaps the crest of the next great wave in modern development, was not socialist by theory or by design. It was twentieth-century capitalism in respect of which the government played a major part, as it will continue to do.” The role of the state in modern state monopoly capitalism in the United States is not confined to Democratic administrations. There has been no significant change under the present Republican administration either in fact or in theory. As a matter of fact, even in Eisenhower’s Economic Report to Congress of January 20, 1955, which is devoted mainly to assuring the bourgeoisie that everything is fine and there is really very little to worry about, there is a type of recognition of the role of the state which certainly could not have been present in any official document of the last Republican administration. The economic report, after raising various questions concerning the shortness and mildness of the recent economic decline, implies that the government, i.e., the state, is really the factor that is different in the situation today and basically responsible for preventing a severe depression along classical lines. The report states: “Clearly, many people had a part in stemming the economic decline and easing the readjustment from war to peace. The Federal government also contributed significantly to the process of recovery. It influenced the economy in two principal ways, first, through the automatic workings of the fiscal system, second, by deliberately pursuing monetary, tax, and expenditure policies that inspired widespread confidence on the part of the people and thus helped them to act in ways that were economically constructive.” There can be little doubt that so-called fiscal policy, especially with reference to tax structure, and monetary and credit policy, did enable the state to play a constructive role in so far as helping to maintain general economic, equilibrium is concerned. The important word, however, in the passage quoted above is the word “expenditure” for it relates to government expenditures and here we find ourselves face to face with reality. What type of recovery from the so-called recession 1958-54 would have taken place had Federal government not been spending $50 billion or more per year on war outlays? It suffices to raise the question to realize that none of the platitudes of the theoreticians of the bourgeoisie can begin to cope with the recent situation. The economy is maintaining itself and giving an outward appearance of health – although inwardly extremely sick – only because capitalism has entered what we have previously described as the stage of Permanent War Economy. That is why it is somewhat pathetic to find an outstanding bourgeois economist like Sumner Slichter of Harvard state in the current issue of the Harvard Business Review that the old-fashioned business cycle has in effect disappeared. The implication would seem to be that American capitalists have become super-intelligent and can now eliminate depressions. Slichter refers to many points in reaching this rather remarkable conclusion, such as developments in the financing of construction, and the so-called development of individual cycles of different industries. He also refers to the fact that durable goods industries “will at all times have a far higher ratio of unfilled orders to sales and inventories than prevailed in pre-Korean days.” One reason for this, according to the New York Times of January 23, 1955, is “the defense program ... [but] .. . even if diplomacy in the next few years succeeds in substantially mitigating the vigor of the cold war, I suspect that the volume of unfilled orders in the durable goods industry will be kept high simply as a matter of national policy.” Slichter continues, according to the New York Times, by stating: “In the unlikely event that a large additional drop in defense spending becomes possible, the country will probably offset the drop in defense spending by a long-term development program.” What Slichter is saying, of course, is that the state will continue to support the Permanent War Economy – and if, in the unlikely event that international economic conditions change so as to render socially unnecessary the large-scale expenditures in the means of destruction, then the state will find other types of investments which will help to maintain the economy. Here he is reverting to a theory which he promulgated about 1930-31 which, had he been right then, would have meant that it would have been impossible for mass unemployment to have developed. Slichter is no more right today than he was in the 1930’s. The only socially acceptable large-scale state expenditures are those which do not compete with private capital and those which are absolutely and unmistakably essential to the preservation of the capitalist class. Such expenditures, so far, have only been found in the new third category of economic investment, namely, means of destruction. Yet, we should not lose sight of the fact that one of the essentials of state monopoly capitalism is that there is an unusual degree of state intervention in the economy which permits achieving stability, or relative stability, in many cases that could not have previously been attained.

Of course, to do this the capitalists must have the support of other sections of the population, particularly of the labor movement. So far this has not been difficult for them to achieve. What will happen during the year 1955 and into 1956 as the pressure of mass unemployment constantly grows remains to be seen. Already, there are signs that the leadership is being forced to take cognizance of the fact that there are several million unemployed and that these are not people who are superfluous to the normal functionings of capitalism – but who have been rendered superfluous by the very rapid accumulation of capital which, as Marx pointed out, necessarily brings about a certain increase in the industrial reserve army. Or, as we have demonstrated previously, under the Permanent War Economy the basic Marxism law of accumulation of capital becomes transformed into a relative decline in the standard of living rather than an absolute increase in unemployment but as we have had occasion more recently to point out, this holds only when there is a steady increase in the ratio of war outlays. At the present time the ratio of war outlays has been declining, if only slightly, so that whereas a year ago it ran around 17 per cent, today it is down to around 15 per cent. The pressures that develop, particularly in basic industries, are apparent in such cities and industrial centers as Detroit, Pittsburgh, etc. A process of attrition has developed. To revert to our analogy used in our original presentation of the nature and structure of the Permanent War Economy (see Part III, Increasing State Intervention, New International, May–June 1951): “The restoration of the rate of profit could not be followed by an abandonment of state intervention. On the contrary, like a patient who has recovered from an almost fatal illness solely by taking medicine containing habit-forming drugs, the enduring ‘health’ of capitalism demands the continuation of the ‘habit-forming drug’ of state intervention. This becomes obvious as the economy of depression is followed by the Permanent War Economy. There are differences, however. Not only is state intervention more expensive, but it is no longer confined to restoring the profitability of ‘sick’ industries: The most decisive sections of capital are subjected to state control and direction, but the reward is the virtual guarantee of the profits of the bourgeoisie as a class.” To maintain the precarious equilibrium that exists, constantly increasing state intervention is necessary. This is a fundamental law of the present epoch of capitalism – the Permanent War Economy. Not even Old Guard Republicans can defy this law and escape its consequences. Thus, we have the Eisenhower Administration talking about a 100 billion program for road building, and similar measures – most of which will naturally remain confined to paper and which will be trotted out every year around November when elections take place. There will, however, be state intervention in the economy so long as it is within the power of the bourgeoisie to use this new weapon to preserve its own historically outmoded system. Not all bourgeois economists are optimistic about the outlook for economy as a whole as the official prognosticators in Washington. For example, an article in the New York Times under date of January 27, 1955 is headlined, Economists Wary of Business in ’55. The sub-headline is even more to the point: Their Testimony Casts Doubt on Eisenhower Optimism. There were eight private economists who testified before the Joint Congressional Committee on the Economic Report and not all of them represented the trade-union movement. They all appeared to be worried by what in some quarters is loosely referred to as automation which is simply a high-sounding public relations word for a process which has been going on for many years – even if it is accelerating now in certain industries and results in an increasingly high organic composition of capital. This is inherent in the nature of capitalism and should not cause surprise to those who presumably understand, more or less, how the capitalist system operates. It means that in a situation where business as a whole is good, where the bourgeoisie is making very high profits, there could be mass unemployment amounting very easily to a figure of 5,000,000 at the end of 1955. This gives rise not only to much uneasiness within the labor movement and pressures on the labor bureaucracy to do something about it, so that they in turn begin to exert pressure on Washington, but it also gives rise to such phenomena which are appropriate for this period in the form of renewed promises to investigate the “new trend toward monopoly and the concentration of economic power.” There will be, without question, many types of Congressional investigations this field. Whether any of them will add materially to the work of the temporary National Economic Committee remains to be seen, but the New York Times of January 24 reports that the sub-committee of the Committee of the Judiciary, in a report submitted by its majority, Senators Langer, Kefauver and Kilgore, stated that their hearings had lead them to two conclusions: “(1) That there is a two-pronged drive by private monopoly to destroy public competition in the power business, and that the Dixon-Yates contract is a part of that drive. (2) The Wall Street domination of the power industry has revived many of the monopolistic holding company evils which Congress sought by legislation to suppress, particularly the extension of monopoly control over very wide regions.” Here we have the makings of a great debate which may very well play an important role in the elections of 1956. Mr. Berle, however, would answer to all of this that while the large corporation must adopt a conscience comparable to that of the king in feudal days, it is the engine of progress not only in domestic affairs but in international affairs. It is at this point that Mr. Berle, trying to pursue a pre-conceived thesis, becomes a simple apologist for state monopoly capitalism in its most rapacious form, with its justification of the oil cartels and similar international agreements. He still, however, manages to flirt with important thoughts when he virtually concludes his essay by stating: “Corporations still have, perhaps, some range of choice: they can either take an extended view of their responsibility, or a limited one.

Yet the choice is probably less free than would appear. Power has laws of its own. One of them is that when one group having power declines or abdicates it, some other directing group immediately picks it up; and this appears constant throughout history. The choice of corporate management is not whether so great a power shall cease to exist; they can merely determine whether they will serve as the nuclei of its organization or pass it over to someone else, probably the modern state.” Since the power of the state should be kept to a minimum, according to Berle and the traditional liberal philosophy, it is obvious that corporate power must be built up and maintained, but the corporate managers should please have a social conscience to that it would really be true for the former president of General Motors to say that “What is good for General Motors is good for the country.” Sermons are interesting to those who like them but only in their proper place, and an essay on the twentieth-century capitalist revolution is hardly the place for Berle’s type of propagandistic sermon. His critics, however, have sufficiently well disposed of him so that we can merely state that there has been a type of revolution in the twentieth century but Berle doesn’t understand its nature, its causes or its probable results. The constant decline in factory employment focuses attention on one of the major problems of American capitalism – and one for which there is no solution in sight. PWE (permanent war economy) or WPA (work relief projects) have actually been the only two solutions that capitalism has had to offer for the last 25 years. An entire generation has grown up and come to maturity which can only know from reading, but never from experience, what the old capitalism was like. This does not make the new capitalism less capitalist, but it does mean that some of its laws of motion and methods of operation are different and require analysis and understanding – especially by socialists. Symptomatic of danger ahead for the economy, is a most interesting article that was published in the New York Times of September 20, 1954. The heading was Per Capita Output Only 1 per cent Above ’47. This is an article by one of the New York Times’ economic reporters, Burton Crane, and one which is highly recommended to Mr. Berle and to all students of the economy. It is worth quoting from fairly extensively: Per capita industrial production in this country has dropped so sharply in the last year that it is only 1 per cent above the average rate for 1947 ... The question facing the economy is whether industrial production and gross national product can be allowed to fall farther below the normal trend. Our economy, as observers of all shades of political thought have pointed out, works best when it is expanding. Signs that the dynamism had disappeared might discourage investors from risking their capital and dissuade industrialists from expanding their enterprises. There are warnings that such attitudes may be in prospect. Expenditures for new plant and equipment, expressed in constant dollars and weighted for population changes, in the first half of 1954 were at 113 per cent of the 1947 level. In the two preceding years they had been at 116 and 123 per cent. What is the normal upward trend in our economy due to growing mechanization and efficiency? Some economists have set it as high as 3.5 per cent for manufacturing production. At that annual improvement factor, per capita industrial production in 1954 should be at 127.2 per cent of 1947 output. It is at 101 per cent. (Italics mine – T.N.V.) The twentieth-century capitalist revolution is thus not so earth-shaking as would appear from Mr. Berle’s panegyric. It has not solved the problem of unemployment. Here is one of the essential contradictions of capitalism under the Permanent War Economy only where, with attrition setting in, some of the basic laws of capitalism begin to reassert themselves. The economy must constantly grow and expand, at least to the point where it can support the 600,000 to 700,000 new entrants into the labor force each year. This it is obviously failing to do. Moreover, the two prime sources of economic infection, the agricultural crisis and the crisis in consumer durable goods (centering in the automobile industry), clearly remain – with no alleviation in sight. Many factors have been responsible for the rapid increase in population, and it is clear that the Permanent War Economy is intimately connected with this sociological phenomenon. The increase in population in turn, however, gives rise to the very correct analysis of Mr. Crane, quoted above, that only a per capita approach becomes meaningful in appraising the economy, its performance and its outlook. The American economy is simply not suited, nor large enough (on a capitalist basis) to provide the constantly expanding market that is required to sustain an expanding capitalism. We are, therefore, back where we started and Mr.

We are, therefore, back where we started and Mr. Berle is at least partially aware of this central problem when he speaks of “A modern corporation thus has become an international as well as a national instrument.” And when he observes that, “The present political framework of foreign affairs is nationalist. The present economic base is not. The classic nation-state is no longer capable, by itself alone, either to feed and clothe its people, or to defend its own borders.” (Italics mine – T.N.V.) Here, then, is the central fact of the modern capitalist “revolution.” Capitalism has visibly, before our very eyes, outgrown its national framework and must burst this integument asunder in one form or another. The only question that history must still answer is the form in which the capitalist national state will be destroyed and the nature of the political organization that will succeed it. T.N. Vance Footnote 1. The 20th Century Capitalist Revolution, by A.A. Berle, Jr., Harcourt, Brace and Company, New York City, 1951, 192 pp. $3.00. Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 15 August 2019

Vance Archive | Trotskyist Writers Index | ETOL Main Page Frank Demby New Price Bill Fails to Solve the Problem of the Rising Cost of Living (December 1941) From Labor Action, Vol. 5 No. 49, 8 December 1941, p. 2. Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). Faced with the dilemma of serious price inflation or taking “steps in the direction of establishing totalitarian controls, the House of Representatives passed a weak-kneed compromise last Friday by, a vote of 224 to 161. After some fancy political maneuvering, the question of price control raised as long ago as last July, has now been referred to the Senate where, it is expected, a “real” price control bill will be passed. The House bill declares that in the interests of “national defense” it is necessary to prevent price and credit inflation. Its provisions, however, cannot possibly achieve this objective. In fact, if the House bill becomes law it will definitely result in further substantial increases in prices. As always, the working people will suffer. Farm Bloc Blackmail The congressional farm bloc, operating in the interests of the rich commercial farmers, has put into the bill a provision concerning, the prices of farm products that constitutes one of the best illustrations of congressional blackmail in a long, long time. A ceiling is to be established on farm prices, but this upper limit cannot be lower than the highest of the following three levels: A price equal to 110 per cent of parity; The market price prevailing on October 1, 1941; The average price for the period 1919–1929. The original draft of the price control bill called for a ceiling on farm prices to be based on the price as of July 28, 1941, or 100 per cent of parity, whichever was higher. Parity, as I have previously explained, was the slogan of the Farm Bureau, to give the commercial farmers the same purchasing power as they possessed in the period from 1909–1914, which is the highest on record for the 20th century. This meant, in many cases, price increases above those existing on July 28 running from 10 to 30 per cent. And, of course, prices on July 28 already reflected a substantial wartime inflation. While the House Banking and Currency Committee deliberately stalled for several months, under the pretext of a “thorough” consideration of the matter of price control, prices rose substantially. This prompted the farm bloc to demand that the prevailing price level be changed from July 28 to October 1. Not satisfied with this, and being in the position to hold up indefinitely any legislation at all unless its demands were granted, the farm bloc then raised the ante on the alternative parity ceiling from 100 per cent of parity to 110 per cent. This means an additional 10 per cent increase for many basic farm prices. The Third Wrinkle Intoxicated with their easy success, the farm bloc introduced a third wrinkle. For some farm products, the average price from 1919 to 1929 was much higher than either 110 per pent of parity or the price on October 1. This is particularly true in the case of cotton. Where a ceiling based on the 1919–1929 average would mean an additional increase of some 30 per cent. The representatives from the cotton states demanded that this be included as a third alternative and the demand was granted. As a result, the provision of the House Price Control Bill in regard to farm prices, far from preventing prices rises, actually guarantees tremendous price increases, amounting to a wage cut for the workers of at least 20 per cent. As for prices of industrial products, the price administrator (it is assumed by everyone that Roosevelt will appoint Leon Henderson to this position) is permitted to set a ceiling, or a top price, on any commodity threatening to reach the “inflation point.” The effectiveness of this measure, in preventing inflation is exceedingly dubious. First of all an awful lot will depend on the judgment of one man, Leon Henderson. Even if he should be motivated by a sincere desire to prevent inflation, he still has virtually no power to do this, for the House bill establishes a five man board of review with broad power to overrule decisions by the price administrator. Moreover, a manufacturer or profiteer can appeal any case to the courts, where it could undoubtedly be dragged out for months or years. The provision giving the price administrator power to license business men and to revoke their licenses if they violated the price ceilings was defeated by the House. Thus, there is no effective means of enforcing any of these maximum prices. Another Administration Defeat The Administration suffered another, defeat on the proposal to give the government power to buy and sell any product in any market for the purpose of stabilizing its price. This provision was changed so that the government only has the power to buy and sell in the DOMESTIC market to stimulate production of HIGH-COST producers. This power cannot thus be used to lower prices. If used, it will only raise prices further. A final provision of the bill permits the establishment of ceilings on rents in defense areas and gives such tenants the right of appeal if they think their rents are too high. This in no way will stop the rent gouge now going on in defense areas in view of the fact that the rents are already sky high. Nor will it help prevent a general rise in rents throughout the country, which is clearly indicated as a next step in the developing inflationary process. About all that can be said in favor of the action of the House of Representatives is that the House recognizes the danger of inflation and is on record as being in favor, presumably, of doing something to prevent it. Politics Behind the Bill As important as the Price Control Bill itself is the politics which surrounded its passage by the House. It is clear that the question of inflation, which, of course, means the living standards of the masses, is to be the political football in the 1941 congressional elections. The Republicans hope to make a political comeback by accusing the Administration of being responsible for the failure to prevent inflation. They expect to escape the counter-charge that they sabotaged the Price Control Bill by claiming that they were for a “real” price control bill as introduced by Representative Gore. Gore’s bill, following the ideas of Bernard Baruch, called for an overall price ceiling on everything, including wages. This would be an exceptionally reactionary measure. The House had, at least, the political sense to defeat this proposal, for they knew how opposed the workers are to any attempt to control wages. Now Before Senate The Senate now become the next stage where the battle of inflation is to be fought. The workers, particularly the organized workers, must pay very close attention to the deliberations of the Senate. The representatives of the bosses will make every attempt to unload the tremendous cost of the war onto the workers. It is the desire of the bosses to maintain and increase profits that is the main driving force in bringing about rising prices and inflation. Every worker must see to it that his union takes action on this question. The first demand of the unions must be for a 100 per cent excess profits tax. The second demand must be to limit all profits to a maximum of 6 per cent. The third demand must be for the establishment of workers’ control of prices! Unless the workers take action along these lines, the fight to maintain living standards through wage increases will become a steadily losing fight. Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 24.2.2013

Vance Archive | Trotskyist Writers Index | ETOL Main Page Frank Demby Gloom in Wall Street (August 1941) From The New International, Vol. VII No. 7 (Whole No. 56), August 1941, pp. 174–5. Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). WALL STREET EXPERIENCES several million share days. Does this mean a revival, which will parallel the tremendous rise in the stock market that occurred during World War I? One of the mysteries of World War II has been the continuance of the stock market in a state of unprecedented lethargy. The stock market, where the capitalists trade in certificates of ownership, claims to dividends and interest that the manufacturing bosses extract from the toil and sweat of their workers, is supposed to be a barometer of business conditions. Business has been booming; production has reached all-time highs due to the developing war economy; profits in many cases exceed the 1929 highs – and yet Wall Street has been in the doldrums. Prices are very low; business has been so poor that the brokers cannot, in many cases, even cover overhead expenses, resulting in forced mergers and consolidations. The best index of Wall Street depression in the midst of a business boom has been the decline in the price o£ seats on the Stock Exchange – the exclusive country club of the big financiers and speculators. Seats, which not so long ago used to sell for well over $100,000, are now in the twenty thousand dollar levels. Almost anyone – that is, for a small fee – con now buy the privilege of trading in stocks and bonds. Interest is running very high among the capitalists concerning whether a real revival in the stock market is actually under way at last. While the workers don’t own any stocks and bonds, the advanced workers will follow this development with almost as much interest as the capitalists, for it is always important to know what the class enemy is thinking and doing. Moreover, a stock market boom, if it follows previous experience, always ends in a crash which makes the ensuing depression that much worse. The after-effects of the boom during World War I were not felt until late 1920 and culminated in the 1921 crash, which was resumed after the temporary prosperity of the 1920s in 1929. Opinion in Wall Street is divided on the question of why the sudden increase in business, and whether a revival is really under way. Some claim that the continued resistance of the Russian armies is chiefly responsible for the rise in Wall Street. They interpret this as meaning a more favorable military outlook for the Allies (that is, for American imperialism) , which it surely is if Hitler is really bogged down on two fronts. American capitalist property and investments are in a sounder position – worth more – hence the rise in Wall Street and the increased volume of business. Others say that some of the increased purchasing power being pumped into the hands of the public by increased government expenditures is finally finding its natural outlet – the stock market. In support of this contention, they cite the recent report of the Department of Commerce to the effect that income payments to individuals in the month of May reached a rate of $86 billion annually. This is the highest on record and compares with an estimated national income of some $75 billion in 1940 and the previous high in 1929 of some $82 billion. Increasing public confidence – that is, surplus incomes in the hands of the big capitalists and the upper middle class – means increasing support of the stock market. Still others base their optimistic forecasts on the increasingly high profits being made by practically all sections of American business and the “realistic” tax proposals now being considered by the House Ways and Means Committee. They find especially heartening the apparent tendency of Congress to keep the excess profits tax at ridiculously low levels. Altogether, they find no tendency on the part of Congress to pass taxes which will discourage private initiative! Hence, Wall Street should reflect these increasing profits and the market should go up. Undoubtedly there is some truth in all of the contentions. However, in estimating the prospects of capital’s colossal legalized gambling institution, known as the New York Stock Exchange and allied exchanges throughout the country, it is first necessary to understand why the stock market has not paralleled the rise in business during the past two years. Only then are we in a position to estimate whether the new forces, mentioned above, appear to be sufficiently powerful to offset the old forces that have kept Wall Street in a state of continued depression. Here we are confronted with a powerful tendency, which appears to mark an entirely new technical stage in the process of accumulating capital. Hitherto, the chief legitimate function of the stock market in the capitalist economic system has been as a means of raising capital for corporations either for the purpose of floating new enterprises or adding capital to existing corporations, or replacing capital that has been used up by existing corporations. This function, beginning in the middle of the nineteenth century with the financing of the railroads, was made necessary by the increasing size of capital accumulations required to launch a capitalist enterprise. More capital was needed than could possibly be furnished by one man, or by small groups (partnerships). Through the device of the stock market, capital could easily and quickly be raised from all sections of the capitalist class and concentrated in the hands of a few finance capitalists, or their agents, who would direct it where it would do them the most good – that is, earn the highest rate of profit. For some time, and with increasing frequency in the past few years, there has appeared a tendency for existing corporations to raise all the additional capital they have required, either to take care of depreciation or expansion or both through their own accumulated reserves of surplus capital and undivided profits. This is particularly true of the very large corporations. The very statistics of the Department of Commerce, referred to above, bear this out. Dividend payments have risen 5 per cent over last year, but entrepreneurial returns are up 9 per cent.

Putting the matter very simply, almost one-half of the profits of corporations are not being paid out in the form of dividends to the stockholders but are being put aside in surplus and undivided profits accounts. These, can be used at the discretion of the management and board of directors for whatever purpose they wish. Most managements explain these steps by the necessity of piling up reserves for a “rainy day” in these uncertain times. But time and again, the large corporations use these reserves for routine capital financing. This is having a noticeable effect on the structure of the capitalist class. It means the further concentration of control of huge enterprises in fewer and fewer hands – particularly in the hands of the management. The officers and directors of the large corporations become increasingly conservative as they rely more and more on these new methods of self-financing. The expansion of existing enterprises and, above all, the building of new enterprises, is resisted more and more by this newly-elevated capitalist bureaucracy. It becomes the most conservative section of society and acts, in the struggle for its increasing independence and enhancement and preservation of its own power, as a complete brake on the development of the productive forces. Even the imperialist war economy suffers as a result of this innate conservatism of the capitalist managers. The full implications of this trend are only in the process of being observed. They will require a separate theoretical analysis. Meanwhile, Wall Street and those capitalists who operate on the exchanges have been suffering. I£ a number of big corporations can finance themselves completely or partially through their own accumulated reserves of surplus capital, this means less business for Wall Street. If less dividends are being paid out, there is less reason for the public, that is, the small capitalists, who had their fingers burnt badly in the 1929 crash, to invest their small, individual savings in the stock market. This factor has been the main one in explaining the depressed state of Wall Street. Wall Street has been further undermined by the liquidation of a large portion of British-held American securities through private deals, without benefit of the stock exchange mechanism. In addition, of course, the war has not been going too favorably for American imperialism. Also, many capitalists are genuinely frightened by the increasing tendency toward government control of industry that is an inevitable part of the process of developing a total war economy. Wall Street, in one of the most widely-advertised publicity campaigns that it has ever put on, has tried to offset these unfavorable factors, as well as the strongly developed public trait of blaming all economic ills on Wall Street, by electing as its new president of the New York Stock Exchange Mr. Emil Schram, head of the RFC. Mr. Schram’s duties will be those of a public relations counselor. It will be his task to establish “better relations” with the government and to increase public confidence in Wall Street, to the end that more suckers can be induced to part with their savings. It is always difficult to estimate the immediate prospects of Wall Street. But its long-term prospects are indeed gloomy. The tendency for corporations to depend increasingly on self-financing and thus cut themselves loose from Wall Street will mean that Wall Street’s main function will be more and more limited to the financing of new enterprises – and there cannot be too many of these in the general period of capitalist decline. The government will be forced to siphon more and more of the excess savings of the middle class into government channels through increased taxation and, eventually, compulsory savings for the purpose of maintaining government borrowing of a non-inflationary character. Moreover, the defeat of German imperialism looms as an increasingly long and costly undertaking. These unhappy prospects for Wall Street over a long period of time seem to find reinforcement in the announcement of a sharp increase in the “short” position in Wall Street. The shorts are the speculators who operate in the hope that prices will go down. Wall Street rarely permits sentiment to interfere with its cold-blooded business calculations. In spite of all the ballyhoo, then, there is increasing opinion within Wall Street that there will be no immediate boom in the stock market. In any case, it appears quite safe to predict that this time there will be no run-away boom on the 1916-1920 or 1926-1929 models. Any rise that does take place will be of a temporary and limited character, depending largely on temporary conjunctural factors. All of which helps to point to the inescapable conclusion that capitalism is getting old – in fact, old to the point of senility. No rational economic order requires such an archaic and bloodthirsty institution as the stock market. The financing of new enterprises, as well as the expansion and maintenance of old ones, today requires the establishment of a planned economy. The trend toward the establishment of planned economy is an irresistible one; moreover, it appears on a world scale. The question is merely whether it will be the totalitarian, bureaucratic and reactionary planning of the capitalist or Stalinist variety, or whether it will be the democratic and progressive planning of socialism. In the last analysis, it is the workers, particularly the American workers, who will have the final say on this historically decisive question. Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 25 October 2014

Vance Archive | Trotskyist Writers Index | ETOL Main Page Frank Demby Does Inflation Threaten? There’s More Than One Way of Cutting Wages; Sometimes It’s Done By Inflating the Currency (September 1940) From Labor Action, Vol. 4 No. 25, 30 September 1940, p. 4. Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). The recent sudden rise in food prices, particularly meat prices, raises for every worker the question of whether the United States stands on the threshold of an inflationary period. The sharp price rise that occurred after the outbreak of the war in Europe in September 1939 gave way at the beginning of 1940 to a steady decline, which lasted until this summer. Since that time the trend has been in the direction of rising prices. All wholesale prices, for example have risen more than four points during the last month. Retail prices, of course, have gone up even more sharply. So pronounced has the rise in some food prices been that Miss Harriet Elliott, consumer adviser to the National Defense Commission, has acknowledged a steady increase in complaints since the beginning of September. A similar situation is reported by the Bureau of Consumer Service of New York City’s Department of Markets. Prices of steaks have gone up five to eight cents a pound. Beef, pork and lamb are also special objects of complaint. Even the butchers are complaining as the price rise is depriving them of customers. Various government bureaus are now investigating the situation. So, don’t A spokesman for the packing industry in Chicago, who refused to allow his name to be used, stated to the press that “the situation was partly seasonal, partly due to higher payrolls and partly attributable to the fact that the old livestock crop year was ending and the new crop year about to begin.” More Than One Way of Cutting Wages If the factors that have caused this price rise are merely temporary and accidental, then we don’t have to worry about inflation. But if they are more or less a permanent part of our general economic situation, then every worker and every trade unionist must give the problem his closest attention. For there is more than one way of cutting wages, as has been demonstrated time and again during the tortured history of capitalism. Every worker knows and understands the simple and direct method of cutting wages. The boss simply reduces the wage. Even such indirect methods of wage-cutting as lengthening working hours or the use of the speed-up are familiar enough to the average worker. Fighting against these things are part of his daily struggle for existence. The cleverest method of cutting wages, because the worker doesn’t experience it on his job, is the inflationary method. A period of generally and rapidly rising prices is considered inflationary. The worker might even receive an increase in the amount of money he receives every week. But before he knows it, he and his wife discover that his wage buys less food and other necessities than before. What has happened, of course, is that prices of things the worker and his family must buy have gone up much more than any possible raise in his wages. The economist sums this process up by saying that purchasing power has decreased. In a period of inflation, the decline in ability to buy and the rise in prices is most marked. It would be interesting to ask the representative of the meat packers just exactly what he means by saying that higher payrolls are part of the explanation of the recent rise in meat prices. He would probably answer that wage costs in the meat packing industry have gone up. Consequently, in order to maintain profits, prices have to be raised. But we have the faint suspicion that the workers in the packing houses would have something to say about that. It is also not impossible that the real meaning is that there has been a certain amount of re-employment in some communities due to the “defense” program. This increase in payrolls provides the meat packers with an opportunity to raise their prices and make greater profits. The workers, they figure, can “afford” to pay higher prices. Various Indications of Inflation It is still too early to state definitely whether the country is entering a period of inflation, but there are already unmistakeable signs pointing in that direction in the not-too-distant future. One indication is the fact that the total money in circulation is now well over 8 billion dollars. This is the highest figure in American history. Much of this may be attributed to hoarding, especially by foreigners. Nevertheless, a large amount of money in circulation is always one of the characteristics of inflation. If not at present, then some time in the future, this can easily help along an inflationary process. Another indication is the fact that bank deposits are also at record highs. The Federal Reserve Board’s most recent figures show the total of bank deposits and money in the hands of the public at a record high of $67,000,000,000. This fact must be coupled with another very important fact – namely, that excess reserves of the Federal Reserve System are now over 6½ billion dollars, almost the all-time peak. This means that the banks have this huge sum around just lying idle. The way the banking system operates, this money can be used to lend anywheres from 30 to 60 billion dollars. Both facts taken together mean that the base for a most colossal credit inflation has already been laid. Because of the War Trend Is World-Wide Still, something is required to set off the inflationary process, if it is to occur in the near future. Historically, that something has usually been war. This war is proving no exception.

This war is proving no exception. In England, for example, the country whose economy most closely resembles that of the U.S., all wholesale prices increased an average of 37.2 per cent from June 1939 to June 1940. The cost of living advanced 16 per cent during this period. In Russia, which experienced just a minor war with Finland so far, Mr. Gedye of the New York Times, stated that there has been a particularly sharp rise in prices (between January and April of this year, butter increased in price by 45 per cent, cheese by 20 per cent, sausages, bacon and ham by 25 per cent; gas, water and electricity from 50 to 100 per cent) while incomes have remained stationary and hours of work have been lengthened. Even in Germany, the country with the most rigidly controlled price system in the world, while wages have remained absolutely fixed and hours of work have lengthened to from 10 to 14 hours per day, there have been some very pronounced price rises (from 10 to 40 per cent in many cases) especially in such staple items of the German diet as potatoes and sausages. The same experience is to be noted in Japan and Italy. What is taking place is clearly a world-wide inflationary trend. It is just a faint indication of how the entire world situation is loaded with dynamite. A Question for the Union Agenda Even should the U.S. not enter the war in the near future, the cost of the “defense” program threatens a runaway inflation. This is clearly recognized in a study just completed by the National Industrial Conference Board. The huge cost of this program all of which is just so much waste so far as the satisfaction of human wants is concerned, indicates that only a small portion will be covered through increased taxation. The capitalists are certainly going to oppose any increased taxation on the rich and there is a limit to the burden of taxation that can be placed on the workers without producing unrest and rebellion. The most “painless” method of meeting the huge cost of this program is, therefore, largely through increased Government borrowing. No matter what price controls are introduced – and there will be many – a rapidly rising Federal Debt is bound to give a strong impulse to the inflationary process. In summary, therefore: The bases for a vast inflation already exist in the United States. The next months should witness further advances in prices. Every trade unionist, as a matter of self-protection, must immediately demand that this question. along with the worker’s natural answer to the problem – a rising scale of wages – be placed on the agenda of his next union meeting. Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 6.10.2012

Vance Archive | Trotskyist Writers Index | ETOL Main Page Frank Demby Mr. Willkie Pulls a “Boner” All of This Goes to Prove That, as Between Tweedledee and Tweedledum, the Bosses May Have a Choice, But We Have None at All (September 1940) From Labor Action, Vol. 4 No. 23, 16 September 1940. p. 4. Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). When Wall Street’s white hope, Republican presidential nominee Wendell L. Willkie, rushed into print a few weeks ago to denounce the Overton-Russell amendment to the conscription bill, which provides for the conscription of industry, betting commissioners in Wall Street announced that the odds favoring Roosevelt’s re-election had shifted from 6 to 5 to 9 to 5. Soon thereafter, Mr. Luce, boss of Time and Fortune magazines, (personal friend of J.P. Morgan), whose publications started the original Willkie boom, began to wonder whether Willkie wasn’t another “Fat Alf”. Even Walter Lippman has questioned the advisability of Willkie’s candidacy. Truly, politics is an unkind game, as Mr. Willkie is fast learning. Since we were confident a long time ago that Mr. Roosevelt was the best man for the job of preserving American capitalism and preparing American imperialism for war, we cannot register any surprise now that his re-election for a third term seems more or less certain. But two questions continue to puzzle us. The first is: Why are Willkie’s backers greasing the skids for his downfall, thus facilitating Roosevelt’s victory? And the second, and by far the more important question is: What is the real meaning and significance of the Overton-Russell amendment? It Takes a Really Skilled Hand A superficial answer to the first question is easy. Conscription of manpower is none too popular with the American masses. Conscription of men without conscription of industry smacks too much of rank class discrimination. Not even Willkie’s subsequent “clarification” of his position to the effect that he is not against conscription of. industry on principle, but only wanted “adequate safeguards.” following the lead of a New York Times editorial to that effect, can remedy the effects of that rash moment when Willkie allowed his real sentiments and attachment for property interests to push him into one of the most colossal boners any presidential aspirant has ever made. Willkie is, therefore, a losing proposition. His backers, you may say, don’t want to back a loser. Hence, they are withdrawing their support while there is still time to withdraw. Simple? A little too simple. Our own speculations run along the following lines. Both Willkie and Roosevelt, as we shall have occasion to prove in detail later on, are candidates of the House of Morgan in a most direct way. The knifing of Willkie is merely evidence of the fact that the Morgan interests prefer the victory of Roosevelt. This decision, in turn, is based on the strengthening of England’s resistance to Hitler. Prolonged British resistance, say into the spring of 1941, increases the probability of immediate American entry into the war. To facilitate this delicate job requires the touch and guidance of a master hand in fooling the workers. Who can do this job better, or as well as, Roosevelt? Wall Street may be for Willkie. But a very important section of the American ruling class is working in such a way as to increase the prospects of a Roosevelt victory. A Very Clever Maneuver When Willkie denounced the Overton-Russell amendment as “socialistic,” and threatening to “sovietize American industry,” he also denounced those who favored the amendment as sponsors of “a cheap political trick.” There is good reason for believing that the timing of the Overton-Russell amendment was a very clever political maneuver. Indeed, Mr. Arthur Krock, of the New York Times, claims that it was designed as a political trap to catch Willkie and the Republican senators. Be that as it may, Willkie was certainly caught, but a majority of the GOP senators voted for it! The question is clearly not a party issue. If there were any doubts about this, the overwhelming vote in the House for the Smith amendment (which corresponds to the Senate’s Overton-Russell amendment) should have dispelled them. Since all the members of the House are up for re-election this year, we can safely conclude that all but 31 members of the House want to be re-elected and don’t come from blue-stocking districts. It is well to point out that the Smith amendment is more precise and not so sweeping as the Overton-Russell amendment although both are substantially the same – they both give the President the power to commandeer plants if the employer proves recalcitrant; that is, should the Secretary of War or of the Navy be unable to arrive at an agreement. In particular, it does not authorize permanent possession by the government, but merely the leasing of the plant by the Government during the period of emergency. Obviously, the conscription of industry (as proposed in either amendment or in whatever compromise is finally adopted) will not sovietize American industry. So far as this aspect of the question is concerned, the measure is simply another step – and a long one, at that – towards the establishment of a totalitarian state in this country. Far from meaning any tendency towards socialism it will mean the exact opposite – a step towards capitalist totalitarianism. Part and Parcel of the War Drive Why, one is required to ask, is this amendment tacked on to the Burke-Wadsworth conscription bill? Here, the obvious answer is the only one. It makes a good political appeal (especially for votes) to point out to the workers that only only are they being conscripted but so is industry. As such, it is clearly “fairer.” And we are certainly in favor of drafting wealth. The workers, however, must understand that the entire conscription bill, including the amendment to conscript industry, is part of the general drive towards war and the establishment of a totalitarian regime in this country. Moreover, it gives Roosevelt a chance to pose as the champion of the masses by favoring the conscription of wealth. To be sure, Roosevelt has so far allowed Wallace to do his talking for him. Nevertheless, the whole business, greatly aided by Willkie’s boner has strengthened the Roosevelt Administration. It should be obvious to everyone that Roosevelt’s fundamental ideas on property are basically the same as Willkie’s. Both are wedded to capitalism and the preservation of property rights. The idea that industry is being conscripted is a pure fake. If that were the case, it would hardly be necessary to spend so much time discussing the excess profits bill. Industry which is conscripted, wealth which is drafted, won’t have to haggle about profit. IT WILL BE OWNED AND OPERATED BY THE GOVERNMENT. THAT IS REAL CONSCRIPTION OF INDUSTRY. To be effective, however, it must be under the control of the workers. As long as the capitalists own the means of production, and J.P. Morgan can make and unmake Presidents, any conscription of industry will safeguard property rights. Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 6.10.2012

Vance Archive | Trotskyist Writers Index | ETOL Main Page Frank Demby War Taxes Mount (August 1941) From Labor Action, Vol. 5 No. 32, 11 August 1941, p. 2. Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). After three months of consideration the House Ways and Means Committee brought in a proposal to raise $3,529,200,000 in new taxes. It is expected that the federal government will raise between nine and ten billion dollars from existing taxes. The additional revenue, provided there is no increase in expenditures, will be covered by taxes. The remainder will be raised through borrowing. It also means that this is the largest tax bill in the history of the country. Just a reminder that war costs money. The bill is really a case of the mountain laboring and bringing forth a mouse. None of the basic issues are tackled. Recognizing that this is decidedly a compromise measure. Representative Doughton, chairman of the Ways and Means Committee, following the lead of President Roosevelt, announced, in pleading for a “gag” rule to speed the debate, that the committee would have to consider a new tax bill for next year which would probably broaden the income tax base and levy a federal sales tax. These have been the basic demands of the bosses, who, as usual, try to throw the main burden of taxation onto the backs of the masses. On the other hand, the bill sidesteps the issue of imposing a genuine excess profits tax by merely increasing the excess profits rates a piddling 10 per cent. Joint Returns The most highly publicized feature of the new tax bill – the only part of the bill open to debate in the House of Representatives – is the proposal to compel married couples to file a joint tax return. A storm of protest has risen from press and pulpit against this measure on the ground that it penalizes marriage, will encourage divorce and immorality, and breaks down the sanctity of the home. At this writing it appears that the joint return, designed to raise more than $300 million, will be eliminated. However, the joint return doesn’t mean higher taxes for the wealthy, for the wives of the rich don’t work. It is true that they may have separate incomes in the form of inheritance or property gifts from their husbands; but the main burden of the joint return would fall on those middle class and working class families where both husband and wife work, with combined incomes ranging from $4,000 to $10,000. Since the greatest number of working women come from the ranks of the working class, a broadening of the income tax base and a lowering of exemptions – as is proposed for next year – would result in the joint return affecting the upper strata of the workers more than any other group. This is one of the main dangers inherent in the proposal. On this practical ground alone, leaving aside the fundamental questions of the family and the institution of marriage, the joint return should be opposed. The bulk of the new tax revenue is to be raised from corporate and individual taxpayers – nearly two and a half billion dollars. In comparing the additional amounts to be raised from corporations and individuals, we see the manner in which the refusal to levy a 100 per cent excess profits tax and substantially higher corporation taxes, is allowing the big bosses to escape at the expense of the middle and working classes. New taxes from corporations are expected to raise $935,000,000. New taxes from individuals will raise an expected $1,521,000,000 (the big increase in the surtax rates falling on those making from $2,000 net income to $10,000 net income). This means an increase of 72.7 per cent in the taxes paid by individuals as against an increase of only 35.8 per cent in the taxes paid by corporations. In the words of Godfrey N. Nelson, tax expert of the New York Times: “Charging themselves with the duty of raising an enormous additional amount of revenue, the Congress has made the burden of such load to fall disproportionately upon the individual taxpayer. It has been said that we shall pay the additional taxes even if we have to borrow on do so.” To enable the middle class to pay these new taxes, the Treasury is obligingly selling “tax anticipation” notes. Power to Destroy ”The power to tax,”’ goes the well known saying, “is the power to destroy.” In this case, what is involved is the beginning of the destruction of the middle class, the traditional bulwark of American capitalism. The far-reaching social implication of burden of the middle class will only be seen in the years to come, but in its own way it is already an indication of the approaching revolutionary crisis in the United States. One of the most penetrating predictions of Marx was that in which he predicted the gradual disappearance of the middle class as capitalism matured and began to decay. This prediction has often been attacked as incorrect, and the United States, with its vast middle class, cited as proof of Marx’s error. But, even if somewhat belated, the middle class IS being wiped out (by the big capitalists). The process, which began with the onset of the great depression of 1929, – particularly on the tax front. The impression has been carefully cultivated by the boss press that the workers have escaped “paying their share of the new taxes.” The Republican minority of the Ways and Means Committee, while it couldn’t agree on any specific measures, submitted a minority report attacking the New Deal spending and calling virtually for the elimination of WPA, NYA and CCC appropriations. To them, of course, the existence of 5,000,000 and more unemployed is of no importance.

To them, of course, the existence of 5,000,000 and more unemployed is of no importance. But the workers have not escaped. They will not be taxed directly, rather they will be made to suffer the most vicious forms of taxation – excise or indirect taxes. An additional $900,000,000 is to be raised in excise taxes. These taxes on various commodities and services (mostly necessities) are, of course, passed on to the consumer in the form of higher prices. It means that those who can least afford to pay them will bear the overwhelming burden of these new taxes. It also means that at the same time that the government is supposed to be taking action to prevent rising prices, it introduces a tax bill which must result in higher prices! However, we should not expect logic from capitalist politicians. Some of the increases in existing excise taxes as well as some of the new excise taxes are as follows: distilled spirits, an increase of $1.00 a gallon to yield $122,300,000; wines, increased rates to yield $5,000,000; automobiles, tax increased from 3½ to 7 per cent, to yield $74,900,000; tires and tubes, increased rates to yield $44,600,000; matches, a tax of 2 cents per 1,000, to yield $21,000,000; playing cards, rate increased from 11 to 13 cents, to yield $1,000,000; radios and receiving sets, rate increased from 5½ to 10 per cent, to yield $9,400,000; telephone bills, a tax of 5 per cent, to yield $43,600.000; transportation of persons, which excludes tickets for 30 days or less, a tax of 5 per cent, to yield $36,500,000; a “use” tax on automobiles, yachts and airplanes of $5.00 each per year, to yield $180,200,000 (imagine placing yachts and airplanes in the same class as second-hand automobiles!); bowling alley, pool or billiard table tax, $15 each, to yield $3,400.000; soft drinks, a tax of one-sixth cent per bottle or its equivalent, to yield $22,600,000; also a 10 per cent tax on the following items: phonographs and records, musical instruments, sporting goods, luggage, electrical appliances, photographic apparatus, electric signs, business and store machines, rubber articles, washing machines for commercial laundries, jewelry, furs and toilet preparations. For those making under $2,000 a year – that is, 70 per cent of the nation – these excise taxes alone (not counting the state taxes and “voluntary” contributions of various types) will mean a greater increase in their already high taxes than is the case with the wealthy. The writing of a real tax bill – one which would raise the money from those who can afford it by a capital levy on all those with incomes over $10,000 a year – that, of course, is too much to expect from those docile representatives of big business in Congress. But we should at least expect the honorable congressmen to read their own tax bill – even if they don’t debate it. That is most unlikely since only three days have been allowed to consider a bill which is 95 pages in length! Thus does the Congress, by its very actions, reveal the fakery and hypocrisy which is involved in every tax bill. Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 13.1.2013

Vance Archive | Trotskyist Writers Index | ETOL Main Page Frank Demby After the War, What? (September 1941) From Labor Action, Vol. 5 No. 35, 1 September 1941, p. 2. Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). One of the most significant of recent developments is the publication by the National Resources Planning Board of a pamphlet entitled After Defense, What? Its contents are summarized in the New York Times of August 13. The board, in outlining its post-war economic program, based itself on the assumption that World War II will end in 1944, at which time it estimated that the U.S. will be using 23,000,000 workers in war industries, plus 3,500,000 men in the armed services. As an indication of what is in store for us for the next three years, the report is very interesting. Its real value lies, however, in two extremely important things: First, there is the recognition on the part of a semi-official government agency that we must plan NOW to prepare for the “colossal undertaking” of transferring these millions of men to peacetime activities, if complete economic breakdown and utter chaos are to be avoided. Second, and most important, is the complete inadequacy of the program proposed by the National Resources Planning Board to accomplish this aim. It reveals, as clearly as anything can, the bankruptcy of capitalism. It does not require much imagination to picture what will happen if the usual post-war depression is allowed to develop. Whether it be in 1944 or later, the questions asked by the board are of fundamental importance and are in the mind of every thinking person today: “What happens to the demobilized workers and veterans and their families? Will they be without work? Will they stop producing? Will the national income drop fifteen billion dollars or so as soon as the pent-Up demands are met? Will the succeeding drop in consumption throw others out of work and reduce national production and income another ten to twenty billion dollars?” “If so,” says the board, “we shall be back again in the valley of the depression and a terrific new strain will be thrown on our whole system of political, social and economic life. The American people will never stand for this. Sooner or later they will step in and refuse to let matters work themselves out.” In plain English, then, these learned intellects are telling the bosses: “If you don’t want a revolution after the war, you’ve got to take steps to prevent it now; continuing your usual policy of doing nothing will prove fatal.” Let me put the matter another way. The era of free, competitive capitalism is over. It is not merely dying. It is dead. It cannot be resurrected, no matter how many pious declarations Messrs. Roosevelt and Churchill issue. The National Resources Planning Board – let credit be given where credit is due – at least recognizes this incontestable fact. But the real problem is HOW TO PLAN for maintaining maximum production, full employment and rising standards of living in peacetime. Here the capitalist statesmen and economists, when they don’t show annoyance at the posing of such far-off problems (peace aims), are hopelessly confused and bewildered. And no wonder! They sense only too well the terrible longing of the masses for peace, security and freedom. But all they can offer the people under an outworn capitalist system is the peace of the graveyard, the security of regimentation and the freedom of the concentration camp. The difficulty lies in the fact that the only type of planning possible under capitalism is the fascist type, which inevitably means more wars and widespread misery and starvation. How to plan the abolition of poverty in the midst of plenty – that is the question. The National Resources Planning Board would have government, business, workers and farmers cooperate now in the establishment of a planned transition to peacetime activity. Among their suggested plans are: a dismissal allowance for all demobilized men; gradual liquidation of government contracts, priorities and price controls; public works projects, particularly transportation and housing; research to develop new industrial products; plans to expand the service industries – more medical care, education and entertainment; new forms of social security and work relief; new financial plans for covering the costs of these projects; and lease-lend aid for the peoples of Europe until they can get on their feet. Let us grant that all of these are worthwhile aims. Can they be achieved under capitalism? Not in any genuine manner, such as will guarantee full employment and a rising standard of living. Why haven’t we had genuine slum-clearance and low-cost housing projects prior to the war? Why, in spite of all the New Deal reforms, does one-third of the nation remain ill-fed, ill-housed and ill-clothed? As soon as the government tries to respond to the pressure exerted by masses of discontented people by instituting a few reforms, what happens? Big business, through its control of all the avenues of propaganda, turns loose its high-paid publicists, who unleash clever campaigns to show that such reforms are too costly and will bankrupt the government, or that they are illegal and unconstitutional, or that they undermine the system of free, private enterprise. If the government sells electricity at cost, which can easily be done, as demonstrated by the TVA, this is government competition with private business. Private business must operate at a profit.

Private business must operate at a profit. To get its profits it must sell things at two or three times the rates charged by government-owned enterprise. Further, monopolies have arisen in every industry for the simple reason that, through monopolies, production can be restricted, prices can be raised, wages can be lowered – and thus profits can be maintained at a high level. Unfortunately for the National Resources Planning Board, the problem begins where they end. The wheels of industry will not turn, under capitalism, unless the manufacturers, bankers and landlords can get their profits. Is there any reason why manufacturers who refused to manufacture war materials under the “defense” program until their profits were guaranteed by the government, should suddenly manufacture the necessities of life once the war is over – unless they can likewise get their profits? Countless inventions have long been suppressed by big corporations because releasing them would interfere with their profits on existing investments. Why should they now develop new industries on a large scale so as to give employment to everyone? There was a time when the capitalists, in their pursuit of profits, did bring about a general improvement in living conditions – although millions still lived in poverty. But, as the saying goes, “Them days are gone forever.” Profits can be maintained today only by having the masses suffer a steadily declining standard of living. This soon makers all reforms a luxury and an expense that the capitalists cannot afford. Once the monopoly capitalists are confronted with such a situation, they finance the fascist gangsters to power. The recent history of Europe leaves no doubt on this score. But even if a schoolchild could propose more concrete and realistic plans than those of the National Resources Planning Board, this does not mean that the workers must give up all hope of a decent life. The Brookings Institute, a very conservative institution, long ago estimated that the U.S., with its abundant resources and technical skills, can give everyone the equivalent of a $5,000 a year income. The trade unions must take up the problem and the suggestions of the National Resources Planning Board. They must establish their own planning boards. They must bombard Washington with concrete, realistic plans for producing enough food, clothing, shelter and other things for everyone. They must educate the country so that the masses understand how the good things of life can be distributed to everybody. And if profits have to be sacrificed (AS THEY MUST) in order to achieve a decent, rational and democratic existence – well, then let profits be sacrificed. Why should the selfish interests and privileges of a mere handful of people condemn the overwhelming majority of the population to perpetual hunger and misery? And we are confident that once the workers start thinking about these problems – which are immediate and practical problems – they will find that only a workers’ government, democratically organized and controlled, producing for the use and needs of the population, can solve the manifold problems that confront us today. Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 27.1.2013

Vance Archive | Trotskyist Writers Index | ETOL Main Page Frank Demby Treasury Plans War Cut in Wages! Wants Labor To Pay for Boss War by ‘Savings’ (November 1941) From Labor Action, Vol. 5 No. 45, 10 November 1941, pp. 1 & 4. Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). The Treasury Department has announced that before the end of the year a comprehensive plan will be introduced into Congress for cutting down the “excess” purchasing power of the American masses. The central feature of this “anti-inflationary” program will be a tremendous increase in social security payroll taxes. The figure of 5 per cent has been publicly mentioned. At present, employee members of the old age pension system automatically have 1 per cent of their wage deducted from their pay envelopes. This sum, together with the employer’s contribution an equal sum for each worker, goes toward the creation of a survivor’s insurance fund. When a worker reaches the age of 65 he is then entitled to certain benefit payments for the rest of his life. This system, known as social security, was originally designed to solve the problem of old age insecurity. It is not to be confused with another aspect of the same law – unemployment insurance – which operates through the states. In spite of numerous flaws and injustices, social security was generally accepted as a step in the right direction. Now, however, under the pressure of tremendous war expenditures, this system is to be perverted into a means for making the masses pay for the boss war, lowering the standard of living of the average worker and, ultimately, destroying the old age pension system. Just exactly what changes are being discussed by those entrusted with the safeguarding of our money is difficult to say, as it doesn’t seem to occur to Mr. Morgenthau and Mr. Roosevelt that the workers ARE interested in the fate of their own pension system, and would like to have a public discussion of any proposals that are being made. It has been rumored, for example, that the social security system is to be broadened to include many not now covered, as farmers and government employees. If the “contribution” of the worker is to be increased to 5 per cent (and this apparently is the smallest figure under consideration), will the contribution of the employer also be increased to 5 per cent? Absolute silence from Treasury officials! If the workers contribute five times as much as previously, will their benefits increase by five times? No answer! Will the benefits increase at all? Still no answer, but one detects an embarrassed silence such as is usually present when you apprehend a person in the act of doing something wrong. Above all, what relevance has it to the needs of the working class? There are now millions upon millions of dollars in the social security fund, of which about 90 per cent has been “borrowed” by the government for war purposes. The new proposal is therefore obviously designed not to safeguard the security of the worker but to get more money for the bosses’ war! The bosses undoubtedly figure that this subject is too “complicated” for the average worker to understand. It involves such matters as inflation, taxation and finance. The worker, in the mind of the boss, is too dumb to discuss these matters; he should merely concern himself with sweating, toiling and bleeding so that the bosses can make more profits, and he should leave these mysterious matters to the representatives of the bosses, like Mr. Morgenthau, who will take care of everything. Suppose, however, that somebody proposed that you take a 5 per cent wage cut. You would want to discuss it, wouldn’t you, especially with the wife complaining that the cost of everything is going sky-high? And even if you were told that by taking a 5 per cent wage cut, you would be stopping prices from going up, we are absolutely confident that the workers would want to discuss such a proposal. And yet, this, in reality, is what is being proposed. Of course, the bosses don’t say that this is a wage cut. They will tell you that you will be saving your money and that you will get it back when the “emergency” is over, when you’ll need it. The Keynes Plan This is the line that the bosses of England are handing out to the British workers. There, a famous economist by the name of John Maynard Keynes, who is concerned with the problem of making capitalism work, proposed at the beginning of the war his “deferred savings” plan. The trouble, says Mr. Keynes, is that under a war economy less and less of the necessities of life are produced. The war needs the factories and the machines, the raw materials and the labor. So we are forced to cut down on production of consumer goods. At the same time, more workers are being employed in the war industries. This means more money in the hands of the workers. In other words, the demand for consumer goods is, increasing at the same time that the supply is being reduced. Such a situation must result in rising prices – that is, in inflation. This is bad, so the only solution, according to Mr. Keynes, is to reduce the demand of the workers for the necessities of life. Let 5 per cent of the worker’s wage be deducted from his payroll. This will be a sort of forced savings. The government can use this money to finance the cost of the war. Then, when the war is over, the money which the worker loaned the government will be returned to him, and there will be a big demand so that manufacturers will find it profitable to produce consumer goods once again. England has adopted the Keynes “deferred savings” plan. As a reward, Mr. Keynes was just elected as one of the directors of the Bank of England.

Keynes was just elected as one of the directors of the Bank of England. Mr. Keynes made a trip to the United States earlier this year. At that time, it was reported that he had discussed his plan with Treasury officials. Apparently, we are now to receive the fruits of this visit. For, it should be obvious that an increase of the social security tax to 5 per cent is merely a different form of carrying out the same basic idea. At the same time that Mr. Morgenthau made his announcement in Washington, a small item in the financial section of the newspapers announced that Dr. Fritz Reinhardt, assistant Finance Minister of Germany, had proposed to the German workers the development of “iron savings accounts.” These accounts cannot be touched until one year after the war is over. The amount that an individual worker can save is limited and is tax exempt. We do not know if Mr. Keynes made a trip to Berlin in order to expound his theories to the Nazis, but we do know that the Nazis have adopted and perfected his theories. We also know that if the German system is compulsory savings, as the American press was quick to point out, then Mr. Morgenthau’s proposal is also compulsory savings, in spite of his denial. Lowers Living Standard We object to the proposal of increased social security taxes because it is unnecessary, because it will not prevent inflation and because, ultimately, it will wreck the social security system. It is unnecessary because a genuine, democratic approach to the problem of preventing inflation would start with a real 100 PER CENT EXCESS PROFITS TAX. If it is not profitable to raise prices (because the extra profits will be taken away through taxes), the biggest incentive that the bosses have to raise prices will be destroyed. Further, this American adaptation of the Keynes scheme will not prevent inflation, unless at the same time, rigid totalitarian controls are introduced. By themselves, forced savings can only mean a LOWER STANDARD OF LIVING and will throw the main burden of financing the war onto the backs of the masses. Finally, the question must be asked: where will the government get the money to pay back these forced savings, once the war is over? The answer is that it can’t unless it pays back in inflated dollars, which would mean a worthless currency. We shall return again to this question. Meanwhile let’s hear from our readers and let every worker raise the problem in his trade union! Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 13.2.2013

Vance Archive | Trotskyist Writers Index | ETOL Main Page Frank Demby New Tax Proposals Hit Those Who Can Least Afford Them (May 1941) From Labor Action, Vol. 5 No. 18, 5 May 1941, p. 2. Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). The Treasury Department has recommended to Congress the adoption of new taxes designed to raise slightly more than three and a half billion dollars – about half of the cost of the Lease-Lend program. While it is too early to say definitely what the final bill will be, as the various big business groups are now engaged in the highly edifying American pastime of passing the buck – on to consumers and other business groups – through their powerful lobbies in Washington, all the proposals made point to the strengthening of the already reactionary tax structure of the country. While the capitalist press has headlined the scheduled increases in the income tax rates, the really significant aspect of the Treasury’s proposals are the additional $1,233,600,000 of indirect taxes. These are the taxes which are passed on to the consumer in the form of higher prices. The workers, those who can least afford it, will foot the largest portion of the bill designed to make the world safe for American imperialism. The middle class (those with incomes between $2,500 and $10,000) will pay the next largest share. And, as usual, the big capitalists will pay the smallest portion of the cost of their war. Over $200,000,000 will be raised through additional tobacco taxes. This means that cigarettes will go up another two cents a pack. Almost the same sum is expected through a higher liquor tax. This means much higher prices for beer, wines, whiskey, etc. Over $842,000,000 will be obtained through excise taxes on some 25 items; some representing additional taxes on those already in existence, like another cent on each gallon of gasoline (expected to bring in $255,000,000); others representing entirely new taxes, like the proposed one cent a bottle on all soft drinks (expected to bring in $133,500,000). One and a half billion dollars is to be raised through additional income taxes by higher surtax rates on the middle income groups. For example, under the Treasury’s program a married couple with no children who have a net income of $2,500 a year would pay an income tax of $72 instead of the present $11. A single person with a net income of $1,000 who now pays an income tax of $4 would pay $29! Many of those in the middle class (around $5,000) will pay six to seven times their present income taxes. Compare these proposals witt the measly additional $400,000,000 to be collected in excess profits taxes and you have a true picture of how the capitalists are trying to unload the cost of the war onto the backs of the workers and other people who work for a living. Especially, when it is recalled that the present excess profits lax, which was supposed to bring in close to a billion dollars in 1940 is now estimated as having brought in only $100,000,000! While you are mulling over these typical illustrations of capitalist “justice,” let me spoil your appetite further with these additional items as food for thought: Representative Doughton, chairman of the House Ways and Means Committee, which has charge of the bill, said he expected that “every conceivable tax” might be offered in the committee when it starts to “mark up” the bill within two or three weeks. Under present tax schedules, those in the lowest income groups (representing two-thirds of the population) pay 20 per cent of their incomes to the government in taxes (most of them being hidden or indirect taxes) while those in the highest income group (representing one-tenth of one per cent of the population) pay only 38 per cent of their incomes to the government in taxes. The new and increased excise taxes will have a cumulative effect in helping to bring about higher prices. Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 27.12.2012

Vance Archive | Trotskyist Writers Index | ETOL Main Page T.N. Vance The Counterfeit Concept of Countervailing Power (May 1954) From The New International, Vol. XX No. 3, May–June 1954, pp. 99–113. Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). The key to the psychology of mid-twentieth century capitalism is the fear of depression. This fear, or sense of insecurity, has been a basic fact of political and social life since the crisis of 1929. Any economist who has any claim whatsoever to being a theorist has been forced to attempt an explanation of the reasons for depressions and, above all, to reassure himself and society at large that there is no need to fear a recurrence of severe depression. John Kenneth Galbraith – currently Professor of Economics at Harvard University and author of American Capitalism: The Concept of Countervailing Power [1] – is no exception. As a matter of fact, he begins by stating: The present organization and management of the American economy are also in defiance of the rules – rules that derive their ultimate authority from men of such Newtonian stature as Bentham, Ricardo and Adam Smith. Nevertheless it works, and in the years since World War II quite brilliantly. The fact that it does so, in disregard of precept, has caused men to suppose that all must end in a terrible smash ... It is with this insecurity, in face of success, that this book, in the most general sense, is concerned. (Italics mine – T.N.V.) The reason, consequently, that Galbraith’s concept of countervailing power has created somewhat of a stir in certain academic and liberal circles is that he has written a book aimed at reassuring the bourgeoisie and its supporters that there is really nothing much to worry about, that capitalism is functioning on the whole quite well, and that this is almost if not quite the best possible of all possible worlds. The difficulty, according to Galbraith, is that all classes in society have been victims of false or outmoded economic theories. All that is necessary is to change the theory, accept the validity of countervailing power, and presto chango the fear of depression will disappear. While this represents a rather touching tribute to the power of ideas in molding men’s lives, it constitutes a real distortion of how ideas develop and how they influence the evolution of society. The entire presuppositions of Galbraith’s theory are laid bare by the following extensive quotation from the end of his first chapter: Here then is the remarkable problem of our time. We find ourselves in these strange days with an economy which, on grounds of sheer physical performance, few are inclined to criticize. Even allowing for the conformist tradition in American social thought, the agreement on the quality of the performance of American capitalism is remarkable. The absence of any plausibly enunciated alternative to the present system is equally remarkable. Yet almost no one feels secure in the present. The conservative sees an omnipotent government busy altering capitalism to some new, unspecified but wholly unpalatable design. Even allowing for the exaggeration which is the common denominator of our political comment and of conservative fears in particular, he apparently feels the danger to be real and imminent. At any given time we are but one session of Congress or one bill removed from a cold revolution. The liberal contemplates with alarm the great corporations which cannot be accommodated to his faith. And, with the conservative, he shares the belief that, whatever the quality of current performance, it is certain not to last. Yet in the present we survive. With the present, given peace, no one is intolerably unhappy. It can only be that there is something wrong with the current or accepted interpretation of American capitalism. This, indeed, is the case. Conservatives and liberals, both, are the captives of ideas which cause them to view the world with misgivings or alarm. Neither the structure of the economy nor the role of government conforms to the pattern specified, even demanded, by the ideas they hold. The American government and the American economy are both behaving in brazen defiance of their rules. If their rules were binding, they would already be suffering. The conservative, who has already had two decades of New and Fair Deals would already be dispossessed. The liberal, who has already lived his entire life in an economy of vast corporations, would already be their puppet. Little would be produced; we should all be suffering under the exploitation and struggling to pay for the inefficiency of monopoly. The fact that we have escaped so far means that the trouble lies not with the world but with the ideas by which it is interpreted. It is the ideas which are the source of the insecurity – the insecurity of illusion. Whether the average individual is as worried as Galbraith thinks he is about the possibility or imminence of depression, is difficult to ascertain. Galbraith’s worry, however, is genuine.

Galbraith’s worry, however, is genuine. It stems from the destruction of the economic foundations of American liberalism. Capitalist liberalism historically was a nineteenth century phenomenon. With the growth of state monopoly capitalism and of monopoly in general the base of liberalism narrowed until it has reached the point where it has virtually disappeared and genuine liberals are as scarce as hen’s teeth. Sooner or later economic theory must correspond to the facts of economic life. In other words, the superstructure, i.e., the world of ideas, flows from the foundation, i.e., the reality. Liberalism is the child of competitive capitalism, of free enterprise in the true sense of the term. As competition decreased and monopoly grew, it became increasingly difficult for liberals to maintain a theory of liberalism. Such a theory was badly in need once capitalism entered the stage of permanent crisis following the first world war – and once the authoritarian theories of fascism and Stalinism became fashionable. In the 1930’s the man who saved the day for the liberals was John Maynard Keynes – an English banker who became the bourgeois theorist of the depression era. For it was Keynes who provided the rationale, the justification for state intervention which was absolutely indispensable for the survival of capitalism. In the process, Keynes demolished his predecessors, the classicists and neo- classicists alike. In an interesting chapter, entitled The Depression Psychosis, Galbraith displays a rather penetrating understanding of Keynes’ rôle. He states: The ideas which interpreted the depression, and which warned that depression or inflation might be as much a part of the free-enterprise destiny as stable full employment, were those of John Maynard Keynes. A case could easily be made by those who make such cases, that his were the most influential social ideas of the first half of the century. A proper distribution of emphasis as between the role of ideas and the role of action might attribute more influence on modern economic history to Keynes than to Roosevelt. Certainly his final book, The General Theory of Employment, Interest and Money, shaped the course of events as only the books of three earlier economists – Smith’s Wealth of Nations, Ricardo’s Principles of Political Economy and Marx’s Capital – have done. The development of mass unemployment during the Great Depression of the 30’s not only demanded state intervention to preserve capitalism, but demolished the classical theories of free competition that had presumably guided the actions of the American bourgeoisie until that time. Keynes’ system permitted acknowledgment of the existence of unemployment, predicted its development, and appeared to provide a solution to the problem. To quote Galbraith: The major conclusion of Keynes’ argument – the one of greatest general importance and the one that is relevant here – is that depression and unemployment are in no sense abnormal. (Neither, although the point is made less explicitly, is inflation.) On the contrary, the economy can find its equilibrium at any level of performance. The chance that production in the United States will be at that level where all, or nearly all, willing workers can find jobs is no greater than the chance that four, six, eight or ten million workers will be unemployed. Alternatively the demand for goods may exceed what the economy can supply even when everyone is employed. Accordingly there can be, even under peacetime conditions, a persistent upward pressure on prices, i.e., more or less serious inflation. Full employment, which the classicists assumed, did not exist. It was so remote that Keynes relegated it to the status of a special and rare case in equilibrium analysis. More often than not, asserted Keynes, the economy would achieve an equilibrium below the level of full employment. This, of course, was heresy to the conventional “vulgar” economists who promptly denounced Keynes. It was, however, rather difficult to ignore the political potential of millions of unemployed. The state had to intervene to try to bolster demand by various pump-priming processes. In the course of providing theoretical justification for state intervention, Keynes had to demolish what was known as Say’s Law – an ancient shibboleth according to which each commodity produced automatically generated the purchasing power required to take that commodity off the market. Keynes discovered something that had been more accurately described by Marx and many others; namely, that a portion of the value of a finished commodity went to the owner of capital and that this value (or, more accurately surplus value in the form of profit, interest or rent) did not necessarily have to be invested in new production. The resultant increase in savings could and periodically did “result in a shortage of purchasing power for buying the volume of goods currently being produced. In that case the volume of goods would not continue to be produced. Production and prices would fall; unemployment would increase ... And this equilibrium with extensive unemployment might be quite stable.” Once Keynes had established that depressions could and did exist, and that investment did not automatically provide the necessary offsets to savings, the remedy in the form of public spending was clear. As Galbraith puts it: “Insufficient investment has become the shorthand Keynesian explanation of low production and high unemployment. The obvious remedy is more investment and, in principle, it is not important whether this be from private or public funds. But the expenditure of public funds is subject to central determination by government, as that of private funds is not, so the Keynesian remedy leads directly to public expenditure as a depression remedy.” The Great Depression has been succeeded by the Permanent War Economy. In this development is rooted the ultimate crisis of liberalism. Neither war nor a war economy is conceivable without rigorous, large-scale state intervention in the economy. The Keynesian theories, as Galbraith is at pains to point out, lose their attractiveness.

The Keynesian theories, as Galbraith is at pains to point out, lose their attractiveness. That is why, in many respects, Galbraith’s American Capitalism reads like the confessions of a liberal. The old theories have been demolished twice over by remorseless reality. A new theory is needed: one that will explain what is apparently transpiring and one which justifies the status quo. Galbraith is attempting to fill the void left by the decline of Keynesianism. The first point in establishing the nature of the void is to show that the climate is, indeed, different. This is not difficult to do, of course, although Galbraith fails to draw the necessary conclusions. It is only in passing that he reveals any understanding of what has happened, when he states that: “The Great Depression of the Thirties never came to an end. It merely disappeared in the great mobilization of the Forties. For a whole generation it became the normal aspect of peacetime life in the United States – the thing to be both feared and expected.” What is this if not an unconscious reference to the Permanent War Economy? Even though depressions (and Keynes) are passé, The depression psychosis not only contributed deeply to the uncertainty and insecurity of Americans in the years following World War II, it also deeply influenced economic behavior ... nearly every major business enterprise in the United States has been operated in the last five years in the expectation that sooner or later there would be a major slump. In late 1946, some 15,000 leading business executives were asked by Fortune magazine if they expected an “extended major depression with large-scale unemployment in the next ten years.” Fifty-eight per cent of those replying (in confidence) said they did. Of the remainder, only twenty-eight per cent said no. Organized labor’s preoccupation with measures to maintain employment and the farmers’ preoccupation with support prices have both reflected the search for shelter from depression. During the last fifteen years, the American radical has ceased to talk about inequality or exploitation under capitalism or even its “inherent contradictions.” He has stressed, instead, the unreliability of its performance. Keynes provided a theory of depressions and a remedy therefore. Depression, however, is no longer the real danger; in fact, depression – according to Galbraith – is virtually an impossibility. Given peace, and also freedom from the force majeure of large expenditures for armed forces, considerable confidence could be placed in the Keynesian formula. We could expect it to work [states Galbraith] because we could look forward to the kind of economy in which it is capable of working. Unhappily the prospect is not so favorable. [The PWE dominates the scene.] Although Keynes provided a plausible solution to the problem of deflation and depression, the application of his formula to the economy is not symmetrical. It does not deal equally well with the problem of inflation ... And unfortunately, inflation, not depression, is the greatest present and well may be the most persistent future tendency of the American economy. Fiscal policy (tax rate manipulation, etc.) and built-in stabilizers (social security, etc.) have done away with depressions and thereby with Keynes. This is a pity, according to Galbraith, as depressions can always be controlled, but then Keynes would still reign supreme and there would be no need for Galbraith to develop his fraudulent concept of countervailing power. Lest we be accused of doing an injustice to Galbraith on this important point, let us quote two more passages. First he states: Speaking with all the caution that broad generalization requires [sic!], the experience of these years [post-World War II] suggests that there are no problems on the side of depression or deflation with which the American economy and polity cannot, if it must, contend. (Italics mine – T.N.V.) Then, in the next breath: A reading of recent experience has suggested that the American economy is unlikely soon to find, on the side of depression and deflation, any problems with which it cannot contend and none which would require an extension of the scope of centralized decision beyond the impersonal guidance provided by the Keynesian formula. Moreover the same experience of the years between 1945 and 1950 would lead one to expect that it would be against deflation that, most probably, the Keynesian formula would have to be invoked. There are some hitherto unsuspected virtues in deflation. We know it can be countered; it provides the context in which the internal regulators work best. Thus we have a formula which insures a favorable over-all performance of the economy; that formula involves no revolutionary or even very drastic change in the economy or the relation of government thereto; the outlook is for the moderate deflationary tendencies in which both the economy and the formula can be expected to function well. (Italics mine – T.N.V.) Unfortunately, Galbraith finished his book after the Korean war had broken out. He was consequently forced to recognize that military expenditures are increasing rapidly. There has also been a considerable modification of the depression psychosis ... Accordingly, inflation must now be considered not a possibility but a probability. (Italics mine – T.N.V.) These rather lengthy quotations from Galbraith’s economic outlook have been necessary to provide the proper setting for analyzing the concept of countervailing power. First, however, it is necessary to explore what Galbraith means by the term, countervailing power. Market power has been a central feature of capitalism and competition has been the regulator of markets.

Market power has been a central feature of capitalism and competition has been the regulator of markets. These pivotal characteristics of capitalism have been recognized by all economic theories. Classical and neo-classical bourgeois theorists, in fact, centered all attention on market price, its causes, fluctuations and its impact (through the benign regulatory force of competition) on economic equilibrium and growth. The supply-demand equation governed price, and competition among sellers or among buyers (each of whom exercised no effective control over total output or market price) produced the “right” price that assured efficient allocation of resources, full employment and the best possible society. Galbraith succinctly expresses the traditional theory as follows: In all cases the incentive to socially desirable behavior was provided by the competitor. It was to the same side of the market and thus to competition that economists came to look for the self-regulatory mechanism of the economy. (Italics mine – T.N.V.) But competition was noticeably weakening throughout the twentieth century. By the time of the Great Depression, the presence of monopoly as an important, if not crucial, characteristic of the economy was most difficult to ignore. Theories were being developed on “imperfect” and “monopolistic” competition. In any event, competitive theory as an interpreter of what was happening and as a guide to action was losing adherents with each passing day. This was the climate that nourished the growth of Keynesianism. But Galbraith, from the vantage point of the Permanent War Economy (although, without beginning to realize its implications), seeks a new explanation – one that not only explains what happened in the 1930’s and 1940’s, but one that justifies the status quo of the 1950’s. The following extensive excerpt from Galbraith’s American Capitalism provides us with the author’s understanding of the background leading to, as well as his definition of, countervailing power: They [economists] also came to look to competition exclusively and in formal theory still do. The notion that there might be another regulatory mechanism in the economy has been almost completely excluded from economic thought. Thus, with the widespread disappearance of competition in its classical form and its replacement by the small group of firms if not in overt, at least in conventional or tacit collusion, it was easy to suppose that since competition had disappeared, all effective restraint on private power had disappeared. Indeed this conclusion was all but inevitable if no search was made for other restraints and so complete was the preoccupation with competition that none was made. In fact, new restraints on private power did appear to replace competition. They were nurtured by the same process of concentration which impaired or destroyed competition. But they appeared not on the same side of the market but on the opposite side, not with competitors but with customers or suppliers. It will be convenient to have a name for this counterpart of competition and I shall call it countervailing power. (Italics mine – T.N.V.) Before continuing with Galbraith’s exposition of the concept of countervailing power, it is worth digressing to examine the dictionary meaning of the term. Countervail, it seems, can be traced back through old French to Latin, from which it is derived literally as “to be strong against.” The idea of compensation or balance is clearly at the heart of the meaning of countervail and the dictionary defines it as “to act against with equal force or power”; or “to act with equivalent effect against anything.” Note the stress on “equal” or “equivalent” power, as this is precisely what Galbraith has in mind. To begin with a broad and somewhat too dogmatically stated proposition, private economic power is held in check by the countervailing power of those who are subject to it. The first begets the second. The long trend toward concentration of industrial enterprise in the hands of a relatively few firms has brought into existence not only strong sellers, as economists have supposed, but also strong buyers as they have failed to see. The two develop together, not in precise step but in such manner that there can be no doubt that the one is in response to the other. The fact that a seller enjoys a measure of monopoly power, and is reaping a measure of monopoly return as a result, means that there is an inducement to those firms from whom he buys or those to whom he sells to develop the power with which they can defend themselves against exploitation. It means also that there is a reward to them, in the form of a share of the gains of their opponents’ market power, if they are able to do so. In this way the existence of market power creates an incentive to the organisation of another position of power that neutralizes it. The contention I am here making is a formidable one. It comes to this: Competition which, at least since the time of Adam Smith, has been viewed as the autonomous regulator of economic activity and as the only available regulatory mechanism apart from the state, has, in fact, been superseded. Not entirely to be sure. There are still important markets where the power of the firm as (say) a seller is checked or circumscribed by those who provide a similar or a substitute product or service. This, in the broadest sense that can be meaningful, is the meaning of competition. The role of the buyer on the other side of such markets is essentially a passive one. It consists in looking for, perhaps asking for, and responding to the best bargain. The active restraint is provided by the competitor who offers, or threatens to offer, a better bargain. By contrast, in the typical modern market of few sellers, the active restraint is provided not by competitors but from the other side of the market by strong buyers. Given the convention against price competition, it is the role of the competitor that becomes passive ... competition was regarded as a self-generating [italics in original] regulatory force. The doubt whether this was in fact so after a market had been pre-empted by a few large sellers, after entry of new firms had become difficult and after existing firms had accepted a convention against price competition, was what destroyed the faith in competition as a regulatory mechanism. Countervailing power is also a self-generating force and this is a matter of great importance ...

the regulatory role of the strong buyer, in relation to the market power of the strong seller, is also self-generating. As noted, power on one side of a market creates both the need for, and prospect of reward to, the exercise of countervailing power from the other side. In the market of small numbers, the self-generating power of competition is a chimera. That of countervailing power, by contrast, is readily assimilated to the common sense of the situation and its existence, once we have learned to look for it, is readily subject to empirical verification. (Italics mine – T.N.V.) The monopolist, according to Galbraith, is held in check (and presumably no great degree of state intervention is required) not by his competing monopolist but by his monopolistic countervailing buyer or supplier. Economic (and political) balance is no longer mainly achieved by parallel competition among a great many (small) sellers or buyers but by relatively few huge supplying and buying organizations confronting each other across the supply-demand equation. Moreover, this exercise of what Galbraith describes as countervailing power is really automatic, i.e., self-generating. According to Galbraith, the importance of countervailing power can be empirically demonstrated in virtually every phase of economic activity where prices are a factor. In fact, he cites the labor market, agriculture and large-scale retailing organizations as the three prime examples of countervailing power. The powerful trade union, the large farmers’ cooperatives and the big chain stores and mail order houses constitute his best illustrations of countervailing power. They have arisen in response to a monopolistic position on the other side of the economic bargaining table. Labor, farmers and consumers (?) need these organizations partly as a matter of self-defense and partly to share the ill- gotten monopolistic gains of their monopolistic antagonists. The operation of countervailing power is to be seen with the greatest clarity [states Galbraith] in the labor market where it is also most fully developed. [He then cites the case of the steel industry, observing:] As late as the early Twenties, the steel industry worked a twelve-hour day and seventy-two-hour week with an incredible twenty-four-hour stint every fortnight when the shift changed. No such power is exercised today and for the reason that its earlier exercise stimulated the counteraction that brought it to an end. In the ultimate sense it was the power of the steel industry, not the organizing abilities of John L. Lewis and Philip Murray, that brought the United Steel Workers into being. The economic power that the worker faced in the sale of his labor – the competition of many sellers dealing with few buyers – made it necessary that he organize for his own protection. There were rewards to the power of the steel companies in which, when he had successfully developed countervailing power, he could share. As a general though not invariable rule there are strong unions in the United States only where markets are served by strong corporations. And it is not an accident that the large automobile, steel, electrical, rubber, farm-machinery and non-ferrous metal-mining and smelting companies all bargain with powerful CIO unions. (Italics mine – T.N.V.) It is true that capitalism has organized the industrial proletariat in large factories and the class struggle has therefore more readily lead to the development of powerful trade unions. These, however, are terms and forces of which Galbraith is totally ignorant. He is straining to make the facts of life fit his so-called theory of countervailing power. Yet he must recognize that strong unions exist in areas where powerful oligopolies are conspicuous by their absence. He is thus constrained to state: I do not advance the theory of countervailing power as a monolithic explanation of trade-union organization; in the case of bituminous-coal mining and the clothing industry, for example, the unions have emerged as a supplement to the weak market position of the operators and manufacturers. They have assumed price- and market-regulating functions that are the normal functions of management. Nevertheless, as an explanation of the incidence of trade-union strength in the American economy, the theory of countervailing power clearly fits the broad contours of experience. (Italics mine – T.N.V.) Strong unions arise in response to the need of workers to defend themselves from the monopolistic power of large corporations and to obtain a share of the gains of monopoly power for the workers. The function of countervailing power in such instances, it is clear, is a healthy one. It achieves the type of balance of which Galbraith approves. At the same time, in other industries where powerful monopolistic corporations do not exist, strong unions arise “to supplement the weak market position of the operators and manufacturers.” Since the countervailing power of strong unions, however, can only operate against the monopoly power of large corporations, the UMW and the ILGWU must perform the “market functions that normally belong to management”; i.e., they must develop monopolistic powers. It is not precisely clear, however, how a union can share the monopoly power of corporations when such power is non-existent. If Galbraith would study the history of the American labor movement, he might find other reasons for the growth of powerful unions in competitive industries and would thus not try to force his theory of countervailing power to fit facts for which it is patently not designed. It goes without saying that the history of the class struggle provides all the explanations that are necessary for the specific character and strength of the American trade-union movement. The longest effort to develop countervailing power, according to Galbraith, has been made by the farmer. In both the markets in which he sells and those in which he buys, the individual farmer’s market power in the typical case is intrinsically nil. In each case he is one among hundreds of thousands. As an individual he can withdraw from the market entirely, and there will be no effect on price – his action will, indeed, have no consequence for anyone but himself and his dependents. Those from whom the farmer buys and those to whom he sells do, characteristically, have market power.

The handful of manufacturers of farm machinery, of accessible fertilizer manufacturers or mixers, of petroleum suppliers, of insurance companies all exercise measurable control over the prices at which they sell. The farmer’s market for his products – the meat-packing industry, the tobacco companies, the canneries, the fluid-milk distributors – is typically, although not universally, divided between a relatively small number of large companies. Many of the political activities of the farmers, such as the Granger movement, represent attempts to combat the monopolistic buying and selling power to which farmers are opposed in their market activities. The power of the farm bloc in Congress – it is implicit in Galbraith’s analysis flows from these antecedents. “Farmers have turned from the reduction of opposing market power,” according to Galbraith, “to the building of their own.” Here is the explanation of the rise of farm cooperatives. In seeking to develop countervailing power it was natural that farmers would at some stage seek to imitate the market organization and strategy of those with whom they did business. For purchase or sale as individuals, they would seek to substitute purchase and sale as a group. Livestock or milk producers would combine in the sale of their livestock or milk. The market power of large meat packers and milk distributors would be matched by the market power of a large selling organization of livestock producers and dairymen. Similarly, if purchases of fertilizer, feed and oil were pooled, the prices of these products, hitherto named by the seller to the individual farmer, would become subject to negotiation. The necessary instrument of organization was also available to the farmer in the form of the cooperative. The membership of the cooperative could include any number of farmers and it could be democratically controlled. All in all, the cooperative seemed an ideal device for exercising countervailing power ... As a device for getting economies of large-scale operations in the handling of farm products or for providing and capitalizing such facilities as elevators, grain terminals, warehouses and creameries, cooperatives have enjoyed a considerable success. For exercising market power they have fatal structural weaknesses ... It cannot control the production of its members and, in practice, it has less than absolute control over their decision to sell ... A strong bargaining position requires ability to wait – to hold some or all of the product. [The selling cooperative has thus had limited success and required the intervention of the Federal government starting in the Hoover Administration.] The farmer’s purchasing cooperative is free from the organic weaknesses of the marketing or bargaining cooperative. In the marketing cooperative the noncooperator ... gets a premium for his non-conformance. In the buying cooperative he can be denied the patronage dividends which reflect the economies of effective buying and bargaining. In the purchase of feed, chemicals for fertilizers, petroleum products and other farm supplies and insurance these cooperatives have enjoyed major success. Galbraith has provided a justification for state intervention in behalf of the farmer that takes the curse off this type of activity and makes it inevitable. The fact that the modern [farm] legislation is now of two decades’ standing, that behind it is a long history of equivalent aspiration, that there is not a developed country in the world where its counterpart does not exist, that no political party would think of attacking it are all worth pondering by those who regard such legislation as abnormal. Countervailing power is most effective, it would seem, in the case of large retailing organizations that can exercise unusually strong buying power. States Galbraith: As a regulatory device one of its [countervailing power] most important manifestations is in the relation of the large retailer to the firms from which it buys. Again, it is the monopolistic power of the large corporations supplying retailers that provided the need and opportunity for the growth of the A&P, Sears, Roebuck & Co., Woolworth’s, etc. Or, as Galbraith puts it, in precise parallel with the labor market, we find the retailer with both a protective and profit incentive to develop countervailing power whenever his supplier is in possession of market power. The practical manifestation of this, over the last half-century, has been the spectacular rise of the food chains, the variety chains, the mail-order houses (now graduated into chain stores), the departmentstore chains, and the cooperative buying organizations of the surviving independent department and food stores. It is clear that Galbraith looks with favor upon the countervailing activities of such large retailing organizations as A&P and Sears, for he feels that it was a mistake even to attempt prosecution of the A&P under the anti-trust statutes, and he clearly lauds Sears for being able to purchase automobile tires at prices from 29 to 40 per cent lower than the market. Consequently, Galbraith is opposed to the Robinson-Patman Act for it fails to distinguish between original power and countervailing power and discriminates against the effective exercise of countervailing power. When the comprehensive representation of large retailers in the various fields of consumers’ goods distribution is considered, it is reasonable to conclude – the reader is warned [by Galbraith] that this is an important generalization – that most positions of market power in the production of consumers’ goods are covered by positions of countervailing power. (Italics mine – T.N.V.) The countervailing power of the large retailing organizations, willy nilly, benefits consumers and eliminates the need of consumers organizing large-scale buying cooperatives similar to those in Scandinavia and England. Here is one of the more significant aspects of Galbraith’s concept of countervailing power, and one of the more facile justifications of the status quo. States Galbraith: The development of countervailing power requires a certain minimum opportunity and capacity for organization, corporate or otherwise. If the large retail buying organizations had not developed the countervailing power which they have used, by proxy, on behalf of the individual consumer, consumers would have been faced with the need to organize the equivalent of the retailer’s power.

This would be a formidable task but it has been accomplished in Scandinavia and, in lesser measure, in England where the consumer’s cooperative, instead of the chain store, is the dominant instrument of countervailing power in consumers’ goods markets ... The fact that there are no consumer cooperatives of any importance in the United States is to be explained, not by any inherent incapacity of the American for such organization, but because the chain stores pre-empted the gains of countervailing power first. The counterpart of the Swedish Kooperative Forbundet or the British Cooperative Wholesale Societies has not appeared in the United States simply because it could not compete with the A&P and the other large food chains. The meaning of this ... is that the chain stores are approximately as efficient in the exercise of countervailing power as a cooperative would be. Comment on the above would be largely superfluous, particularly since Galbraith recognizes that, “While countervailing power is of decisive importance in regulating the exercise of private economic power, it is not universally effective.” And he cites the case of the residential-building industry. What Galbraith has failed to comprehend, however, is that consumers are not a class but an economic category cutting across all classes. Consumers cannot easily organize unless, as in England and Scandinavia, there is a strong political party of labor able to sustain an economic organization of consumers who are mainly workers. Here, and not in some mysterious countervailing benefits of monopolistic retail chains, lies the basic explanation of why consumers’ cooperatives have not flourished in the United States. Labor and farmers, however, represent distinct economic classes. The course of the class struggle – not a fraudulent concept of countervailing power – has led to the development of trade unions and farmers’ buying cooperatives. The dialectic of the class struggle also helps to explain why farmers have achieved considerable political power in the United States, whereas the working class, as yet, has failed to achieve political power commensurate with its economic power. Of course, the struggle between a large-scale retail organization, such as Sears, and an oligopolist manufacturer, like the Goodyear Tire & Rubber Company, is a form of the class struggle. Only in this case it represents a struggle between segments of the capitalist class and not between different classes. No profound social consequences are really possible in a struggle within the capitalist class, as frequently occurs when the struggle is between the capitalist class and the working class. Parenthetically, it is interesting to note that, with few exceptions, American bourgeois economics in the last two generations has been devoid of value theory. The concentration on so-called price theory, as separate and distinct from value theory, led ultimately to the enthronement of Wesley Mitchell and his followers at the National Bureau of Economic Research in the so-called Statistical School. Description – in many cases, interesting and unique descriptions – replaced theory. What exists flows from what was, but why is another question. Galbraith, too, is hardly a theorist. It does not even occur to him to question what is involved in the determination of price besides the superficial supply-demand relationships and the bargaining that occurs in the market place. The “theory” of countervailing power is as much a theory of prices and economic behavior as tides, by themselves, are an explanation of weather formation. Galbraith, however, does have a sense of reality. He is not only aware of the fact that Keynesianism no longer holds sway and that the theories of monopolistic competition possess many inadequacies, but he is constrained to develop some plausible explanation of existing economic conditions that both justifies the status quo and provides a suitable guide to public policy. Giants on either side of the supply-demand equation play the decisive role in price determination, according to the concept of countervailing power, rather than “competition” amongst monopolies operating on the same side of the market. He provides a rationale for both private control of the means of production and limited state intervention to preserve that control. “The present analysis,” he states, “also legitimatizes government support to countervailing power.” While state intervention has already been sanctioned by Keynesian theory in the need to create demand in a period of depression, Galbraith’s concept of countervailing power justifies state intervention in a somewhat negative way. The thought is rather fully developed in the following paragraph: No case for an ideal distribution and employment of resources – for maximized social efficiency – can be made when countervailing power rather than competition is accepted as the basic regulator of the economy. Countervailing power does operate in the right direction. When a powerful retail buyer forces down the prices of an industry which had previously been enjoying monopoly returns, the result is larger sales of the product, a larger and broadly speaking a more desirable use of labor, materials and plant in production. But no one can suppose that this happens with precision. Thus a theoretical case exists for government intervention in private decision. It becomes strong where it can be shown that countervailing power is not fully operative. The major argument against state intervention, in fact, becomes the old chestnut concerning the alleged impracticality and bureaucratic nature of state planning transformed into a wondrous argument about the administrative advantages of decentralized authority. Thus, Although little cited, even by conservatives, administrative considerations now provide capitalism with by far its strongest defense against detailed interference with private business decision. To put the matter bluntly, in a parliamentary democracy with a high standard of living there is no administratively acceptable alternative to the decision-making mechanism of capitalism. No method of comparable effectiveness is available to decentralize authority over final decisions. Countervailing power on Galbraith’s own testimony, however, cannot work in a period of inflation and inflation is the basic characteristic of our times. After developing his theory, he states: I come now to the major limitation on the operation of countervailing power – a matter of much importance in our time. Countervailing power is not exercised uniformly under all conditions of demand. It does not function at all as a restraint on market power when there is inflationary pressure on markets ... Countervailing power, as a restraint on market power, only (Galbraith’s emphasis) operates when there is a relative scarcity of demand.

Only then is the buyer important to the seller and this is an obvious prerequisite for his bringing his power to bear on the market power of the seller. If buyers are plentiful, that is, if supply is small in relation to current demand, the seller is under no compulsion to surrender to the bargaining power of any customer. The countervailing power of the buyer, however great, disappears with an excess of demand. With it goes the regulatory or restraining role of countervailing power in general. Indeed, the best hope of the buyer, under conditions of excess demand, may be to form a coalition with the seller to bring about an agreed division of returns ... When demand is limited, we have ... an essentially healthy manifestation of countervailing power. The union opposes its power as a seller of labor to that of management as a buyer: At stake is the division of the returns. An occasional strike is an indication that countervailing power is being employed in a sound context where the costs of any wage increase cannot readily be passed along to someone else. It should be an occasion for mild rejoicing in the conservative press. The Daily Worker, eagerly contemplating the downfall of capitalism, should regret this manifestation of the continued health of the system. Under conditions of strong demand, however, collective bargaining takes on a radically different form ... Thus when demand is sufficiently strong to press upon the capacity of industry generally to supply it, there is no real conflict of interest between union and employer. It is to their mutual advantage to effect a coalition and to pass the costs of their agreement along in higher prices. Other buyers along the line, who under other circumstances might have exercised their countervailing power against the price increases, are similarly inhibited. Thus under inflationary pressure of demand, the whole structure of countervailing power in the economy dissolves. (Italics mine – T.N.V.) Inflation, of course, has certain beneficiaries: “In the inflation years of the Forties, farmers and recipients of business profits did gain greatly in real income. It is not possible for any reputable American to be overtly in favor of inflation; it is a symbol of evil, like adultery, against which a stand must be taken in public however much it is enjoyed in private.” Inflation eliminates the slack in the economy and makes countervailing power virtually inoperative. Inflation, moreover, is a characteristic of the Permanent War Economy and makes controls inevitable. This will have a permanent impact on the nature of capitalism, and it is on this rather lugubrious note that Galbraith concludes his book: Given war or preparation for war – coupled with the effect of these on the public’s expectations as to prices – there is every likelihood that the scope for decentralized decision will be substantially narrowed. It is inflation, not deflation or depression, that will cause capitalism to be modified by extensive centralized decision. The position of capitalism in face of this threat is exceedingly vulnerable. This is not a matter of theory but of experience ... A few months of inflation [in 1950] accomplished what ten years of depression had not required. The concept of countervailing power, consequently, is counterfeit on two grounds. Firstly, and mainly, it takes what are simple phenomena of the class struggle and erects them into a fraudulent theory that is supposed to explain and justify the status quo. Secondly, it admittedly cannot operate in a period of inflation, which means that its functions are necessarily extremely limited, being restricted to ever-narrowing periods of deflation (at least, according to Galbraith). Countervailing power exists, yes, in so far as it is a manifestation of the class struggle; but that is the only extent to which the concept is valid. The rest is a triumph of public relations and a fraud, although an interesting one, upon an unsuspecting intelligentsia. The struggle across opposite sides of the marketplace is only one – and a minor phase at that – of the forms of the modern class struggle. As already mentioned, it is essentially a conflict within the capitalist class and, therefore, normally less intense and historically less significant than the class struggle in the factories between capital and labor. Preoccupation with mitigating all forms of the class struggle has become one of the hallmarks of American twentieth century liberalism; and, as a rule, no distinction is made among various types of class struggles. The important thing in the modern liberal lexicon is to have social peace – usually at any price. Galbraith is no exception to this characteristic liberal approach. If he did not make his position entirely clear to everyone in American Capitalism, he is unambiguous in a paper on Countervailing Power, delivered before the December 1953 annual meeting of the American Economic Association. He states: I fear I did not make as explicit as I should the welfare criteria I was employing. In partial equilibrium situations, economics has long made the maximization of consumer welfare a nearly absolute goal. Any type of economic behavior which lowered the prices of products to the consumer, quality of course being given, is good ... In our own time, ... we regularly reject the particular equilibrium test of maximized consumer well-being. We regularly accept measures which raise product prices to ameliorate the grievances or alleviate the tensions of some social group.

We regularly accept measures which raise product prices to ameliorate the grievances or alleviate the tensions of some social group. And it is well that we do. An opulent society can afford to sacrifice material well-being for social contentment. Higher prices of coal or clothing we regard as a small price for freedom from disorder in the coal fields or destitution in the sweatshops. I doubt whether, in entering a defense of the social utility of countervailing power, I made sufficiently clear whether my standard was the welfare of the consumer or the minimization of social tension. It was natural that perceptive critics would take up the attack on the test of consumer welfare. Had I been less under the influence of this norm myself I would have invited the battle in the area of social harmonies. This, I submit, is also the critical test. American society has not recently been threatened in peacetime (or even in wartime) by a shortage of food. There have been times when the tensions of the farming community were a threat to orderly democratic process. The evolution of countervailing power in the labor market has similarly been a major solvent of tensions in the last half-century. Most would now agree, I think, that this has been worth a considerable price. (Italics mine – T.N.V.) The concept of countervailing power – objectively in the view of its creator – has the dual purpose of softening the class struggle (reducing social tensions) and of creating the proper socio-economic climate for progressive economic development (dissipating the psychosis of depression and justifying state monopoly capitalism). In the course of developing his essay in social criticism, Galbraith, as we have pointed out, has had to do violence to many basic social phenomena, such as the nature of and reasons for the growth of the trade-union movement. He has also felt constrained to exhibit his ignorance of Marxism. He obviously believes he is making a telling point when he states: “In the Marxian lexicon, capitalism and competition are mutually exclusive concepts; the Marxian attack has not been on capitalism but on monopoly capitalism.” How one person can be so wrong in such a brief sentence is difficult to comprehend. Suffice it to say, that Marx always held competition to be a basic characteristic of capitalism, and the Marxian analysis of state monopoly capitalism constitutes a fundamental attack on capitalism as a social system that has outlived its historical usefulness. In the same paper before the American Economic Association, Galbraith is forced to admit that one of his major points – the reduction of consumer prices by large retail chain operations – is not really due to countervailing power, but to competition. He states: The gains from opposing mass retail buying to large-scale or oligopolistic production have, I think, been fairly generally conceded. The question has been asked, however, as to what eleemosynary instinct causes the gains that are won by the mass buyer to be passed along to the consumer. In my book I argued that it was the result of the shape of the production function in retailing. My critics have suggested that it is because retailing, the mass buyers notwithstanding, is still a competitive industry. (It is likely to remain one, for entry is almost inherently easy.) I suspect they are right. I am sure that I was more than a little reluctant, at this particular stage in my argument, to confess a reliance on competition. (Italics mine – T.N.V.) The self-generating character of countervailing power and its beneficent effects become just a series of unproved statements on the part of Galbraith – so much so, that the self-generating character of countervailing power may be labeled a self-generating fraud. This is pretty much the view of Galbraith’s professional critics. States Professor George J. Stigler (in a paper entitled, The Economist Plays With Blocs, delivered at the same session of the American Economic Association): We must regret that at the very threshold of the doctrine of countervailing power, Galbraith eschews rational explanation. It is not as if one were asking, in the tones of a stuffy formalist, for explicit development of details of a theory whose general outline is familiar or which is a plausible extension of well-explored theories. The theory of bilateral oligopoly can hardly be said to exist, and the theory of bilateral monopoly – which Galbraith disposes of in a singularly high-handed manner – offers only contradictions to his theory ... Galbraith’s notion of countervailing power is a dogma, not a theory. It lacks a rational development and must be accepted or rejected without reference to its unstated logical antecedents ... Nor is there any explanation, in Galbraith’s book or elsewhere, why bilateral oligopoly should in general eliminate, and not merely redistribute, monopoly gains. Stigler concludes his critique of Galbraith by stating: I want to close with an apology for the consistently negative attitude I have felt compelled to take with respect to Galbraith’s theory. One would like to speak well of so urbane and witty a presentation. Especially at this season one would like to avoid expressing doubts that a mysterious, benevolent being will crawl down each and every chimney and leave a large income as well as directions to the nearest cut-rate outlet. Yet even at this season, Galbraith cannot persuade us that we should turn our economic problems over to Santa. Another academic critic, John Perry Miller, in a paper at the same meeting, entitled Competition and Countervailing Power: Their Rôles in the American Economy, summarizes Galbraith’s theoretical approach by stating: Here indeed is an optimistic doctrine of the dialectic suggesting that it is the search for power and countervailing power rather than self-interest in the search for gain which promotes economic progress. [Miller does not have much faith in countervailing power and expresses his basic attitude by declaring:] The further one burrows into the concept of countervailing power the clearer it becomes that a catchy phrase is being used to cover a variety of situations. It is doubtful whether so used it is a very useful tool of analysis. I doubt, also, that it is good history.

And as an instrument of policy it is at best one in a crowded kit of tools along with the traditional tools of the policy of competition. Nor were the discussants of the main papers at this session on Countervailing Power any kinder toward Galbraith than the official critics. David McCord Wright concludes his discussion with this trenchant blow: “I should judge Dr. Galbraith one of the most effective enemies of both capitalism and democracy.” While Galbraith is to be commended for writing in non-technical language, and for attempting to relate economic theory to social reality (i.e., for returning to the precepts of political economy), his humor smacks of smart-aleckism and is misplaced in a serious work. The popularity that Galbraith’s book has achieved, however, is not due to its style. And it is only partly due to excellent public relations in its promotion. Countervailing power appeals to a certain segment of intellectuals who are groping for doctrines that will reassure them that their world is not crumbling. This the theory of countervailing power attempts to do. Amidst the general bankruptcy of American bourgeois political economy, Galbraith is refreshing in his candor and style, but destined to a short life as the theorist of the day, for the simple reason that his theory is a fraud and will not even be accepted by the liberal bourgeoisie for whose benefit it was concocted. * * * Footnote 1. Published by Houghton Mifflin Co., Boston 1952, 217 pp. Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 28 February 2020

Vance Archive | Trotskyist Writers Index | ETOL Main Page Frank Demby What Are the Facts on the Gov’t Excess Profits Swindle? (September 1940) From Labor Action, Vol. 4 No. 22, 9 September 1940, p. 3. Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL). While the final text of the proposed excess profits and amortization bill is still to be prepared, the Bill as passed in the house indicates that one of the most gigantic swindles in the history of the country is now being prepared in Washington. In order to offset the growing clamor from labor unions, some sections of the press and public sentiment, that if the workers are to be conscripted, and offered to the sacrifice, the only fair thing to do is to conscript capital as well, the ROOSEVELT ADMINISTRATION IS PREPARING AN EXCESS PROFITS AND AMORTIZATION BILL THAT WILL SEEMINGLY REQUIRE SACRIFICES OF CAPITAL, BUT WHICH WILL, IN REALITY, GUARANTEE THE CAPITALISTS HIGHER PROFITS THAN THEY HAVE MADE IN MANY A LONG YEAR. Manufacturers are holding up hundreds of millions of dollars worth of army, navy and air contracts because, as they say, “We don’t trust the government; we must have absolute guarantees (of our profits) before a wheel turns.” Just imagine what a hue and cry would arise from the paid propagandists of the capitalist press if the workers, after the conscription bill is passed, said, “We refuse to allow ourselves to be conscripted until we receive absolute guarantees that any war this country engages in will not be for imperialist purposes but in the interests of the working masses of this country!” Cries of “traitor,” “red,” “fifth columnists,” etc. would be hurled at the workers. But when a manufacturer refuses to sign a “defense” contract until his profits are guaranteed, that is true patriotism. Millions for the Millionaires The President has already said “there will be no new millionaires as a result of the armaments program. However, the tax bill in preparation, gives the lie to this high-sounding phrase. Not only will there be new millionaires, but the present millionaires (according to a recently issued statement of the Treasury, 50 individuals filed income taxes for 1939 showing incomes of a million dollars and more in 1938) will make even more millions than they have in the past. What worries our patriotic manufacturers most appears to be the amortization measure. Their argument runs something like this: “These new contracts require us to erect new plants. These new factories will cost huge sums of money and they will be practically worthless once the war is over. Unless we are allowed to write-off (amortize) the cost of the new factories in a ‘reasonable’ period of time (five years or less), we will lose our shirts.” Normally, a manufacturer writes-off the cost of new plant equipment (capital investment) in a period of 20 years by setting up a sinking fund. In other words, if a five year period is decided upon, approximately 20% of the cost of new plant equipment will be added to expenses. Since in this modern day of mass production, fixed capital (machines, etc.) constitutes an ever-increasing proportion of the total capital accumulation of the modern corporation, this means that sums running into the millions and millions will be deducted from profits AND THEREFORE NOT ELIGIBLE TO THE EXCESS PROFITS TAX. In addition to this gravy which will be secured to the capitalist, there are any number of other considerations which are positively fascinating in their appeal to the manufacturer’s patriotism. Suppose, for example, the war and/or the “defense” program lasts more than five years; having already written-off the cost of the new factories, profits will be absolutely fantastic. Even should the war period end in the next five years, an airplane manufacturer, to take just one example, will certainly be able to use his new factories in peacetime pursuits. Finally, in many cases, it will undoubtedly be found that these new factories erected for “defense” purposes will not fill only government orders. Many of them will be able to fill private contracts for England. In such cases, a manufacturer may well decide to use his new plants to fill U.S. Government orders, since these may be subject to various restrictions (Walsh-Healy Bill, for example) and his old plants to fill other contracts. Truly, the prospects of coining huge profits are so good that it actually staggers the imagination. AND SINCE ROOSEVELT AND ALL CONGRESSIONAL LEADERS HAVE ALREADY STATED THEIR WILLINGNESS TO GUARANTEE THE PASSAGE OF AN AMORTIZATION MEASURE PROVIDING FOR EVERYTHING THE MANUFACTURERS WANT. WHAT IS REALLY DISTURBING OUR PATRIOTIC MANUFACTURERS? Just a Tiny Fly in the Ointment It is simply the insistence of the Administration, fully aware that an election is coming up in November, in coupling the amortization measure with an excess profits tax. The politicians know that if they give the capitalists everything they want in regard to the amortization measure, mass resentment will be extremely high (and will cost votes) unless this is compensated for by placing a ceiling on profits. That is why Roosevelt has turned a deaf ear to the pleas of the New York Times to pass only an amortization bill now and spend the rest of the year studying the problem of excess profits very carefully since “it is so complicated and can’t go into effect until the 1941 income tax returns are made.” Excess profits, of course, are a “complicated” question, but not conscription. Present signs, however, indicate that an excess profits tax will be passed.

But what kind? – that is another question. Without going into the technical complications, and the various alternatives, which require a Philadelphia lawyer to disentangle, the basis of the proposed bill is TO EXEMPT FROM AN EXCESS PROFITS TAX, PROFITS AMOUNTING TO A SUM EQUAL TO THE AVERAGE NET PROFIT MADE DURING 1930–1939. For most of the large corporations, this is a pretty favorable period. It has only one bad year included – 1938. It includes two fairly good years, 1936 and 1939 – and one exceptionally good year, 1937. In addition, the average earnings during this base-period will be increased by 8% of new capital invested. This means that large corporations (say General Motors or U.S. Steel, who will certainly get their .share of the contracts) will make from 8 to 10% and more profits, without having to pay an excess profits tax. There may not be many new millionaires, but a lot of the old ones are going to increase their fortunes sizeably. Moreover, should profits now run so phenomenally high, it doesn’t follow that the portion of profits which is subject to the excess profits tax will be confiscated by the government. So far, the highest excess profits tax proposed is 50%. The average rate aimed at is apparently 25%. Thus, the manufacturer will be allowed to keep a goodly portion of the excess profits. Certainly, no restraints on “private initiative” here! The sacrifices that capital will be required to make “in the interests of national defense” will, consequently, be largely on paper. They will be useful for bamboozling the workers, but they will not interfere with the patriotism of the bosses – which, as always, centers around their pocket-books. Just in case the above analysis has been a bit too difficult for you to follow in detail. THE SINGLE FACT WHICH EXPOSES THE EXCESS PROFITS SWINDLE MORE THAN ANYTHING ELSE IS THAT THE ESTIMATED YIELD OF THE PROPOSED EXCESS PROFITS TAX FOR 1940 IS $300,000,000. This, of course, is mere chicken-feed. It is a drop in the bucket when compared with the billions and billions of dollars now being spent on armaments. It is even less when compared with the billions of dollars that corporations will make. It clearly shows that the Government does not expect very much help in meeting the costs of “defense” from the excess profits tax. As always, the costs of war will be borne by the masses – not by the bosses. One immediate conclusion that every worker must draw from this situation is to raise in his union the demand for NATIONALIZATION OF ALL WAR INDUSTRIES. THIS IS ONE WAY OF STOPPING THE PROPOSED EXCESS PROFITS SWINDLE. Top of page Vance Archive | Trotskyist Writers Index | ETOL Main Page Last updated: 6.10.2012