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Lewis Corey

The Decline of American Capitalism

PART FOUR
The Antagonism Between Production and Consumption

CHAPTER X
Economic and Class Contradictions

EVEN after the coming of depression the belief prevailed that the pre-1929 prosperity was based upon consumption. It was thus expressed by M.J. Bonn, a German bourgeois economist:

”American prosperity was based on the prosperity of the ultimate consumer, and not, like the German boom, on the prosperity of industries producing capital goods which furnished employment for each other.” [1]

But American prosperity, as much as the German, was not “based on the prosperity of the ultimate consumer.” A high level of consumption may accompany prosperity, but it is never the primary cause. If German prosperity (in the cyclical sense!) was accompanied by a low level of consumption, it was not because prosperity was based upon the output of capital goods but because the output was limited by the conditions of economic decline, and consumption fell. If American prosperity was accompanied by a comparatively high level of consumption, it was not because prosperity was based on “the ultimate consumer” but because American industry, merely approaching decline, was able to produce and absorb a constantly greater output of capital goods. Under the conditions of the upswing of capitalism the fall in consumption is relative; under the conditions of decline the fall is absolute. Both in Germany and the United States, moreover, the output of capital goods increased more than consumption goods, hence the cyclical breakdown ...

That consumption was not the basic factor in American prosperity was observed by a business journal early in 1929:

“There is certainly nothing in the statistics to indicate the existence of that rapidly expanding consumptive capacity of the masses about which so much is heard to-day.” [2]

Consumption in 1922-23 moved sharply upward, scoring an average yearly increase of 6.5%. One cause was cyclical recovery, another the considerable rise in wages. But the rate of increase fell abruptly.

“In 1924 consumption was rather sharply below that of the year preceding; and the same was true of 1925, despite an appreciable recovery. In 1926 there was a short-lived spurt, the per capita volume for that year being rather more than 6% above 1923. The per capita consumption for 1927 was about 2% below that of the year before, though still perhaps 4% above the figure for 1923 ... There has ceased to be a noteworthy upward trend in the quantity of tangible goods consumed per capita by the people of the United States.” [3]

Production in 1922-23 moved sharply upward, scoring more than the usual cyclical gains, but the rate of increase was not maintained. [1*] In spite of the great expansion in new and old industries, the rate of increase in production was downward. This seems to contradict the fact that there was an average yearly increase in production of 3.8% compared with 3.1% in 1901-13. [4] But the comparison is misleading. There was a major depression in the earlier period, none in the later. If the major depression years of 1907-08 are eliminated, the two periods become more comparable, particularly as each had two minor depressions. On this basis production scored an average yearly increase of 6.3% in 1901-13 and only 3.8% in 1922-29. Still more significant, the average yearly increase in production was smaller in 1909-13 than in 1902-06 and smaller in 1922-29 than in 1909-13, the rates of growth being 7.6%, 4.6% and 3.8%. The upward movement in production began to flatten in 1909-13, continued to flatten in 1923-29, and is still flattening. This is a serious threat to capitalist production, for it depends upon an increasing rate of expansion and of capital investment.

A relative or absolute decrease in consumption is not incompatible with capitalist prosperity. But if the rate of increase in production was smaller than pre-war, why the flourishing capitalist prosperity of 1923-29? The answer is in the accumulation of capital and the output of capital goods. In spite of a flattening in the upward movement of production, there was an unusually large increase in the output of capital goods and consequently in dividend and interest payments (Table I). Even in 1923, when consumption made a much larger gain than in the following years, the rate of increase in the output of capital goods was more than twice the rate in consumption goods. The statistical picture of the disproportions in the major economic factors clearly reveals the causes both of capitalist prosperity and of cyclical breakdown. At the basis of the disproportions is the tendency for the output of capital goods to rise more than consumption goods and the enormous lag of wages behind dividends and interest.

While the rise in the output of capital goods always exceeds that in consumption goods, this was particularly marked in 1923-29. Where there was an average 5% rise in capital equipment in the years before the World War, the post-war average was 6.4%. “The index shows an appreciably more rapid growth of those products of economic activity which may be called procreative, than of end-products in the form of consumption goods. The equipment for producing goods for ultimate consumption was being augmented year by year at an exceptionally rapid rate. An increasing proportion of our total annual output of goods took the form of equipment designed to further the processes of roundabout production.” [5] Machinery, the most “procreative” of capital goods, scored the largest gains. Consumption scored much smaller gains, and these were dependent upon larger gains in capital goods: when the output of capital goods slowed down, prosperity crashed into depression and consumption fell seriously. The growth in capital goods and in dividends and interest react upon one another: an increasing output of capital goods permits the realization of larger profits, which in turn permit an increasing investment and output of capital goods. Disproportions were sharpened, resulting in the minor depressions of 1924 and 1927, warning of the coming catastrophe. The depressions were temporarily overcome by the demand for capital equipment in the newer industries and for more efficient equipment in the older industries to raise the productivity of labor. At the same time exports of manufactured goods rose from 7% of the total in 1923 to 8% in 1929; these exports increased an average of 9.3% yearly compared with an average of 7.6% in 1901-13. [6] The increase was largely due to the American export of capital, which financed foreign purchases. Thus for a time, and in spite of minor interruptions, there was a constantly greater output and absorption of capital goods, the basis of prosperity.

The relative increase in the output of capital goods was even greater than appears in Table I, whose index of consumption goods overestimates the rise in consumption. It includes residential construction, which is, particularly in the case of apartment houses, more in the nature of capital goods, and which, since it experienced an unusually great rise, inflates the index of consumption. Moreover, the index represents the physical volume of consumption goods produced, and gives no indication of the fact that sales were below output and often below values. Thus in 1923-29, while the yearly average of production (all goods) was 5.9% above “normal,” consumption (retail sales) was only 1.3% above “normal.” [7] This reveals more clearly the tendency of capitalist enterprise toward an unconditional development of production, creating the antagonism between the capacity of industry to produce and the consuming power of a society based on class divisions.

The great increase in dividends and interest nearly four times the increase in production and five times that in wages arose logically. It arose because of the enlargement of the scale of production and the consequent change in the composition of capital. As constant capital (particularly the fixed portion) rises more than variable capital, more must go to capital than to labor, in spite and because of the tendency of the rate of profit to fall. Wages in manufactures rose 6%, capital investment and profits much more. [2*] It is argued by the apologists of capitalism that a rise in other wages compensates for the relative fall of wages in manufactures. It does not. The wages of all workers rose not much over 12%, dividends and interest 77%. The major part of dividends and interest is not consumed, it is re-invested; the major part of wages is consumed, it is spent on consumption goods (and services). Because of these developments a deficiency in consumption is eventually created, an expression of the antagonism between production and consumption, of the contradiction between the unconditional increase in production and the conditional increase in consumption.

The economic contradictions in the movement of production and consumption are necessarily expressed in class antagonisms:

• Struggle between the workers and employers over wages: while wages may rise absolutely, they always fall relatively to profits.
• Unequal class distribution of the national income: while the workers’ absolute share may rise, their relative share falls.
• Unequal class distribution of consumption: while the workers’ absolute share may rise, their relative share falls, and proletarian consumption always tends toward a minimum.

Considering the small increase in general consumption, there was not much, if any, increase in consumption among the workers. Most of the rise in total wages was concentrated among the better-paid workers, who are apt to save more of an increase than they spend (workers’ savings rose in this period). Moreover, there was a fall in consumption among workers in the depressed industries and among the 1,000,000 workers who in this period were added to the reserve army of the unemployed. At the same time there was a substantial rise in consumption among the other classes (not the farmers). It rose considerably in the circles of the lower and intermediate bourgeoisie, among whom the automobile, modernistic furniture, and Mexican handicrafts became symbols of “cultural” standards of living. And there was a sharp upward spurt in conspicuous competitive consumption in the circles of the upper bourgeoisie, particularly among the speculators who “cleaned up.” The class distribution of consumption (Table II) became more unequal. Capitalist production, in the epoch of its upswing, increases consumption, but mainly among non-workers: economically regardless of who the consumers are, its whole class-political arrangements insure a concentration of consumption gains among the non-workers.

The prophets of prosperity (and now of Niraism) not only assumed that the workers were “enormously” increasing their share in consumption but that already they were the largest consumers. “The worker,” said one of them, “is our greatest and most profitable customer. Our prosperity is 86% derived from our working population, for the millions of wage-earners constitute just that proportion of our buying public.” [8] But what Jacob Vanderlint said in 1734 was still relatively true: “The labouring People in general are but half the Consumers they ought to be.” Although nearly three-fifths of the gainfully occupied, the wage-workers consumed only two-fifths of the goods produced; including clerical employees, the share in consumption of the working class was only 47.3%, although this class was 68.5% of the gainfully occupied. [3*] The combined share in consumption of the bourgeoisie was 42.9%, although this class includes only 15.9% of the gainfully occupied. In the circles of the upper bourgeoisie, the enormous total consumption of $6,500 million and average consumption of $17,000 measures the conspicuous competitive expenditures in that class and contrasts sharply with the miserably small share of the producers: the one depends upon the other. If the value of food produced and consumed on farms is deducted from the farmers’ total, their share becomes much smaller, below 5%. Most of the farmers’ income is spent on the payment of interest and taxes and in the purchase of equipment and supplies, which are inescapable expenses. Their purchases of both consumption and capital goods did not account for more than 7% of the total. The farmer, whose share in consumption decreased sharply, is no longer necessary to capitalist prosperity. [4*] Standards of living among wage-workers, clerical employees, and farmers (except the prosperous small upper layer) were roughly:

Thus there were, including dependents, at least 85,000,000 persons living on or below subsistence levels in the “Golden Age” of American capitalism! That was during an upswing of capitalism; conditions must become worse in the epoch of decline.

Not only was the pre-1929 prosperity not based upon consumption, it was least of all based upon consumption by the workers. Consumption is necessary to production, but capitalism is incapable of systematically developing the conditions of consumption. It was (and is) assumed that new purchasing power was (and can be) distributed proportionally among all groups of the people and in a manner to balance consumption and production. But there is no such balanced distribution under capitalism. The workers’ share in new purchasing power is always smaller than the share of all other classes, and investment income always rises more than consumption income. Hence the unstable equilibrium of capitalist prosperity is undermined by the action of economic forces which involve a class antagonism: capitalist production and accumulation constantly limit the purchasing power and consumption of precisely that class, the workers (and poorer farmers), whose consumption is indispensable to maintain a balance between production and consumption. The temporary equilibrium of capitalist prosperity is shattered when the mounting forces of production are unable to overcome the mounting barriers of the limited conditions of consumption. Crisis and breakdown follow.

 
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Footnotes

1*. The output of manufactures rose from $39,050 million in 1923 to $40,400 million in 1925 and $41,000 million in 1927 not a startling increase. Output rose to $47,100 million in 1929, a sharp and disproportionate rise definitely bound up with the cyclical crisis. Department of Commerce, Statistical Abstract of the United States, 1931, p.483.

2*. In the twenty-year period 1909-29 the average yearly rate of increase in interest was 9.3%, in dividends 7.1%, and in wages and salaries 6.5%. Robert R. Doane, The Measurement of American Wealth (1933), p.48. The increase in wages was less than 6.5%, because that percentage is enlarged by the inclusion of salaries, which rose much more than wages.

3*. Robert R. Doane, The Measurement of American Wealth (1933), p.75, estimates that, in 1929, the workers’ share in all expenditures, including services and finances, was 31%; the agricultural share was 10%.

4*. That the farmers are no longer necessary to capitalist prosperity is brutally admitted by the New York Trust Company in its publication, The Index (January, 1932, pp.16-17):

“Another view widely held but not so frequently expressed is that, relatively, agriculture no longer constitutes a major factor in our highly industrialized economy ... While [the farmers’ expenditures] are important and probably, as in the case of exports, represents a margin on which a good proportion of profits are based, they are not large enough to warrant the assertion that the national welfare depends to an overwhelming extent upon agricultural prosperity, or that recovery from depression can be brought about by restoring farm prices to their previous levels. ... In recent years American industry has not been affected substantially by changes in farm purchasing power.”

Notes

1. M.J. Bonn, The Crisis of Capitalism in America (1931), p.128.

2. Editorial, Census of Manufactures, New York Journal of Commerce, March 1, 1929.

3. John R. Arnold, The Trend of Consumption in the United States, Annalist, October 5, 1928, p.511.

4. Frederick C. Mills, Economic Tendencies in the United States (1932), p.244.

5. Mills, Economic Tendencies, p.281.

6. Mills, Economic Tendencies, pp.251, 282.

7. E.H. Welch, Purchasing Power and Wage Policy, Bulletin of the Taylor Society, October 1932, pp.182-83.

8. G.H. Phelps, Our Biggest Customer (1929), p.18.

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Last updated on 29.9.2007