MIA > Archive > Fraina/Corey Archive > Decline of Am. Cap.
THE crisis of American capitalism manifests itself as a crisis of prosperity. What is prosperity? It has three important characteristics: it is always limited in its mass scope, it periodically breaks down, and it cumulatively develops the elements of the decline of capitalism. This is clearly revealed by a survey of the movement and character of American prosperity, which necessarily becomes a survey of the major aspects of American capitalist development.
Capitalism in the United States came to real power with the Civil War and the progressive forces expressed and invigorated by that struggle. Earlier capitalism was still largely in the commercial stage. The commercial, not industrial, capitalist dominated the scene. Industry was not highly developed, and it was small-scale industry. Many industrial products were still imported; while foreign trade rose fivefold from 1820 to 1860, imports of manufactured goods rose six-fold. [1] The country was predominantly agrarian, and prosperity was primarily dependent upon agriculture (whether free or slave). There were still great unsettled regions and other regions only thinly settled. But industrial capitalism was developing rapidly; it played an important part in the crisis and depression of 1837 and a still more important part in the crisis and depression of 1857. As industrial capitalism grew it came into conflict with the South’s control of the national government. Commercial capitalism could tolerate the control, as it was concerned essentially with the buying of goods, whether produced by free or slave labor, and it accepted the Southern demand for free trade because that permitted buying goods where they were cheapest. Industrial capitalism could not tolerate the slave South’s control of the government, as it was concerned essentially with the production of goods and free trade threatened its markets, while it depended, moreover, upon mobile free wage-labor and needed a national banking system and transcontinental railroads, which the South opposed. Slavery not only repressed capitalism in the South, but interfered with its expansion in the North and West. The conflict was the irrepressible one of two social systems involving the antagonistic relations of slave labor and free wage labor. As territorial expansion was necessary for the South, to broaden the economic and political bases of slavery, it antagonized the farmers (and workers) of the North and West who wanted “free soil” and who aligned themselves against the South. Pressed in and its expansion prevented by the development of Northern industry and agriculture, the South resorted to war. The Union victory crushed the political power of the slave South, but it simultaneously crushed the agrarian democracy of Jefferson and Jackson. For the coming to power of industrial capitalism subordinated agriculture to industry, and the costs of industrialism were piled on the farmers (and workers) . The war accelerated the development of Northern industry, particularly in iron and steel and textiles, and it was increasingly large-scale industry. Within forty years American capitalism, economically and politically dominant, was the mightiest in the world. Prosperity was now overwhelmingly determined by the movement and the interests of capitalist industrialism.
Prosperity in the North flourished during the Civil War. Business failures and liabilities were negligible. Real profits in trade ranged from 12% to 15%. [2] Manufactures yielded exceptional profits: the dividends of a group of textile corporations, which averaged 8% in 1861, rose to 25% and 50%, while iron and steel profits were nearly as high. [3] Great fortunes were made by profiteering in industry, exploiting the government’s war needs, and speculating in the commodity and stock markets. The national wealth and income were redistributed, and their concentration increased, by rising prices and speculative profits. Accumulation of capital was unusually active. The war industries enlarged their capital equipment because of the greater scale of operation. But production as a whole was practically stationary. The increase of output in the war industries was offset by decreases in other industries, while the increasing output of capital goods was accompanied by a decrease in consumption goods. Sharply rising prices cut real wages, which by 1865 were probably one-third below the 1860 level [4], seriously reducing the workers’ purchasing power and consumption. This was true also of the farmers, the prices of whose products rose less than the prices of products they had to buy. Luxury consumption rose but consumption in general fell [5]; for while production was stationary, an increasingly larger part of manufacturing output was used for capital goods and for the destructive purposes of war. Prosperity during the Civil War was thus marked by stationary production, lower real wages, and lower mass consumption, by mass impoverishment instead of improved mass well-being. But profits were high and the accumulation of capital correspondingly great. There was, particularly, a marked growth in money capital (most of it invested in government war bonds), whose real value was raised by the post-war fall in prices.
The prosperity of the Civil War period was based upon an artificial equilibrium created by the war’s demands for goods and capital. An almost inexhaustible market was provided by the government’s orders for munitions and other war goods. The industries producing these goods could augment their output without worrying about markets; and this meant also an augmenting of capital equipment. Depreciation of the currency, by lowering real wages, deprived the workers of part of their consumption: more war materials could be produced, and more capital goods for whose output the war provided a market. The issuance of paper money, moreover, gave the government new purchasing power (in addition to taxation and loans), which was spent on the output of war industries, whose scale of production and, consequently, capital equipment, was further enlarged. Profits not invested directly in capital goods were invested in government bonds and increased the government’s spending, while the bonds remained as money capital for use in the future. [1*] This equilibrium created by the war was upset by the peace; two years of minor depression prevailed in 1866-67. Then prosperity surged upward.
The new period of prosperity was greatly influenced by the war’s results. Capital was abundant and investment opportunities ample. Building construction, neglected during the war, led the upward movement, and stimulated the production of brick, lumber, glass, and similar products. Railroad construction was equally active, mileage doubling in six years. These two movements dominated the revival and prosperity. The import of capital stimulated railroad construction and favorably affected foreign trade. Prices fell sharply and real wages by 1872 were much higher than in 1865 and even higher than in 1860 [6], and the resulting increase in mass purchasing power promoted the production and sale of consumption goods. The fall in prices also raised the real value of money capital accumulated during the war, augmenting investment and the output of capital goods. Industrialization proceeded rapidly; the output of machinery and other forms of capital goods was increased greatly by the mechanization of old industries and the development of new industries (iron and steel, boots and shoes, glass, petroleum, mining, mechanical transport equipment, milling, refrigeration, meat packing, and agricultural implements). Technological efficiency and the productivity of labor rose substantially. This increasing output and absorption of capital goods meant an active conversion of profits into capital. It takes time, particularly in the case of construction and railroads, for new capital goods to make any demands on consumer purchasing power. But the production of capital goods creates consumer purchasing power (wages, part of salaries and profits), which is spent mainly on the output of consumption goods industries. Thus an equilibrium is achieved which sustains prosperity. But the equilibrium is unstable and temporary. For wages lagged behind profits and production behind consumption. Eventually the new capital goods threw an augmented mass of products upon the markets, and available consumer purchasing power was insufficient to absorb them. The output of capital goods began to fall. Construction and railroads, which had been seriously overbuilt, led the downward movement. As production began to fall it engendered a crisis and revealed the rotten conditions in finance. The collapse of speculation, particularly in railroad securities, set the panic in motion: the failure of the great banking house of Jay Cooke and Company was mainly due to its enormous holdings of Northern Pacific Railroad paper. Financial crisis arose out of the underlying economic crisis. Prosperity crashed into depression: hard times, unemployment, and mass misery prevailed from 1873 to 1879.
From 1866 to 1897 there were fourteen years of prosperity and seventeen years of depression – three minor depressions (1866-67, 1883-85, 1890-91) and two major depressions (1873-79, 1893-97). [7] Depression and prosperity, and the period as a whole, were affected by long-time factors of economic expansion, which provided increasingly larger markets for goods and capital, and insured, until temporarily limited by depression, the making of increasingly higher profits and their conversion into capital.
Production, in spite of cyclical interruptions, mounted steadily. The output of manufactures rose from $3,386 million in 1869 to $9,372 million in 1889. [8] Profits were high. Small businessmen complained of severe competition and low profits, but that was mainly because they were oppressed by the big producers and monopolist combinations, whose profits were all the larger. Profits often appeared small in terms of over-capitalization, as in the complaint that railroad dividends were very low; but practically all railroad stocks represented “water” and not any real investment; they were the “wages of abstinence” appropriated by buccaneering promoters and managements. The output of capital goods scored an average yearly increase (quantitative) of 7.2% in 1870-90 compared with only 4.8% in 1850-60. [9] Labor’s productivity rose constantly; from 1870 to 1880 alone it increased 50% in mining, 85% in manufactures and 110% in transportation. [10]
Real wages scored the largest gains in American history. By 1868 real wages had made good the war losses and in 1869 began to mount over pre-war levels. There were interruptions, when wages fell, particularly in the depression of 1873-79, but they rose in each period of prosperity and in the period as a whole. By 1892 real wages were much higher than in 1860, although nearly stationary since 1887. Gains in real wages were almost wholly a result of falling prices. The index of average hourly wage rates rose from 61 in 1865 to 69 in 1872, fell steadily to 59 in 1879, and rose again to 69 in 1892. [11] Wage gains were unevenly distributed, skilled workers gaining more than the unskilled and the organized more than the unorganized, while immigrant workers were forced to accept the lowest of low wages; unemployment, moreover, both cyclical and technological, offset much of the wage rise.
Consumption also rose more than in any other period in American history. The average yearly increase per capita was 5.4% in 1870-80 and 3.2% in 1880-90. [12] Part of the rise represented a change from the use of goods produced at home or in neighborhood shops to the use of manufactured goods, particularly among farmers. But a considerable part represented the increase in labor’s consumption due to higher real wages. Other classes, however, gained more than labor. Among the newly rich there was an outburst of conspicuous competitive consumption (particularly among speculators and other financial buccaneers), which flaunted itself in the face of workers who, despite higher real wages, were tormented by real poverty further aggravated by recurrent unemployment.
While labor shared in the gains of higher productivity, the capitalists secured the lion’s share. Renewed concentration of income appeared in each period of prosperity; the number of millionaires rose from probably 500 in 1860 to over 4,000 in 1892. Nor was higher productivity the primary cause of higher real wages; they rose because of steadily falling prices, and in spite of employers repeatedly cutting money wages, particularly in depressions. Wage cuts and cyclical and technological unemployment provoked strikes which frequently assumed the aspect of civil war. Railroad managements violently fought their workers in the great strikes of 1877, and the workers opposed violence to the violence of the troops and police; Jay Gould broke the telegraphers’ strike and helped to crush the Knights of Labor; the eight-hour movement met merciless opposition and ended in the Haymarket tragedy; Carnegie and Frick mobilized hired gunmen against the Homestead strikers; President Cleveland used Federal troops to break the Pullman strike, during which the injunction was effectively used as a capitalist weapon in labor disputes. Labor’s militancy forced higher real wages upon the employers: the resistance prevented money wages being cut more than they were, falling prices raised the purchasing power of wages, and lower prices and higher wages compelled the employers to increase the productivity of labor to secure higher profits. There is no direct or necessary connection between higher productivity and higher wages; rising prices and higher productivity are usually accompanied by stationary or falling real wages. Labor’s gains (always subsidiary to capitalist exploitation and profit) were wrung from the capitalists by means of the blood and agony of strikes against which the state mobilized its physical and legal force.
Nor did the farmers share fully in prosperity, except the capitalist and speculative upper layers. Agricultural prices fell, surplus crops mounted, the burden of debt became staggering. Although their numbers increased, the farmers’ share of the national income decreased. Tenancy rose from 25.6% in 1880 to 35.3% in 1900. [13] These conditions produced the agrarian uprisings of the 1870’s-90’s. [2*]
The developments which produced prosperity also and necessarily produced disastrous depressions: they are the inseparables of capitalism. Industrialization proceeded haphazardly, competitively, socially unplanned and unregulated. The expansion of industry and accumulation of capital exceeded balanced requirements. As new industries (including railroads) developed they stimulated prosperity by absorbing capital goods and creating new purchasing power. But eventually they got out of balance with each other and with other industries, lessened their demands for capital goods, and strained the capacity of existing markets to absorb their output; for industry as a whole disbursed more investment than consumption income. Excessive accumulation and overproduction, sharpening the disparity between production and consumption, upset the always unstable equilibrium which is capitalist prosperity. Prosperity turned into one depression after another. Depression lowered or wiped out profits, destroyed or depreciated large amounts of capital and thus prepared recovery and a renewal of accumulation. Depression had other effects. Manufacturers were forced to adopt more efficient methods of production to insure profits, which created a demand for new and more efficient capital goods, while old equipment was scrapped. Many capitalists were eliminated, but the survivors became stronger. Thus concentration of industry, a result of increasing large-scale industrialization, was strengthened by depression, a mighty lever of the centralization of capital.
Out of the process of capitalist production and accumulation as a whole arose a constantly greater tendency toward monopoly. The Civil War accelerated the growth of large-scale industry because of the heavy demands for war materials, making necessary more efficiency, larger plants, the investment of more capital, and the consolidation of plants. This movement was strengthened by the increasing standardization and quantity production of goods. In the post-war period falling prices and intensified competition encouraged the growth of large-scale industry; they emphasized the underlying necessity of capitalist production for greater efficiency, lower costs, and higher profits, which means an enlargement of the scale of production and, consequently, of capital equipment. As industry became larger it resorted more and more to the corporate form of organization, facilitating the consolidation and combination of industrial enterprises. The trustification of industry began, and the emergence of monopoly, an outcome of efforts to beat down competitors, control markets and prices, and “earn” higher profits. By 1897 there were 82 industrial combinations with a capitalization of $1,000 million; in the three years 1898-1900 eleven great combinations were formed with a capitalization of $1,140 million; and the greatest combination of all, the United States Steel Corporation, appeared in 1901 with a capitalization of $1,400 million. [14] The development of trustification and monopoly was accompanied by the multiplication of stockholders, deprived of any direct economic functions, and by the resulting separation of ownership and management. Management became the function of corporate employees. Control was usurped by financial capitalists, who increasingly operated through the great banking houses and who consolidated their control with interlocking directorates. For, as formerly the industrial capitalist replaced the commercial capitalist as the dominant factor, so now the industrial capitalist (except in small-scale industry) was being beaten down or transformed into a financial capitalist, who is deprived of all constructive industrial functions and prefers speculation to production. Monopoly, by extorting higher profits, increasing the disparity between production and consumption, and waging war upon small-scale industry, aggravated instability and the forces making for cyclical crisis and breakdown; and by the power to protect itself from the deflation and liquidation which are the preconditions of revival, monopoly tended to prolong depression. Moreover, by raising prices, restricting production and demand, and limiting technical progress, monopoly was identified with the elements of the decline of capitalism.
But the elements of decline were held in check by an important peculiarity of American capitalism: Monopoly appeared in the midst of developing industrialization and renewed expansion of the frontier, which was bound up with the continued growth of agriculture. Industrialization in the East was proceeding rapidly in the years 1870-90: and within the same period monopoly arose, although ordinarily there is an appreciable time lag. The highly industrial Eastern states would have produced imperialism and the tendency toward decline, but the frontier’s expansion provided the opportunity to develop inner continental areas and resources. This stimulated railroad construction and absorbed large amounts of agricultural equipment. New markets were created by new settlements and the inflow of immigrants. The exploitation of agriculture provided cheap food for the workers, which raised their real wages without any cost to the capitalists, and the exports with which to pay for the imports of capital so necessary to rapid industrialization. Thus the inner continental areas, whose development provided markets for both capital goods and consumption goods, invigorated the long-time factors of economic expansion. These factors not only stimulated the upward movement of prosperity after depression, they also overcame, for the time being, the elements of decline identified with monopoly capitalism ...
While the periods of prosperity, and the period as a whole, in the years 1866-92, were marked by a simultaneous, if uneven, increase in production, productivity, profits, real wages, and mass consumption, this was not true of the years 1898-1914.
The depression of 1893-97 coincided with the measurable exhaustion of the long-time factors underlying the movement of economic expansion, accumulation of capital, and prosperity, particularly with the closing of the frontier. (There was further industrialization in the Western regions and its beginnings in the Southern states, but neither was on a scale capable of stimulating an unusual upsurge of prosperity.) Railroad construction declined considerably in its rate of growth. No great expansion appeared in new or old industries, with the exception of electric power, which, however, grew slowly. But monopoly consolidated its domination and prepared new conquests; it “recapitalized” industry, scooped in enormous profits, and relatively hampered the growth of productive forces. Imperialism began to emerge and shape American policy. Although capital was still imported, there was a considerable export of capital: American foreign investments by 1912 amounted to $2,000 million compared with $500 million in 1900. [15] Practically all the export of capital was in the form of direct investments by monopolist combinations, to develop new markets, establish branch plants, control sources of raw materials, and secure larger profits. Exports of manufactured goods increased rapidly; exports of crude foodstuffs decreased. Monopolist combinations organized and integrated production; but the planning, wholly within the limits of particular enterprises, sharpened competition and speculation, and aggravated all the contradictions of accumulation and prosperity. Businessmen, economists, and speculators spoke of a “new economic era,” of prosperity everlasting. At a dinner where J. Pierpont Morgan was the honored guest, John B. Claflin, millionaire merchant, said:
“With a man like Mr. Morgan at the head of a great industry, as against the old plan of many diverse interests in it, production will become more regular ... and panics become a thing of the past.” [16]
But prosperity sagged in the minor depression of 1903-04 and crashed in the major depression of 1907-08. In New York City alone there were 100,000 unemployed, innumerable breadlines, and men “eager to work for 35 cents a day.” [17] Clever people organized the “Sunshine Movement” – think prosperity and prosperity will revive! The depression was not as severe and prolonged as the two preceding major depressions. But there was no upsurge of prosperity: recovery was on a relatively lower level. Only fitful prosperity prevailed from 1909 to 1914, accompanied by unusually large unemployment: a “depressed” prosperity, the indication of economic decline. One element of this decline was monopoly capitalism. The financial capitalists, with the elder Morgan at their head, who had “settled” the financial panic of 1907 but were unable to influence the revival of prosperity, used the opportunity to extend and consolidate the power of monopoly. This power, by interfering with the free play of economic forces and preventing complete liquidation, hampered recovery, emphasized by lack of an upsurge in the long-time factors of expansion. Monopoly capitalism became more interested in the export of capital, more definitely imperialist. Backed by the diplomacy of the Taft Administration, American imperialism issued its challenge to the European imperialist powers, demanding the “right” to share in Chinese loans and concessions. The elements of decline appear clearly in the fact that the average yearly increase in production was only 4.6% in the five years 1909-13 compared with 7.6% in the five years 1902-06. [18] There was a flattening in the rate of growth of production, which continued after the World War.
Crises tend to become constantly more severe; but their severity is expressed not only in the spread of the swings from prosperity to depression, but also in the level of prosperity after recovery. In postwar Europe the cyclical swings were not great, yet during the whole period, both in prosperity and depression, the tendency was for the general crisis of capitalism to become more acute and for permanent unemployment to increase – clear indications of the decline of capitalism ...
In spite of relative economic decline, the output of industry and the productivity of labor scored substantial gains in the years 1899-1914, although they were much lower than in the preceding period. Manufactures rose 65.6% and output per wageworker 19.9% [19]; the increases in mining and on the railroads were slightly higher. The comparatively small rise in the productivity of labor was due mainly to two factors: the practices of capitalist monopoly, which tend to hamper technical progress; and absence of the stimulus to efficiency of falling prices, as rising prices assured rising profits (although part of the rise was not real because of the depreciated value of money). Stock prices rose. An investment, in 1901, of $10,000 in the common stocks of 93 industrial, public utility, and railroad corporations yielded, by 1913, cash income of $8,661 plus an increase of 36% in capital value. [20] The rise was much greater in the prices of stocks of monopolist combinations, because of monopoly prices. Recapitalized combinations, such as the United States Steel Corporation, squeezed the “water” out of their stock by reinvestment of part of their great earnings. While the real income of all wage-workers increased an average of only 0.4% yearly and that of workers in manufactures decreased 0.1%, the real income of stockholders increased 1.2%. [21]
Thus prosperity, although limited by the elements of economic decline, was accompanied by increasingly higher production, productivity, and profits, but not by increasingly higher real wages. Real wages were practically stationary, except for small gains among small groups of organized skilled workers. Money wages rose, but their purchasing power was cut by rising prices, while a slight increase in real hourly earnings was offset by shorter working time. Real yearly earnings in the years 1898-1906 averaged 3% below the 1891 level; they fell in the 1907-08 depression and rose again, but were only a trifle above the level of 1891. [22] Labor did not share in the gains of rising production and productivity.
The working class received a decreasing share of the national income, while the concentration of income rose considerably. In spite of the expropriation of independent small producers, the middle class increased its share of the national income, as a result of the growth of the “new” middle class of technical, supervisory, and managerial employees in corporate and trustified industry, of employees in the distributive trades, and of persons in professional occupations. Rising prices (and a relative restriction of agricultural production) favored the farmers, as the rise in the price of farm products was greater than the price rise of industrial products. While the farmers constituted a decreasing proportion of the gainfully occupied, they increased their share of the national income 14% per capita. Not all farmers made gains, however: prosperity was concentrated in the upper layers; the rise in capital costs exceeded the rise in prices; and tenancy rose from 35-3/0 in 1900 to 37% in 1910. [23] The largest gains were scored by the richest 1.6% of the population, the upper capitalist bourgeoisie, whose share of the national income rose from 10.8% in 1896 to 19% in 1909. [24] All classes shared in prosperity except the wage-workers (hired farm laborers, however, made some small gains in real earnings).
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While consumption among workers was stationary or downward, there was an increase in general social consumption. It was, however, considerably smaller than in the preceding period. Consumption rose an average of only 1.9% per capita in 1900-1910, compared with 4.3% in 1870-90. [25] Another estimate, covering the years 1901-14, indicates an average yearly increase in consumption of only 0.6%. [26] Production was stimulated more by the output of capital goods than by the output of consumption goods: where the former made an average yearly gain of 5%, the latter made a gain of only 2.6%. [27] Accumulation of capital increased more than production; and prosperity was based primarily on the production of capital goods and of consumption goods whose increase was absorbed by non-workers.
The opinion was general, even in non-labor circles, that the workers had gained little if anything (except a small gain from shorter hours) in recent years. One liberal economist said:
“There is nothing in the facts ... which can give the wage-workers cause for rejoicing. The doctrine so popular in certain quarters that while the rich have grown rapidly richer in recent years the poor have also steadily risen in the scale of economic welfare has no foundation in fact.” [28]
Another liberal economist, stressing the same facts, almost developed a class conception of prosperity:
“It is perfectly possible, as history has repeatedly demonstrated, for the standard of living of a society as a whole to be improving while that of one or more groups within the society is declining. Moreover, if the distribution of economic power within a society is very unequal, it may happen that the group, the standard of which is declining, may constitute a very large proportion, even a majority, of the total population.” [29]
Prosperity is not simply an economic category; its decisive aspects are class-political, its distribution determined by class power and the class struggle in general and by capitalist domination in particular.
A new upflare of labor militancy marked these years. Strikes were many and bitterly fought. Manufacturers’ associations waged ruthless war on trade unions, while the unions moved toward more militant policies and action. Economic decline, the unequal distribution of prosperity, and the growing stratification of classes resulted in an increase of the socialist vote and a rallying of more radical workers to the Industrial Workers of the World. Dissatisfied labor, unclear about class purposes and means, largely merged itself in the progressive revolt against the trusts the last stand of the older competitive and agrarian capitalism which since the 1880’s had been urging the government to smash or regulate corporate combinations: individualist middle class and agrarian radicals demanded collective state action to assure free competition! This movement became itself the means of defeating the purposes of its sponsors. Theodore Roosevelt used the movement to impose forms of regulation which consolidated the systern of industrial and financial centralization, of monopoly capitalism [3*]; the revolt of the small producers and farmers ended in their complete subjection, because of the economic weight of capitalist monopoly and its political power, expressed in the Supreme Court’s decision to apply the “rule of reason” to the trusts. The complex relations of monopoly capitalism and its tendency to aggravate contradictions and produce economic decline made indispensable some measures of state intervention and regulation (the initial stages of state capitalism), but the measures were primarily in the interests of monopoly capitalism. Regulation was weakened in the fat years of post-war prosperity, but the depression and economic decline resulted in the need and demand for more regulation, more state capitalism. This newer regulation, unlike the old, openly accepts monopoly capitalism; according to an outstanding spokesman of the National Recovery Act and its institutional proposals:
“We are resolved to recognize openly that competition in most of its forms is wasteful and costly; that larger combinations must in any modern society prevail. We go further: we say that they should be allowed to prevail, but only under such conditions of control as assure a just distribution of the wealth they develop and now accumulate to the people as a whole.” [30]
Formerly the “just distribution of wealth” was to be assured by measures to restore or “protect” competition, now by “control” of monopoly; but the exploiting relations of capitalist production, particularly under conditions of economic decline, determine the repetition of the older experience: the strengthening of monopoly capitalism and the more unequal distribution of wealth ...
The years 1915-18 were marked by “war prosperity,” which prevented another major depression and temporarily overcame the tendency to economic decline. War markets were almost inexhaustible. Production, profits, and the accumulation of capital surged upward. Manufacturing output averaged 31.7% higher than in 1913 and total production 23.5% higher. [31] Profits were extraordinarily high in 1916, because of the war demands of belligerent Europe and the capture of its foreign markets by American exports. The concentration of income increased greatly: the number of incomes of $100,000 and over rose from 2,290 in 1914 to 6,633 in 1916. [32] After the United States, interlocked with the world market and imperialism, entered the war, profits mounted again, although part of them was appropriated by the government in war taxation, while another part was reinvested to evade taxation. The distribution of profits was uneven; some industries were depressed while industries supplying war needs piled up large earnings, a new chemical industry was created, and most plants augmented or improved their productive equipment. Retail trade was prosperous. The accumulation of money capital, in the form of government bonds, was great, and, as after the Civil War, its real value was increased by the post-war fall in prices. Farmers gained from the upward movement of prices and European demand, and their share of the national income rose again (although the rise in land values, as the farmers capitalized prospective profits, prepared disaster). There was a large export of goods and of capital: the United States became a creditor nation. The World War not only influenced prosperity and the tendency to economic decline but also the very structure of American capitalism by forcing the maturity of three fundamental developments: the control of industry by monopolist combinations, the export of capital, and the emergence of imperialism as a dominant force.
Again labor did not share in prosperity (except in the form of greater employment). [4*] Real hourly earnings in 1915 increased 3% over 1914 but were stationary in the following year and decreased (over 1915) 6% in 1917 and 4% in 1918. [33] Because of labor shortage and consequent full-time employment and overtime, yearly earnings rose slightly, but there was no definite upward movement in real wages. In most occupations outside the war industries, real wages dropped considerably, especially in some union trades bound by long-term agreements.
The movement of consumption was downward; in 1910-20 it fell an average of 0.8% yearly, mainly during the war years. [34] The considerable increase in production was absorbed by luxury consumption and war needs, by exports to the Allies (paid for by loans, the export of capital), and by capital goods. Labor was excluded ...
One thing is clear: increasingly higher wages and mass consumption are not inseparable accompaniments of prosperity. Of the seven periods of prosperity in the years 1860 to 1918, only three periods totaling fifteen years were marked by increasing real wages and mass consumption, while four periods totaling twenty-one years were marked by stationary or falling real wages and mass consumption. Including the periods of depression, real wages and mass consumption were stationary or fell during forty-three of the fifty-eight years of the period under survey. So-called prosperity may assume four forms under capitalism:
The productivity of labor rises in all four forms of prosperity. Only one of the four forms of prosperity, however, is accompanied by higher real wages and mass consumption. But all four forms of prosperity are accompanied by larger profits and accumulation of capital, which are always present: they are prosperity under capitalism.
As a class, the farmers (in spite of the great gains of some groups or individuals) did not share in the upward movement of prosperity in 1861-96, although the expansion of agriculture was a basic factor in prosperity. They shared in the gains thereafter up to and during the World War, mainly because of rising prices. But the farmers were definitely excluded in the post-war period: prosperity flourished while depression prevailed in agriculture.
Prosperity under capitalism is an economic condition which yields high profits and permits their conversion into capital by means of an increasing output and absorption of capital goods. These are the dynamics of capitalist production and prosperity. They depend, in final analysis, upon increasingly larger markets. But it is unimportant, in terms of capitalist prosperity, who composes the markets and who buys the goods, providing there are markets, sales, and profits. Consumption may increase among classes other than the workers. Goods may be absorbed by conspicuous competitive consumption, useless and meretricious construction, and other forms of waste, which is an indispensable condition of capitalist production, by war, or by the export of goods and capital. The output of goods (and services), which under capitalism is always below the possibilities of the prevailing state of the industrial arts, is determined by the economic-class consideration of profit, not by any standards of what is socially most desirable and humanly most beneficial. Labor’s gains are small: they are secured slowly and agonizingly, are interrupted by periods of prosperity in which the workers get none of the fruits of economic progress, and are wiped out in depression. For there is an inevitable and recurrent breakdown of prosperity, because the economic-class consideration of profit does not permit of a “balanced” development of production and consumption. Depression is a condition where production is temporarily unprofitable, profits are small, and their conversion into capital is restricted; the accumulation of capital lags, and therefore millions are thrown out of work and mass starvation prevails.
Thus, at the best, on the basis of previous experience, the prospect ahead is of a prosperity in which the workers (and the farmers and professionals) may not share or will share meagerly, followed by another depression in which they will suffer untold agony. But, in fact, the prospect is worse. In the past a higher level of prosperity arose after a depression, because the long-time factors of expansion stimulated an upward economic movement: profits were high, as the growth of new industries and the industrialization of new regions absorbed large amounts of capital goods and accelerated accumulation. Because of exhaustion of the long-time factors of expansion, prosperity must now be on a definitely lower basis, with lower profits, still lower wages, and greater unemployment. The prospect, then, is of a “depressed” form of prosperity worse than that which prevailed in 1909-1914. This necessarily means a crisis of the capitalist system. For the underlying cause of “depressed” prosperity, which is exhaustion of the long-time factors of expansion, is inseparably interlocked with the decline of capitalism.
1*. The situation was altogether different in the South. Industry was not highly developed. The war’s direct destruction was immense. While there was an accumulation of money capital in the form of government bonds, their value was destroyed by the Confederacy’s downfall. Reconstruction involved an economic plundering of the South, as well as the breaking of its political power. After Reconstruction, semi-servile Negro labor was reintroduced, with the permissive consent of the Northern capitalists, who shamelessly forgot all about the Negro. Industrialization in the South did not really begin until the 1890’s, because the South was economically prostrate and its industrial development unimportant, as yet, to the capitalism of the North, except for railroads.
2*. “For nearly the whole thirty years of the seventies, eighties and nineties, American agriculture, though it extended its horizons almost boundlessly, was in reality being operated at a small profit or none at all. The only thing that sustained the individual farmer was the constant appreciation of land values ... The high value of his land permitted him to convert his floating debts into mortgages with the result that the mortgage indebtedness was becoming heavier every year A larger and larger share of the farmer’s crops (because of his indebtedness and the increased valuation of his land) went for the payment of interest charges and taxes.” Louis M. Hacker and Benjamin B. Kendrick, The United States Since 1865 (1932), p.179.
3*. Roosevelt, in relation to the trusts, spoke big but carried a small stick; he practiced an essentially Fascist technique of using middle-class discontent to strengthen the forces against which the discontent was directed. His program was opposed by the more stupidly reactionary captains of industry and finance. J. Pierpont Morgan was Roosevelt’s great antagonist; at a Gridiron Club dinner to bring them together, the President, after outlining the action necessary to meet the revolt against Big Business, shook his fist in the financier’s face and shouted: “And if you don’t let us do this, those who will come after us will rise and bring you to ruin!” See Owen Wister, Roosevelt, the Story of a Friendship (1930), p.212.
4*. Sharply rising prices and profits discouraged any substantial increase in productivity, which in 1919 was only 2.6% higher than in 1914. Frederick C. Mills, Economic Tendencies in the United States (1932), p.192.
1. Department of Commerce, Statistical Abstract, 1928, p.447.
2. Wesley C. Mitchell, History of the Greenbacks (1905), p.389.
3. Victor S. Clark, History of Manufactures in the United States, 2 vols. (1928), v.II, p.37.
4. Alvin H. Hansen, Factors Affecting the Trend of Real Wages, American Economic Review, March 1925, p.32.
5. Mitchell, Greenbacks, p.400; John R. Arnold, The Trend of Consumption in the United States, Annalist, October 5, 1928, p.511.
6. Hansen, Real Wages, American Economic Review, March 1925, p.32.
7. Willard L. Thorp and Wesley C. Mitchell, Business Annals (1926), pp.130-37.
8. Department of Commerce, Statistical Abstract of the United States, 1931, p.813.
9. Willford I. King, Wealth and Income of the People of the United States (1915), p.44.
10. David A. Wells, Recent Economic Changes (1889), pp.28-29.
11. United States, Bureau of Labor Statistics, History of Wages in the United States (1929), p.521.
12. Arnold, Trend of Consumption, Annalist, October 5, 1928, p.511.
13. Department of Agriculture, Yearbook of Agriculture, 1932, p.492.
14. Lewis Corey, The House of Morgan (1930), pp.247-48, 273.
15. Scott Nearing and Joseph Freeman, Dollar Diplomacy (1925), p.12.
16. Commercial and Financial Chronicle, March 2, 1901, p.416.
17. New York Times, December 29, 1907.
18. Frederick C. Mills, Economic Tendencies in the United States (1932), p.2.
19. Mills, Economic Tendencies, p.35.
20. Mills, Economic Tendencies, pp.139, 143.
21. Mills, Economic Tendencies, p.159.
22. Paul H. Douglas, Real Wages in the United States, 1890-1926 (1930), pp.205, 39i.
23. National Industrial Conference Board, The Agricultural Problem in the United States (1928), pp.38, 48.
24. King, Wealth and Income, p.231.
25. Arnold, Trend of Consumption, Annalist, October 5, 1928, p.511.
26. Mills, Economic Tendencies, p.21.
27. Mills, Economic Tendencies, p.21.
28. F.W. Jones, Real Wages in Recent Years, American Economic Review, June, 1917, p.330.
29. Henry Pratt Fairchild, The Standard of Living Up or Down? American Economic Review, March, 1916, p.9.
30. Rexford Guy Tugwell, The Ideas Behind the New Deal, New York Times Magazine, July 16, 1933, p.2.
31. Mills, Economic Tendencies, p.188.
32. Bureau of Internal Revenue, Statistics of Income, 1916, p.16.
33. Douglas, Real Wages, pp.205, 391-93.
34. Arnold, Trend of Consumption, Annalist, p.511.
Last updated on 28.9.2007