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From the collection of the 

^ m 

o Prejinger 
V Jjibrary 



San Francisco, California 

Also by Lewis Corey: 


The Decline of 
American Capitalism 










Digitized by the Internet Archive 

in 2006 with funding from 

IVIicrosoft Corporation 



Introductory ii 

I. Ballyhoo: The New Capitalism 14 

II. The Meaning o£ Prosperity 24 

III. The Decline o£ Capitalism: General Survey 41 


IV. Profits and Prosperity 63 
V. The Policy of High Wages 76 

VI. Profits and Wages: State Capitalism 94 



VII. Accumulation and the Composition of Capital 113 

VIII. The Fall in the Rate of Profit 118 

IX. Multiplying Contradictions and Capitalist Decline 130 


X. Economic and Class Contradictions 151 

XI. Excess Capacity, Competition, and Speculation 160 

XII. The Onset of Crisis and Depression 180 

XIII. Production and Consumption: Capitalist Decline 193 



XIV. Prosperity and Unemployment 225 
XV. Disemployment and Surplus Population 241 

XVI. The Economics of Technology 260 

viii Contents 



XVII. Class Distribution of Income 305 

XVIII. The Multiplication o£ Stockholders 322 

XIX. Class Distribution of Wealth 341 



XX. Trusts: Concentration and Combination 373 

XXI. Monopoly and Finance Capital 395 

XXII. The Dynamics of Imperialism 416 

PART eight: the struggle for power 

XXIII. Prosperity and Capitalist Decline 460 

XXIV. State Capitalism, Planning, and Fascism 489 
XXV. The Crisis of the American Dream 515 

XXVI. The American Revolution 541 

Notes: 577 Bibliography: 597 Index: 607 


I. Major Economic Trends — 1896-1919 35 

II. Prosperity in Action — 1923—29 69 

III. The Share of Labor in Prosperity — 1919-29 81 

IV. Capital and Labor in Depression 91 
V. Changes in the Composition of Capital 115 

VI. The Fall in the Rate of Profit 125 

VII. Contradictions in Production and Consumption 155 

VIII. The Stakes of Speculation — 1923-29 175 

IX. The Basic Factors in Capitalist Production 201 

X. The Creation of Disemployment 231 

XI. The Upward Trend of Unemployment — 1900-33 245 

XII. Production, Wages, and Capital Claims 289 

XIII. Class Distribution of Income — 1920-29 311 

XIV. Class Distribution of Stock Ownership — 1928 331 
XV. Class Distribution of Wealth— 1928 349 

XVI. Concentration and Centralization — 1923-29 385 

XVII. The Dynamics of Finance Capital 413 

XVIII. American Imperialism in Action 441 

XIX. American Class Divisions — 1 870-1929 563 

The American Crisis 


JyL MERicAN life moves and changes swiftly. Government and industry 
resort to new and desperate measures. Traditions break down. Ac- 
cepted truths are challenged or repudiated. The present is dark, the 
future uncertain and threatening. There is an accumulating pressure 
of underlying ferments and forces which create social explosions. 
Classes mobilize: ideas clash. These are all indications of a crisis. 

One aspect of the American crisis arose out of the depression and 
the efiForts to overcome it. While ballyhoo promises a new and ever- 
lasting prosperity, a new world, millions hope merely for a job, any 
sort of job; for an income, any sort of income to ward off charity. 
Millions must accept charity, whether direct or in the form of "relief 
work." The mobilization of government to "war upon depression" 
aroused hopes which were meagrely realized. 

Another and more fundamental aspect of the crisis involves the 
decline of American capitalism. It is a crisis of the economic order 
itself. This is evident in the inability to restore prosperity on any sub- 
stantial scale. The future is one of incomplete recovery: of economic 
decline, mass disemployment (including millions in clerical and pro- 
fessional occupations), lower standards of living, and war. Every de- 
pression is in a sense a crisis of capitalism. But this depression represents 
the development of a fundamental, permanent crisis in the economic 
and social relations of American capitalism. Only a deep-going crisis 
could force government and industry to adopt measures which were 
formerly condemned as opposed to economic progress. The interven- 
tion of government in industry is, of course, nothing new: the devel- 
opment of capitalism has been accompanied by growing government 
aid to industry. But such aid was limited in scope. It was, economically, 
an expression of the upswing of capitalism, of the necessity of gov- 
ernment action to "regulate" the developing relations of trustified 
capitalism. But to-day government intervention is on an unprece- 
dented scale. Its economics and politics are an expression of the decline 
of capitalism, of the necessity of government action to prop up the 
sagging foundations of the economic order. The avowed aim is to 
insure prosperity, formerly achieved by the working of "free" capi- 


12 The Decline of American Capitalism 

talist enterprise. The real need is for increasing use of government to 
manipulate economic forces, for state capitalism, because capitalist 
industry is unable to junction as of old. The forms of state capitalism 
may change, but the need remains, with fascism looming ahead. As 
capitalism declines, the state must intervene more drastically to aid 
industry and suppress labor. It is the death of the old world, not the 
birth of the new. 

The depression which set in after 1929 was the worst economic dis- 
aster in American history. It was aggravated by the acute world crisis, 
a major catastrophe of capitalism. The downward movement of pro- 
duction began in July, 1929 and continued until March, 1933 — three 
years and nine months. No previous decline was as long or as steep, 
not even in the great depressions of 1873 and 1893. In the depression 
of 1920-22 the downward movement of production continued ten 
months, and two years completed the swing from recession to renewed 
prosperity. Unemployment, including clerical and professional work- 
ers, rose in 1933 to 17,250,000; 14,250,000 wage-workers or nearly 50% 
were unemployed, compared with 30% in 1921. Part-time employment 
was also greater. And the situation was not very much improved, for 
the depression did not end in March, 1933. The revival, largely because 
of its inflationary and speculative character, did not lead to recovery. 
There was the ominous spectacle of a minor but complete cycle within 
a few months: revival in April, recovery in May, and "boom" pros- 
perity in June; as production and profits outstripped wages and con- 
sumption, "prosperity" broke down in July, accompanied by a crash 
in the stock market; recession and depression again, and an intensifica- 
tion of the crisis. 

These recurrent breakdowns of prosperity are a typical, damnable 
spectacle of capitalist civilization. Men, women, and children starve 
or agonizingly approach starvation while wheat and corn rot, vege- 
tables perish, milk and coffee are destroyed. The wheels of industry 
slow down while millions of workers eager to work are condemned 
to unemployment. Wants go unsatisfied on an enormous and oppres- 
sive scale, although all the means exist to satisfy the wants. (Depres- 
sion magnifies the condition prevailing even in periods of the most 
flourishing prosperity, when there are also millions unemployed; their 
wants and many wants even of employed workers are unsatisfied.) 
This monstrous state of affairs was unknown to the people of pre- 
capitalist civilizations: they knew want as the result of scarcity, nat- 
ural calamity, or war, and the torment of labor lay in its severity. 
Capitalist civilization introduced a new form of want, want in the 

Introductory 13 

midst o£ abundance; a new torment o£ labor, the torment of workers 
deprived of work while there is an abundance of the means and 
objectives of working. Our ancestors would have considered the situa- 
tion idiotic; it is considered idiotic to-day by the non-capitalist, develop- 
ing socialist civilization of the Soviet Union. 

After every depression the cry has gone up, "It can never happen 
again!" But it did happen again, and will. The United States experi- 
enced, from 1790 to 1925, one year of depression for every one and 
one-half years of prosperity.^ Cyclical crises and breakdowns are inher- 
ent in capitalist production : depression is as characteristic as prosperity 
and nearly as frequent. 

But this depression is more than the usual cyclical breakdown. Its 
duration, severity, and specific character are determined by non-cyclical 
factors of economic decline. It is not simply that another depression 
is inevitable after another short period of prosperity — although that 
in itself is enough to condemn capitalism, which must repeat the 
calamities of economic breakdown, mass unemployment, and mass 
starvation. Capitalism has survived many depressions: they have, in 
fact, been the starting points of new upswings of prosperity. This 
crisis of American capitalism involves two new developments of major 
historical importance: 

In previous depressions economic forces were always strong enough 
to start and complete a recovery, but recovery now seems almost 
indefinitely postponed. Government intervenes to hasten the recovery, 
which is nursed and coddled and kept alive with all sorts of stimu- 
lants, government financial aid, and jabs of the inflation needle — an 
ominous contrast to the lusty capitalism of old! 

Unlike former experience, this depression cannot end in any real 
upswing of prosperity, because cyclical recovery and prosperity are 
now necessarily limited by the pressure of capitalist decline, which 
involves exhaustion of the long-time factors of economic expansion. 
These are the critical developments which underlay the adoption of 
the National Industrial Recovery Act, of state capitalism. The captains 
of industry and finance, some say, have proven their incapacity: let 
the government act! But the incapacity is an old story: in the past it 
did not prevent the revival of prosperity, because capitalism was on 
the upswing, a progressive economic force. If the government must 
act now, must hand-feed industry, it is because capitalism is in crisis 
as a result of decline and decay, of the exhaustion of its progressive 
economic force. 


Ballyhoo: The New Capitalism 

JL HE acute nature of the American crisis appears in the failure of the 
desperate resort to more drastic state intervention in industry — in the 
failure of the National Industrial Recovery Act and its creations. It 
had to fail. For in essentials, in spite of differences in institutional 
forms, the Act merely introduced measures of state capitalism which 
have been tried in Europe and have not restored prosperity there. Yet 
Niraism was greeted as another "new capitaHsm," the beginnings of 
a new era in American civilization. Consider a few of the magnificent 

Senator Capper: "The changes are revolutionary." . » . H. I. Har- 
riman, president. Chamber of Commerce of the United States: "A 
new business dispensation; holds out the promise of a better day." 
... A speaker at a convention of the Advertising Federation of 
America: "Marks the threshold of a new era." . . . Nelson B. Gaskill, 
president. Lead Pencil Institute and former member of the Federal 
Trade Commission: "The beginning of a new epoch; a systematized 
democracy." . . . Mrs. Laura W. McMullen, chairman, international 
relations department of the General Federation of Women's Clubs: 
"An economic revolution, in the course of which the institution of 
private property is being quietly undermined." . . . General Hugh 
Johnson, NRA Administrator: "A new era; high level of prosperity." 
. . . The New York World-Telegram: "A revolution to bring order 
to industry and security to the masses, to redistribute wealth, to fit 
the wage system into the power age." . . . Oswald Garrison Villard, 
liberal of the old school : "The revolution which has taken place in so 
short a time; taint taken off socialism." . . . William Green, presi- 
dent, American Federation of Labor: "Planning for national welfare; 
sound fundamental philosophy of the relationship between govern- 
ment and industry; serves the welfare of investors of capital and 
producing workers." . . . American Federation of Labor, Current 
Survey of Business: "Points the way to a new order." . . . Frances 
Perkins, Secretary of Labor: "We may find we have built up a new 
kind of civilization; a blessing beyond anything we in our genera- 
tion have ever dared to dream of." . . . Rexford Guy Tugwell, Assist- 


Ballyhoo: The New Capitalism 15 

ant Secretary o£ Agriculture: "To save our institutions from unlim- 
ited greed, and to turn the results of common efforts toward more 
general benefits: enlarged incomes for common people, greater leisure, 
security from risk." . . . Leonard Rogers, an interpreter of current 
events: "The American compromise w^ith communism."^ 

These claims, already shattered by events, are more than mere 
demagogic incitation. They are part of an ideology in the making, by 
means of which the decline of capitalism is masked and the way 
prepared for the ideological subjugation of the masses. At its basis is 
the conception of a "new capitalism." This conception is recurrent. 
Any new stage or twist in the development of capitaHsm is seized 
upon by apologists, who proclaim that the economic order is being 
transformed. The conception of the "new capitalism" is a form of 
struggle against the workers and farmers, the clerical and professional 

After the depression of 1873-79, marked in its later stages by aggres- 
sive labor struggles, a considerable ballyhoo arose about profit-shar- 
ing and the "partnership" of labor and capital. One economist, 
echoing others, spoke of "a new regime of production and distribu- 
tion," of an irresistible and continuous upward movement of wages, 
mass consumption, and standards of living, which would result in 
"the end of human poverty."^ Four years later the prophecy was 
answered by the depression of 1893-97, and by the following seventeen 
years during which wages, mass consumption, and standards of living 
were practically stationary. . . . 

The immediate parentage of the NRA ballyhoo was the ballyhoo of 
prosperity which flourished in 1923-29, and ended in the most disas- 
trous of all depressions. It is important to recall this fact, not only 
because that prosperity is now mocked by depression, but because all 
its essential claims reappear in the "new capitalism" of the NRA. 

The pre-1929 ballyhoo of prosperity, which expressed the "Golden 
Age" of American capitalism, had as its basic claim the old concept 
of "a new regime of production and consumption," thus restated by 
one bourgeois economist: 

"Increasing productivity of labor and industry, advancing wages, 
higher living standards and greater consuming or purchasing power 
rapidly became the avowed policy and practical program of American 
industry ... a new industrial revolution which is the marvel of the 
civilized world." * 

Another economist said: "A new principle works: consumption 

i6 The Decline of American Capitalism 

finances production. The more wealth is consumed, the more it will 
increase. In this country the demonstration o£ that idea occurred. It is 
the American contribution to economic experience."* 

American capitalism, the prophets insisted, accepted the fact that 
prosperity depends upon mass consumption, and, consequently, upon 
increasingly higher wages. It was heady wine, this flattery of the 
capitahsts; they began to believe in the ballyhoo and millionaires 
gravely prophesied the end of poverty. . . . Charles E. Mitchell, presi- 
dent. National City Bank of New York : "A revolution in industry has 
been taking place that is raising all classes of the population to a more 
equal participation in the fruits of industry, and thus, by the natural 
operation of economic law, bringing to a nearer realization the dreams 
of those Utopians who looked to the day when poverty would be 
banished." . . . James H. Rand, president, Remington-Rand, Incor- 
porated: "The economic revolution of the 1920's will appear as vital 
as the industrial revolution in England and it will likewise mark the 
beginnings of a new era." . . . Andrew W. Mellon, Secretary of the 
Treasury and a powerful financial capitaHst: "America has adjusted 
herself to the economic laws of the new industrial era, and she has 
evolved an industrial organization which can maintain itself not only 
because it is efficient, but because it is bringing about a greater dif- 
fusion of prosperity among all classes." . . . Melvin A. Traylor, presi- 
dent, Continental National Bank of Chicago and the American Bank- 
ers Association: "We need not fear a recurrence of conditions that 
will plunge the nation into the depths of the more violent financial 
panics such as have occurred in the past." (This was in 1927, when a 
minor cyclical depression warned of the greater disaster to come.) 
. . . E. A. Filene, president, W. Filene and Sons Company: "What 
the socialists dreamed of the new capitalism has made a reality, but 
not by their methods. The ever-present human desire for greater total 
profits will lead to the adoption of the new principles." . . . Haley 
Fiske, president. Metropolitan Life Insurance Company: "Here is a 
new business era. The glory of wealth fades. Extent of power fades. 
What does remain here and throughout eternity is that every man 
try his best in serving God to serve well his fellowmen." ^ 

Captains of industry and finance appear Jovelike in prosperity and 
bewildered in depression, but at no time do they really understand 
the movement of the economic forces they exploit. Their pre-1929 
invocations to the "new era" expressed sheer misunderstanding; but 

Ballyhoo: The New Capitalism 17 

they also expressed, i£ partly unconsciously, the defensive, self-justify- 
ing ideology of predatory capitalism.* 

The prosperity ballyhoo reached its crescendo in a book, Ma\e 
Everybody Rich — Industry's New Goal, published a few months before 
the breakdown of prosperity in 1929. It is a curiosity of economic lit- 
erature. The theme was this: 

"The real industrial leaders of present-day America do not need to 
be told that the goal of industry is to make everybody rich. It was they 
who discovered the fact . . . who discovered the economic necessity 
of high wages. . . . Not merely will prosperity be stabilized, but the 
rule of class will for the first time in human history utterly disappear." ^ 

Within a few months industry changed its "goal" and began to 
make everybody poor, an undertaking crowned with infinitely greater 
success. One of the two authors of Make Everybody Rich, Benjamin 

* The invocations to the "new era" were also profitable. Among other successful 
exploiters was True Story, a magazine of highly sexy stories deodorized with moral 
platitudes and reached a circulation of over 2,000,000. At first True Story was used 
only by the cheaper class of mail-order advertisers. An advertising promotion story was 
necessary to "sell" the magazine to the big national advertisers. So True Story launched 
a promotion campaign, emphasizing that its readers were wage-earners, that wage- 
earner families constitute 86% of America, and that the income of wage-earners had 
increased enormously. "For the first time in history," True Story informed advertisers, 
"the wage-earner is a prospect for advertised goods. He is the New Market that may 
make or break to-morrow's merchandising leaders." The climax of the campaign was 
a series of full-page advertisements in the New York Times (some of them appeared 
in the issues of May 21, June 25, October 14, and December 9, 1929). Here are a few 

"The economic history of the past ten years has been startling. The volunteering of 
bigger pay and shorter hours, in order that labor might have the money to buy and 
the leisure to enjoy the things that it helped to make, has virtually ended a capital- 
labor war which has been going on now for upward of three hundred years. And the 
opportunity now offered to labor to own an interest in the concerns in which it works 
has opened up an experiment in equality that has never been known before in the 
history of civilization. 

"In making labor co-partner in your efforts and your enterprise, sharing your profits 
and your dreams with so little to be gained on your part and so much to be lost, you 
have probably taken the greatest forward step iri human conduct that the world has 
ever known. 

"To-day labor is buying over 65% in dollar volume of the things it helps to make. 
... It is the freedom from care with which they are buying, the freedom from worry 
in their eyes, the freedom from fear in their shoulder blades." 

It worked: True Story made millions in profits. But in spite of the imposing array of 
"economic" arguments and statistics, the campaign was based on distortions. Most of 
True Story's readers were not wage-earners; 86% of America was not composed of 
wage-earners, and they did not buy "over 65%" of consumption goods; the rise in 
wage-earner income was grossly exaggerated. 

i8 The Decline of American Capitalism 

A. Javits, has since been chanting the praises of the NRA in the same 
millennial terms he used to invoke prosperity everlasting. . . . 

In addition to increasingly higher wages and mass consumption, the 
pre-1929 "new capitalism" claimed that it was introducing "industrial 
democracy." In 1924, Herbert Hoover spoke of "the great increase in 
ownership of industries by their employees and customers," and of 
"forces slowly moving toward some sort of industrial democracy." ^ 
Arthur Williams, vice-president of the New York Edison Company, 
a part of the electric power oligarchy under control of the House of 
Morgan, insisted that wage- workers were becoming capitalists: 

"As a result of a gradual economic revolution we are beginning to 
see that every worker is a potential capitalist. Wealth is not only in- 
creasing at a rapid rate, but wages are rising. There are at least three 
kinds of evidence which indicate roughly the extent to which workers 
are becoming capitalists: the rapid growth of savings deposits, the 
investment by workers in shares of corporations, and the growth of 
labor banks." ^ 

These ideas were widely spread and believed and were echoed at 
the 1925 convention of the American Federation of Labor by Spencer 
Miller, director of the Workers Education Bureau. Miller maintained 
that "so significant is this whole economic change that it has been 
properly characterized as an economic revolution by students of our 
economic life." Out of this conception arose the theory of "trade union 
capitalism," whose basic assumption was that the "higher strategy of 
American labor" is "based upon the solid ground of capital owner- 
ship." ® This "capital ownership" was to be mobilized by labor banks, 
which the Grand Chief of the Brotherhood of Locomotive Engineers 
considered the "American answer to Marx and Lenin." ^° The banks 
are now a mass of ruins. . . . 

The master mind of the "new capitalism" was Thomas Nixon Car- 
ver, professor of economics and major prophet of prosperity. His book. 
The Present Economic Revolution in the United States, originated all 
the assumptions of the pre-1929 "new capitalism." It is another curi- 
osity of economic literature, a fantastic combination of misleading 
statistics, apologetic economics, slipshod sociology, and rationalized 
prejudices. After smugly declaring that "to be alive to-day, in this 
country, and to remember the years from 1870 to 1920 is to awake 
from a nightmare . . . [no more] slums and socialist agitators, blatant 
demagogues and social legislation," Carver opened the case for the 
"new capitalism" with a distortion of history: 

"The great war produced a number of political revolutions in Eu- 

Ballyhoo: The New Capitalism 19 

rope. It has not yet produced an economic revolution. The only eco- 
nomic revolution now under w^ay is going on in the United States. 
It is a revolution that is to v^ipe out the distinction betv^^een laborers 
and capitalists by making laborers their own capitalists and by com- 
pelling most capitalists to become laborers o£ one kind or another, 
because not many of them will be able to live on the returns from 
capital. This is something new in the history of the world." ^^ 

Not even, Carver insisted, was there an economic revolution in 
Soviet Russia, where the working class expropriated the capitalists 
and landowners. Carver was one of the bourgeois scholars who 
greeted the New Economic Policy in Russia as a "reversion to capi- 
talism," the final proof of the bankruptcy of Marxism. They dismissed 
as rationalization Lenin's argument that the new policy was merely 
a retreat to reconstitute forces for a new offensive. Yet in a few years 
the Soviet Union unloosed another offensive against capitalism and 
systematically began building the economic basis of socialism. Carver's 
American "revolution" led to the most appalling of cyclical break- 
downs and economic decline, the Russian revolution leads to economic 
advance and socialism — a trifling difference! 

Blind, as only the scholar become ballyhoo-maker can be, to eco- 
nomic reality. Carver painted a glowing picture of the American 
revolution : 

"Instead of the concentration of wealth, we are now witnessing its 
diffusion; but the old tirades against plutocracy are still repeated. . . . 
Instead of low wages for the manual trades, we are now having high 
wages; and yet the old phraseology, including such terms as wage 
slavery, still has a certain vogue. . . . Instead of the laborer being in 
a position of dependence, he is now rapidly attaining a position of 
independence. . . . Laborers are becoming capitalists. We are now 
approaching equality of prosperity more rapidly than people realize. 
. . . Neither state sociaUsm, guild socialism, sovietism, nor the or- 
dinary cooperative society presents a plan of organization so well 
suited to the needs of the workers who desire to own their own plants 
as does the joint-stock corporation. . . . The full development of the 
so-called capitalist system will not be reached until practically every- 
one has become a capitalist, that is, an owner or part owner of some 
of the instruments of production. ... It is just as possible to realize 
equality under capitalism as under any other system." ^^ 

Is it any wonder that the capitalists, as they scooped in the profits 
of industry and speculation, began to believe they were the saviors 
of mankind? . . . 

20 The Decline of American Capitalism 

Another aspect of the pre-1929 mythology of prosperity was the 
theory that cyclical fluctuations were now measurably under control. 
There were to be no more alternations of prosperity and depression, no 
more hard times— prosperity would be everlasting! (Similar claims 
were made for the "planful" system of "controls" instituted by the 
National Industrial Recovery Act.) Among the exponents of the 
theory of everlasting prosperity were the members of the President's 
Committee on Recent Economic Changes, including Owen D. Young, 
Daniel Willard, John J. Raskob, and Clarence M. Woolley, identified 
with corporations under the control or influence of the House of 
Morgan, and William Green, president of the American Federation 
of Labor. In its report, issued a few months before the breakdown of 
prosperity in ig2g, the Committee said: 

"Control of the economic organism is increasingly evident. . . . 
Once an intermittent starting and stopping of production-consumption 
was characteristic of the economic situation. It was jerky and unpre- 
dictable, and overproduction was followed by a pause for consumption 
to catch up. For the seven years under survey [1922-29] a more marked 
balance of production-consumption is evident. ... A sensitive con- 
tact has been established between the factors of production and con- 
sumption which were formerly so often out of balance. ... In many 
cases the rate of production-consumption seems to be fairly well under 
control. . . . There is now a more even flow from producer to con- 
sumer. ... It would seem we can go on with increasing activity." ^^ 

An economist-statistician expressed the general illusion in "objec- 
tive" terms: 

"There have developed in this nation mainly since the war period 
basic factors of a long-time nature which can be termed largely Amer- 
ican. . . . First, increased use of power per worker; second, the recep- 
tivity of the public to new commodities; third, modernized distribution 
technique; fourth, increased purchasing power of the public; and, fifth, 
industrial research. . . . American industry and business have reached 
that status of well-being where it no longer has to fear a recurrence 
of the radical spreads from prosperity to depression that formerly 
afflicted business and industry." ^* 

More moderate, but definitely optimistic, was the opinion of Rex- 
ford Guy Tugwell, professor of economics at Columbia University, 
who later became a major prophet of Niraism: 

"Depressions continue to recur. They seem, however, to lessen in 
extent. . . . Some of their worst effects may be said to have been 
mitigated. . . . We seem to have made some considerable progress 

Ballyhoo: The New Capitalism 21 

toward correcting the swings o£ the rhythm and toward smoothing out 
the fluctuations in activity." ^^ 

This confidence expressed itself in unlimited speculation. Much of 
the ballyhoo of prosperity was created by intellectuals and professional 
people, who were inflamed by their share of the "easy money" of 
speculation. One day before the stock market crashed in 1929, Prof. 
Irving Fisher said: "Current predictions of heavy reaction affecting 
the general level of securities find little if any foundation in fact." 
The market will "return eventually to further steady increases," and 
"gains are continuing into the future" — sentiments he repeated five 
weeks after the market crash, when he said there would be "no per- 
manent ill effects" from the "false fear" created by the fall in stock 
prices.^^ The belief in prosperity everlasting was so strong that the 
depression, in its earlier stages, was not taken seriously. Said Colonel 
Leonard Ayres, bank economist: "It does not seem at all probable that 
the bear market of 1929 will be followed by any slowing down of 
business at all comparable with the old business depressions. The 
business and banking of 1929 are almost inconceivably strong." ^^ 

Crudely expressed or subtly rationalized, the ballyhoo of the "new 
capitalism" evoked an enormous response. The "new" liberals and 
"progressives," while they continued sniping at abuses, believed that 
prosperity, with all its shortcomings, was working toward the "larger 
good." Thus Stuart Chase wrote just before prosperity crashed: 

"The scene is at once ludicrous, arresting, inspiring, and always 
genuinely stimulating. . . . There is just a chance that America might 
whirl itself into the most breath-taking civiUzation which history has 
yet to record. . . . But to date the chief exhibit is activity." ^^ 

The form is negative but the content positive: American capitalism 
may create a new social order. This appeared more clearly when Chase 
wrote, after the collapse of prosperity, that capitalism in the United 
States and communism in the Soviet Union "both in the last analysis 
have similar goals, of which the most immediate and important is 
the abolition of poverty." ^® This is a conception as crude as those of 
any of the more vulgar myth-makers of prosperity. But the "new" 
liberals and "progressives" felt that American capitaHsm was dif- 
ferent, exceptional, and that in some mysterious fashion all its own 
it would remake the world. The faith was lyrically and mystically 
expressed by Charles A. Beard in the concluding words of the Rise 
of American Civilization: 

"Belief in unlimited progress— the continuous fulfillment of the 
historic idea ... an invulnerable faith in democracy ... a faith in 

22 The Decline of American Capitalism 

the efficacy of that new and mysterious instrument of the modern 
mind, 'the invention of invention,' moving from one technological 
triumph to another, effecting an ever wider distribution of the 
blessings of civilization — health, security, material goods, knowledge, 
leisure and esthetic appreciation, and through the cumulative forces 
of intellectual and artistic reactions, conjuring from the vasty deeps 
of the nameless and unknown creative imagination of the noblest 
order, subduing physical things to the empire of the spirit — doubting 
not the capacity of the Power that had summoned into being all pat- 
terns of the past and present, living and dead, to fulfill its endless 

"If so, it is the dawn, not the dusk, of the gods." ^° 

Within a few years the "dawn of the gods" appeared in the most 
disastrous and brutalizing of depressions, with 14,250,000 wage-workers 
and 3,000,000 clerical and professional workers (and their dependents) 
abandoned by Dr. Beard's deities. Now the prophets of state cap- 
italism, including Dr. Beard himself, are invoking another dawn of the 
gods. . . . 

Dr. Beard was, moreover, contradicted even by the pre-depression 
reality. Prosperity was unequally distributed, only meagrely shared 
by the workers and farmers. There was grinding poverty and terrible 
insecurity. Not only that: even if prosperity had been as great as its 
ballyhoo, it was still woefully incomplete, still far behind prevailing 
technical-economic resources. For capitalism always restricts produc- 
tion and consumption, the possibilities of abundance and leisure po- 
tential in the productive forces of society. 

There was chaos in mining, textiles, and other industries, and in- 
creasing unemployment. The number of strikes decreased considerably, 
but the strikes that did occur were brutally suppressed. Poverty pre- 
vailed on a large scale. The deepening agricultural crisis made peasants 
of newer and larger groups of American farmers. The lightning of 
the Sacco-Vanzetti tragedy revealed the yawning gulfs of ruling- 
class savagery. But the mythology of prosperity, and particularly of 
rising speculative profits, cast a glow over the unpleasant aspects 
of economic reality. 

Always, in one form or another, capitalism creates an ideology to 
disguise and justify its predatory character: it is a necessary device 
of class domination. Always there exists a deceptive millennial con- 
ception of capitalism. It accompanied the growth (and decay) of 
profit-sharing, flourished on the basis of the war-time controls of indus- 
try, and acquired magnificent scope in 1923-29. It appeared again in 

Ballyhoo: The New Capitalism 23 

the "new capitalism" of Niraism, with only slight revisions in argu- 
ment and style. 

The pre-1929 myth-makers of prosperity did their job well. The 
ideology they created lingered, as a cultural hangover, after the break- 
down of prosperity and helped to prevent any considerable revolt. As 
the ideology began to crumble under the impact of prolonged depres- 
sion, it was revived and reinforced by the ballyhoo of the National 
Industrial Recovery Act. But when the ideology begins to crumble 
again, as it must, and the hopeless reality it disguises is revealed, the 
economic crisis of American capitalism will become a class and polit- 
ical crisis. We are witnessing not a "dawn of the gods" but the dawn 
of an era of momentous social struggle and change. 


The Meaning of Prosperity 

Jl HE 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. EarHer capitalism was still largely in the commercial stage. 
The commercial, not industrial, capitalist dominated the scene. Indus- 
try was not highly developed, and it was small-scale industry. Many 
industrial products were still imported; while foreign trade rose five- 
fold from 1820 to i860, imports of manufactured goods rose six-fold.^ 
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 impor- 
tant part in the crisis and depression of 1857. ^^ 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 pro- 
duced 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 con- 
trol 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 na- 
tional 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 antag- 
onistic relations of slave labor and free wage labor. As territorial 


The Meaning of Prosperity 25 

expansion was necessary for the South, to broaden the economic 
and poHtical bases o£ slavery, it antagonized the farmers (and work- 
ers) of the North and West who wanted "free soil" and who aHgned 
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 cap- 
italism subordinated agriculture to industry, and the costs of indus- 
trialism 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 capitaUsm, economically and politically domi- 
nant, was the mightiest in the world. Prosperity was now overwhelm- 
ingly determined by the movement and the interests of capitalist 

Prosperity in the North flourished during the Civil War. Business 
failures and liabilities were negligible. Real profits in trade ranged 
from 12% to 15/0.^ 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.^ Great fortunes were made by profiteering in industry, ex- 
ploiting the government's war needs, and speculating in the com- 
modity 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 i860 level,* 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; ^ for 
while production was stationary, an increasingly larger part of manu- 
facturing 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 consump- 
tion, by mass impoverishment instead of improved mass well-being. 

26 The Decline of American Capitalism 

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. Deprecia- 
tion 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.* This equilibrium created by 
the war was upset by the peace; two years of minor depression pre- 
vailed 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 construc- 
tion 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,^ and the resulting increase in mass purchasing power 
promoted the production and sale of consumption goods. The fall 

* The situation was altogether different in the South. Industry was not highly de- 
veloped. 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. 

The Meaning of Prosperity 27 

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 w^as increased greatly by the mechan- 
ization of old industries and the development of new industries (iron 
and steel, boots and shoes, glass, petroleum, mining, mechanical trans- 
port 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 equiUbrium is unstable 
and temporary. For wages lagged behind profits and production be- 
hind consumption. Eventually the new capital goods threw an aug- 
mented 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 securi- 
ties, 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, i^93~97)-'^ 
Depression and prosperity, and the period as a whole, were affected 
by long-time factors of economic expansion, which provided increas- 
ingly larger markets for goods and capital, and insured, until tem- 
porarily 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.^ Profits were high. Small businessmen complained of 
severe competition and low profits, but that was mainly because they 

28 The Decline of American Capitalism 

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 out- 
put of capital goods scored an average yearly increase (quantitative) 
of 7.2% in 1870-90 compared with only 4.8% in 1850-60.^ Labor's 
productivity rose constantly; from 1870 to 1880 alone it increased 
50% in mining, 85% in manufactures and 110% in transportation.^^ 

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, par- 
ticularly in the depression of 1873-79, t>ut they rose in each period of 
prosperity and in the period as a whole. By 1892 real wages were 
much higher than in i860, 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.^^ Wage gains 
were unevenly distributed, skilled workers gaining more than the 
unskilled and the organized more than the unorganized, while immi- 
grant workers were forced to accept the lowest of low wages; unem- 
ployment, 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.^^ 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 consider- 
able 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 con- 
sumption (particularly among speculators and other financial buc- 
caneers), 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 i860 to over 4,000 in 1892. Nor was higher produc- 
tivity the primary cause of higher real wages; they rose because of 

The Meaning of Prosperity 29 

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 as- 
sumed 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 Hay- 
market 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 purchas- 
ing 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 num- 
bers increased, the farmers' share of the national income decreased. 
Tenancy rose from 25.6% in 1880 to 35.3% in 1900.^^ These condi- 
tions produced the agrarian uprisings of the i87o's-9o's.* 

The developments which produced prosperity also and necessarily 
produced disastrous depressions: they are the inseparables of capital- 
ism. Industrialization proceeded haphazardly, competitively, socially 
unplanned and unregulated. The expansion of industry and accumula- 
tion of capital exceeded balanced requirements. As new industries 

* "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 Untied States Since 1865 (1932), p. 179. 

30 The Decline of American Capitalism 

(including railroads) developed they stimulated prosperity by absorb- 
ing 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 ac- 
cumulation 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. Manufac- 
turers 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 concentra- 
tion 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 ef- 
ficiency, larger plants, the investment of more capital, and the con- 
solidation 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 produc- 
tion and, consequently, of capital equipment. As industry became 
larger it resorted more and more to the corporate form of organiza- 
tion, facilitating the consolidation and combination of industrial enter- 
prises. 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 capitaUzation of $1,000 million; in 
the three years 1 898-1900 eleven great combinations were formed with 
a capitalization of $1,140 milHon; and the greatest combination of all, 
the United States Steel Corporation, appeared in 1901 with a capitali- 
zation of $1,400 million.^* The development of trustification and 

The Meaning of Prosperity 31 

monopoly was accompanied by the multiplication o£ stockholders, 
deprived of any direct economic functions, and by the resulting sepa- 
ration of ownership and management. Management became the func- 
tion of corporate employees. Control was usurped by financial capi- 
talists, 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 o£ all constructive industrial func- 
tions and prefers speculation to production. Monopoly, by extorting 
higher profits, increasing the disparity between production and con- 
sumption, 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 o£ 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. Indus- 
trialization 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 de- 
velopment provided markets for both capital goods and consump- 
tion goods, invigorated the long-time factors of economic expansion. 
These factors not only stimulated the upward movement of pros- 
perity 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 

32 The Decline of American Capitalism 

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 exhaus- 
tion 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 pros- 
perity.) 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 rela- 
tively hampered the growth of productive forces. Imperialism be- 
gan 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.^^ 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. Monop- 
olist 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 Hke 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." ^^ 

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." ^^ 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 

The Meaning of Prosperity 33 

1909 to 1914, accompanied by unusually large unemployment: a "de- 
pressed" 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 o£ capital, more defi- 
nitely imperialist. Backed by the diplomacy of the Taft Administra- 
tion, American imperialism issued its challenge to the European im- 
perialist 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 ^.6% in the five 
years igog—i^ compared with "j.^^/o in the jive years 1^02—06.^^ 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 post- 
war 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 capi- 
taHsm. . . . 

In spite of relative economic decline, the output of industry and the 
productivity of labor scored substantial gains in the years 1 899-1914, 
although they were much lower than in the preceding period. Manu- 
factures rose 65.6% and output per wage-worker 19.9%;^^ the in- 
creases 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.^° The rise was much greater in the prices of stocks of monop- 
olist combinations, because of monopoly prices. Recapitalized com- 

34 The Decline of American Capitalism 

binations, such as the United States Steel Corporation, squeezed the 
"water" out of their stock by reinvestment of part of their great earn- 
ings. While the real income of all wage-workers increased an average 
of only 04% yearly and that of workers in manufactures decreased 
o.i/o, the real income of stockholders increased 1.2%.^^ 

Thus prosperity, although limited by the elements of economic 
decline, was accompanied by increasingly higher production, produc- 
tivity, 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 1 898-1906 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.^^ Labor did not share in the gains of 
rising production and productivity. 

The working class received a decreasing share of the national in- 
come, 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% in 1900 to 37% in 1910.^^ 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.^* All classes shared in prosperity except the wage-workers (hired 
farm laborers, however, made some small gains in real earnings). 

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.^^ Another estimate, covering the years 1901-14, indicates 
an average yearly increase in consumption of only 0.6%.^^ Produc- 







OF L A&OR n 










36 The Decline of American Capitalism 

tion 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%^ Accumula- 
tion of capital increased more than production; and prosperity was 
based primarily on the production of capital goods and of consump- 
tion 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." ^« 

Another liberal economist, stressing the same facts, almost devel- 
oped 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." ^® 

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 i88o's had been urging the gov- 
ernment to smash or regulate corporate combinations: individualist 
middle class and agrarian radicals demanded collective state actjon 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 sys- 

The Meaning of Prosperity 37 

tern of industrial and financial centralization, of monopoly capital- 
ism;* 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 rela- 
tions of monopoly capitalism and its tendency to aggravate contra- 
dictions and produce economic decHne 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 decHne resulted 
in the need and demand for more regulation, more state capitalism. 
This newer regulation, unlike the old, openly accepts monopoly capi- 
talism; according to an outstanding spokesman of the National Recov- 
ery Act and its institutional proposals: 

"We are resolved to recognize openly that competition in most of 
its forms is wasteful and cosdy; 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 accumu- 
late to the people as a whole." ^° 

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, par- 
ticularly under conditions of economic decline, determine the repeti- 
tion 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 pre- 
vented another major depression and temporarily overcame the tend- 
ency 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.^^ Profits were extraordinarily high in 1916, 

♦ Roosevelt, in relation to the trusts, spoke big but carried a small stick; he prac- 
ticed 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 ruinl" See Owen Wister, 
Roosevelt, the Story of a Friendship (1930), p. 212. 

38 The Decline of American Capitalism 

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 ^^ 1916.^^ 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 gov- 
ernment 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 aug- 
mented or improved their productive equipment. Retail trade was 
prosperous. The accumulation of money capital, in the form of gov- 
ernment 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 o£ 
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 Amer- 
ican capitalism by forcing the maturity of three fundamental develop- 
ments: 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).* Real hourly earnings in 1915 increased 3% 
over 1 914 but were stationary in the following year and decreased 
(over 1915) 6% in 1917 and 4% in 1918.^^ 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.^* The 
considerable increase in production was absorbed by luxury consump- 
tion and war needs, by exports to the Allies (paid for by loans, the 
export of capital), and by capital goods. Labor was excluded. . . . 

* sharply rising prices and profits discouraged any substantial increase in produc- 
tivity, which in 191 9 was ony 2.6% higher than in 1914. Frederick C. Mills, Economic 
Tendencies in the United States (1932), p. 192. 

The Meaning of Prosperity 39 

One thing is clear: increasingly higher wages and mass consump- 
tion are not inseparable accompaniments of prosperity. Of the seven 
periods of prosperity in the years i860 to 191 8, 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 : 

1. Increasingly higher real wages, consumption (including labor 
consumption), production, productivity, and profits. 

2. Stationary or falling real wages, production, and consumption, 
but increasingly higher profits. 

3. Increasingly higher production, consumption, and profits, but 
stationary or falling real wages, labor consumption, and labor stand- 
ards of living. 

4. Increasingly higher production and profits, but stationary real 
wages and consumption, the increase in production being absorbed by 
capital goods, the export of goods or the export of capital, or a com- 
bination of all three. 

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. Con- 
sumption may increase among classes other than the workers. Goods 

40 The Decline of American Capitalism 

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 prevail- 
ing 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 pro- 
duction is temporarily unprofitable, profits are small, and their con- 
version into capital is restricted; the accumulation of capital lags, 
and therefore millions are thrown out of work and mass starvation 

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 stimu- 
lated 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 accumula- 
tion. Because of exhaustion of the long-time factors of expansion, 
prosperity must now be on a definitely lower basis, with lower prof- 
its, 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 exhaus- 
tion of the long-time factors of expansion, is inseparably interlocked 
with the decline of capitalism. 


The Decline of Capitalism: General Survey 

Jl HE decline of capitalism was evident in Europe even before the 
crisis and depression v^^hich set in after 1929. A general economic crisis 
prevailed and cyclical prosperity was on a lower level than pre-war, 
while capitalism was crushed in the Soviet Union. Bourgeois econo- 
mists, particularly in Germany, admitted and analyzed the elements 
of decline. In the United States, however, it was smugly assumed 
that economic decline was the lot of lesser breeds outside the law — 
the law of American prosperity everlasting. For hadn't American 
capitaUsm solved the problem of prosperity? There would not and 
could not be any more depressions and hard times: prosperity was 
eternal, world without end, and a new world around the corner. But 
when prosperity crashed in the United States, and crashed more 
severely than in Europe, where the already existing economic crisis 
was aggravated by the new cyclical breakdown, the sentiment was 
general that "capitalism is on trial." Some prophesied the crack o' 
doom, others argued that capitalism might survive if it "reformed" 
itself. In Europe it looked like the end; American prosperity had 
seemed as firm as the Rock of Gibraltar, and now it was overwhelmed 
by the seas of depression.* A German bourgeois economist thus voiced 
the feeling of despair : 

"Is the capitalist system really any longer justified if, in the richest 
country in the world, it is incapable of shaping an order which shall 
guarantee to a comparatively sparse population, admittedly indus- 
trious and capable, a subsistence consonant with the human needs 
developed by modern technique, without millions being from time to 
time reduced to beggary and dependence on soup kitchens and casual 

* American prosperity became a political issue in Europe. "Look," said the capitalists 
and their apologists (including leaders of the British Labor Party), "look at American 
prosperity: universal, increasing, everlasting! It shows what can be done by organized, 
enlightened capitalism. American prosperity realizes the spirit and promise of capitalism; 
the European economic crisis is the result of non-capitalist factors, an aftermath of 
war. Why go communist? Why npt go American.?" This song is no longer sung. But 
some of the apologists (including leaders of the British Labor Party) later sang the 
NRA song! Hope springs eternal in the breasts of reformers. 


42 The Decline of American Capitalism 

wards? . . . The crisis of economic policy may easily become a crisis 
of the economic system." ^ 

Underlying much of the American comment on the depression was 
the feeling that new and imponderable forces are at work involving 
a crisis, an economic decline, or at least its possibility. Some of the 
despair disappeared with the coming of manipulated and speculative 
revival. But the NRA was itself an expression and recognition of the 
crisis. And the feeling of despair reappeared after the breakdown of 
the revival. For the decline of American (and world) capitalism condi- 
tions recovery, limits its scope and dominates the future. Capitalist 
decline does not result in complete collapse, in an inability to function 
or to restore a measure of prosperity. The cyclical movement con- 
tinues, but on a lower level, within the restricting circle of economic 
decline. This means a "depressed" prosperity, with increasing inse- 
curity, unemployment, and instability; while economic, class, and 
international contradictions and antagonisms become sharper and more 
threatening. There may be spurts of unusual prosperity, but these 
will merely intensify the decline. 

The decline of capitalism is the outcome neither of the depression 
nor of the World War. It was the fact of decline which gave the war 
its specific historical character — decline producing war and war react- 
ing upon decline. The decline of capitalism is the outcome of general 
capitalist development and of the movement of social change. In long- 
time perspective, the decline of capitalism is determined by its having 
outgrown the historical necessity of its being. In the words of Prof. 
F. L. Schuman: "Western civilization is already old. It may already 
have run its course and be headed toward a long twilight of decline. 
In any case its problems are immediate, pressing, and threatening."^ 
This is a conclusion in terms of the future, not of a past compact of 
the wish-fulfillments of the agrarian-Junker reactionary, Oswald 
Spengler, whose lamentations, nevertheless, express the decline of 
capitalist culture. Minor social changes produce a situation where a 
major social change becomes necessary — the revolutionary substitution 
of the old order by the new. In short-time perspective, the decline of 
capitalism is determined by the high development of the productive 
forces and the relative exhaustion of the long-time factors of expan- 
sion. This imposes fetters upon the further development of industry, 
leads to a slackening rate of growth and eventually an absolute fall 
in production, and results in economic decline and social decay. 

Capitalism appeared in history as a revolutionary force, waging war 
upon the economic, political, and cultural relations of feudalism. 

The Decline of Capitalism: General Survey 43 

Profits are the heart of capitalism, markets its circulating system; capi- 
talist enterprise consequently required the transformation of produc- 
tion for use into production for profit and increasingly larger markets. 
Capitalist production also needed a free labor market of propertiless 
workers distinguished from serfs and slaves by their "freedom" to 
work for wages anywhere, which was accomplished by expropriating 
peasants from the soil and artisans from their means of labor. These 
changes upset the old productive relations and their class, political, 
and cultural expression. Feudalism was based upon a static agriculture 
under the domination of the nobility; the growth of a dynamic capital- 
ist industry undermined both agriculture and the nobiUty. Feudal 
"collectivism" imposed restrictions upon capitalist enterprise; the ideo- 
logical and spiritual sanctions of feudalism had to be broken, which 
meant a struggle against the old culture and religion. This movement 
was bound up with the necessity for freedom of enterprise and com- 
petition, of laissez-faire, individualism, and democracy: the revolu- 
tionary representatives of the bourgeoisie, transcending immediate 
needs, invoked an ideal of individualism and democracy which is now 
completely repudiated by imperialism and fascism. The commercial 
revolution, with its new attitudes and its need for more goods and 
more efficient production, stimulated experimental science and its 
technological application. Out of foreign trade, colonial conquest, and 
settlements overseas arose the world market, creating increasingly 
larger markets and profits. Bourgeois development was being ham- 
pered by the political power of the feudal nobiUty; the upper bour- 
geoisie faltered and compromised, but action was forced by the pres- 
sure of the lower bourgeoisie and the downtrodden peasants and 
urban workers: the nobility's political power was broken by means 
of violent revolution involving dictatorship and confiscation of feudal 
property. The social-economic changes were completed by the tech- 
nical-economic changes of the industrial revolution. This revolu- 
tion, alongside the brutal exploitation of men, women, and children in 
the new factory system, stripped production of its technical fetters 
(although capitalism imposed new fetters). Capitalism remade the 
world economically, politically, and culturally. 

Once in power capitalism abandoned its revolutionary ideals: they 
now threatened its own vested class interests. These ideals had always 
had a limited practical application; thus laissez-faire was never wholly 
accepted by the bourgeoisie (except in England, when it was the 
workshop of the world) and capitalism resorted to protectionism, 
monopoly, and state aid. The bourgeoisie did not make a clean sweep 

44 The Decline of American Capitalism 

of feudalism. The older relations lingered on in agriculture, while the 
nobility, frequently enriched by the industrial utilization of minerals 
in their estates, and exploiting the parvenu spirit and political inepti- 
tude of the bourgeoisie, clung to a considerable measure of power. 
Democracy was limited to bourgeois democracy. While developing 
as a condition favoring the social relations of capitalist production, 
democracy had also been an ideal and practice remaking the world; 
it was now limited, an ideology insuring capitalist domination, with 
labor forced to fight for democratic rights. Capitalism developed un- 
evenly; it produced recurrent economic crises and wars, limited expan- 
sion of the home market in favor of the larger profits of overseas 
markets, including colonial exploitation, and repressed or ruined agri- 
culture. (New expropriations, direct or indirect, of peasants from the 
soil supplied the human raw material of industrialism. Large numbers 
of expropriated peasants were forced by uneven and restricted indus- 
trialization to migrate to the new world, particularly the United States : 
thus American capitalism also played its role in the expropriation of the 
peasantry — in Europe.) The class which had flamed forth in revolution 
used its heritage in a fashion indicative of coming decline. 

But these are the contradictory and antagonistic conditions of capi- 
talist development. There was economic expansion in spite of recur- 
rent crises and limitation of the home market, as well as an increasing 
technological application of science in spite of an inability to utilize 
fully the conquests of science and technology. Production increased 
enormously, the productivity of labor multiplied. Industry organized 
itself in large-scale enterprises, mobilizing large amounts of capital 
and labor^ developing an inner corporate planning which contrasted 
sharply with the outer social anarchy of production. Capitalist indus- 
trialism spread (unevenly, piratically) over the whole world, extend- 
ing the world market and changing national and class relations. The 
prospects of capitalist expansion and supremacy seemed unlimited, 
eternal, and this dream underlay the smugly unreal assumptions of 
bourgeois economic theory and the "hopeful" proposals of liberal and 
socialist reformism. 

The nature of capitalist production, however, makes its develop- 
ment a perpetual struggle between the forces of expansion and decline, 
because of three fundamental factors: 

I. Capitalist production depends upon profit, upon the accumula- 
tion of capital and increasing opportunities for its profitable invest- 
ment. But accumulation tends to outstrip itself and limit the means 

The Decline of Capitalism: General Survey 45 

of profitably investing capital, which results in a periodical overproduc- 
tion of capital goods. 

2. The realization of profit depends upon increasingly larger mar- 
kets to absorb the rising output of consumption goods, a necessary 
condition for an increasing absorption of capital goods. But capital- 
ism tends to develop the forces of production beyond the forces of 
consumption; it cannot systematically and planfuUy balance produc- 
tion and consumption, which results in a periodical overproduction of 
consumption goods. 

Thus the accumulation of capital and the resulting prosperity them- 
selves become fetters on the further movement of expansion, 
accumulation, and prosperity. This is the fundamental cause of cyclical 
breakdowns. In these breakdowns there is an element of decUne; 
they indicate the incapacity of capitalism to develop all the forces of 
industry, they express a definite, if temporary, exhaustion of economic 
progress, and they tend to become constantly more destructive in their 
upsets of prosperity. But the real element of decline appears in the 
third factor: 

3. Capitalist production tends to exhaust the long-time factors of 
expansion and to limit, at first relatively, then absolutely, the pos- 
sibilities of economic advance. Capitalist production must yield profits 
and these profits must be converted into capital by means of an in- 
creasing output and absorption of capital goods. This is the accumula- 
tion of capital. In its early stages, capitalist production seizes upon the 
most highly developed handicrafts, already producing for compara- 
tively large markets, and destroys them by mechanizing their pro- 
ductive activities. The result is an increasing output and absorption 
of capital goods. Gradually all the older crafts are mechanized, which 
again means an increasing output and absorption of capital goods. 
Then the development of wholly new industries, the industrialization 
of new regions, and the mechanization of agriculture (although incom- 
pletely) create new and greater demands for capital goods. The work- 
ing of these long-time factors of expansion results in an enlargement 
of the scale of production and in an increasing accumulation of cap- 
ital. But as expansion is restricted or becomes exhausted, limits are 
imposed upon the possibilities of making profits and converting them 
into capital by means of an increasing output and absorption of capital 
goods. The resulting tendency toward economic decline is identified 
with monopoly and imperialism. 

Capitalist monopoly arises out of the concentration of industry, 
which is accompanied by the massing of capital in large enterprises, 

46 The Decline of American Capitalism 

overdevelopment of productive capacity, limitation of the possibility 
of any considerable new^ expansion, and the intensification of com- 
petition. Profits are threatened. Monopoly answers the threat with 
control of markets, higher prices, limitation of output, and relative 
or absolute restriction o£ progress in technological efficiency. This 
is an element of decline, as it emphasizes the incapacity to develop 
fully all the forces of production and consumption. Another element 
of decline is monopoly's introduction of factors of rigidity (control of 
markets and prices, limitation of competition, resistance to liquida- 
tion in depression) into the structure of capitalism, whose basic re- 
quirement is the flexibility involved in the free play of economic forces. 

Monopoly is identified with another aspect of capitalist decline: 
the export of capital and imperialism, the struggle to control foreign 
markets capable of absorbing surplus goods and surplus capital. This 
surplus of capitalist industry becomes constantly greater and more 
menacing as the inner long-time factors of expansion approach exhaus- 
tion. It becomes necessary to "industrialize" economically backward 
regions to absorb capital and goods (particularly the former) which 
are unabsorbable in the home market. Thus capitalism comes increas- 
ingly to depend upon exploitation of outer, the international, long- 
time factors of expansion. Where the older industrial nations of Europe 
once sought foreign outlets mainly for goods, the basis of the older 
colonialism, they began after the 1870's to seek outlets mainly for 
capital, the basis of imperialism. An increasing amount of capital and 
capital goods, produced by the older nations, was absorbed by mining, 
communications, public works, plantations, and factories in colonial 
and other economically backward regions. These regions, as a result 
of industrialization, also increased their imports of consumption goods. 
But while the export of capital and imperialism in their early stages 
stimulated home industry, by offsetting exhaustion of the inner fac- 
tors of expansion, the final result, particularly when the export of 
capital became primarily an export of interest "earned" on previously 
exported capital, was to slow down the rate of inner economic growth. 
Imperialism, moreover, tends quickly to exhaust the international 
long-time factors of expansion, and strengthens the tendency of capi- 
talism to decline. 

Capitalist decline appeared in Europe in the years 1900-14. One 
of the factors in the decline was the advance of industrialism in coun- 
tries which formerly met with imports their needs for manufactured 
goods and capital. The situation was aggravated by the intensification 
of competition in the world's markets. While economically backward 

The Decline of Capitalism: General Survey 47 

countries increased their demands for goods and capital, there were 
now many more industrial countries and a larger mass of surplus cap- 
ital and goods to supply the needs. This restricted the production of 
profits and their conversion into capital, and capitalist decline became 
more definite and threatening. 

The economic upswing after the i86o's materially improved the 
conditions of the workers (the basis of reformism in the trade union 
and socialist movements). Now the improvements virtually ceased, 
real wages were almost stationary, and permanent unemployment in- 
creased, a surplus population for which capitalist industry could not 
provide work. 

As the output of surplus goods and capital mounted and markets 
became relatively still more limited, the struggle of imperialist nations 
for control of the world's markets led inexorably to the catastrophe 
of the World War. The war clearly revealed the decline, decay, and 
reaction of imperialist capitalism. One hundred years earlier, the 
Napoleonic wars had an objectively progressive character, an expres- 
sion of the lusty youth of capitalism, breaking down surviving feudal 
barriers and preparing an economic upswing. The World War ex- 
pressed the decadent old age of capitalism. Never did a war have more 
progressive pretensions and a more reactionary character. As a result 
of the struggle for imperialist power, the war weakened all the Euro- 
pean nations and intensified the decline of capitalism: its legacy was 
the post-war chronic economic crisis. The war's progressive preten- 
sions ("End war!" — "Make the world safe for democracy!") were 
mocked by the general reaction it unloosed — including fascism, the 
most violent expression of the decline of capitalism, to whose support 
it mobilizes all the most sinister and reactionary elements. 

But economic and social decHne is a dialectical process. The forces 
of a new economic, class, and social synthesis appear alongside the 
forces of decline and begin a struggle for mastery. In the midst of 
feudal decline the new capitalist order shaped itself and began its 
struggle for power. At the basis of the decline of capitalism are the 
contradictions and antagonisms arising out of the new social relations 
of production, which clash with the old relations of private property 
and individual appropriation. These social relations of production, 
expressed in large-scale corporate industry and its accompaniments, 
produce monopoly capitalism and imperialism, but they are also an 
objective socialization of industry which is the basis for socialism and 
the coming to power of the working class. The World War led to 
the conquest of power by the working class in Russia, to revolutionary 

48 The Decline of American Capitalism 

struggles in Europe and among colonial peoples — an indication of 
capitalist decline emphasized and aggravated, particularly during the 
most disastrous of depressions, by the building of socialism in the 
Soviet Union. And to combat decline and revolution, the capitalist 
class resorts to fascism, the complete repudiation of all the ideals for 
which capitalism fought during its revolutionary youth. . . . 

In its origins, growth, and decline, American capitalism has always 
been bound up with the capitalism of Europe. They have been dif- 
ferent, yet the same; the peculiarities of American capitalism have 
merely (but this is important!) affected the scope and tempo of its 
growth and decline. 

American civilization arose out of the revolutionary youth of capi- 
talism. The colonial settlers were thrust forth by the mass migrations 
set in motion by the transformation of feudalism; they were overseas 
builders of the new order being created in Europe. (The early Puri- 
tans were not the sanctimonious weaklings pictured by the wishy-washy 
esthetes of to-day, but bourgeois rebels in whose blood was the iron 
of Cromwell's revolutionary vigor.) Not only were the colonies a 
product of revolution, they secured their independence through revo- 
lution, and the capitaHsm of the new nation consolidated its power 
in the essentially revolutionary struggle of the Civil War and 

American capitalism, unlike the European, was not fettered by 
feudal hangovers or compromise with the nobility. The great colonial 
landed estates, which attempted to introduce feudal relations, were 
undermined by, because dependent upon, the commercial revolution; 
they could not survive in the new world of unrestricted freedom of 
enterprise (except in the South, where Negro slavery altered the situa- 
tion and where pre-capitalist conditions were allowed to linger after 
northern industrial capitalism consolidated its political power in the 
Civil War and Reconstruction). Bourgeois individualism and democ- 
racy developed more freely and fully than in Europe. An almost "pure" 
capitalist ideology' arose, which permitted and justified unrestricted 
exploitation and accumulation. Feudal hangovers, class and ideolog- 
ical, measurably restricted capitalist development in Europe; even in 
England, where the aristocracy, more than elsewhere, merged into 
the new ruling class. Feudal elements favored "reforms" in order to 
strike at their capitalist rivals; certain aspects of industrialism were 
condemned and regulated, and ideas of the absolutist state interfered 
with freedom of enterprise. (The earlier absolutist state, however, had 
aided the development of capitalism, and it later did so again in Ger- 

The Decline of Capitalism: General Survey 49 

many and Japan.) American capitalism suffered from no such restric- 
tions. The government let enterprise alone, except where it helped — 
with tariffs and with grants of money and public lands to railroads, 
turning over the nation's vast natural resources to private enterprise. 

The American economy and the American dream were greatly in- 
vigorated by the renewed expansion of the frontier. But there have 
been other frontiers in history, yielding other results. The frontier 
was one of the factors shaping the sectional forms assumed by some 
of the underlying economic and class interests and class struggles; 
this was important, but only in the peculiar forms it gave to the com- 
plex of interests and struggles in a capitalist economy. It is doubtful 
if pioneer life, except in the sense of personal enterprise and change, 
was marked by any great individualism; but the frontier strengthened 
the individualism of American life by its multiplication of economic 
opportunities — free land, the rise of petty industrial enterprise after 
it began to lag in the older regions, the impulse given to rising. While 
the frontier had some direct influence in shaping classes and ideology, 
its major significance lay in its influence on the growth of capitalism, 
in its contribution to the long-time factors of economic expansion. 
Exploitation of the inner continental areas and resources quickened 
the tempo and enlarged the economic basis of American capitalist 
development. Without this, however, the frontier would have been a 
totally different thing, restricted in scope and results. For capitalist 
development provided the markets for the agricultural (and mining) 
products of the frontier; and, incidentally, opportunities for farmers* 
sons to rise in the swiftly growing urban centers. 

In one of its most important aspects the frontier meant the expan- 
sion of agriculture. The exploitation of agriculture is inseparably 
associated with capitalist growth: it provided a labor supply, cheap 
food and raw materials, and markets, and it bore the brunt of the 
costs of industrialization and accumulation in their earlier stages. In 
the industrial nations of Europe (particularly England), the pos- 
sibilities of expansion in agriculture were quickly exhausted, making 
necessary an increasing export of manufactured goods and import 
of agricultural products. In the United States, agriculture was continu- 
ously expanding, aided by the inflow of European labor. The number 
of American farms rose from 1,449,000 in 1850 to 5,737,000 in 1900, 
their acreage from 293 milHon to 838 million, and their value from 
$3,967 million to $20,439 million; the value in 1900 included $4,306 
million of buildings and equipment.^ This great agrarian develop- 
ment was a tremendous factor in the upswing of American industry 

50 The Decline of American Capitalism 

and prosperity. In 1879 the large exports of wheat, the result of a 
serious grain shortage in Europe which created an increased demand 
and higher prices for American wheat, played an important part in 
the revival and upward movement of prosperity.* The farmers bought 
large amounts of capital goods in the form of agricultural equipment. 
They created new markets for manufactured consumption goods. 
And they provided the bulk of the exports to pay for the imports of 
capital and goods which stimulated the rapid expansion of American 
industrialism. The fact that capitalist industry gained more from the 
expansion of agriculture than did the farmers was the cause of the 
agrarian revolts in the 1870's— 90's. 

Another aspect of the renewal of the frontier and the resulting ex- 
pansion of agriculture was the construction of railroads on a large 
scale. This was a most important factor in the movement of produc- 
tion, accumulation, and prosperity. Railroad mileage rose from 35,085 
in 1865 to 177,746 in 1895; capitalization rose to $10,347 million.^ 
Most of the increase was due to construction of the transcontinental 
railroads, which depended mainly upon the transportation of agricul- 
tural (and mining) products. Railroads absorb large amounts of 
capital goods. The construction of railroads in economically unde- 
veloped countries is one of the main objectives of the export of 
capital and imperialism; it aroused the most bitter pre-war imperialist 
antagonisms (China, the Bagdad Railway, etc.). 

Expansion of agriculture and construction of the transcontinental 
railroads were bound up with the growth of population and of cities, 
which proceeded on a much greater scale than in Europe. Population 
rose from 31,502,000 in i860 to 92,267,000 in 1910 (including 23,000,000 
immigrants). Cities rose from 141 to 788 and their population from 
5,000,000 to 35,000,000, or from 16% to 38% of the total population.^ 
This growth, which required construction materials, traction equip- 
ment, and other capital goods, and provided new markets, enor- 
mously stimulated the development of capitalism. 

Thus the frontier, and its continental areas and resources, was 
directly connected with the long-time factors of economic expansion. 
It permitted an increasing output and absorption of capital goods 
because of the industrialization of new regions. The expansion of the 
frontier depended upon the development of agriculture (and mining), 
which in turn depended upon the markets of the industrial East- 
ern states and of Europe. And the frontier came to an end when in- 
dustrialization was measurably complete. 

But while it existed, the frontier was one of the major peculiarities 

The Decline of Capitalism: General Survey 51 

of American capitalism. Its conditions of life renewed economic op- 
portunity and progress. It provided almost unlimited possibilities for 
industrialization and the accumulation of capital and created con- 
stantly larger mass markets. The industrial Eastern states exported 
manufactures to the newly settled regions and imported raw materials 
and foodstuffs. This permitted an enlargement of the scale of produc- 
tion and an increasing realization of profit and accumulation of cap- 
ital. Industries sprang up in the new regions, both local enterprises 
and branch plants of Eastern enterprises, which meant more absorp- 
tion of capital goods, more realization of profit and accumulation 
of capital. The expansion of the frontier was a perpetual re-birth of 
capitalism, energizing its upward movement, strengthening capitalism 
economically and ideologically; and its continental areas and resources 
performed, up to the World War, the same economic function that 
colonialism and imperialism did for the industrial nations of Europe. 
The upswing of capitalism invigorated the ideal and the reality of 
the "American dream." Elements of this dream, animating most of the 
early colonists, who were rebels against the feudal order, acquired 
new forms and vigor in the new world. They were consolidated by the 
American Revolution, vitalized by social-economic development on 
an almost wholly capitalist basis and by the "opportunity" and "self 
help" of the frontier and its influence in accelerating economic de- 
velopment. The American dream was an ideology compact of ten 
major elements: 

1. Liberty: The right of the individual to live his own life in his 
own way (of which the original expression was freedom of con- 
science) ; tolerance as a way of life. 

2. Democracy: The right of the people to decide their own destiny 
in their own interests and in their own way; faith in the creative 
initiative and action of free men and women. 

3. Equality: The right of all to an equal share in the fruits of 
progress regardless of origins; differences of racial or biological inheri- 
tance do not justify social inequality and class oppression or exclude 
any people from the highest forms of civilization. 

4. Mass well-being: The right of all to the good things of life, 
particularly the right of the mass of the people to share, and share 
increasingly, in the conquests of industry and civilization : the aboHtion 
of poverty. 

5. Opportunity: The right to an equal share in economic and politi- 
cal opportunity, whose perpetual rebirth was assumed, unrestricted by 
origins; in its more subtle forms, an aspiration after higher things. 

52 The Decline of American Capitalism 

6. Education: The right to an education and faith in education as 
a means for personal improvement and progressive solution of social 
problems; the creator o£ new and finer ways of life. 

7. No class stratification: The right to move freely from one class to 
another, including a disregard of class distinctions which colored 
American life and made it impatient of traditional restraint. 

8. Limited government: The right to minimum interference by 
the state and faith in the creative action of the people; opposition 
to bureaucracy as a heritage of monarchy. 

9. Peace: The right to peace and the peaceful settlement of disputes; 
monarchical tyranny means war, while democracy moves toward uni- 
versal peace. 

10. Progress: The right and possibility of unlimited progress, the 
synthesis of all the preceding ideals; a steady, inevitable upward move- 
ment to new and finer fulfillments. 

Now these elements of the ideology of the American dream were not 
peculiarly American. They are easily recognizable as ideals of the 
bourgeois revolutions and of most of the liberal and socialist reform- 
ism in pre-war Europe. But there was one peculiarity of major 
importance: nowhere were the ideals more largely realized than in 
the United States, because of the relative freedom and mobility created 
by the rapid expansion of industry and the frontier. True, the realiza- 
tion was woefully limited, the ideals exploited by the ruling class in its 
own interests and degraded by the buccaneers of industry, finance, 
and politics. Yet the ideology was not mere make-believe, not wholly 
tawdry. It could not have arisen in a slave or feudal society. It ex- 
pressed many real achievements and, still more, the possibilities of 
social progress. The ideology was real enough to dominate the labor 
and agrarian revolts of the i87o's-9o's. But it must be remembered that, 
in one decisive aspect, the development of capitalism is a perpetual 
struggle against its early revolutionary ideals, as they are a tempo- 
rary and not always an inseparable accompaniment of capitalism. 
Thus the development of American capitalism was a perpetual strug- 
gle against and increasing limitation and degradation of the ideals of 
the American dream. This appeared clearly after the Civil War and 
still more clearly in 1900-1914. For in spite of its great expansion and 
its peculiarities, which invigorated the American dream, American 
capitalism was not immune to the general laws of capitalist growth 
and decline. Around 1900, capitalist monopoly became ascendant, the 
frontier met its geographical and economic limits and was no more, 

The Decline of Capitalism: General Survey 53 

and the export of capital and imperialism began to develop. There was 
a slackening and decline in the rate of economic growth and a cor- 
responding restriction of opportunity, creating a minor crisis of the 
American dream, in which opportunity had been the unifying element. 
The crisis was not acute because of comparative agrarian prosperity, 
the growth of the new middle class, and the gains made by the privi- 
leged minority of skilled workers. It was acute enough, however, to 
produce a marked drift toward socialism. The crisis was overcome 
or evaded by the World War and the prosperity of 1923-29, But this 
prosperity not only produced the usual cyclical depression, it simul- 
taneously intensified, while temporarily overcoming, the elements of 
the decline of capitalism. But the decline now creates a major crisis 
of the American dream. At the moment when the high development of 
the productive forces makes possible a fuller realization of the tra- 
ditional ideals of the American dream, a condition arises which means 
a complete reaction against even the partial realization of those ideals, 
an increasing limitation of opportunity and progress.* 

The crisis of the American dream is an expression of the crisis of 
the economic order, of the decline of capitalism. In one of its imme- 
diate aspects, the decline appears clearly in the program of the gov- 
ernment to spend over $10,000 million to overcome the crisis and revive 
prosperity! The Hoover Administration added $4,000 million to the 
national debt, the Roosevelt Administration over f6,ooo million in one 
year. By the end of the fiscal year 1934 the national debt had risen to the 
war-time peak of $26,500 million. Another $7,000 million will be 
spent in 1934-35, an estimate based on optimistic hopes of recovery. 
Public works will absorb $3,300 million, farm relief $2,000 million 
(including over $750 million to pay for acreage and crop reductions). 
On January 31, 1934 the Reconstruction Finance Corporation had 
outstanding $3,428 million, mainly in loans to corporations, includ- 
ing $1,000 milhon for the payment of bank stocks bought by the 
government.^ Only a part of the money is spent on relief or "made 
work" projects. Most of it directly, and all of it indirectly, is spent to 
prop up the sagging foundations of the capitalist economy: to restrict 
agricultural production, to sustain tottering banks, to permit railroads 
to buy equipment, to aid industrial and utility corporations, to protect 
capital investment and profits, to allow payment of interest and other 

* This subject is discussed more fully in Chapter XXV, "The Crisis of the American 

54 The Decline of American Capitalism 

fixed charges.* Is there an American crisis! The expenditures of pub- 
lic money, involving a tremendous increase in the burden of taxation, 
debts, and interest, is part of a program based on the conviction that 
industry cannot revive and prosper without the artificial stimulant of 
state financial aid. Even if prosperity returns on any considerable 
scale, ^d corporations repay the loans, the burden on profits will be 
great, and still greater on the people at large in higher taxation (for 
most of the money is spent outright). If, as is most likely, prosperity 
does not return on any considerable scale, and there is a lower level 
of economic activity and income, the burden of taxation will be heart- 
breaking, for corporations will repay little if any of the public money 
they now receive. It will be worse if inflation is resorted to. And most 
of the burden will be thrust upon the workers (including farmers and 
professionals) : already there are sales taxes and lower real wages, and 
eventually there may be direct taxes on wages, as in some European 

State financial aid to sustain tottering private industry is the major 
aspect of the state capitalism represented by the creations of Niraism, 
but which may assume other institutional forms. This is definite 
evidence of the decline of American capitalism. It is exactly what 
governments have been doing in France and England, on a larger 
scale in Italy and Germany. In spite of differences in political forms, 
the same state-economic measures are adopted under the pressure of 
capitalist decline. Pre-fascist German governments poured public 
money into industry; the Nazis do the same. Fascist Italy issues state 
loans "for relief of private companies which find themselves in diffi- 
culties because of the depression." The American Reconstruction 
Finance Corporation serves as an organizational model for the Italian 
Industrial Institute, but its policy was already being pursued by the 
fascist government.^ A public-works program is the backbone of 
"recovery" efforts in Italy and Germany; to a lesser extent in France 
and England, where, however, it is increasingly urged. Highway- 
building is stressed, although new roads are largely unnecessary and 
include construction of "luxury" automobile super-highways. "In Ger- 
many the present roads might be able to carry ten times the present 
traffic. Only when viewed most optimistically does it seem possible 

* In 1933 the von Papen government in Germany, in an attempt to stimulate revival, 
gave private industry what amounted to a subsidy of 750 million marks to be spent on 
capital goods. But most of the money was used by the recipients to pay debts. Gerhard 
Colm, "Why the 'Papen Plan' for Economic Recovery Failed," Social Research, February, 
1934. P- 93- 

The Decline of Capitalism: General Survey 55 

that sufficient traffic will develop to liquidate the present cost of the 
scheme." ^ And the "recovery" program of Niraism depends in large 
measure upon public works. Thus the American government resorts 
to the state-economic measures characteristic of the decline of cap- 
italism in Europe. And this decline only a few years ago was con- 
sidered the lot of lesser breeds outside the law — the law of American 
prosperity everlasting! 


JLn its immediate aspects the American crisis is an outcome of the 
depression and of the inability to restore prosperity on any consider- 
able scale. It mocks the pre-depression claims of prosperity everlasting. 
In its larger aspects the crisis is an outcome of the decline of capitalism. 

Prosperity under capitalism depends upon the making of profits 
and their conversion into capital. The higher the profits and the 
lower the wages, the greater is the accumulation of capital. This lag 
of wages behind profits, and the resulting lag of mass consumption 
behind production, is a condition of accumulation. But it eventually 
upsets the balance between production and consumption, and creates 
recurrent crises and depressions. This has always been so and must 
always be so under the social relations of capitalist production. 

While prosperity always broke down, every depression was succeeded 
by a new upsurge of prosperity because of the long-time factors of 
economic expansion. These factors — mechanization of old industries, 
development of new industries, industrialization of new regions — 
permitted an increasing production and absorption of capital goods, 
the basis of capitalist prosperity and accumulation. As, however, all 
the long-time factors of expansion approach exhaustion, capitalism 
begins to decline because it is no longer able to produce and absorb 
an increasing output of capital goods. The decline of capitalism is 
an expression of old age, of a crisis in its historical development: 
one social system grows into another. A new social order is in the 
making. But Niraism, and the state capitalism of which it is a form, 
does not represent the new order; its objective is to save the tottering 
old order of capitalist exploitation. 

As prosperity depends upon the making of profits and their conver- 
sion into capital, labor may or may not share in its gains. When labor 
did share, it was meagerly; and there were whole periods in which 
prosperity was accompanied by stationary or falling real wages and 
mass consumption. But the tendency, at least, was upward. Now, 
in the epoch of the decline of capitalism, wages and mass consumption 
must tend downward; in other words, they experience an absolute 


Summary 57 

fall, where in the past the fall was only relative to the rise in pro- 
duction and profits. 

The decline of American capitalism is conditioned by the exhaus- 
tion of the inner long-time factors of expansion. This exhaustion, 
which is relative and wholly capitalist, was brought to a head by 
the prosperity of the "Golden Age" of American capitalism. It as- 
sumed the form of overdevelopment of productive forces, saturation 
of capital plant, monopoly, the export of capital, and imperialism. 
The legacy was a restriction of the opportunities for an increasing 
output and absorption of capital goods, for the accumulation of capital. 
Thus, to understand the decHne of capitaUsm, an analysis is necessary 
of the prosperity of 1923-29, which involves an analysis of the funda- 
mentals of capitalist production. And the starting point of the analysis 
is the movement of profits and wages, which conditions both the 
upswing and the decline of capitalism. 


Prosperity, Profits, and Wages 


JIn the claims o£ Niraism, of state capitalism, reappear, in slightly dif- 
ferent form, the basic claims of the pre-1929 mythology of prosperity. 
The older prophets insisted that under the "new capitalism" wages 
necessarily secured large gains from increasing production and pro- 
ductivity; the antagonism between wages and profits had been ended, 
the capitalists "recognizing" that high wages and high profits are 
inseparable. The prophets of Niraism also insist that high wages 
are profitable to the capitalists: they want to "raise" wages and 
"control" profits in the interest of prosperity and of assured and higher 
profits. Thus President Roosevelt claims that "fair wages and fair 
profits" is the aim of Niraism.^ The identity between the old and the 
new has been thus stated by a liberal critic: 

"Both the plan for industrial codes and the Blue Eagle scheme 
were predicated on the assumption that capital would make volun- 
tary sacrifices for the benefit of labor, in a spirit of patriotic endeavor, 
and also because the capitalist, if the scheme worked, would profit 
enormously from the increase in business which would then ensue. 
It should be noted that this plan contemplated no fundamental reor- 
ganization of our moribund economic system. Its central feature was 
an application of the old Hoover-Ford doctrine of high wages, exer- 
cised in a time of desperate economic distress and not, as it was 
originally conceived, when ample profits were being produced."^ 

There is this difference: The pre-1929 apologists of prosperity in- 
sisted on the "unfettered" economic action of capitalism; the apolo- 
gists of Niraism claim that the government will "control" industry 
to compel the capitalists, in their own interest, to "raise" wages and 
"limit" profits, and thus assure ultimately higher profits. But in prac- 
tice both assumptions mean the same thing: It is possible to reconcile 
the antagonism between wages and profits if only the capitalists are 
convinced that higher wages mean higher profits and continuing 

The demand for government "control," which distinguishes the 
prophets of Niraism from their predecessors, is very significant. One 
result of the decline of capitalism is the necessity of increasing state 


62 The Decline of American Capitalism 

intervention to prop up the sagging economic order. This is the real 
purpose of Niraism and state capitalism: all else is mere ballyhoo. 
For intervention and "control" are by the capitalist state; they pro- 
ceed, in spite of minor institutional changes, on the basis of the 
fundamental relations of capitalist production, in which profits and 
the accumulation of capital are the decisive factors. Profits control 
capitalist industry and must control intervention by the capitalist 
state. The state capitalism of the imperialist nations of Europe has 
not limited profits in general or raised wages. To understand why, 
and why there must be a similar American experience, it is neces- 
sary to analyse the relation of profits and wages to one another 
and to capitalist production, prosperity, and accumulation. The relation 
is clearly revealed in the economic movement and changes of 1920-29. 


Profits and Prosperity 

Jl HE ending of the World War in 191 8 produced an economic reces- 
sion, followed by an upward movement. A heavy export of capital 
and goods was the decisive factor in post-war prosperity. Stricken by 
war's destruction, intervening in Soviet Russia, and threatened by 
the revolutionary action of its own workers, capitalist Europe mort- 
gaged itself, kept on borrowing in the United States and imported 
large amounts of goods. American exports in 1919—20 were the 
largest in history: $16,148 million, with an excess of exports over 
imports of $6,965 million.^ (This economic intervention in Europe 
was "our" major contribution to the struggle against revolution.) 
But production in 1919—20 was lower than in 1918;* prosperity was 
essentially speculative, based upon rising prices and foreign demand. 
Profits rose while real wages were almost stationary. Although pro- 
duction fell, an overproduction of goods developed in particular lines 
because of excessive output resulting from competition and in all 
lines because sharply rising prices redistributed income and reduced 
mass purchasing power. The equiUbrium between production and 
consumption was upset. Prosperity crashed. 

Prosperity revived in 1922, as in all previous depressions, by the 
action of economic forces independent of the planful intervention of 
the masters of industry and finance. This action assumes the form 
of liquidation of prices, wages, accumulated consumption goods and, 
primarily, of capital and capital claims (precisely as in 1929-34) : it 
resembles the blood-letting of medieval medicine. The most important 
aspect of liquidation is the wiping out of capital and capital claims, 
modifying the disproportionate accumulation of capital which set in 
motion the forces of depression. Liquidation reaches a point where 
the economic equilibrium is restored, on a lower level, and produc- 
tion, consumption, and capital accumulation begin to revive. An in- 
crease in the production of consumption goods, because of depletion 
of accumulated stocks, may be a minor cause of revival. The major 

* The index of physical volume of production in manufactures was 104 in 191 8, 
98 in 1919 and loi in 1920. A. M. Mathews, "The Physical Volume of Production in 
the United States," Review of Economic Statistics, July, 1925, p. 208. 


64 The Decline of American Capitalism 

cause of revival is a renewed demand for capital equipment, either 

for replacements or new industries or both. New consumer purchasing 

power is created. Industry begins to move upward, slowly and plan- 


The speed of revival and the scope of recovery and prosperity de- 
pend upon an increasing output of capital goods and the opportunities 
it provides for capital investment and accumulation. This in turn 
depends upon other than the ordinary cyclical factors, upon the de- 
velopment of new industries and unusual expansion of old industries. 
In the United States after the Civil War, accumulation was invig- 
orated by the mechanization of old and the growth of new industries, 
particularly the railroads, and by industrialization of agrarian and 
frontier regions. In early nineteenth-century England, prosperity was 
identified with expansion of the textile industry and later of the 
iron and steel trades, while expansion of the electrical industry pro- 
duced an unusual prosperity in the Germany of 1 890-1 905; another 
factor of expansion was the export of capital (and capital goods) 
to industrialize colonial and other economically backward regions. 
Only these long-time factors of economic growth stimulate the output 
of capital goods and insure an increasing accumulation of capital. 

An unusual feature of the depression was the steadiness of machin- 
ery output, which ordinarily drops severely. While output dropped 
from $4,768 million in 1919 to $3,235 million in 1921, there was no 
great drop as prices fell; output rose in 1922 and was $4,727 million 
in 1923.^ The demand for machinery modified the depression and 
encouraged revival, and was mainly due to efforts to raise the pro- 
ductivity of labor, which rose substantially. There were, apparently, 
fewer of the "postponable" expenditures on capital goods which ag- 
gravate depression. . . . The demand for machinery was strengthened 
by an upswing in construction, the industry which led the revival. 
Unlike industry in general, construction was not overproduced, but 
had accumulated a large shortage. Construction was practically sta- 
tionary in 1 914-16, and in the following four years averaged 28% 
below 1913. In 1921 construction, which had decreased one-half the pre- 
vious year, regained all its losses and slightly more, and in 1922 was 35% 
higher than in 191 3, increasing by nearly $1,000 million;^ the increase 
was mainly in industrial and commercial structures, essentially an 
output of capital goods. . . . Railroads, whose ordinary requirements 
had been neglected during the period of Federal control, increased 
their capital expenditures to $1,059 million in 1923 and $3,996 million 
in the five years 1922-26.* . . . The depression drop in the output 

Profits and Prosperity 65 

of automobiles was small; output rose in 1922 and was $3,164 million 
in 1923, nearly $1,000 million more than in 1919 and a twofold in- 
crease considering the fall in prices.^ . . . The revival was essentially 
a product of the increasing output of capital goods, but it was strength- 
ened by an unusual development: a substantial rise in real wages, 
which increased mass purchasing power and consumption. Consump- 
tion was 6.5% higher in 1923 than in 1920,® an unparalleled increase, 
stimulating production and, more important, the output of capital 
goods. After 1923 the upward movement in real wages and mass 
consumption slackened and came practically to a standstill: while 
total production in 1922-29 increased an average of 4.1% yearly, 
capital goods increased 6.4% and consumption goods only 3.7%.^ 
Accumulation, as usual, outstripped consumption. 

Prosperity was sustained by the upward movement in the output 
of capital goods, by increasing opportunities for the accumulation of 
capital. Construction moved steadily upward:* it was 31% higher 
in 1929 than in 1922, scoring an average yearly increase of 6.1%; 
total construction was $48,859 million, an average of $6,100 million 
yearly.® Automobile output (wholesale value) averaged over $3,000 
million yearly in 1923-28, rising to $3,719 million in 1929; a consider- 
able part of the output consisted of capital goods : registrations of motor 
trucks, taxicabs, and buses increased more than private cars, while 
the wholesale value of motor trucks alone rose from $317 million in 1923 
to $595 million in 1929.^ The lessened capital expenditures of the 
railroads was partly offset by the rise in capital goods represented by 
increasing commercial use of the automobile and airplane. The drive 
to raise the productivity of labor (to increase profits) not only stimu- 
lated the demand for more industrial machinery but resulted in an 
increasing electrification of industry, the extent of which rose from 
56% in 1919 and 67% in 1923 to 82% in 1929; capital investment in 
the electric power industry was $12,500 million in 1929 compared with 
$5,000 million in 1922.^° The output of electrical machinery and ap- 
paratus rose from $1,293 million in 1923 to $2,273 million in 1929.^^ 
Expansion in new or comparatively new industries absorbed large 

* The average yearly increase in apartments and hotels was 3.7%, in one and two- 
family houses 5.1%, in commercial and industrial structures 8.1% and 9.3% respec- 
tively, and in public works and utilities 11.4%. In 1927-29 the construction of indus- 
trial buildings increased 50%. Frederick C, Mills, Economic Tendencies in the United 
States (1932), pp. 264-66. The upward movement in construction was sustained pri- 
marily by the demand for structural capital goods. The lack of this demand has 
forced adoption of the government's public works program in an effort to fill in the gap. 

66 The Decline of American Capitalism 

amounts of new capital — the moving picture, radio, rayon, chemical, 
aviation, mechanical refrigeration, and power laundry industries, 
whose combined value output in 1929 exceeded $1,500 million. This 
expansion made "large demands upon construction — industrial and 
commercial structures, "movie palaces," and garages and service sta- 
tions; it also made large demands upon machinery, the output of 
which rose from $4,727 million in 1923 to $6,964 million in 1929.^^ 
The expansion of new or comparatively new industries is particularly 
important since it demands more capital expenditures than similar 
expansion in old industries. 

An increasing output of capital goods (not consumption goods) is 
the decisive factor in capitalist prosperity. It provides for the accumu- 
lation of capital and multiplies the capitalist claims upon labor, pro- 
duction, and income. But this involves a fundamental contradiction: 
realization of profit depends in final analysis upon the circulation 
of commodities, upon consumption, which accumulation tends to re- 
strict. The stimulus to prosperity in the production of capital goods 
is twofold: it increases employment, wages, and profits (mainly 
profits) and creates consumer purchasing power, but for a time makes 
no demands or only slight demands upon consumer purchasing power 
to absorb new consumption goods. The danger to prosperity is three- 
fold : the output of capital goods may represent excessive accumulation 
of capital, it may be concentrated in particularly profitable industries 
whose expansion becomes disproportionate in relation to other in- 
dustries, and eventually the larger production made possible by the 
new capital goods outstrips the growth in markets and consumption. 
The output of capital goods begins to fall and wages, purchasing 
power and consumption are restricted. Prosperity crashes. 

Two other factors affected American prosperity in 1922-29: the 
agricultural crisis and the recasting, by the World War, of inter- 
national economic relations in favor of the United States. 

The sharp fall in agricultural prices, a result of the post-war defla- 
tion which threw most of the burdens of deflation upon the farmers, 
contributed greatly to capitalist prosperity — ^by increasing real wages 
and releasing urban purchasing power for manufactured goods and 
by lowering the cost of raw materials. In spite of much lower incomes 
the farmers were forced by the low prices of agricultural products 
to increase productivity with improved methods and mechanization: 
the output (less exports) of agricultural machinery rose from $101 mil- 
lion in 1923 to $137 million in 1929.^^ Most farmers did not share in 
prosperity. But not only was the agricultural distress no bar to pros- 

Profits and Prosperity 67 

perity, it was one o£ the contributing causes: the final proof o£ the 
decHne and hopeless state of American agriculture. 

Where the World War aggravated Europe's economic decline, it 
contributed to the upsurge of prosperity in the United States by its 
stimulus to old and new industries, its creation of shortages, and its 
opening up of new foreign markets. From the American angle, the 
most important result of the war was the redistribution of world 
power in favor of the United States and the economic decline of its 
competitors. The American share of world exports rose from 12.3% 
in 1913 to 15.6% in 1928; the European share decHned from 55.2% 
to 46% and the British share from 13.9% to 11.2%.^* American ex- 
ports (mainly manufactured goods) rose from $3,971 million in 1922 
to $5,157 million in 1929; a favorable export balance of $4,850 million 
piled up in 1923—29. The increase in exports was bound up with a 
growing export of capital; American foreign investments increased 
$6,293 million in 1923-29/^ Imperialism, new foreign markets for 
surplus capital and goods, created new means for the making of 
profits and their conversion into capital, for accumulation, and sus- 
tained prosperity for a time by lessening the demands upon the 
home market to absorb goods and capital. Increasingly the world 
market took the place of the frontier and of its long-time factors 
of economic expansion; but the experience of one is bound to be 
repeated by the other. 

Rising investment, production, and accumulation were accompanied 
by a rising mass of profits. Profits in manufactures are the natural 
starting point of an analysis of the movement of profits (Table I). 
In 1929 profits were 22.9% higher than in 1923, total wages only 6.1% 
higher. If the two years of minor cyclical depression 1924 and 1927, 
are excluded, profits in 1925-29 averaged 9% higher than in 1923. 
Officers' salaries, a large part of which should be considered profit, rose 
steadily until in 1929 they were 16.4% higher than in 1923. The in- 
creasing productivity of labor was accompanied by higher profits 
and lower wages. But for the six years as a whole the profits of 
manufacturing corporations averaged only 1% higher than in 1923. 
(The rise was much greater, however, in comparison with 1922.) 
This seems to involve a contradiction — the productivity of labor and 
surplus value rose considerably, yet profits apparently failed to rise 
as much. The contradiction dissolves upon analysis and reveals the 
welter of contradictions and antagonisms inherent in capitalist 

Corporate profits are usually understated. There are all sorts of 

68 The Decline of American Capitalism 


Profits, Salaries, and Wages, Manufactures, jg2^-2g 




























































II 6.4 



* Not available. 

Source: Net profits (corporations reporting profits, less taxes and intercorporate 
dividends) and officers' salaries (including bonuses and other compensation) — Bureau 
of Internal Revenue, Statistics of Income; w^ages — 1923, 1925, 1927 and 1929, Depart- 
ment of Commerce, Statistical Abstract of the United States, 1931, p. 813, other years, 
W. I. King, The National Income and Its Purchasing Power, p. 132, King's estimates are 
slightly higher than the Census figures. Wages are for all manufacturing enterprises, 
while profits include only incorporated enterprises, but this does not affect the trend. 

devices for concealing profits. One device is to make excessive allov^- 
ances for depreciation to evade taxation. This was encouraged, during 
the "Golden Age" of American capitalism, by "liberalization" of the 
corporation income-tax law; the allowances in manufactures rose from 
$1,424 million in 1923 to $2,017 million in 1929,^^ a considerably greater 
increase than in capital equipment. Many corporations inflated the 
nominal value of their assets to permit larger depreciation allowances. 
Manufacturing enterprises, moreover, spent large sums on capital 
equipment which were charged to operating costs and do not appear 
as realized profits. These expenditures, which increase the productivity 
of labor and production, are capitalized surplus value.* Another por- 
tion o£ profits was absorbed by the increase in officers' salaries; this 
form of exploiting corporations is flagrantly revealed in the "bonus" 
system by which the higher officers extort an additional "compensation" 
of millions yearly. At least one-third of salaries represent profits. 

The distribution of profits (and of prosperity!) is always uneven. 
It was particularly uneven in 1923-29 because of the many and rapid 
changes in industries, technical equipment, and consumer buying 

* Such sums spent on capital equipment do not appear in surplus, which rose from 
$13,060 million in 1923, to $19,465 million in 1929. Bureau of Internal Revenue, 
Statistics of Income, 1923, p. 63; 1929, p. 332. Corporate savings or surplus are an 
impersonal, social form of the accumulation of capital. 

STOCK fAtCOM£: /6% 






mOES'. 0S% 




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pijjEW CAPITAL 'SSUESf- ^ / / 



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70 The Decline of American Capitalism 

habits, and of the resulting intensified competition. There were many 
laments about "profitless prosperity." Some industries were severely 
depressed while others were exceptionally prosperous. The automobile 
industry increased its profits an average of 22.5% yearly, machinery 
14.9%, and chemicals and drugs 12.3%;^^ automobile super-profits 
were characteristic of the newer industries. But high profits among 
the newer industries was partly conditioned by lower profits among 
the depressed older industries, whose losses were frequently disastrous.* 
Profits were unevenly distributed, moreover, as between smaller and 
larger corporations. The movement of increasing technological effi- 
ciency, production, and competition, resulted, as always, in greater 
industrial concentration and centralization of corporate control: in 
1923 the largest 1,240 manufacturing corporations received 64.9% of 
all corporate net income, while in 1929 the largest 1,289 corporations 
received 75.6%.^^ An increasing number of corporations, mainly the 
smaller, reported deficits — 34% in 1919, 41% in 1923, and 47% in 
1929.^^ These deficits, which depressed the mass of profits, are a 
condition of capitalist production and prosperity and of the profits 
of other corporations. 

A characteristic of capitalist production is that its drive for larger 
profits creates a series of antagonisms which limit the realization of 
profits. Output increases more than profits, because capitalist produc- 
tion tends toward an absolute growth of the productive forces regard- 
less of the capacity of markets and of the development of consuming 
power. Competition is intensified and prices fall to levels which yield 
small profits or no profits — one result of the higher productivity of 
labor, which simultaneously increases surplus value and sets in motion 
forces which prevent its complete realization. As competition is inten- 
sified by the higher productivity of labor and larger output, which 
outstrips markets and consumption, there is an increase in the costs 
of distribution, of merchandising and advertising, costs which are a 
charge upon surplus value and cut into profits: in 1923-29 that part 
of "value added by manufacturing" represented by overhead costs 
increased more than profits (and wages). The drive for larger profits 
creates a final antagonism : it develops the forces of cyclical breakdown 

* While profits (including intercorporate dividends and before payment of taxes) 
increased in 1922-29 an average of 7.4% yearly for all manufacturing corporations, 
profits decreased among 815 corporations in 28 industries, including textiles, canned 
goods, lumber, paints, glass, textile machinery, and railroad equipment; the increase 
in the profits of the more prosperous corporations averaged 9.8% yearly. Mills, Eco- 
nomic Tendencies, p. 401. 

Profits and Prosperity 71 

by increasing productivity, production, and profits more than wages 
and consuming power, disturbing the balance between production 
and consumption and between one industry and another. The con- 
sequent disproportions interrupt prosperity with minor depressions, 
and eventually prosperity collapses into a major depression. Profits in 
manufactures fell considerably in the minor depression of 1924 and 
in the minor depression of 1927, which severely lowered the yearly 
average of profits in 1924-29. Depression is one of the most drastic 
means by which capitalist production limits the realization of profits. 
While profits in manufactures did not rise as much as production, 
the productivity of labor, and surplus value, profits as a whole rose 
more substantially. The general rise was larger than in manufactures; 
for surplus value, which exists originally as a definite portion of unpaid 
labor, as a surplus product, is finally realized only in the process of 
the circulation of commodities. The transactions of the market do 
not produce or increase surplus value, but they distribute and ap- 
portion it. All sorts of queer things now happen which are normal 
under capitalism. Not only may the industrial capitalist realize as 
profits only a small portion of surplus value or none at all, if prices 
are unfavorable, but a struggle occurs over the division of the surplus 
value extorted from labor, and an increasing part of it may become 
the profits of the non-industrial capitalist. The profits realized by the 
individual capitalist or corporation depend considerably upon trickery, 
the chances of the market, and other similar circumstances. Financiers 
may plunder the manufacturing corporation, speculators may seize 
its profits. Chain stores compel small manufacturers to sell at prices 
yielding low profits and often no profits at all; large manufacturing 
corporations (e. g., the automobile industry) pursue the same tactics 
with small manufacturers of semi-finished raw materials or parts. 
Bank loans may absorb an increasingly larger share of manufacturing 
income. Finance and holding companies exploit operating companies 
by extortionate "service charges" and other predatory devices: high 
profits in the one case arise out of low profits in the other. Thus finan- 
cial and speculative capitalists are enriched. The mass of profits accord- 
ingly appears only in their final realization and distribution as a whole 
(Table II). Total profits rose and rose substantially. The profits of all 
corporations are understated, as in manufactures. In addition, inter- 
est, as much as profit, is realized surplus value : corporate interest pay- 
ments rose from $3,277 million in 1923 to $4,924 million in 1929.^° 
Profits in 1929 were 41.1% higher than in 1923, and officers' salaries 
29.7% higher. Average yearly profits for 1924-29 were 12.7% higher 


The Decline of American Capitalism 



The Movement of Profit 

s, Salaries, and 












































































141. 1 







* Not available. 

Corporate profits — net profits of corporations reporting profits, less taxes and inter- 
corporate dividends. Officers' salaries (corporations) includes bonuses and other com- 
pensation. Wages — all wages includes wages paid to farm laborers, servants, and 
workers in non-corporate industrial, commercial and service enterprises; industrial wages, 
more. nearly equivalent to corporate wages, are the wages paid to workers in manu- 
factures, mines, quarries and oil wells, construction, and transportation (railroads, 
express, transportation by water, street railways, electric light and power, telephones 
and telegraphs). 

Source: Profits and officers' salaries — Bureau of Internal Revenue, Statistics of Income 
for the respective years; wages — ^W. I. King, The National Income and Its Purchasing 
Power, pp. 132-33- 

than in 1923. Profits rose more than production and the national income, 
and more than wages. The yearly average o£ all wages for 1924-28 was 
higher than in 1923; but this is not the true measure of wages in 
relation to corporate profits, for it includes the wages of servants and 
of workers in non-corporate enterprises, whose profits are not included, 
and all of which, however, have large elements of social-economic 
parasitism. A truer measure are industrial wages (manufactures, min- 
ing, construction and transportation) ; for 1^2^-28 the average of indus- 
trial wages was only o.f/o higher than in 192^. 

As in the case of manufactures, the distribution of total corporate 
profits favored the monopolist combinations of capital; the greater 
trustification of industry resulted in a greater concentration of profits: 

In 1923, the largest 1,026 corporations, 0.26% of all corporations, 
received 47.9% of all corporate net income, an already dominant 

In 1929, the largest 1,349 corporations, again 0.26% of all corpora- 

Profits and Prosperity 73 

tions, received 60.3% of all corporate net income, an increase of over 
one-fourth in concentration.^^ 

The concentration of industry in monopolist combinations and the 
multiplication of stockholders result in the usurpation of control by 
a financial oligarchy, groups of financial capitalists operating by means 
of a system of centralization of financial control dominated by the 
great banks. Industry depends more and more upon the financial 
oligarchy, which consequently absorbs an increasingly larger share 
of the surplus value extorted from labor. This v^as particularly marked 
in 1923-29: 

The profits of non-financial corporations rose from $4,948 million 
in 1923, to $5,645 million in 1929, or 14%, the profits of financial cor- 
porations (including banks, investment banks, finance and holding 
companies) from $870,000,000 to $2,438 million, or 177%, a phenomenal 

The profits of non-financial corporations in 1924-29 averaged 2% 
lower than in 1923, the profits of financial corporations 69% higher." 

A considerable portion of financial profits, particularly in 1928—29, 
was a result of frenzied stock-market speculation, the gains of which 
represent both previously appropriated surplus value and claims upon 
new surplus value. Finance capital, interested more in the speculative 
production of profits than in the production of goods, dominates in- 
dustry; the appropriation of surplus value and profits is increasingly 
separated from their production. 

Corporate disbursements to investors increased greatly. Dividends 
(excluding intercorporate dividends) rose from $3,299 million in 1923 
to $5,765 million in 1929 and interest payments from $3,277 million 
to $4,924 million. Total corporate disbursements in seven years 
amounted to $88,000 million. While the average yearly increase in 
industrial wages was only 0.5/0, the increase in stockholders' income 
was 16.4%.^^ Part of the immense profits was spent on the living 
expenses of their appropriators, whose income was further swollen 
by extortionate salaries or fees and by speculative profits; but most 
of it was invested, used for the production of more profits. The 
great mass of available investment capital was enlarged by the profits 
of non-corporate business and by the large savings of the middle class 
and the small savings of better-paid workers and farmers. (There 
was great competition for the "marginal" income of the "common 
people." Bankers and brokers shouted: "Save and invest!" Manufac- 
turers and merchants shouted: "Spend and make prosperity!") The 
enormous accumulation of capital exerted tremendous pressure on the 

74 The Decline of American Capitalism 

investment market. Many issues were made out of whole cloth, and 
investment bankers often forced corporations to issue new securities. 
Abundant capital and "easy money" tempted corporations to improve 
and enlarge plant equipment, which temporarily stimulated prosperity 
but resulted in an increasing displacement of labor and overproduc- 
tion. The flood of new securities was swollen by the issues of invest- 
ment trusts (guilefully offering security and large profits!), trading 
companies, and holding companies, an important source of the phe- 
nomenal financial profits. Foreign issues increased; American bankers 
accepted any business yielding good commissions and their loans 
contributed to sustaining the Fascist dictatorship in Italy and the 
military dictatorships in Cuba and Venezuela. The superabundance of 
investment capital made easy the absorption of an unusually large 
mass of new issues: 

The total of new securities (excluding refunding) rose from $4,304 
million in 1923 to $10,182 million in 1929, an increase of 137%. 

New corporate issues rose from $2,031 million in 1923 to $8,002 mil- 
lion in 1929, a four-fold increase; total corporate issues in the seven 
years amounted to $30,523 million. 

New foreign issues rose from $892,000,000 in 1923 to $1,572 million 
in 1927 and slumped to $762,000,000 in 1929, the total for the seven 
years being $7,805 million; where domestic issues (excluding invest- 
ment trusts and trading and holding companies) increased an average 
of 7.7% yearly, foreign issues increased 10.1% — an indication of the 
rapidly increasing importance of the export of capital. 

The aggregate of all new issues in 1923-29 amounted to $48,548 

In addition to raising capital by issuing securities, corporations cus- 
tomarily reinvest up to one third or more of their profits; surplus rose 
from $33,596 million in 1923 to $50,725 million in 1929. In the year 
of the great crash, in 1929, capital expenditures of all sorts (in- 
cluding pubUc works) probably totalled $15,000 million. Total corpo- 
rate capital rose from $191,000 million in 1923 to $233,000 million in 

Thus increasingly higher profits and their conversion into capital 
by means of an increasing output and absorption of capital goods 
resulted in an upsurge of prosperity. The active accumulation of 
capital expressed an unusual combination of the long-time factors of 
expansion: it appeared only once before in American history, in the 
period immediately after the Civil War. Then the major factor sus- 
taining the upward movement of prosperity was the development of 

Profits and Prosperity 75 

old and new industries, particularly building construction, iron and 
steel, railroads, and agricultural equipment. In 1923-29, prosperity was 
sustained by expansion in building construction, electric power, and 
new industries. In both cases expansion created increasing demands 
for capital goods, which stimulates the making of profits and their 
conversion into capital. The most important difference was replace- 
ment of the frontier by greater industriaUzation of the South and by 
the export of capital. The latter was the more fundamental difference: 
it offset exhaustion of the inner long-time factors of expansion by 
imperiaUst exploitation of similar international factors. 

But the maintenance of prosperity requires a proportional distribu- 
tion of investment and consuming income, a sustained balance between 
the output of capital goods and consumption goods, between produc- 
tion and consumption. There was no such distribution or balance; 
and the basic reason for its absence was the antagonism between prof- 
its and wages, resulting in the lag of wages behind profits. This 
antagonism is fundamental in capitalist production. 


The Policy of High Wages 

JIn spite of the available facts, there was, in 1923-29, an almost 
universal belief that American employers had accepted the "policy of 
high wages" as the basis of prosperity. An economist wrote: "Increas- 
ing productivity of labor and industry, advancing wages, higher Uving 
standards, and greater consuming or purchasing power, is now the 
avowed policy and practical program of American industry." . . . An 
economic historian: "The cultivation of consuming power became the 
direct concern of manufacturers, with results that profoundly affected 
wages and price adjustments [recognizing] that to raise wages and 
reduce prices was the way to promote and safeguard prosperity." . . . 
The President's Committee on Recent Economic Changes: "Leaders 
of industrial thought began consciously to propound the princi- 
ple of high wages." . . . The dogma of the "policy of high wages" 
was generally accepted in Europe, although a German trade union 
delegation was skeptical and British employers frequently stated that 
American employers did not pay any higher wages than they had to. 
Two British investigators reported that not only did American em- 
ployers constantly raise wages but that they never limited earnings on 
piece rates or cut rates! ... A German economist, ajter prosperity 
crashed into depression: "The industrialists had to revise their eco- 
nomic theories. Henceforward, in common with the principal groups 
of organized workers, they regarded high wages not as a costs item 
involving higher prices, but as an element creating increased purchas- 
ing power, and with it the potentiality of increased sales." ^ 

There were two basic assumptions in the dogma of the policy of 
high wages: 

In 1921-22, enlightened employers, recognizing that high wages 
promote and safeguard prosperity, voluntarily raised wages, where- 
upon prosperity burst forth in all its radiant glory. 

In 1923-29, the employers practiced the policy of high wages; they 
voluntarily and constantly raised wages, which rose higher and higher, 
to increase consumption, production, and prosperity. 

But wages are not determined in this fashion, neither in an "unfet- 


The Policy of High Wages 77 

tered" capitalism nor in a capitalism upon which are imposed the 
"controls" of state capitalism. The facts are clear: 

Real wages rose in 1921-22, but the increase was imposed upon the 
employers by falling prices and labor s militant resistance to cuts 
in money wages. 

The rise stopped as a real upward movement after 1923; money 
wages and real wages were practically stationary in igi^—ig, precisely 
when American capitalism was being touted as having accepted in- 
creasingly higher wages as its "avowed policy and practical program," 

The immediate post-war period was one of sharp struggle between 
labor and capital. Press and employers demanded a "liquidation** of 
labor and of "high wages." According to one of the apologists of pros- 
perity: "The burden of all business discussions, as well as political 
debates bearing upon financial and industrial problems, was the con- 
stantly reiterated declaration that there 'must be a return to normalcy* 
. . . meaning a reversion to pre-war wages, industrial conditions and 
prices." ^ In spite of the employers' resistance, and by means of embat- 
tled struggle, labor forced up money wages, which in 1920 reached 
an exceptionally high level, an all-time high. In 1921—22, the 
employers' resistance developed into a general offensive to cut wages. 
An ally of the House of Morgan, the National City Bank of New 
York, declared high wages were responsible for the depression and 
retarded revival. The National Association of Manufacturers and other 
employers' organizations proposed to "deflate" the trade unions, 
whose "pretensions" were considered "menacing," by means of the 
"American plan" of "open shop." The unions, cajoled during the war, 
were now stigmatized as a menace to American democracy and civili- 
zation. Samuel Gompers, president of the American Federation of 
Labor, was met with derision and denunciation when he urged : "High 
wages, the best possible wages, are the greatest incentive to pros- 
perity." A storm of wage cuts beat upon the workers: hourly money 
earnings in manufactures were cut 15% in 1921 and another 5% in 
1922; there were similar cuts in non-manufacturing industries, while 
the strongly unionized building trades workers had their hourly rates 
cut nearly 6%.^ 

Labor resisted the capitalist offensive. There were 2,226 strikes in 
1920 involving 1,463,054 workers and 2,684 strikes in 1921-22 involv- 
ing 2,711,809 workers."^ Great strikes broke out in the mines and on 
the railroads. Rebellious memberships in the unions forced strike ac- 
tion upon the reluctant union bureaucracy; "outlaw" strikes disre- 
garded the bureaucracy and agreements with the employers. Capitalism 

78 The Decline of American Capitalism 

resorted to its usual methods of legal and physical force to crush the 
strikes. During the war, although strikes led by the Industrial Work- 
ers of the World were brutally suppressed, the government maintained 
a velvet-glove policy toward "patriotic" labor, under pressure of polit- 
ical necessity. But the iron fist was revealed immediately after the 
war. In 1919, President Woodrow Wilson denounced the coal miners' 
strike as a "fundamental attack, which is wrong both morally and 
legally, upon the rights of society and the welfare of the country."® 
The violence and other repressive measures against the miners and 
steel workers in 1919 were used again in 1921-22 to crush strikes. The 
courts issued injunctions upholding the employers against the work- 
ers; injunctions to limit picketing were declared constitutional by the 
United States Supreme Court, while it declared unconstitutional any 
law prohibiting the issuance of injunctions in labor disputes.^ Injunc- 
tions helped to break the miners' strike in 1921 and the railroad shop 
crafts' strike in 1922. The strikes were animated by economic discon- 
tent, not political, but revolutionary thunder was in the air. In the 
four years 1919-22 there were 7,575 strikes involving 8,335,211 workers 
— an extraordinary expression of labor militancy. The Seattle six-day 
general strike in 1919 had many revolutionary implications — the strike 
council practically governed the city and labor guards maintained 
order in the streets. The most repressive measures were used against 
the left wing of the labor movement, the Communist Party and the 
Industrial Workers of the World; in many states mere membership 
in these organizations was made a crime punishable with severe im- 
prisonment. Measures to prohibit strikes were discussed in Congress 
and state legislatures. An intangible but real factor was the proletarian 
revolution in Russia; the revolutionary overtones inspired militant 
workers to more aggressive action and affected the employers: revolu- 
tions do start with strikes. 

As a result of labor's resistance, of its immediate and potential 
power, money wages were not cut as much as the employers desired 
or as much as they might have been. In 1923, hourly money earnings 
even increased, although still 11% below 1920. Money wages were cut, 
but prices declined still more and real wages rose (the rise was more 
than offset by an increase in the efficiency and intensity of labor, result- 
ing in a higher yield of surplus value). Practically the whole of the 
rise in real wages in ig2i—2g too\ place in ig2i—2^. 

The capitalist attitude toward higher wages was clearly revealed in 
the speeches and writings of Samuel M. Vauclain, president of the 
Baldwin Locomotive Works (an affiliate of the House of Morgan), 

The Policy of High Wages 79 

and one of the most conspicuous mouthpieces of the poUcy of high 

In 1919, Vauclain had not a word to say about high wages; pros- 
perity, he said, depends upon foreign trade. 

In 1921, Vauclain urged unrelenting struggle against "high wages" 
and trade unions; industry is menaced "by extravagant demands of 
labor both as to rates and shortening hours." One of the "requirements 
for prosperity" was "the adjustment of labor." He thundered: "A gen- 
eral strike is threatened. Let the strike come. Pray for it. Pray for 
deliverance from outrageous regulations and wage schedules." 

In 1922, Vauclain again urged wage cuts, and condemned the strikes 
for higher wages of the miners and railroad workers. "They are talk- 
ing," he said, "about wages instead of work. Wages do not have to 
be lowered everywhere, but in many places they must be lowered to 
get going." 

In 1923, after higher real wages had been forced upon the employ- 
ers, Vauclain said: "There is nothing in low wages; higher wages are 
an essential part of prosperity." And one year later he proclaimed 
unctuously : "Higher wages have been a great blessing." ^ 

Real wages rose against the employers' resistance; and in 1923—28, 
when high wages were proclaimed "the avowed policy and practical 
program" of American capitalism, real wages were practically sta- 
tionary (Table III). In 1920—22 real wages scored an increase of 12%, 
because of lower prices, as hourly, weekly, and yearly earnings all 
declined. After 1923, the upward movement practically ceased: money 
earnings remained below 1920 and real earnings rose only slightly 
because there was no considerable fall in prices. Hourly money earn- 
ings were 3.6^ higher in 1927-28 than in 1923, but full-time weekly 
earnings were constant, due to a moderate shortening of the hours of 
labor and to a probable decrease in wage rates, as changing processes 
or products made it possible to make concealed reductions. by tight- 
ening the rates on new jobs, workers maintaining their customary 
earnings by working harder. Average yearly money earnings of all 
workers rose only $55 or 5%; the index of real wages was stationary 
in 1924-25 and then rose slightly. In manufactures, average yearly 
earnings in 1928 were lower than in 1923. Wages fell considerably in 
many groups, particularly in the industries depressed by the com- 
petition of newer products. Real hourly and weekly earnings in 1928 
were 1% lower than in 1923 in cotton manufacturing, and 3% lower 
in men's clothing; weekly money earnings in cotton manufacturing 
decreased from $21.24 in 1923 to $19.71 in 1928, in heavy equipment 



























. 27.03 

























1 176 








80 The Decline of American Capitalism 


The Movement of Earnings and Real Wages, igig-28 


* Not available. 

Source: Hourly earnings, 24 manufacturing industries — National Industrial Con- 
ference Board, Wages in the United States, p. 47; weekly earnings, first column 12 
industries, second column 42 industries, covering 2,856,160 and 5,832,302 workers 
respectively out of over 8,000,000 employed in manufactures — National Bureau of 
Economic Research, Recent Economic Changes, v. II, p. 433; yearly earnings, all work- 
ers — W. I. King, The National Income and Its Purchasing Power, p. 146; index of real 
wages — ^Paul H. Douglas, Real Wages in the United States, p. 392. 

from $33.02 to $31.32, in wool manufacturing from $23.97 ^o $21 -yS- 
Wages were slashed among the coal miners and textile workers. The 
real earnings of railroad workers other than trainmen fell 1%. Al- 
though there were fewer strikes in this period, many workers struck 
against wage cuts or for higher wages, particularly in mining and 
textiles. The conclusion is inescapable: real wages rose in 1920-23, 
but thereafter were practically stationary. (In 1929 there was a no- 
ticeable rise in real wages and total wages, but it was wiped out by 
the depression; in fact the rise was bound up, antagonistically, with 
the spurt in production which marked the final aggravation o£ the 
forces of cyclical breakdown.) There was no policy of increasingly 
higher wages, an impossibility under the exploiting relations of 
capitalist production.* From another angle this appears in the fact 
that for 1924-28, industrial wages (manufactures, mining, oil wells, 

* Still less was there any policy of high wages in the industries of the Southern 
states. The use of the newest, most efficient machinery, cheap raw materials and power, 
and a labor force the wages qf which were regulated by the standards of living of 
a region comparatively undeveloped industrially, gave the southern employers an 
opportunity to realize extra profits. 



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82 The Decline of American Capitalism 

quarries, construction and transportation) fluctuated around the 1923 

But there was a policy of increasingly higher profits. While wages 
were practically stationary, labor costs in 1929 were 9.5% lower than 
in 1923 and overhead costs and profits 10.6% higher, the one scoring 
an average yearly decrease of 1.3%, the other an increase of 1.7%.^ 
Again the facts refute the theory that productivity rises before wages 
and wages necessarily rise as productivity rises. Real wages in manu- 
factures began to rise in 1921 before any considerable increase in 
the productivity of labor, which forced employers to improve efficiency 
to safeguard profits. In 1921-23, labor shared in the gains of rising 
productivity. (A part of the increase in real wages came neither from 
higher productivity nor the lower prices of manufactured goods, but 
from the sharp drop in the prices of foodstuffs, which was ruinous 
for the farmers.* Raw materials, moreover, were cheapened: their 
costs were $2,500 million less in 1923 than in 1919, while money wages 
rose only $500 million and "value added by manufacturing" rose $1,000 
million; nearly one-half of the raw materials consumed in manufac- 
tures are agricultural products.^ But rising productivity in 1924-29 
was not accompanied by any corresponding rise in real wages; produc- 
tivity rose 22% ^° but real wages were practically stationary. In the ten 
years 1919-29 the productivity of labor in manufactures rose 43%, 
and there were similar increases in mining, transportation, and the 
power industry; real wages rose not more than 20% (partly offset by 
increasing unemployment). In final analysis, higher wages depend 
upon higher productivity, but productivity always increases more 
than wages, in all stages of capitalism, whether "unfettered" or under 

While real wages were practically stationary in 1924-29, relative 
wages fell sharply as profits rose, plainly revealing the antagonism 
between profits and wages. Relative wages, the share of the workers in 
the product of industry, fall continuously. The fall is usually greatest 
when the productivity of labor rises most rapidly, even if real wages 
increase, as profits rise more and the worker is cheapened by more 
productive labor. This appears clearly in the diminishing proportion 

*In England during the "Hungry Forties," when the productivity of labor and 
profits were steadily rising, the workers were starving. The situation was "relieved" 
by repeal of the Corn Laws, lowering food prices; real wages rose at the expense 
of agriculture, not of capitalist profits. Capitalist production completely ruined British 
agriculture. There is no danger of such complete ruin in the United States, but the 
tendency is in that direction. 

The Policy of High Wages 83 

wages constitute of "value added by manufacturing." The propor- 
tion fell from 51.1% in 1849 to 40.2% in 1909, rose to 42.7% in 1923, 
and fell to 36% in 1929, when the proportion of wages to "value added 
by manufacturing" was 30% lower than in 1849/^ There was, nat- 
urally, a great increase in labor's yield of surplus value (Table IV). 


Growth of Surplus Value, Manufactures, igi^-^i 














































































* Estimated. 

Surplus value, or unpaid labor, equals the value of output less the value of wages, 
raw materials, and depreciation on fixed capital; the rate of surplus value is the ratio 
of surplus value to wages. The surplus value realized in the form of commercial profit 
is not included. 

Source: Wages, materials and output — Department of Commerce, Statistical Abstract, 
1931, pp. 483, 813, and preliminary report of the 1931 Census of Manufactures; depre- 
ciation (including depletion) — Bureau of Internal Revenue, Statistics of Income for 
the respective years. 

The rate of surplus value, of unpaid labor, was 22.9% higher in 1929 
than in 1914 and 27.1% higher than in 1923. It fell temporarily in 
1923 because of the fall in prices and the rise in real wages of the two 
preceding years, with which the employers had not yet caught up. 
But they did catch up in 1925, when the rate of surplus value moved 
sharply upward. The rate fell again temporarily, and slighdy, in 1931, 
but the rate moved up sharply in 1932-34 because of another great 
increase in the productivity of labor. Thus, in 1929, relative wages fell 
to the lowest point in American history in the midst of an extraor- 
dinary rise in the productivity of labor, surplus value, and profits.* 

* Falling relative wages are characteristic of capitalist production. The share of the 
German workers in the social product (1927 as 100) was 117 in 1913 and 94 in 1929. 
J. Kuczynski, "Der Anteil des Deutschen Industriearbeiters am Sozialprodukt," Kolner 
Sozialpolitische Vierteljahresschrift, January, 1931, pp. 85-95. 

84 The Decline of American Capitalism 

While real wages in general were practically stationary after 1923, 
the wages of union workers (except miners) kept on rising, 25% to 
50% and more. In the building trades, hourly wage rates rose 33% 
in 1923-29; in eight union trades, rates rose 30% and weekly earnings 
22%. No such upward movement occurred in the rates and earnings 
of the workers as a whole. In 1922-29 the average yearly rise in a 
composite index of real earnings (factory workers, unskilled labor, 
clerks) was 1.9%; in the union index it was 37%.^^ The rise of union 
wages, in most cases, bore little relation to the rise of productivity in 
the particular occupations; it was determined primarily by the power 
and strategic position of union labor in the sheltered trades. Wages 
were often stationary or fell among masses of unorganized workers 
where productivity gains were exceptionally large. There was only a 
small upward movement in the salaries of clerical workers, whose work 
was being intensively mechanized during this period. The unusually 
large rise in union wages was used to "prove" that all wages were rising 
rapidly. It was responsible for the conservatism of union workers and 
particularly of the union bureaucracy, which accepted the mythology 
of prosperity and believed that wages would rise everlastingly in this 
best of all possible worlds. But unskilled, unorganized workers, who 
make up from 25% to over 50% of the labor force, made hardly any 
gains; their real earnings in 1923-29 were not much higher than in 
1919. An index of the real earnings of unskilled workers in manufac- 
tures, building trades, agriculture, and on the railroads (1914 as 100) 
rose to 116 in 1919, fell to 108 in 1920 and 97 in 1921, and rose to 102 
in 1922, 113 in 1923 and 116 in 1926. Unskilled earnings rose slightly 
in the next three years. During the World War unskilled labor scored 
considerable gains, because of the scarcity of workers, narrowing the 
differential between the wages of skilled and unskilled; then the dif- 
ferential widened again.* One investigator concluded: "Apparently 
the increase in productivity that has taken place has not contributed 
its share toward the increase of the wages of unskilled labor." ^^ 

How high, moreover, were "high wages" in the "Golden Age" of 
American capitalism, before the great depression ? While among union 
workers, the aristocracy of labor, earnings ranged as high as $40 to 
$75 and more weekly, among other workers they were as low as $10 
weekly. Average weekly earnings among unskilled workers were 
below $20. Nearly 2,000,000 workers in manufactures earned less 

* The differential in the wages of skilled and unskilled workers also narrowed in 
Europe during the war, but by 1930 it had again widened considerably. A. G. B. 
Fisher, "Education and Relative Wages," International Labour Review, June, 1932, p. 745. 

The Policy of High Wages 85 

than $1,000 yearly. Railroad workers were among the best paid, yet 
section hands earned an average of $17 weekly; 500,000 workers, one- 
third of all railroad workers, earned less than $25 weekly. Average 
weekly earnings were below $20 in lumber mills, cotton, tobacco, 
candy, and canned goods. Women workers usually earned from $9 
to $14 weekly. The average weekly salary of all employees in one chain 
store organization in 1929 was $22.71. In chain stores of the 5^ and 10^ 
variety, in spite of the phenomenal rise in sales and profits, average 
weekly earnings were $12, with 25% of the girls earning less than 
$10 — earnings "not sufficient to procure the necessities of life."^* 
Among the workers as a class (excluding farm laborers), earnings 
were probably distributed as follows: 2,000,000 workers earning over 
$2,000 yearly; 14,000,000 workers earning from $1,250 to $2,000; 12,- 
000,000 workers earning below $1,250. (Unemployed workers in 1923- 
29 averaged nearly 2,000,000 yearly.) The average yearly family income 
was not much larger than the individual average of $1,250. An investi- 
gation in Chicago in 1924-26 established that the family income of 
semi-skilled and unskilled workers ranged from $800 to $2,400 yearly; 
the average was $1,500, with the father, mother and one or more chil- 
dren working in 42.8% of the families.^^ The average yearly family 
income among workers as a class was probably $1,700; family budgets 
based on "minimum requirements of health and decency" (excluding 
savings) were estimated as follows: New York City $1,875, Philadel- 
phia $1,926, Detroit $2,032.^^ Accordingly: 

High wages were low wages in terms of adequacy to provide 
minimum requirements of living; grinding poverty prevailed, more- 
over, among millions of workers. 

High wages were low wages in terms of the increase in the pro- 
ductivity of labor and in production, which greatly outstripped the 
increase in wages: productivity rose from 15% to over 200%, the aver- 
age 43%. 

High wages were low wages in terms of the possibility of still 
higher wages; all through 1923-29 (and this is characteristic of capi- 
talism in all stages, "unfettered" or under "control"), wages could 
have been considerably higher if labor had shared in the gains of ris- 
ing productivity and if the unused capacity of industry (25% to 75% 
in many cases, in the peak years 1928-29!) had been utilized to produce 
goods instead of standing idle because of the exploiting relations and 
contradictions of capitalist production. 

To indicate the enormous progress implied in the policy of high 
wages, one of the myth-makers of prosperity ^^ conjured up four stages 

86 The Decline of American Capitalism 

in the determination of wages. The stages are fantastic, revealing an 
astonishing flight from reality; the reality shows the actual mechanism 
of wage determination under capitalism: 

1. Prior to 1900: Barbarism; wages were decided by force; employers 
considered labor a commodity, the workers had no theory of wages to 
offer in arbitration proceedings. But real wages scored their greatest 
increase in American history. 

2. From 1900 to 1916: Progress; organized labor insisted that wages 
should be adjusted to cost of living; reformers developed theories of 
"living" wages and "minimum subsistence" wages; the Clayton Act, 
which "declared" that labor is not a commodity, was hailed as a great 
achievement. But real u/ages were practically stationary. 

3. From 1917 to 1922: Reversion to barbarism; employers and work- 
ers again resorted to force, "threw off all restraints" and a "deplorable 
condition" of "industrial conflict" decided wages. But real wages rose 
over i^%. 

4. From 1923 to 1929: Magnificent progress; employers "recognized" 
that "advancing wages" are the basis of prosperity; "old wages, theo- 
ries and standards were scrapped along with obsolete machinery and 
methods." But real wages were practically stationary. 

Two more stages may be added to complete the story: 

1. From 1929 to 1933: Final exposure of the policy of high wages; 
employers cut wages drastically while the productivity of labor rose 
sharply; wages decreased more than in previous depressions. 

2. From 1933 on: More progress, and the ballyhoo of Niraism; state 
intervention to "raise" wages and "spread" prosperity; lower real 
wages, total wages decrease while the productivity of labor and unem- 
ployment increase, profits rise, another major depression looms. 

The depression destroyed the myth of the policy of high wages. 
Lip-service was paid to it at a conference of 400 "key" businessmen, 
called by President Hoover in December, 1929, which formed a per- 
manent organization to "stabilize business" and to prevent the depres- 
sion from developing any further. A solemn pledge was given that 
employers would not cut wages. The high officials of the American 
Federation of Labor solemnly accepted the pledge, and agreed to 
maintain industrial peace. One year later. Secretary of Commerce 
Lamont said: "It is a noteworthy fact that practically no cuts in wages 
have been made by the employers. This stands in marked contrast 
with the practice in previous similar recessions. It marks the wide- 
spread conviction that permanent progress in prosperity is dependent 
on liberal wages and consequent large buying on the part of the 

The Policy of High Wages 87 

masses of the people, and that recovery from any temporary setback 
will be promoted by the same policy." But the pledge not to cut wages 
was almost immediately violated. By April, 1930, William Green, 
President of the American Federation of Labor, was forced to "act" 
against the cutting of wages. "I propose," he said, heroically, "to join 
the movement in the next Congress to reduce the tariff protection" 
of employers who cut wages. And six months after his statement 
about "no cuts in wages" and "prosperity is dependent on liberal 
wages," Secretary Lamont said: "As the period of depression length- 
ens, many corporations are faced with the prospect of closing down 
altogether and thus creating more unemployment, or, alternatively, 
seeking temporary wage reductions." ^® 

All through 1930, wages were cut drastically by employers, includ- 
ing those who had given the "pledge" not to do so. They were cut 
10% to 15% in manufactures. The cuts in the bituminous coal, textile, 
and boot and shoe industries were so bad that William Green classed 
the employers as "public enemies." ... By 1931, the policy of high 
wages was forgotten even in words, and leading representatives of cap- 
ital were repeating the sentiments of 1920-22: Liquidate labor and 
high wages! The Journal of Commerce insisted that wage cuts "are 
among the various aids to business recovery." A convention of the 
American Investment Bankers Association demanded a cut in the 
wages of railroad workers, which were cut severely, to protect investors 
(including, of course, widows and orphans). The National City 
Bank: "Wage cuts are one of the encouraging features of the situa- 
tion." Albert H. Wiggin, chairman of the Chase National Bank, who 
all these years speculated in the stock of his own bank: "It is not 
true that high wages make prosperity. When wages are kept higher 
than the market situation justifies, employment and the buying 
power of labor fall off. Many industries may reasonably ask labor to 
accept a moderate reduction of wages." ... All through 1931, wage 
cuts beat upon the workers with increasing severity. From a high of 
133 cuts in any one month of 1930 they rose to 335 in March, 1931; 
cuts averaged 10% in manufactures and 25% in bituminous mining. 
In 1931, according to Census figures, total wages in manufactures were 
37.8% lower than in 1929 and average yearly earnings 15.6% lower. 
. . . One of the meaner aspects was sweating women and children 
in homework. In Pennsylvania, violations of the child labor law rose 
from 10% in 1930 to 18.8% in 1931, and violations of the woman's 
law from 3.8% to 17.8%. Earnings were as low as 12^ an hour. In 
New York City clothing factories, women workers were paid from 

88 The Decline of American Capitalism 

$1.75 to I2.75 for a week's work. . . . The fall in prices was not 
enough to oflFset wage cuts, and real wages fell. Real earnings in manu- 
factures in 1931 were 8% below 1929. In twenty-five manufacturing 
industries average weekly earnings decreased from $28.54 i^ ^9^9 ^^ 
$17.10 in 1932, or 40%, and hourly earnings from 58.9^ to 49.7^, or 
16%. In 1931, the hourly rate for unskilled workers in manufactures 
was 8% below 1901. The wages of hired farm labor were at the lowest 
level since 1916. . . . Clerical workers suffered more than in previous 
depressions; their work is now so thoroughly mechanized that they 
are practically wage-workers. The salaries of women clerical workers 
in New York City fell 25% to 40%. This is one of many similar adver- 
tisements which appeared in the newspapers of New York City early 
in 1933: "Wanted, Stenographer-Bookkeeper: This position in small 
office requires capability, experience, and industry, easily worth $30 a 
week and more. Now offering $12-15 ^ week. No beginners." The 
average earnings of clerical women workers were $11.39 weekly; em- 
ployers deliberately depended upon "charity taking the place of an 
adequate wage." One lawyer offered $8 weekly for an expert typist 
with a knowledge of German; another cut the salary of his secretary, 
a college graduate, to $6. . . . Workers in professional occupations had 
their wages cut and work hours increased. Dentists offered assist- 
ants weekly salaries of $10 and less. College graduates, after preparing 
for professional service, of which there is a tremendous need, were 
offered this (advertisement in the New York Times and World-Tele- 
gram) : "Graduates of Harvard, Yale, or Princeton to learn restaurant 
business starting as bus boys in famous Times Square restaurant; 
weekly salary begins at $15; splendid opportunity."^^ Never was a 
myth as thoroughly exploded as the myth of the policy of high wages. 
As a result of unemployment, wage cuts, and part-time work, wages 
fell to levels unprecedented in any other depression. Wages disbursed 
by corporations, probably 75% of the total, fell 21% in the worst year 
of the 1920—22 depression; in the worst year of this depression they 
fell 65% (Table V). The aggregate of wages, in the two years 1931- 
32, were not much higher than in the single year 1921, when the 
depression was at its worst. Total wages in 1932 were not only 65% 
below 1929 and half as much as in 1921-22, but were lower than in 
any year since 1910. In neither depression, however, did dividends and 
interest follow the fall in wages. They even rose slightly in 1921-22, 
while wages moved downward. In 1930, dividends and interest fell 
1.8%, but were 7.7% higher than in 1928. As the depression became 
worse wages tumbled disastrously. Even dividends and interest, con- 

The Policy of High Wages 



Dividends, Interest, Salaries, and 

Wages in 



officers' i 












$5,570 lOO.O 



$22,155 lOO.O 


5,617 100.8 



17,525 79.1 


5,702 102,4 



18,410 83.1 


10,686 loo.o 


1 00.0 

24,675 lOO.O 


10,492 98.2 



18,506 75.0 


8,674 8l.2 



13,151 53-3 


7,1361 66.7 



8,636 35.0 

* Not available. 

t Dividends for 1920-22 include only the amounts received by income-taxpayers; 
other years include all dividends disbursed less intercorporate dividends. 

X Estimated. 

Source and methods of computation: Dividends, interest, and officers' salaries — Statis- 
tics of Income. Wages for 1920-22 are the estimates of W. I. King, The National Income 
and Its Purchasing Power, p. 132, of which 75% is assumed to be disbursed by corpora- 
tions. For later years wages have been estimated as follows: According to the United 
States Bureau of Labor Statistics, wages in manufactures in 1929 were the same as in 
1926; applying this ratio to King's estimate of total wages in 1926 and allowing for 
the fact that the Census reports of wages in manufactures constituted 35.3% of total wages 
in 1923, 1925, and 1927, yields the figure of total wages for 1929. The Census for 
1 93 1 reports wages in manufactures of $7,225 million, 62.2% below 1929; but as 
unemployment was greater in other industries, it is assumed that manufacturing wages 
constituted 50%, instead of 44%, of total wages. The Bureau of Labor Statistics esti- 
mates that wages in manufactures were 80% of 1929 in 1930 and 38% in 1932; applica- 
tion of these ratios to total wages for 1929 and an allowance for greater unemployment 
and wage cuts in non-manufacturing industries yields the figures for total wages for 
1929 and an allowance for greater unemployment in non-manufacturing industries 
yields the figures for total wages in 1930 and 1932. 

trary to the former experience, were affected by the unusual severity 
of the depression.* They were, however, fairly generously maintained. 
In the three years ig^o-^2, aggregate interest and dividend payments 
were ^4-9% higher than in 1^21—22, while wages were 2^.2% lower. 
This is progress, undoubtedly, in the protection of the income of the 
owning class, but not in preventing depression, mass unemployment, 
and mass starvation. And the policy of high wages.? In ig^o-^2 wages 
averaged only ^4.6% of the ig2g level, dividends and interest 82.4%^ 

* Except interest on federal, state, and municipal bonds; this rose steadily until it 
exceeded $1,560 million in 1932. New York Times, January 29, 1934. 

90 The Decline of American Capitalism 

Generosity in the payment of dividends and interest undermines pros- 
perity and prolongs depression. 

Beating down wages was the primary method of maintaining divi- 
dend and interest payments. Sometimes this assumed peculiarly revolt- 
ing forms. The railroad managements, for example, secured a wage 
"deduction" on the plea that the saving would be used to stabilize 
employment, but it was actually used to pay dividends. A minor 
method consisted of downright swindle. In 1931-32 four of the largest 
New York guarantee mortgage and title companies paid dividends of 
$13,150,000, at rates ranging from 4.5% to 25%, after invoking the 
clause which permitted them to defer (that is, default) payments of 
interest and principal on mortgages. Holding companies plundered 
subsidiaries to maintain their own dividends. But interest and divi- 
dend payments were maintained also by dipping into surplus, for net 
income decreased severely and deficits mounted. Corporations retain 
a considerable part of their earnings; one part is reinvested, another 
part is put into cash reserves, salable property outside the business, 
and government securities. This practice represents an accumulation 
of "rainy-day funds," according to one authority, "as an insurance 
that dividends will be maintained." Out of these "insurance" reserves 
corporations pay dividends when earnings fall or deficits arise, both 
in prosperity and depression. In 1930, surplus amounted to $54,898 
million; of this $10,000 million was invested in tax-exempt govern- 
ment securities, yielding an income of $536 million. Corporate surplus 
was "dipped into" to the extent of $10,760 million in 1930-31.^^ The 
corporation executives who practice dividend insurance sternly reject 
compulsory unemployment insurance as a menace to "our sturdy 
American individualism." So do those rugged individualists, the stock- 
holders, who do not consider it demoralizing to accept the "dole" of 
dividend payments which are not earned. 

The officers of corporations not only take care of the stockholders 
(and of themselves as stockholders), but also take care of themselves 
as officers. In the depression of 1921-22, officers' salaries were fairly 
well maintained, while net earnings fell and wages were slashed. In 
1930-32, the fall in wages compared with salaries was even greater 
than in the previous depression. Salaries were higher than in 1921-22, 
wages lower. What fall there was did not affect the "big" captains of 
industry and finance. Many even managed to increase their com- 
pensation considerably. From 1929 to 1933, while the bank of which 
he was chairman was losing millions, Albert H. Wiggin "earned" 
$1,500,000 in salary and bonuses. He made more millions speculating 








_ H 19^0-^2 h 













1- 1929^32 







Wages : down 25% 
Dividends-interest: up 55% 




92 The Decline of American Capitalism 

in the bank's stock. Upon retiring as chairman, Wiggin was voted a 
life salary of $100,000. The assets of the four largest life insurance 
companies shrank "alarmingly," yet officers' salaries rose from $970,000 
in 1929 to $1,180,000 in 1932. These are all mutual companies, run 
solely, according to their masters, in the interest of policyholders, par- 
ticularly the widows and orphans. While wages were cut severely on 
the railroads, presidential salaries of $80,000 to $120,000 yearly were 
increased or maintained. The officers of public utility corporations, 
which did not cut rates although wages and prices fell, were very 
keen on taking care of themselves. Officers' salaries in five electric 
companies in New York City were from 17% to 77% higher in 1932 
than in 1927. One company, in 1933, simultaneously raised its officers' 
salaries and cut the payroll 8%. Another raised administrative salaries 
from $149,700 to $230,000 and cut the payroll $1,500,000. The salary of 
the president of an aircraft company was raised from $100,000 in 1929 
to $192,500 in 1932. One tobacco company in 1932 paid its president 
$2,627,000 in salary and bonuses.^^ The large corporations of to-day, 
where ownership is separated from management and control, resem- 
ble a feudal barony. They are run primarily in the interest of the of- 
ficers and their financial capitalist masters. Then come the stockhold- 
ers, who are plundered in many ways. Labor is a poor third. 

Clearly there is a fundamental antagonism between profits and 
wages. It is irreconcilable. Wages are not determined under the "ideal'* 
conditions assumed by bourgeois economists, whose wage theories 
accept the permanence of capitaHsm and justify the exploitation of 
labor. Within the Hmits of the value of labor power (itself an historical 
category), competitive conditions in the labor market, and the expan- 
sion of capitalist production, wages are determined by class power 
and class action. The movement of wages is, however, limited by 
conditions which perpetuate and increase capitalist exploitation. Even 
when wages rise, they fall relative to profits, which rise still more. 
Profits and wages move inversely: the one rises as the other falls. 
Profits may rise because wages fall or wages may fall because profits 
rise; but the tendency is for wages always to fall relatively to profits. 
This augments the mass of capital and its power to exploit the work- 
ers. But it simultaneously sets in motion the forces which create eco- 
nomic disproportions and cyclical breakdown, and cumulatively devel- 
ops the elements of the decline of capitalism. The antagonism between 
profits and wages becomes stronger in the epoch of capitalist decline, 
when production tends to move downward because of the exhaustion 
of the long-time factors of economic expansion. Competitive condi- 

The Policy of High Wages 93 

tions in the labor market are aggravated by the increasing mass of 
unemployed workers. The capitalist class beats down wages and stand- 
ards of living to compensate for the fall in production and profits. 


Profits and Wages: State Capitalism 


HE prophets of the pre-1929 "new capitalism" assumed that the 
"pohcy of high wages" had ended the antagonism between wages and 
profits. EnHghtened employers, they insisted, recognized that pros- 
perity depends upon the workers receiving a "balanced" and "propor- 
tional" share in production and productivity gains in the shape of 
increasingly higher wages. As that assumption was shattered by the 
depression, the prophets of Niraism assume that state intervention will 
"balance" wages and profits. But state capitaHsm aggravates, it does 
not abolish, this most fundamental antagonism of capitalist produc- 

It is assumed that the real purpose of Niraism, and of the state 
capitalism of which it is an expression, is to "balance" wages and prof- 
its and production and consumption, and thus "safeguard" prosperity. 
But this would mean control of all economic activity. It would mean 
control of production, prices, and consumption, of wages, profits, and 
income, of the output of capital goods and consumption goods, of 
capital accumulation and investment, of industry and agriculture. 
All of these elements, under capitalism, affect the antagonism between 
wages and profits, and are affected by it. Complete control of economic 
activity means the planned economy of socialism: it is impossible 
under the antagonistic, profit-making relations of capitalism. Incom- 
plete control by the capitalist state, as in Italy and Germany, in 
France and Britain, and its American beginnings in Niraism, is an 
expression and aggravation of the decline of capitalism. "Controls" 
repress instead of liberate economic forces. The attempts to "ease" 
one disproportion create or intensify other disproportions. Thus 
"easing" the farmers' burdens by inflation raised the prices of the 
goods they buy more than the prices of the goods they sell, and 
decreased purchasing power among the workers by lowering the 
real value of wages. The scope and objectives are limited by the 
desire to "save" capitaUsm. Under state capitalism all the essential 
relations of capitalist production are retained. Within modifications, 
limitations, and "controls," economic activity moves in the same con- 


Profits and Wages 95 

tradictory and antagonistic fashion as under "unfettered" capitalism, 
and the movement decrees that wages must lag behind profits. 

Wages always lag behind profits. A general rise in wages may 
mean more consumption and production, but a general rise is rare, 
depending upon falling prices and labor's militancy. The rise ends, 
moreover, in the fall of wages relatively to profits as employers in- 
crease the productivity of labor and profits. Wage increases are volun- 
tarily granted only in exceptional cases: to "key" workers and on piece 
rates (afterward cut) to raise the productivity of labor, resulting in an 
absolute or relative decrease in total wages and a displacement of 
workers. Lx)w wages may not necessarily mean low costs, but low 
wages and an increasing productivity of labor mean lower costs and 
higher profits. 

The fatal flaw in the "policy of high wages" was this : Higher wages 
might mean more consumption, production, and profits, but as em- 
ployers were free to raise or not to raise wages, the employers who 
did not raise wages would gain more than the employers who did, 
because in terms of a particular enterprise higher wages mean rela- 
tively lower profits. 

The fatal flaw in the proposals of Niraism, of state capitalism in 
general, is this: If the "fixing" of minimum wages raises labor costs 
(although minimum tends to become maximum), profits must 
fall, and efforts to increase the productivity of labor to lower costs 
and raise profits must be intensified, resulting in an absolute or rela- 
tive decrease in total wages and employment. 

Profits are not made by paying the workers higher wages. They are 
made by forcing down wages relatively to profits, by appropriating 
more surplus value, more unpaid labor. If $1,000 million are added to 
wages it would increase consumption and production; the capitalists 
would make only a very small profit, however, on the additional out- 
put and sales. If the capitalists retain the fi,ooo million as profits, 
their wealth is correspondingly augmented and its investment creates 
new claims upon labor, production, and income. It is not that part 
of labor's product (wages) consumed by the workers as means of 
subsistence which enriches the capitalists, but that part of labor's 
product (profits) converted into capital goods. Capitalist production 
means accumulation of capital, an increasing output and absorption 
of capital goods, thereby converting profits into capital and permitting 
an increasing exploitation of labor. Profits and wages must necessarily 
clash and profits beat down wages, whether capitalism is "unfettered" 

96 The Decline of American Capitalism 

or under "controls." The antagonism is revealed by the movement of 
cyclical revival: 

In the four months of cyclical revival in April-July 1933, industrial 
production rose 50%, total wages 20% and employment 10%. (These 
percentages are approximations, but they accurately indicate the trend.) 

In the first four months of cyclical revival in 1921 industrial pro- 
duction rose 10%, total wages 8% and employment 6%.^ 

Ip both revivals, employment and wages lagged behind production 
(and profits). It was the same after the minor depressions of 1924 and 
1927. According to the Wall Street Journal: "It is a natural develop- 
ment for profits and production to forge ahead of employment and 
wages in recovery,"^ But there was one significant difference: the 
unequal rise of production and of employment and wages was much 
greater in /pjj than in ig2i. Not only was the inequality not over- 
come, it was aggravated. 

Part of the greater lag of employment and wages behind output 
(and profits) was a result of the sharper cyclical decline of produc- 
tion in 1929-33. The minimum labor force maintained was capable of 
a larger increase in output than in 1921, without any large increase 
in employment and wages. But there were two more important fac- 
tors. One was the higher productivity of labor, which, according to 
the National Bureau of Economic Research, rose 12% in 1929-32 com- 
pared with only 7% in 1927-29;^ it rose again sharply in 1933. The 
other factor was the strong drive to "earn" profits to resume or increase 
dividends and strengthen depleted financial reserves. Profits shot up 
almost magically. In the first quarter of 1933, 205 large corporations 
in manufactures, mining, and services, with a "net worth" $7,443 
million, had a deficit of $14,831,000; they made profits of $86,878,000 
in the second quarter and of $129,576,000 in the third quarter. In the 
first nine months of 1933 their profits rose to $200,367,000 compared 
with $30,266,000 in the previous year. The net income of 125 corpora- 
tions rose from $57 million in 1932 to $246 million in 1933, an increase 
of 331%. In the case of General Motors, profits rose from $165,000 to 
$83,214,000.* The rise in profits soared beyond the small rise in pro- 
duction and the smaller rise in employment, and wages. And in part 
of the third and all of the fourth quarter, higher profits were ac- 
companied by decreasing production, employment, and wages. 

The NRA was not in action in April-June, when employment and 
wages lagged behind the inflationary rise in production and profits. 
But the same condition prevailed in July and after, when the NRA 
was in action. The NRA, moreover, shared direct responsibility for 

Profits and Wages 97 

the lag of wages behind production and profits. Its wage policy, in 
spite of the pretentious claims, was in accord with the employers' 
interests. It set terribly low minimums, restrained workers on strike 
for higher wages, and cut real wages by the inflationary rise in prices. 

The policy of fixing minimum wages was belated reformism. Al- 
ways limited and largely illusory, it might have had some value during 
prosperity, in the epoch of the upswing of capitalism. In depression 
and decline, the policy merely "fixes" wages at prevailing low levels. 
Only a small part of the workers were affected by the minimum 
wages. Their practically permissive character, moreover, allowed em- 
ployers to evade paying the minimums. Evasions involved all sorts of 
contemptible expedients and merciless pressure upon the most help- 
less workers, particularly Negro and "alien" workers. As bad as the 
evasions was the character of the minimums. In no case were they 
even an approach to a decent standard of living. In all cases the 
minimums were based on depression wage levels. In many cases they 
were below prevailing average wages. 

There was some increase in some wage rates, mainly among the 
most exploited workers and only in comparison with the low depres- 
sion levels; but that was offset by the lesser number of hours worked 
and the rise in the cost of living. In 312 New England companies, 90% 
operating under NRA codes, weekly hours worked fell 16% from 
June to October, 1933; average weekly earnings rose only 6%. Accord- 
ing to the NRA Administrator in New York City, employment rose 
20% from August i to November i, payrolls only 13%. By November, 
hourly wage rates in sixteen producing and distributing industries had 
risen 5V2C and average weekly earnings 3% over 1932. The low level of 
wages in many cases is demonstrated by one 'of the major reasons for 
the Civil Works Administration's liquidation of its make-work ac- 
tivities which began in January, 1934; it was, according to the New 
York Post, "bowing to the demands of employers, particularly in the 
South, who say workers are quitting them to get on the government 
payroll at better wages." ^ The CWA paid average wages of $9 to $14 
weekly to the great majority of its workers! 

The minimum wages tended, moreover, to become the maximum, 
a complaint made again and again by labor leaders, who did little 
about it. This affected all categories of workers. Among "white collar" 
workers, according to the New York University Employment Bureau, 
the NRA drove down wages: "The $20 to $22 job is now about a $15 
job, because employers tend to keep their wages around the NRA 
minimum."^ Because of their unorganized condition, the technicians 

98 The Decline of American Capitalism 

were hit hard. In one code qualified chemists got $14 weekly; in 
another, technical employees got 35^ to 45^^ an hour. "The technicians 
now find themselves in many cases receiving about half the wages o£ 
skilled labor under the NRA codes. No provisions have been made 
for them in the codes of many industries, the technicians being con- 
veniently regarded as 'superintendents' or 'executives.' In many cases 
the men are receiving only the minimum wage provided for unskilled 
labor.'"^ The result of the minimum wage "fixing" was a tendency 
to break down the differentials between skilled and unskilled and semi- 
skilled workers. It is desirable to decrease the differentials: they are 
largely artificial, altogether too great, and they create antagonisms 
between different groups of workers. But the NRA breaks down dif- 
ferentials not by raising the wages of the poorer-paid workers but by 
lowering the wages of the better-paid — a development characteristic 
of the decline of capitalism. 

Real wages fell considerably because of the inflationary rise in prices 
and the cost of living. Food prices in December, 1933, were 7% higher 
than one year earlier. On December i, 1933 the retail price index was 
26.8 higher than in May; 10% less units were sold in 1933 than in the 
previous year.^ Yet production was 10% higher, mainly because of 
increases in inventory stocks in anticipation of more inflation. 

After nearly four years of depression the workers began to act. There 
was an upsurge of strikes for union recognition and of strikes for 
higher wages. But the NRA acted as a brake upon the efforts of the 
workers to raise wages. A favorite answer of employers to workers 
striking for higher wages was: "The demands are far beyond limits 
fixed by the code." ® Thus strikers were put in the position of fighting 
the government, as limits in the code were fixed by the government 
apparatus of the NRA. The codes were framed by representatives of 
capitalist government and capitalist industry; in most cases organized 
labor did not even get the meaningless courtesy of "advisory" partici- 
pation. Employers appealed to the NRA against strikes, and its pres- 
sure was used to drive the workers back to work. Strikes were not 
made illegal, but the apparatus of the NRA was mobilized to dis- 
courage, prevent, and "settle" strikes. This included a National Labor 
Board to mediate, that is, suppress strikes. It was made clear that strikes 
were an "interference" with the recovery program. The discouragement 
of strikes and the driving of strikers back to work was assisted by 
the reactionary labor leaders, who considered the National Industrial 

Profits and Wages 99 

Recovery Act a "charter of labor" — the same leaders who in 1923-29 
extolled the "policy of high wages" and the "new capitalism." 

Labor leaders and liberals declared that Niraism's "recognition" o£ 
trade unions and collective bargaining was a great victory for the 
workers. But "recognition" was tied up with the NRA, an expression 
of state capitalism. It represents the imposition of state controls over 
independent unionism and the lowering of wages in the epoch of the 
decline of capitaUsm. 

One of the motives of "recognition" was to prevent labor revolts 
and an upsurge of radical forces. The NRA program was beset with 
dangers. Revival was slow and incomplete, wages small and prices 
rising. Labor might revolt. It had to be cajoled and shackled. Direct 
repression was dangerous under the prevailing conditions: labor revolts 
might mean disaster. Hence the resort to cajolery and shackles. Mil- 
lions spent on relief and "make work" schemes might make workers 
forget the billions handed out to corporations. "Recognition" of trade 
unions and collective bargaining would satisfy and intrench the union 
bureaucracy, which would act — and did — as a bulwark against an 
upsurge of labor militancy. At the beginning, moreover, state capitalism 
clings to formal democracy, decks itself in the older ideology, attempts 
to rule by "balancing" class interests. 

Another motive of "recognidon" was to secure mass support for the 
NRA and force it upon employers resisting its "controls." Not all 
employers accept new developments, even when they are in their own 
interest, particularly if disadvantages are imposed upon some groups 
of employers. (The NRA increases the differentials in favor of the 
larger employers and corporations over the smaller.) State capitalism 
may use compulsion over certain capitalists or groups of capitalists. 
The struggle is not, however, one of government and labor against the 
capitalists. It is between capitalists who cling to old ideas and those 
who see the necessity of changes, with the government emphasizing 
the new conditions and new needs in the interest of the capitalists as 
a class. To accomplish its ends, government may use labor and liberal 
sentiment — temporarily, within limits, and under safeguards. Thus 
strikes, in which workers' blood was shed, and threats of strikes were 
a factor in the operators' acceptance of the bituminous coal code. 

There was danger, however, in mass support secured by union 
"recognition" and in promises, accepted seriously by the workers, of 
higher wages. The NRA acted accordingly. 

Recognition was virtually limited to existing unions. The closed 

100 The Decline of American Capitalism 

shop was rejected, because, according to General Hugh Johnson, NRA 
Administrator, it "would amount to employer coercion which is con- 
trary to law . . . especially if the union did not have ioo% member- 
ship." This was driven home by H. I. Harriman, president of the 
Chamber of Commerce of the United States: "The closed shop is 
prohibited by the Recovery Act." Under the NRA, there was, accord- 
ing to the National Industrial Conference Board, an increase of i8o% 
in the number of company unions of one form or another; of 3,314 
manufacturing and mining concerns employing 2,585,740 workers, 
653 concerns, employing 1,163,575 workers had company unions, and 
only 416 concerns employing 240,394 workers recognized trade 

The NRA developed an apparatus to control labor, prevent strikes, 
and restrict independent unionism. This appears in the mediation 
functions of the National Labor Board. It appears more clearly in the 
labor provisions of the Code of Fair Competition for the Bituminous 
Coal Industry .^^ In the preliminary hearings to frame the code, sugges- 
tions to give labor "adequate representation" were brushed aside by 
the operators' objections. The code set up six divisional code authori- 
ties, all of whose members (except one, with no vote, appointed by 
the President of the United States) are representatives of the coal 
operators. No provision was made for a labor representative, nor for 
labor representatives on the governing body of the industry, the 
National Bituminous Industrial Board. Six labor boards, of three 
members each, were set up, all the members appointed by the Presi- 
dent, one from nominations by "organizations of employees," one from 
nominations of the divisional code authorities (on which only the 
employers and the government are represented), and one "a wholly 
impartial and disinterested representative of the President." The code 
grants the operators measurable self-government in the form of what 
are virtually cartels, with powers to "prevent destructive price-cutting," 
the government reserving, in state-capitalist fashion, the right to inter- 
vene. But labor is subordinated to the employers and the state: even 
labor's one-third representation on the labor boards is under control 
of the President. The President can always find an amenable "labor 
leader." This was demonstrated during one of the coal strikes involv- 
ing 75,000 workers. At one o'clock in the morning President Roosevelt 
telephoned to Philip Murray, vice-president of the United Mine Work- 
ers of America. This was the conversation: 

Roosevelt: Philip, I want you to get these men back to work. 

Profits and Wages loi 

Murray: If there's anything in God's world I can do for you, I 
will be glad to try. 

In reporting the conversation to the strikers, Murray added: 

"Any union or union officials who refuse to obey the President's 
command will not live very long." ^^ 

A formal protest was made by William Green, president of the 
American Federation of Labor, and John L. Lewis, president of the 
United Mine Workers of America, who declared that "the labor 
boards are meaningless and unsatisfactory to labor." ^^ The protest 
was unavailing. And the boards are not meaningless, they are an 
employer-state apparatus for the control of labor. The labor leaders 
then characteristically shifted their objective to a compromise, empty 
in itself but capable of being called a victory. They asked, and secured 
after much shilly-shallying, representation on the National Bituminous 
Coal Board in the person of John L. Lewis.* But of the board's mem- 
bers nine are direct representatives of the employers; five are appointed 
by the President, one for each divisional code authority on which 
employers alone are represented; and two are Presidential appointees 
at large.^* Thus labor has one out of sixteen members on the National 
Coal Board, he is appointed by the President, and the appointment is 
not compulsory. It was a famous victory! 

As strikes multiplied and the NRA felt more sure of itself, it moved 
toward the outlawry of strikes. This policy and its threat were ex- 
pressed belligerently by General Johnson at the convention of the 
American Federation of Labor: 

"The very foundations of organized labor are at test here and now. 
. . . Labor does not need to strike under the Roosevelt plan. . . . The 
plain, stark truth is that you cannot tolerate the strike. ... In the 
codes you are given complete and highly effective protection of your 
rights." ^^ 

These developments are wholly in accord with the state-capitalist 
nature of Niraism. The NRA may change its forms or be replaced by 
another apparatus, but the labor-capital slant of state capitalism will 
remain the same. 

The controls imposed upon capital are in the interest of capital. 

* A few days after the coal code was adopted, Lewis signed a "collective bargain- 
ing" agreement with the non-union operators, which grants employers the exclusive 
right to hire and fire, prohibits strikes, and adds: "Under no circumstances shall the 
operators discuss the matter under dispute with the mine committees or any representa- 
tives of the United Mine Workers of America during a suspension of work in violation of 
this agreement." New York Times, September 22, 1933. 

102 The Decline of American Capitalism 

They release capital from restrictions, particularly the anti-trust laws, 
and implement its powers over industry and labor. 

The controls imposed upon labor are not in the interest o£ labor. 
They institutionalize labor's subordination to capital, progressively 
deprive unionism of its independence, and tend to outlaw strikes, 
labor's most effective means o£ struggle for higher wages. 

There is no contradiction in the NRA "recognizing" trade unions 
and collective bargaining while imposing safeguards and controls 
which limit labor's independence and action. For state capitalism is, in 
one aspect, an attempt to "balance" class interests, since it still oper- 
ates within the confines of bourgeois democracy. It must make con- 
cessions — if only in words — to the different classes. Thus unions and 
collective bargaining are recognized, labor is given representation, if 
only advisory, on arbitration and other tribunals, labor laws are 
adopted, and labor code authorities are set up. In pre-fascist Germany, 
where state capitalism was highly developed, a whole labor juris- 
prudence arose, a "constitutional labor order," considered by the 
social-democrats a "step toward" socialism (it ended, however, in 
fascism). But the whole process proceeds within the limits o£ capital- 
ism and on the basis of the state, and is consequently dominated 
by the economic and political weight of the capitalist class. The process, 
moreover, is an expression of the decline of capitalism, when conces- 
sions — if only relief — are a burden upon capital. As state capitalism 
attempts to reconcile economic and class antagonisms, they become 
constantly more acute. Hence the "recognition" of labor is accompanied 
by laws and acts for an increasing coercion of labor. The role of 
the state as strikebreaker becomes more necessary and is strengthened. 
In the epoch of the decline of capitalism, both employment and wages 
fall. The workers resist. Resistance tends to become revolutionary, as 
the burdens of decline are thrust upon the workers. The state inter- 
venes more ruthlessly to deprive labor of the possibility of independent 
action and revolutionary initiative. This policy of suppression assumes 
its most complete and brutal forms under fascism. . . . 

The upward movement of real wages in 1921—22 was conditioned 
by the militant struggles of labor against wage cuts. In 1933-34, 
although there was an upsurge of labor miHtancy, strikes were broken 
and the results limited by the NRA apparatus for the suppression of 
labor. (Later, distrustful of the NRA, labor was more successful.) 

The upward movement of real wages in 1921-22 was conditioned by 
the fall in prices, which increased the purchasing power of wages. In 
1933-34, real wages fell because of the desperate resort to inflation and 

Profits and Wages 103 

the tendency of the NRA to maintain money wages at low, fixed 

The upward movement of real wages in 1921-22 was conditioned by 
the expansion of production; this transformed cyclical revival into 
a comparatively high level of prosperity. Revival seized upon the pro- 
duction of capital goods, the sustaining force in prosperity, because of 
the working of long-time factors of expansion. In 1933-34, revival was 
speculative and incomplete, it was not forced upward by an increasing 
production of capital goods, which lagged behind even the small in- 
crease in production. This was a result of exhaustion of the long-time 
factors of expansion, of the decline of American capitalism. 

Niraism insists that its objective is to decrease unemployment and 
increase purchasing power. But the objective and the means are 
limited by the nature of capitalist production, and limited still more 
by the conditions of capitalist decline. In previous cycUcal revivals, 
employment and purchasing power rose because of the onward sweep 
of recovery. The incomplete character of recovery forces Niraism more 
and more to expedients. Unemployment is "decreased" by "spread- 
ing" work and "making" work, measures with very definite limits. 
Purchasing power is "increased" by slightly raising total wages and 
lowering average wages: a peculiar way of increasing purchasing 
power, but profitable to the capitalists. "It is," says a bourgeois econ- 
omist, who urges drastic wage cuts, "the amount of the total wage 
bill and not the height of the average wage which affects the aggregate 
volume of spending. Indeed, two laborers each receiving $3 per day 
would be more certain to spend at once nearly all their income than 
would one wage-earner receiving $6 per day, for their wants would 
be more urgent." ^'^ The smaller the wage the larger the proportion 
spent on immediate consumption; the "higher" the wage the larger 
the proportion saved, and labor's savings are of course unnecessary 
where there is an abundance of idle capital or of unused capital equip- 
ment. Consumption is to be "increased" by depriving employed work- 
ers of that part of their wages which they might save and pay it to 
newly employed workers, forcing all wage income to be spent. Thus 
standards of living are lowered under the conditions of the decline of 
capitalism. Wages are being cut in all capitalist nations. The fascist 
government of Italy orders another cut in wages and salaries, after the 
cut in 1930 of 10% to 12%, in order that Italian capitalists may compete 
more effectively in the world market, where they are being "under- 
sold." Compensation is offered in the form of a simultaneous and 
equal cut in the prices of food, rent, and transportation, but this in 

104 The Decline of American Capitalism 

practice never equals the cut in wages. In 1932, the German employers 
were permitted to pay newly employed workers about one-half of the 
prevailing wages. This policy of the von Papen government took the 
form, in the policy of its fascist successor, of permitting employers to 
cut the wages of employed workers if the "saving" was used to hire 
additional workers; the Hitler government justified the cuts as a 
means of "increasing" employment and "maintaining" payroUs.^^ 
These are the desperate resorts of capitalism tormented by decline and 
trying to save itself by thrusting the burdens of decline upon the 

Wages and employment lagged behind production and profits in 
the revival of 1921-22, in the prosperity of 1923-29, and in the "revival" 
of 1933-34. Nor was the lag a result of the NRA in its early stages 
depending more upon "persuasion" than "force," placing faith in the 
voluntary action of "enlightened" employers, much in the manner of 
the "Golden Age" of pre-1929 prosperity. As Niraism becomes full- 
fledged state capitalism and "controls" are stiffened, the clash between 
wages and profits is sharpened. State intervention to "fix" wages and 
prices, and the general tendency of profits to fall under the conditions 
of decline, results in a greater drive to improve technological efficiency 
and raise the productivity of labor, which are not under control. Con- 
sidering the problem from the angle of price-fixing, a bourgeois econ- 
omist concludes: "Prices construed as 'fair' . . . will put a premium 
on efforts to lower the cost of production for the sake of much higher 
profits. This will be done by investing more capital in order to increase 
the productivity of labor." ^^ That is assuming that prices are fixed 
downward. They may be fixed upward, and thereby directly increase 
profits and indirectly decrease wages. But as state capitaUsm operates 
in the orbit of the decline of capitalism, the tendency will be for 
profits to decrease. This sharpens the clash between profits and wages 
and multiplies capitalist efforts to lower wages in favor of profits. 
The government intervenes directly to cut wages, as in Germany and 

Wages always lag behind profits. The lag assumes three major 

In the epoch of the industrial revolution and for some time after- 
ward, wages fell but profits rose greatly. 

In the epoch of the upswing of capitalism, wages tended to rise but 
profits rose still higher. 

In the epoch of the decHne of capitalism profits tend to fall, but 

Profits and Wages 105 

wages fall still more; profits move up relatively as v^ages move down- 

In the epoch of the upswing of capitalism there was a relative fall 
in the workers' standards of living. In the epoch of decline there is 
an absolute fall in the workers' standards of living. This means a 
return to the state of "increasing misery" characteristic of early capi- 
talism, aggravated by all the burdens of imperiaUst wars. . . . 

The conditions of capitaHst decline, of which Niraism is an expres- 
sion, limit the expansion of industry and the opportunities for 
profitable investment of capital. Profits tend to fall. The fall is all the 
greater because of the burdens of taxation imposed upon industry. 
These burdens result from the state pouring public money into in- 
dustry, measures to safeguard profits, relief for the constantly growing 
masses of the needy unemployed, an increasing bureaucracy, and 
multiplication of the costs of armaments and war. The efforts to save 
capitalism are of a strangulating nature. Above all, they strangle the 
workers. All pretense of a policy of high wages is abandoned. The 
pack begins to bay in one swelling chorus: "Cut wages!" In the name 
of theory the economists of France, Germany, and Italy insist that 
wages must fall. W. A. Beveridge, A. C. Pigou, Henry Clay, and 
other English economists insist that wages must fall. In the United 
States, Prof. W. I. King * and others insist that wages must fall. True, 
these American economists are now overwhelmed by the pretentious 
"high wage" chorus, but they will come into their own. And the 
economists base their arguments upon what is essentially the theory 
of laissez-faire economics, which was never very real and is almost 
wholly unreal in the age of monopoly capitalism and imperialism. 
State capitalism justifying wage cuts in the name of laissez-faire! The 
economists will generously admit that high wages are good, that they 
are a human and cultural necessity. But they must fall because of 
inexorable economic necessity. If wages fall employment will rise. Thus 
the economists abandon the hope of progress, and offer only the pros- 
pect of lower standards of living. And they forget that lower wages 
and lower costs are not necessarily translated into lower prices and 
higher demand, particularly in the epoch of the decline of capitalism. 

* King is an "objective" economist whose objectivity completely accepts and justifies 
capitalism. He considers economics a "science," but a science which refuses to go 
beyond the relations and needs of capitalist production. It is an interesting phenomenon 
that the more "objective" the economist, the more he is an apologist of capitalism. 
Thus King urges, on what he insists are wholly scientific and objective grounds, 
that wage cuts are necessary to revive prosperity. 

io6 The Decline of American Capitalism 

The economists insist that lower wages and lower costs are necessary 
to increase foreign trade; but they forget that all capitalist nations 
are lowering wages and costs and raising tariff barriers. Wages must 
be cut to increase profits and stimulate the production of capital goods; 
but capitalist industry is now capable of absorbing only a decreasing 
output of capital goods. The arguments of the economists are mere 

As profits fall or tend to fall, in the epoch of the decline of capital- 
ism, wages are driven down to maintain profits. Wages can rise only 
when there is an unusual expansion of industry. As expansion becomes 
limited, wages must fall, absolutely and relatively. Increasingly larger 
numbers of workers become permanently unemployed. Their pressure 
tends to lower the wages of the employed workers and is used by the 
employers to beat down wages. Total and average wages fall. Low 
standards of living are lowered still more. The capitalist state imposes 
upon the workers as much as it can of the burdens of higher taxation. 
Relief and the social services are cut, and the bourgeois economists 
manufacture theories to justify the cut. The conditions of decline tor- 
ment not only the workers, but constantly greater circles of "white 
collar" workers, professional workers, small businessmen, farmers. Out 
of these developments arise sharpened class antagonisms, the struggles 
of capitalism, fascism, communism: an era of social explosions and 


Jl HE prosperity which flourished in 1923-29 was the result of an 
unusual combination of the long-time factors of expansion. In the 
revival of 1922, building construction, in which the war had created 
a great shortage, led the upward movement. It was invigorated by the 
development of electric power and the automobile and of new or 
comparatively new industries such as radio, moving pictures, and 
chemicals. The old stimulus of the undeveloped inner continental areas 
was partly replaced by the export of capital and imperialism, an ex- 
ploitation of the international long-time factors of expansion. 

These developments produced increasingly higher profits and their 
conversion into capital by means of an increasing output and absorp- 
tion of capital goods, the basis of prosperity. Both the investment of 
capital and the growth of industry's capital equipment proceeded on 
an immense scale. 

As is usual in prosperity (it is a very condition of its being), the 
profit-makers scored the largest gains. The farmers were wholly ex- 
cluded, and their exclusion was itself an element of capitalist pros- 
perity. While the workers' real wages rose in 1921-23, because of 
falling prices, they were practically stationary thereafter. Wages fell 
relatively to profits. Yet the productivity of labor and surplus value 
rose more than in any other recent period in American history. 

There was, thus, no "policy of increasingly higher wages" in the 
pre-1929 prosperity. It was a policy of higher profits. And the pretense 
was completely exposed by the depression, when wages were slashed 
mercilessly. But the policy reappears in a slightly different form in the 
ballyhoo of Niraism: the government is to "fix" wages, to "balance" 
profits and wages in the interest of an everlasting prosperity. The 
practice of state capitalism is everywhere, however, one of protecting 
profits, not wages. And under the reign of Niraism wages are falling. 
Wages must fall in the epoch of the decline of capitalism because the 
making of profits and their conversion into capital is restricted, as 
exhaustion of the long-time factors of expansion tends to lower pro- 
duction and profits. This tendency may be interrupted by short-lived 
spurts of prosperity, by the "black magic" of imperialism and war. 


io8 The Decline of American Capitalism 

The interruptions will be temporary and eventually disastrous, in- 
tensifying the decUne of capitalism. 

Whether "unfettered" or under "controls" capitalist production im- 
poses definite limits upon the rise of wages. The limits move down- 
ward in the epoch of decline. Underlying the limits, both in prosperity 
and depression, in upswing and decline, is the accumulation of capital 
and its contradictions, which constitute the dynamics of capitalist 


Contradictionsfof Accumulation 


Jl ROFiTS and wages clash, and profits beat down wages, because the 
accumulation of capital is the primary aim and driving force of cap- 
italist production. In its origins, development, and decline, capitalism 
is inseparably identified with accumulation. 

The accumulation of capital means the conversion of profits into 
capital. Profits are realized surplus value, the surplus product of the 
workers which the capitalists appropriate through ownership of the 
means of production. As surplus value and profit are unpaid labor, 
wages and profits move in inverse ratio: the lower the one, the higher 
the other. The capitalists consume only a part of the surplus product 
they appropriate; if they consumed it all, there would be no ac- 
cumulation and no expansion of industry, and, consequently, no new 
profits yielded by new capital. A part of the surplus product must be 
transformed into capital, which takes the form of capital goods to 
produce more profits. Thus accumulation depends upon the capacity 
of industry to make profits and to transform them into capital by 
means of an increasing output and absorption of capital goods. Capital 
goods, the growth of capital plant, multiply and secure capitalist wealth 
and its claims upon labor, production, and income. 

Accumulation is accompanied by the expansion of production and 
an increase in its scale of operation. Where the handicraft worker 
dominated his tools and simple machines, working up limited amounts 
of raw material, the worker in capitalist industry is dominated by the 
massed mechanical equipment of production, working up almost un- 
limited amounts of raw material. The increase in the scale of pro- 
duction means larger and more efficient equipment in giant plants, 
lower labor costs, greater output, lower prices, and higher profits. 
Large-scale production augments the accumulation of capital, which 
in turn reacts upon and augments the scale of production, capital 
investment, and accumulation. 

One result of accumulation and its transformation of industry is 
the relative decline of older agricultural products as industrial raw 
materials in favor of newer products, particularly minerals. The change 
involves, in its economic and political implications, the subjugation 


112 The Decline of American Capitalism 

of agriculture by capitalist industry, and the exploitation of agrarian 
classes and regions by capital. 

Another result of accumulation and its transformation of industry 
is the shift from muscular to mechanical power and a constantly 
greater dependence upon machines and apparatus. Modern industry 
is highly mechanized, requiring tremendous masses of equipment 
and materials. This involves a change in the composition of capital, 
that is, in the proportional amounts of labor, equipment, and mate- 
rials used in industry. Small-scale industry w^as characterized by a 
low composition of capital, the preponderance of variable capital 
(wages, labor) over constant capital (equipment, materials). Large 
scale industry is characterized by a higher composition of capital, the 
preponderance of constant over variable capital. The use of increasingly 
larger masses of equipment and materials multiplies the productivity 
of labor and the output of industry. The higher the composition of 
capital, the more labor is displaced relatively to the other factors of 
production. Wages fall and profits rise. But both cause and eifect 
assume antagonistic forms and provoke disturbances of the most seri- 
ous nature. For the change in the composition of capital underlies 
all the contradictions of accumulation, and these contradictions create 
the inescapable instability and limited character of capitalist produc- 
tion and prosperity. 


Accumulation and the Composition 
of Capital 

vLfiAPiTALisT industry is unceasingly driven to force up profits by re- 
ducing labor costs and enlarging the scale of production. The resulting 
increase in constant capital and relative decrease in variable — the 
higher composition of capital — are most fully apparent in the struc- 
ture of American industry (the most highly developed expression of 
capitalism) .* 

In American manufactures, wages rose from $237 million in 1849 
to $2,320 million in 1899, or 866%; raw materials (including auxiliary 
materials and power) from $555 million to $7,343 miUion, or 1,223%; 
capital, including the investment in machinery, apparatus, and build- 
mgs, from $533 million to $9,835 million, or 1,758%. In 19 14, capital 
investment was 154% higher than in 1899, raw materials 118% higher, 
and wages 103% higher.^ The capital figures are crude, but they 
indicate the upward trend more than the rise in wages and raw 
materials. From 1849 to 1919, the fixed capital per worker rose from 
$560 to $5,000, a ninefold increase compared with only a fourfold 
increase in the average worker's money (not real) earnings. After 
seventy years of change in the composition of capital the worker in 
manufactures set in motion probably seven times as much capital 
equipment and five times as much raw material. While there was a 
decrease in the ratio of wages to constant capital and output, there 
was also a decrease in the ratio of output to fixed capital. This was 
again the case, naturally, in 1923-29 (Table I): constant capital, 
particularly the fixed portion, increased more than wages and output. 

* Precisely because it is the most highly developed, American industry offers the 
fullest confirmation of the analysis Karl Marx made of the laws of capitalist produc- 
tion. It is one of the tasks of this book, using the American statistical material, the most 
abundant in the world, to make a quantitative, as well as qualitative, demonstration 
of the Marxist conception of the fundamental aspects of capitalism — and this despite 
the tendency, on the part of bourgeois economists, to sneer at "Das Kapital" as an 
"outworn economic text-book." Marx, in fundamental theory and analysis, is more 
contemporary than contemporary bourgeois economists. 


The Decline of American Capitalism 


Changes in the Composition of Capital, Manufactures, igi^-ig 

Constant Capital 

Variable Capital 





































II 8.7 











I 17.0 





•Real estate, buildings, and equipment; the fixed capital for 1923 is estimated on the 
basis of the 1924 figure of $22,410 million. 

tLess duplications. 

Source: Fixed capital — Bureau of Internal Revenue, Statistics of Income for the respec- 
tive years; wages, materials, and output — Department of Commerce, Census of Manufac- 
tures, 1929, V. I, p. 15, and Statistical Abstract of the United States, 1931, p. 483. 

In 1923-29, constant capital in manufactures rose over four times 
as much as variable capital: 24.4% compared w^ith 5.7%. Fixed capital 
rose five times as much as v^ages, 70% more than materials and 40% 
more than output. This w^as a considerably greater change in the 
composition of capital than in 1899-1914, w^hen the increase in fixed 
capital ranged only up to 40% more than in the other factors. The 
average w^orker in 1929, w^hile receiving practically the same wages 
as in 1923, set in motion nearly one-third more fixed capital and one- 
sixth more materials and produced one-fifth more output. The pro- 
portion of wages to fixed capital fell from 51.4% to 41.2%, of wages 
to output from 28.2% to 24.5%, and of wages to "value added by 
manufacturing" from 42.7% to 36%. Wages and labor costs fell, profits 

Wages must decrease as the composition of capital becomes higher: 
larger capital investment requires larger profits, and more capital is 
invested in the constant than in the variable form. Wages may fall 
relatively. They may also fall absolutely (as in 1925 and 1927) if an 
unusually rapid improvement in technological efficiency is not com- 
pensated by a sufficient increase in industrial expansion and employ- 
ment. As wages are the price of labor power, of the worker's skill 
and muscle and nerves, the fall in wages involves displacement of 

* Labor costs in 1929 were 9.5% lower than in 1923, overhead costs and profits 10.6% 
higher. The elements of cost as decimal fractions of value output became: materials .663, 
overhead costs and profits .189, labor costs .148. Frederick C. Mills, Economic Tendencies 
in the United States (1932), p. 409. 









ii6 The Decline of American Capitalism 

labor and unemployment. Where displaced workers are absorbed by 
the expansion of industry the displacement is relative. But it tends 
to become absolute: in every year except 1929 the number of workers 
in manufactures was lower than in 1923, and in all years lower than 
in 1919. Nor were lower total wages and employment in manu- 
factures offset by larger wages and employment in other industries, 
which are also affected by changes in the composition of capital. 
In mining, wages fell from $1,161 million in 1919 to $1,066 million 
in 1929, or 8.2%, and workers from 888,355 ^o 788,357, or 11.3%; 
installed power, a rough measure of fixed capital, rose 42%, while 
output rose from $2,225 million to $2,392 million, or 2.4%. On the 
railroads, wages and salaries fell from $3,004 million in 1923 to $2,896 
million in 1929, or 3.6% (the fall in wages alone was much greater) 
and employees from 1,857,674 to 1,660,850, or 10.6%; capital invest- 
ment rose from $21,372 million to $25,465 million, or 19.1%, and 
net operating income from $974 million to $1,262 million, or 29.6%.^ 
In the oil industry and in electric light and power, capital investment 
and profits rose more than wages and employment. While there was 
some increase in the wages of the workers as a whole, it was smaller 
than the increase in profits and property income in general. It was, 
moreover, accompanied by the absolute displacement of 1,000,000 
workers, the average yearly number of unemployed workers in 1923-29 
approaching 2,000,000. 

Thus the higher composition of capital is the objective expression 
of the inner urge of capitalist production to displace labor and the 
wages of labor. In the epoch of the upswing of capitalism, the dis- 
placement was relative; it becomes absolute in the epoch of decline. 
The most characteristic expression of the decline of capitalism is the 
misery of an increasing "surplus population" of unemployed and 
unemployable workers (including professionals), who barely exist on 
the "rations" of reluctant charity, meager unemployment insurance, 
or poor relief. . . . 

The higher composition of capital means an increase in the pro- 
ductivity of labor. More of the work of production is performed, 
and more efficiently, by mechanical equipment, which lessens labor 
and permits the transformation of larger amounts of raw material 
into goods. The higher composition of capital is, therefore, an ex- 
pression of economic progress, the basis of potential plenty and leisure 
for all. But under capitalism it is identified with the urge to displace 
labor, lower wages, and raise profits. Because of this the higher com- 
position of capital simultaneously and antagonistically: 

The Composition of Capital 117 

1. Imposes limitations upon the purchasing power and consumption 
of the workers. Wages always lag behind profits, and wages always 
fall relatively to output and profits. This measurably restricts the 
growth of markets, creates disproportions in the output of means of 
production and means of consumption, and sets in motion the forces 
of cyclical crisis and breakdown. 

2. Imposes limitations upon the production and realization of sur- 
plus value. The decrease of variable capital (wages) in favor of con- 
stant capital (equipment and materials) limits the production of 
surplus value in proportion to the total invested capital; while the 
increase in the output of goods and the restriction of mass purchasing 
power and consumption saturate markets and lower prices to un- 
profitable levels, thereby limiting the realization of surplus value 
in the form of profits. The mass of profits rises, but the rate of profit 
on the total invested capital tends to fall. 

Thus the higher composition of capital is the basic objective factor 
in the contradictions of accumulation and of capitalist production 
and prosperity. 


The Fall in the Rate of Profit 

Jl HE fall in the rate of profit manifests itself as a tendency and not 
in absolute form. For capitalist production struggles incessantly to 
prevent the rate from falling and to raise it. Both the falling tendency 
and the struggle against it condition the most fundamental aspects 
of capitalist development. 

The tendency of the rate of profit to fall is determined by changes 
in the composition of capital, the increase in the productivity of labor, 
and the conditions under which surplus value and profit are produced 
and realized. A fall in the rate of profit may result from causes w^hich 
do not involve changes in the composition of capital, such as a rise 
in the prices of raw materials not offset by a general price rise, 
excessive competition (the old composition being unchanged) forc- 
ing prices down to unprofitable levels, or a restriction of markets 
and sales due to changes in consumer habits and demands. But these 
are temporary and limited in scope. The primary cause of the tendency 
of the rate of profit to fall is the change in the composition of capital 
and the forces thereby set in motion. 

Capitalist enterprise continually strives to raise profits by increas- 
ing the productivity of labor. This is done by enlarging the scale 
of production and displacing labor with more efficient equipment 
working up larger amounts of raw materials, thus lowering the 
proportion of variable to constant capital. The capitalists, who, in their 
calculations, convert values into prices of production, i.e., into costs, 
imagine that constant capital itself produces profit because they in- 
clude a profit on its consumed portions in figuring costs and selling 
prices. But as only its own used-up value is incorporated in com- 
modities, constant capital produces no new value and no surplus 
value; labor, living labor alone produces surplus value, of which 
profit is the realized form. If the rate and mass of surplus value 
remain the same after an increase in constant capital, a fall ensues 
in the rate of profit because the surplus value is now a smaller ratio 
of a larger total of invested capital, on which the rate of profit is 
calculated. It can be otherwise only if the elements of constant capital 
are considerably cheapened; in this case the old or even a higher 


The Fall in the Rate of Profit 119 

rate of profit may be secured. The higher composition of capital, 
however, increases the rate of surplus value: while the living labor 
incorporated in a commodity falls, the unpaid portion, represent- 
ing the surplus value, rises. But this rising tendency of surplus 
value is accompanied by antagonisms which set in motion its opposite, 
the tendency of the rate of profit to fall. The rise in surplus value 
produced by the higher productivity of labor can result in a rising rate 
of profit only under certain definite conditions: // the rise in the 
value of labor's surplus product is greater than the rise in the value 
of constant capital, // all -the new fixed capital is set in motion by 
labor, // prices and profits are not lowered by competition, // markets 
absorb the enlarged output of commodities and permit complete 
reahzation of surplus value and profit.* It is the fact that these con- 
ditions are rarely, if ever, present simultaneously which activates 
the tendency of the rate of profit to fall. 

Underlying the falling tendency of the rate of profit is an increase 
in the productivity of labor and in the scale of production, which 
result in a larger mass of commodities and profit. But capital in- 
vestment tends to increase more than output, more than the reahza- 
tion of surplus value and profit. If the rate on the larger mass of 
profits, calculated on a still larger mass of capital, falls, there follows 
an accelerated investment of capital to overcome the fall in the rate, 
by an increase in the mass of profits. Again there are changes in 
the composition of capital, greater productive capacity and output, 
aggravating the contradiction between the absolute development 
of production and the limited conditions of consumption. This con- 
tradiction exerts a downward pressure on the rate of profit in two 

Prices and profits are lowered by the intensified competition result- 

* "Production of surplus value is but the first act of the capitalist process of produc- 
tion, it merely terminates the act of direct production. . . . Now comes the second act 
of the process. The entire mass of commodities, the total product, which contains a 
portion which is to reproduce the constant and variable capital as well as a portion 
representing surplus value, must be sold. If this is not done, or only partly accomplished, 
or only at prices which are below the prices of production, the laborer has been none 
the less exploited, but his exploitation does not realize as much for the capitalist. It may 
yield no surplus value at all for him, pr only realize a portion of the produced surplus 
value, or it may even mean a partial or complete loss of his capital. . . . Too many 
commodities are produced to permit of a realization of the value and surplus value 
contained in them under the conditions of distribution and consumption peculiar to 
capitalist production." Karl Marx, Capital, v. Ill, pp. 286, 303. 

120 The Decline of American Capitalism 

ing from an output of commodities beyond the limited conditions 
of consumption of existing markets. 

An excess capacity of production arises, whose costs are a burden 
upon realized profits. 

Excess capacity is peculiar to capitalist production, which tends to 
develop the power to produce beyond the power to consume. (This 
also affects excess capacity in the industries producing capital goods, 
as in final analysis the demand for these goods depends upon the 
ability of the industries producing consumption goods to dispose 
of an increasing output.) It is not a probjem in itself, but the con- 
crete expression of the factors underlying the tendency of the rate 
of profit to fall. An excess capacity of production appears in two 
forms: in a capacity used to produce goods which saturate markets 
and depress prices and profits, and in an unused capacity, an idle 
equipment which is unused because demand is insufficient. The two 
forms interpenetrate, flow one into the other, are combined in the 
same enterprise: both tend to lower the rate of profit. 

The more intensively, completely, continuously the means of produc- 
tion are used by labor, the greater is the yield of surplus value and 
profit, assuming that the necessary market conditions exist;* the 
yield decreases in proportion to diminishing utilization of the means 
of production. Labor can produce surplus value only if it sets in 
motion fixed capital and raw materials, and these can be made to 
yield profit only if set in motion by labor. If an enterprise operates 
below its capacity, no surplus value is produced by the labor which 
might be employed and no profit yielded by the capital incorporated 

* "The development of industry fixes a constantly increasing portion of the capital in 
a form in which, on the one hand, its value is capable of continual self-expansion, and 
in which, on the other hand, it loses both use-value and exchange-value whenever it 
loses contact with living labor. . . . The same instruments of labor, and thus the same 
fixed capital, may be more effectively used by a prolongation of their daily use and by 
the greater intensity of employment ... a more rapid turnover of the fixed capital. 
. . . The entire capital cannot be employed all at once in production, a portion of the 
capital is always lying fallow . . . hence the capital active in the production and 
appropriation of surplus value is curtailed to that extent. The shorter the period of 
turnover, the smaller is the fallow portion of capital as compared with the whole, and 
the larger will be the appropriated surplus value. . . . The mass of the produced surplus 
value is augmented by the reduction of the period of turnover. Any such reduction 
increases the rate of profit, since this rate expresses the mass of surplus value produced 
in proportion to the total capital employed." Marx, Capital, v. I, p. 431; v. II, p. 409; 
v. Ill, p. 85. If a more intensive use of fixed capital increases surplus value and the rate 
of profit, a lessened intensity of use, an unused capacity, necessarily decreases surplus 
value and the rate of profit. 

The Fall in the Rate of Profit » 121 

in the unused capacity, whose costs eat into the produced and realized 
surplus value and profits and reduce the rate of profit on the total 
invested capital.* 

Thus a downward pressure is exerted on the rate of profit by unused 
capacity, a destructive yet inescapable aspect of capitalist production 
and expansion. The unused capacity may be relative or absolute, but 
it becomes continuously larger as variable capital decreases in favor 
of constant capital, particularly the fixed portion. Another contra- 
diction arises: labor costs are variable, they can be lowered as output 
falls; the costs of capital equipment are fixed, they must be met 
regardless of output. The problem is aggravated by some variable 
costs becoming semi-fixed. Fixed and semi-fixed costs (interest, de- 
preciation, insurance, taxes, management, merchandising costs, some 
costs of labor and raw material) do not vary or vary only partly 
with variations in output.f The costs are no problem, are compatible 
with a rising rate of profit, if production is continuous and up to 
or near capacity; they become a burden on reaHzed profits as pro- 
duction falls below capacity. For the fixed and semi-fixed costs must 
be met, whether they are earned or not; but as no surplus value is 
produced by the unused capacity, the mass and rate of profit are 

The greater the scale of production, and the higher the composition 
of capital and the productivity of labor, the greater is the pressure 
of unused capacity on the rate of profit. Operating below capacity 
in small-scale industry, with its lower composition of capital, is not 
necessarily fatal because variable labor costs are greater than fixed 
or semi-fixed costs: as output falls the workers who are fired are 
not a cost of variable capital and involve no direct loss, while losses 
on the costs o£ unused capacity are not great. Operating below capacity 
in large-scale industry, with its higher composition of capital, is fatal 
because fixed and semi-fixed costs are greater than the variable costs 
of labor: as output falls the workers who are fired still involve no 
direct loss on variable capital, but this is now relatively unimportant 
in comparison with the great losses on the costs of unused capacity. 

* "The larger the fixed capital and the slower its circulation, the larger will be the 
share of capital lying immobile, and the smaller will be the capitalist's rate of profit." 
I. Lapidus and K. Ostrovityanov, An Outline of Political Economy (1930), p. 142. 

t "Taxes, fire insurance, wages of various permanent employees, depreciation of ma- 
chinery and various other expenses of a factory run on just the same, whether the 
working time is long or short. To the extent that production decreases, these expenses 
rise as compared to the profit." Marx, Capital, v. Ill, p. 94. 

122 The Decline of American Capitalism 

In small-scale industry, where low fixed and semi-fixed costs absorb 
a small part of the output, 25% operation might mean breaking even 
and 50% operation mean substantial profits. In large-scale industry, 
where high fixed and semi-fixed costs absorb a large part of the 
output, 25% operation might mean disastrous losses, with operation 
of 50% or more necessary to break even. But after the point at which 
fixed and semi-fixed costs are earned, the rate of profit in large-scale 
industry tends to rise sharply because of its higher scale of operations 
and the productivity of its labor. 

Because of the conditions identified with unused capacity, the larger 
mass of profits "earned" in large-scale industry may coincide with 
a fall in the rate of profit. This perpetually tempts an enterprise to 
use all of its capacity. But operating 100% of capacity does not neces- 
sarily avert a fall in the rate of profit. For where markets are limited, 
the use of excess capacity may mean an output of commodities which 
the markets cannot absorb. Competition is sharpened. Prices may drop 
to unprofitable levels. Or if they do not, prices may become indi- 
rectly unprofitable through an increase in advertising and other mer- 
chandising costs. In either case the rate of profit falls. As the upward 
movement of prosperity reaches its climax it creates more intensive 
efforts to raise the productivity of labor, which augments excess ca- 
pacity, and more use of excess capacity to capture markets, in order 
to overcome the tendency of the rate of profit to fall. But markets 
are limited, they shrink relatively, as capitalism develops the forces 
of production more than the forces of consumption. Efforts to raise 
the rate of profit may succeed, but only temporarily, because the 
rise augments excess capacity and competition, and hastens overpro- 
duction, cyclical breakdown, and a disastrous fall in the rate of profit. 
Thus the rate of profit falls because of an excess capacity used under 
market conditions which do not permit complete realization of surplus 
value and profit. 

That the rate of profit tends to fall is an observable and acknowl- 
edged fact.* An indirect proof is the constantly larger capital invest- 
ment necessary to produce a unit of product. In American manu- 

* Why, then, do small concerns fail more easily in depressions, when unused capacity 
mounts? Because the larger concerns have more control over markets and prices, possess 
larger financial resources, including surplus, and are favored by the banks. They use, 
moreover, the opportunity of depression to drive their smaller competitors out of busi- 
ness. And in many cases the small concern, if it is small enough and if most of its 
capital is variable, is only an apparent casualty: it closes down or retires completely, but 
resumes business when prosperity returns. 

The Fall in the Rate of Profit 123 

factures, fixed capital rose 1,758% from 1849 to 1889, output only 
1,170%/ The ratio of output to fixed capital was 2 to i in 1889 and 
1.4 in 1929; on a different statistical basis the ratio was 1.8 in 1923 
and 1.6 in 1929, a fall o£ 11% in six years. The direct proof is the 
rate of profit itself (Table II). In 1924-29, the mass of profits rose, 
with two interruptions during minor cyclical depressions, but the 


The Rate of Profit, Manufactures, 192^-31 




























































































* Net profits — profits (exclusive of intercorporate dividends and taxes) of corporations 
reporting net income less the deficits of corporations reporting no net income. The 
profits of corporations which reported net income were $3,872 million in 1923 and 
$4,760 million in 1929. 

t Fixed capital — real estate, buildings, and equipment; total capital — common and 
preferred stock and surplus. Capital for 1923 and 1931 is estimated. 

J In 1 93 1 one group of corporations reported net income of $1,169 million, the other 
deficit of $1,984 million, making for corporations as a whole a deficit of $815 million. 

The rate of profit is somewhat distorted by dependence of the statistics on corporate 
methods of accounting, which tend to underestimate profits and "mark up" capital 
values, and by the inclusion in surplus of outside stock ownership, whose income is not 
included in profits. The distortions, however, do not affect the movement in the rate of 

Source: net profits and capital — Bureau of Internal Revenue, Statistics of Income for 
the respective years; index of rate of surplus value — see Table IV, chapter V. 

rate of profit fell. In every year the rate on both fixed and total 
capital was below 1923; and on total capital the rate of profit was 
below 1925 in every subsequent year. The mass of profits rose in 
1928-29 (a rise interlocked with the approaching cyclical break- 
down), but even in these peak years the rate on fixed capital was 
below 1923, and the rate of profit (total capital) was below both 

124 The Decline of American Capitalism 

1923 and 1925. Clearly capitalist production is a perpetual struggle 
against a falling rate of profit. The rate falls and rises and falls in 
prosperity. It falls precipitously in minor depression: a fall of 33.7% 
in 1924 over 1923 and of 22.5% in 1927 over 1926. And it falls dis- 
astrously in major depression: a fall of 77.3% in 1930 over 1929 and 
of 81.5% over 1923; a fall below zero in 1931. (In the first quarter 
of 1933, 205 large corporations with a "net worth" of $7,443 million 
had a deficit of $14,831,000; in the second quarter, marked by a 
speculative revival of industry, they had net profits of $86,878,000,^ 
or a rate of profit of 1.1%.)^ Exclude depressions, minor and major, 
and the tendency is still definitely downward. Average yearly profits 
rose from $3,209 million in 1923 and 1925 to $3,542 million in 1926, 
1928 and 1929, but the rate on fixed capital fell from 13.5 to 12.9 
and the rate of profit (total capital) from 8.3 to 7.2 — a fall of 4.4% 
and 13.2% respectively. While the rate of profit was jailing, the rate 
of surplus value rose uninterruptedly and was 2^.1% higher in ig2g 
than in 192]. The rate of profit in ig^i fell below zero, but the rate 
of surplus value fell only 8.6% and was still /6./% higher than in 
192^. Capital investment increased more than the realization of sur- 
plus value and profit, hence the fall in the rate of profit, which forced 
the investment of more capital (including profits retained as surplus) 
in an effort to overcome the fall.* 

As the law of the falling rate of profit is not absolute, but a tendency, 
it may be checked temporarily: the rate may even rise. It is signifi- 
cant, accordingly, that the rate of profit fell in 1924-29.! It fell in 

•The ratio of net income to capital investment fell from a yearly average of 16.2 in 
1909-13 to 1 1.3 in 1923-29. It v^^as 14. i in 1919, 5.8 in the depression year 1921, 10.8 
in 1922, 1 1.9 in 1923, and 11.2 in 1929. The ratio of net income to gross sales was 
15.2 in 1909, 1 1.5 in 1919, and 10.5 in 1929. Robert R. Doane, The Measurement of 
American Wealth (1933), p. 149. The methods of calculation are different from those 
in Table II, but the same thing is proven — the tendency of the rate of profit to fall. 

t The fall in the general rate of profit is not merely a result of the deficits of corpo- 
rations making no profits, or of the small earnings or losses of smaller enterprises. These 
arc important factors, and they are intertwined with all the contradictory forces set in 
motion by changes in the composition of capital. Moreover, capitalist production must be 
considered as a whole. The fall in the rate affects enterprises with enviable records of 
earnings. Thus the rate of profit on the invested capital of the United States Steel Cor- 
poration fell from approximately 8% in 1902 to 4.5% in 1927-29 (the rate rose sharply 
during the war years of 1916-17). R. Weidenhammer, "Causes and Repercussions of 
Faulty Investment of Corporate Savings," American Economic Revietv, March, 1933, pp. 
39-40. United States Steel has paid constantly larger dividends, but this has required a 
still larger reinvestment of earnings. The corporation's surplus rose from $25,000,000 
in 1902 to $700,000,000 in 1929, while its assets increased more than threefold. 


»• • 








■J .' 

1 30 






































_ RATE OF _, 























-I X 





A ■ 

_ V 












. ./ \ 




' V 


/ ^ 

'V /^ 








1 _ 


Oi /yo/" /y/O /f/J" /fZO IfiS /J30 

1 1 1 1 1 



1923 ISZ4 19Z5 R;L& 197.7 1928 1929 1930 1931 


126 The Decline of American Capitalism 

spite of the unusual upsurge of prosperity; of the great expansion in 
old and new industries, which yielded exceptional profits; of the 
sharp rise in the productivity of labor and in the rate of surplus 
value; of the fall in the prices of capital goods and raw materials, 
and its tendency to increase profits; of relatively constant prices and 
decreasing costs; of the export of capital, which "immobilized" billions 
of surplus capital and eased the downward pressure on the rate of 

Underlying the general rate of profit are the rates in separate in- 
dustries and enterprises. While the fall in the general rate of profit 
may be checked or it may even rise, some of the underlying rates 
always fall. In separate industries and enterprises the rate of profit 
may rise, fall, stand still, or disappear. In 1923-27, among 381 indus- 
trial corporations and 129 public utilities, the average yearly increase 
in profits ranged from 0.4% in iron and steel to 22.5% in automobiles, 
and decreases ranged from 1% in automobile accessories to 10.5% 
in clothing and textiles and 48.6% in coal mining; in nine groups 
the average yearly increase in profits exceeded 10%, in four groups 
it was below 10%, and in six groups the decrease in profits produced 
deficits.^ This uneven working of the falling tendency of the rate 
of profit is one of its most important manifestations. For it creates 
and aggravates disproportions and disturbances even if the general 
rate is rising. A higher rate in one group of enterprises may be the 
result of losses in another group. Competition is intensified. Capitalists 
redouble their efforts to plunder one another. Exploitation of the 
workers becomes greater. Capital flows into industries with a higher 
rate of profit, where it increases excess capacity. Speculation is encour- 
aged. The instability of capitalist production and prosperity becomes 
more acute. As some of the underlying rates of profit are always 
falling, the tendency of the rate of profit to fall always exerts its 
pressure; and always, consequently, there are efforts to overcome 
the tendency, particularly as a small fall in the general rate may 
coincide with a large fall in some of the underlying rates. If a fall in 
the rate of profit is accompanied by a rise in the mass of profits, 
it neither lessens the lag of wages behind profits nor overcomes 
the contradictions of accumulation: the fall is itself one of the con- 
tradictions. (The fall in the rate of profit is independent of the ficti- 
tious fall often produced by the over capitalization of monopolist 
combinations, by "marking up" capital values to hide profits, beat 
down wages, or cheat investors, and thus swell the incomes of preda- 
tory financial capitalists. Where a fall in the rate of profit is pro- 

The Fall in the Rate of Profit 127 

duced by overcapitalization, the results are not, however, fictitious, 
for it forces management to strive for higher profits, and thereby 
intensifies competition and the drive toward overproduction.) 

The higher composition of capital and the tendency of the rate 
of profit to fall involve the general problem of "overhead costs" — 
those "costs of production" which, whether necessary or unnecessary, 
do not fall correspondingly with a fall in output. As industry becomes 
increasingly large-scale, all sorts of unforeseen costs arise and eat 
into profits; many of the costs puzzle the capitalist and are described 
as "hidden." (Among the "hidden costs" recently discovered are 
older employees over forty who are ruthlessly thrown upon the scrap- 
heap.) There are limits to an increasing scale of profitable opera- 
tion, technical limits in productive efficiency and economic limits 
in markets; although the limits are flexible they often result in effi- 
ciency losses and in a lower rate of profit among the larger and most 
heavily capitalized enterprises. Displacement of labor, particularly by 
automatic machinery and apparatus, produces an increase in the tech- 
nical, managerial, and supervisory staffs, whose functions are being 
increasingly mechanized; their costs are not as variable as the costs 
of labor. The costs of merchandising and advertising increase enor- 
mously under pressure of excess capacity, relatively limited markets, 
and aggravated competition. The necessity of efficient and continuous 
production, because of the burden of fixed and semi-fixed costs, re- 
sults in growing expenditures on management engineering and per- 
sonnel and "welfare" work, including espionage, to insure efficiency, 
crush unionism, and prevent strikes — particularly to prevent strikes 
which might interfere with continuous operation. Costs formerly 
almost wholly variable now develop many aspects of fixed costs, an 
antagonistic result of the efforts to lower the variable costs of labor. 
An increasingly larger minimum labor force is required where a 
plant operates below capacity or shuts down. Losses accumulate on 
stocks of raw materials when output or prices fall. The rapidity of 
technical change quickens the rate of obsolescence of mechanical 
equipment, resulting in large losses and the necessity of larger depre- 
ciation allowances. (Scrapping "obsolescent" equipment is often sheer 
waste, justified competitively, not socially.) Debts and interest charges 
pile up, as a result of the pressure for more capital to enlarge produc- 
tion and check the tendency of the rate of profit to fall, introducing 
rigid and unwieldy elements in the financial structure, which intensify 
the instability of prosperity and prolong depression. All of these over- 

128 The Decline of American Capitalism 

head costs are involved, in one aspect or another, with excess capacity,* 
the result of changes in the composition of capital and the increasing 
productivity of labor— the devils who spoil the best of all possible 
worlds by exerting downward pressure on the rate of profit. 

These problems arise out of contradictions in large-scale production. 
The economy of large-scale production involves increasing the pro- 
ductivity of labor, and reducing the amount of paid labor (wages) 
incorporated in a commodity. Thus, while the prices of commodities 
fall, more surplus value and profit may be realized on the production 
and sale of a larger mass of cheapened commodities. An enterprise 
using more productive methods, which are its exclusive possession, 
can sell below the market price but above its prices, or costs, of 
production, and thus "earn" a higher rate of profit. But the more 
productive methods cease being an exclusive possession, or still more 
productive methods are introduced. Competition beats down prices; 
excess capacity develops or becomes greater. The rate of profit begins 
to fall. 

Essentially the contradiction is this: The economy of large-scale 
production depends upon measurably full operation and profitable 
sale of the output. But capitalist industry is incapable of continuous 
and planned utilization of all the available means of production, be- 
cause it is incapable of commensurately developing the conditions 
of consumption. Industry is tormented by unused capacity and forced 
to operate below capacity. In large-scale industry the margin of profit 
rises greatly beyond a certain point, but profits fall greatly when output 
falls below that point. Where formerly small changes in output meant 
small changes in profits, small changes in output now mean large 
changes in profits, and large changes in output mean disastrous losses 
which must be met out of reserves and working capital, because 
of the high proportion of fixed and semi-fixed costs which do not 
fall or fall only slightly as output falls, and if the capacity of an 
enterprise is fully utilized, it may result in so saturating markets 
that prices fall and cancel (in terms of profit) the economy of large- 
scale production. 

Aside from depression, there is always an excess capacity in industry 
which tends to offset gains from the increasing productivity of labor 
and the economy of large-scale production. In the peak years 1928-29, 
American industry was capable of producing at least 20% more goods, 
many industries from 25% to 75% more. This excess capacity, vary- 

• "Overhead cost is practically coextensive with unused capacity." J. M. Clark, Studies 
in the Economics of Overhead Costs (1923), p. 483. 

The Fall in the Rate of Profit 129 

ing in space and time but always tending to increase, is a result of 
the fundamental contradiction: capitalist production tends toward an 
absolute exploitation of labor, an absolute production of surplus value 
and profit, but their realization is limited by limitation o£ consumption 
among the mass of the people. Wages lag behind profits, investment 
income increases more than consumption income, production and 
consumption are not balanced, all because of the institutional greed 
for accumulation. In one of its aspects, excess capacity, which is a 
portion of capitalized surplus value, represents possible consumption 
of which the workers have been deprived. 

Excess capacity and its downward pressure on the rate of profit 
increasingly torment large-scale industry. Why, then, large-scale in- 
dustry? Being itself capitalist production, small-scale industry also 
was afflicted by excess capacity and the falling tendency of the rate 
of profit, although not in the severer forms of to-day. The struggle 
against the fall led to a higher composition of capital. Often, not 
always, small-scale industry, particularly in the luxury trades, may 
still yield a higher rate of profit. But its field is limited, as manu- 
facture of the characteristic products of modern industry requires 
large amounts of machinery and apparatus, of fixed capital, and, 
consequently, of raw materials. Competition, moreover, forces a lower- 
ing of costs, which is accomplished by raising the productivity of 
labor and enlarging the scale of production. By increasing its constant 
capital, a small-scale enterprise secures at the start competitive advan- 
tages and "earns" a rising rate of profit. This dooms small-scale 
industry, which is destroyed by the "free" competition it depends 
upon. Other enterprises enlarge the scale of their operations and 
change the composition of their capitals, and eventually competition, 
restricted markets, and excess capacity reverse the rise in the rate 
of profit. The tendency of the rate of profit to fall is thus strengthened, 
and is never, save under certain rare conditions and then only tem- 
porarily, overcome. 


Multiplying Contradictions and 
Capitalist Decline 

pposiNG forces are always at work to check the tendency of the 
rate of profit to fall: capitalist production is an unceasing struggle 
against the tendency. The struggle and the forces it sets in motion 
are determining factors in capitalist expansion, cyclical breakdown, 
and decline. 

Capitalist production strives to check the fall in the rate of profit 
by raising the productivity of labor. This may take the form of 
greater intensity of labor, and develops some of the most barbarous 
aspects of capitalist exploitation. It includes speeding-up the workers 
by making them attend more machines ("stretch-out" system), in- 
creasing the speed of machines, or "standardizing" work motions 
on a basis which strains human resources, an important element of 
"scientific management." A greater intensity of labor tends to raise 
the rate of profit by increasing surplus value without an increase 
in the value of fixed capital. This may be achieved also by depressing 
wages below the value of labor power — so that workers are able to 
buy less of the customary necessaries of life — either through direct 
reduction of wages or rising prices. But all these efforts mean a decrease 
in relative wages, a greater lag of wages behind profits, and tends 
to upset the balance between production and consumption. Similar 
results follow a rise in the productivity of labor through the use of 
more efficient equipment. For this leads to an increase of constant 
capital, particularly the fixed portion, more excess capacity, and a 
stronger tendency of the rate of profit to fall. The efforts to overcome 
contradictions aggravate them and the forces of cyclical breakdown. 

Increasing the productivity of labor is an aspect of rationalization, 
whose primary aim is to check the fall in the rate of profit. Rational- 
ization means the more economical, intensive, and scientific utilization 
of constant capital. It involves more efficient use of existing equip- 
ment; development of new processes, particularly chemical, which 
may increase productivity with little if any new expenditure on fixed 
capital; introduction of more efficient equipment at the old or lower 


Multiplying Contradictions and Decline 131 

prices, accomplished on a large scale by the electrification of industry; 
and the more economical use of raw materials, including the utiliza- 
tion of their wastes in the form of by-products. But the result is an 
eventual aggravation of contradictions. The output of by-products 
increases the pressure on the markets of commodities with which they 
compete. Pressure on all markets is increased by the general rise in 
the productivity of labor, tending toward overproduction and unprofit- 
able prices. In the long run all these efforts to enlarge the mass of 
profits and check the fall in the rate increase the proportion of constant 
to variable capital, and the rate of profit begins to fall again. More- 
over, the more intense and economical use of constant capital depends 
upon measurably complete and continuous operation, and this is 
thwarted by an excess capacity become all the greater because of ra- 

Destruction of capital and depreciation of capital values constitute 
another check upon the fall in the rate of profit. Bankruptcy, by de- 
stroying capital and moderating competition, eliminates a factor drag- 
ging down the rate of profit and tends to raise the rate on the surviv- 
ing capitals; reorganization of an enterprise, by scaling down capital 
values (and the claims of investors), raises the rate of profit. The 
process of destruction and depreciation of capital proceeds most dras- 
tically in depressions, developing the conditions of revival and of a 
higher rate of profit. This check upon the falling rate of profit means 
serious losses to individual capitals, which the capitalists strive to un- 
load upon each other and primarily upon small investors. But the 
losses are a condition of the accumulation of capital and its concen- 
tration, and of the prevention of a disastrous fall in the rate of profit. 
Social waste on a large scale is involved. Waste is one of the necessary 
conditions of capitalist production, prosperity, and accumulation — 
waste that, antagonistically, is accompanied by its scientific elim- 
ination in production itself. 

Among the most important means of checking the tendency of the 
rate of profit to fall is cheapening the value of constant capital, of 
equipment and raw materials, whose quantity and productivity tend 
to increase more than their price. 

The industries producing machinery and apparatus continuously 
increase the efficiency and decrease the price of their goods, usually 
more than the average in capitalist production as a whole. This was 
particularly marked in 1922—29 because of the very rapid progress in 
technology: the price of equipment moved downward while its effi- 
ciency rose substantially. But while cheapening the elements of fixed 

132 The Decline of American Capitalism 

capital may check the fall in the rate of profit of industries producing 
consumption goods, it may result in a lower rate of profit in the in- 
dustries producing capital goods. Moreover, this check of the fall 
in the rate of profit involves, in terms of values, a relatively lower out- 
put of capital goods, the major sustaining force in prosperity, and 
eventually aggravates the problems of excess capacity and overpro- 

Lower prices of raw materials contributed greatly to the profits of 
industrial capital in 1923-29. But this means of checking the fa 1 in 
the rate of profit develops some of the most serious contradictions and 
antagonisms of capitalist production. Prices of raw materials are 
cheapened by more efficient production and an increase in supply, in- 
cluding the use of "scrap" and development of synthetic substitutes. 
There may ensue a fall in the rate of profit of raw material industries. 
Synthetic substitutes intensify competitive pressure on markets. The 
pressure is twofold where a substitute is both raw material and fin- 
ished product: rayon seriously affected the prices and profits of the 
older textiles, raw and finished. Overproduction and disastrous price 
decHnes are stimulated, even among raw materials whose output and 
prices are under control of agreements or monopolist combinations, 
strengthening the tendency of the rate of profit to fall and the forces 
of cyclical breakdown. 

Cheapening the prices of raw materials is, moreover, identified wth 
the exploitation, by highly developed capitalist nations, of colonial 
and other agrarian peoples, who are forced to maintain an unbalanced 
economy and are ruined by disastrous price declines. This is in general 
an expression of the capitalist exploitation and the economic decline 
of agriculture; for it is economically and politically dependent upon 
capitalist production and supplies nearly half of industry's raw 
materials. Capitalist production extorts ruinous profits from agricul- 
ture in several ways: opening up new agricultural regions, as in 
the United States in 1865-90 or in the Argentine, yields profits on the 
construction of railroads and on the subsequent traffic; increasing the 
efficiency of agriculture yields profits on the sales of machinery and 
implements; and there are direct profits on cheaper raw materials 
and indirect profits on the cheaper foodstuffs which increase real 
wages. Increasing the supply and decreasing the price of agricultural 
raw materials is profitable to capitalist industry but tends to ruin the 
farmers. As long as American agriculture was expanding, in area and 
sales, and farmers might capitalize prospective earnings, capitalist ex- 
ploitation was partly offset by increasingly larger markets and higher 

Multiplying Contradictions and Decline 133 

land values. Now, however, agriculture is doomed to permanent crisis 
and decay by the impossibility o£ new expansion, declining markets, 
depressed land values, continued capitalist exploitation, and the ac- 
cumulated burdens of previous exploitation. (Agriculture is afflicted 
also by the large fixed costs o£ investment in land and equipment, 
among whose burdens are a fall in the rate of profit and a rise in 
mortgage interest and tenancy. Agricultural equipment is costly and 
not used most economically on small farms; while it may at first in- 
crease the rate of profit, more efficient equipment tends to lower prices 
and profits when it comes into general use; because of fixed costs and 
competition there is a drive to produce and sell regardless of price, 
some income being better than none. Farmers, particularly in the 
epoch of capitalist decline, are inexorably transformed into peasants.) 
The exploitation of agriculture simultaneously weakens capitalism, 
however, by arousing class and political antagonisms, national and 
international, and by creating the objective basis for the socialization 
of agriculture and its union with socialist industry. 

The most important means of checking a fall in the rate of profit 
is to increase the mass of profits faster than the rate tends to fall. This 
may be done by trickery, the seizure of extra profits wherever possible 
and the plunder of capitalist by capitalist;* but essentially an increase 
in the mass of profits involves more fixed capital (and materials), 
larger output, and a larger share of the market : an enlargement of the 
scale of production. In enlarging capacity, however, an enterprise is 
seldom free to adjust the technical and the economic factors. The ex- 
pansion program and the conditions of the market may require an 
increase of 25% in capacity, but technical requirements may impose 
an increase of 50% or 100%. The new equipment may be justified 
from the technical standpoint of efficiency and unjustified from the 
economic standpoint of realizing on all the output, of sales and profits. 
On the other hand, an increase in consumer demand usually results in 
new capacity much greater than the new demand. Thus, enlarging the 
scale of production tends to increase excess capacity; this, as the 

• "The rate of profit within the process of production itself does not depend merely 
on the surplus value, but also on many other circumstances: on the purchase prices of 
the means of production, on methods more productive than the average, on economies in 
constant capital, etc. And aside from the price of production, it depends on special con- 
stellations of the market, and in every business transaction on the greater or lesser smart- 
ness and thrift of the individual capitalists, whether, and to what extent, a man will 
buy or sell above or below the price of production and thus appropriate in the process 
of circulation a greater or smaller portion of the total surplus value," Marx, Capital, 
V. Ill, p. 439. 

134 The Decline of American Capitalism 

variable costs of labor decrease in favor of the fixed and semi-fixed 
costs of constant capital, may result simultaneously in a rise in the mass 
of profits and only a temporary, if any, check in the falling rate of 
profit. Moreover, the tendency toward an absolute increase in the scale 
of production, regardless of market conditions and the proportional 
relations of one industry to another, conditions the whole movement 
of recurrent cyclical crisis and breakdown. 

Monopoly arises out of changes in the composition of capital and 
their results. Monopolist combinations are only partly a result 
of the technical aspects of the enlarged scale of production, they are 
also a result of the desire to seize any available profits and control out- 
put, markets, and prices to increase profits. Vertical combinations 
spread upward and downward to secure profits in the production of 
raw materials (and assure a steady supply) and profits in various 
stages of manufacture up to the final product. Horizontal combina- 
tions spread outward to control the output and markets of a particular 
product, and secure more profits by manufacture of allied products 
and general diversification of output. Some combinations may do both. 
These efforts to increase the mass of profits include combinations 
striving to secure a higher rate of profit in one activity to offset a fall- 
ing rate in another activity. The process, which leads to monopoly, 
results in intensified competition because of larger output, the increase 
in the scale of production, and the persistent torments of fixed and 
semi-fixed costs and excess capacity. 

Under the conditions of large-scale production, competition is not 
necessarily accompanied by a decrease in production or shutdown if 
prices fall or by the migration of capital to a more profitable industry 
if profits are low. That possibility was always more theory than real- 
ity : it was severely restricted by fixed capital, habit, and lack of knowl- 
edge of a new industry. It was, nevertheless, easier than to-day to de- 
crease production or shut down or migrate to a new industry because 
of the large proportion of easily transferable variable capital. This 
becomes increasingly difficult in large-scale industry because of the 
greater investment in fixed capital and the greater specialization of 
machinery and output. To-day, large-scale enterprises, in manufac- 
tures, mining, petroleum, keep on producing regardless of unfavorable 
market conditions : to decrease production or shut down usually means 
heavier losses than selling below the price of production, means a dis- 
astrous depreciation of capital. Competition is intensified. Intensified 
competition, unprofitable prices, and large losses no longer necessarily 

Multiplying Contradictions and Decline 135 

result in decreased production. This aggravates the contradictions driv- 
ing toward overproduction and cyclical breakdown. 

Efforts to create monopoly are invigorated. Monopolist combinations 
succeed (an indication of capitalist decline) mainly by limiting output 
and raising prices, by control of markets and prices more than by gains 
in productive efficiency, and frequently in spite of real losses in effi- 
ciency. These combinations seize some of the profits of trade by ex- 
torting monopoly prices or by opening their own retail outlets, and they 
seize some of the profits of "independent" small producers by extort- 
ing higher prices for materials or by forcing them to accept low prices 
for parts of a product which they manufacture. Thus, monopolist com- 
binations may check a fall in their rate of profit by imposing lower 
rates upon other groups of capitalists. But monopoly is rarely complete 
or enduring. Monopolist combinations or controls break down. New 
forms of monopolist competition arise. Monopolist combinations may 
clash with each other over prices of raw materials or by invading each 
other's markets. Independents, using the newest and most efficient 
equipment and much more likely to operate at 100% of capacity, may 
earn a higher rate of profit than the larger companies — as was the case 
in the steel industry in 1923-29. If monopolist combinations succeed 
in suppressing competition in their own fields, competition in other 
fields is aggravated. This may result either from the greater pressure 
of capital seeking investment or from monopolist combinations invad- 
ing non-monopolist markets to secure a larger "slice" of the consumer's 
dollar. The "organization" of capitalist production provokes new dis- 
organization. And in spite of all its efforts, monopoly capitalism is 
still tormented by the tendency of the rate of profit to fall. 

The increasingly higher composition of capital, the absolute develop- 
ment of production and the relative development of consumption, the 
fall in the rate of profit, and the contradictions of accumulation in 
general are inseparably bound up with the development of the world 
market, the emergence of imperialism, and the international extension 
of the inner antagonisms of capitalist production. 

Enlarging the scale of production makes more imperative the de- 
mand for foreign markets to supply raw materials and absorb finished 
manufactures.* Foreign trade tends to increase surplus value and its 

* American imports of raw materials rose from a yearly average of $91,000,000 in 
1876-80 to $1,484 million in 1926-30, exports of finished manufactures from $98,000,- 
000 to $2,126 million. Imports of raw materials rose three times as much as exports; 
exports of finished manufactures rose four times as much as imports. Department of 
Commerce, Statistical Abstract, 1931, pp. 494-95. Foreign trade also supplies raw 
materials otherwise unavailable or nearing exhaustion. 

136 The Decline of American Capitalism 

realization and check the fall in the rate of profit by providing cheaper 
raw materials and foodstuffs and by reducing excess capacity through 
selling abroad goods which are unabsorbable in the domestic markets. 

The efforts of monopolist combinations to increase the mass of prof- 
its and the rate result in their operations becoming international, 
particularly in economically undeveloped regions. They attempt to 
monopolize sources of raw materials and markets for finished manu- 
factures, both capital goods and consumption goods. Frequently mo- 
nopolist combinations establish branch plants where cheap raw mate- 
rials and cheaper labor yield higher profits. 

The international operations of monopolist combinations require an 
export of capital: nearly one-half of American capital in foreign coun- 
tries consists of direct investments in branch plants, natural resources, 
communications, and distribution. This direct export of capital is aug- 
mented by the export of capital in the form of loans. In spite of the 
great demand for capital in the highly industrial nations, strengthened 
by changes in the composition of capital, there is always a surplus 
capital seeking investment anywhere, anyhow. The export of this sur- 
plus capital permits it to "earn" a higher rate of profit and eases the 
downward pressure on the rate of profit of capital invested in domes- 
tic industry. 

In the epoch of monopoly capitalism foreign trade becomes en- 
tangled with imperialism: the export of capital, the international oper- 
ations of monopolist combinations, the struggle to control economically 
backward regions capable of supplying raw materials and absorbing 
surplus goods and capital. But imperialism, an endeavor to escape the 
contradictions of accumulation and capitalist decline, creates new con- 
tradictions. The export of capital tends to become an export of in- 
terest paid on previously exported capital, which does not involve 
the export of goods; the check in the fall of the rate of profit is 
only temporary, as imperialism develops its own downward pressure 
on the rate because of surplus capital, intensified competition, and the 
development of large-scale industry on a world basis; the industriali- 
zation of economically backward regions and the constantly greater 
rivalry of imperialist nations weakens the economic base of imperial- 
ism and strengthens capitalist decline. Imperialist antagonisms become 
more violent, and explode into war and the threat of new wars, while 
exploited colonial and semi-colonial peoples rise in revolt against im- 

If the rate of profit falls it sets in motion all the contradictory and 

Multiplying Contradictions and Decline 137 

antagonistic efforts to check the fall. If the fall is checked or if the 
general rate rises there ensues an accelerated accumulation of capital 
and creation of more surplus capital: the situation becomes worse. 
Surplus capital desperately seeks profitable investment, forcing down 
the rate of profit. It flows into industry, producing more excess ca- 
pacity; invades the domains of monopoly with old, new, or substitute 
products, producing more excess capacity; sharpens competition, in- 
flames the passions of speculation, and strengthens the material and 
ideological bases of imperialism. The result is an intensification of 
economic disproportions, an increase in the instability of capitalist 
production, and the aggravation of cyclical breakdown and depression. 

Capitalist production is held tightly, inexorably, as in a vise, in the 
contradictions of accumulation. What J. M. Clark, a liberal econ- 
omist, says of overhead costs is true of all the contradictions of accum- 
ulation, of which overhead costs are an aspect: 

"They [overhead costs] make regular operation peculiarly desirable 
and peculiarly profitable, so that business feels a definite loss whenever 
output falls below normal capacity, and yet it is largely due to this 
very fact of large fixed capital that business breeds calamities for it- 
self, out of the laws of its own being. . . . There is something about 
the commercial-industrial system which bewitches business so that it 
does just the thing it is trying to avoid, and is held back from doing 
just the thing it yearns to do — maintain steady operation. . . . We may 
end our study with a curious wonder at the intricacies of the financial- 
economic machinery which man has built. Man did not design them; 
they are rather the unintended by-products of the inventions which 
he did design to serve his supposed needs. These unintended by- 
products he does not even understand. They appear with all the force 
of living things with purposes foreign to those of mankind, because 
they act in ways which man does not understand and did not plan. 
No man has yet comprehended them completely. Yet we do know 
enough to offer some prospect of controlling them, though we must 
well-nigh remake ourselves and our industrial organization in the 
process. And so we may look forward, not without hope, to the task 
of taming the New Leviathan. The stakes are heavy, for if we do not 
tame him, he may devour us." ^ 

The monster must "devour us." For in its efforts to ease the burden 
of overhead costs and excess capacity, to avert a fall in the rate of profit, 
capitalist production lowers wages, multiplies unemployment, engen- 
ders crises and depressions, and throws the world into the bloody 
struggles of imperialism. And the monster must "devour us" even 

138 The Decline of American Capitalism 

under the institutional arrangements of state capitalism urged by the 
liberal economists. How does Clark propose to "tame" the monster? 
By means of the "co-operation" of business "for certain purposes while 
competing for other purposes"; of a price and wage policy intended 
to "increase output" and "minimize" unemployment (which is con- 
tradictory); of the "partnership" of capital, labor, and the consumers; 
of national planning. These suggestions, made in 1924, are now part 
of the "philosophy" of Niraism: and they are not working. Nor are 
they working in the European nations where state capitalism is more 
highly developed. While Clark, whose study is original, comprehen- 
sive, and suggestive, measurably recognizes the determining relations 
of production, he overemphasizes the relations of exchange. This over- 
emphasis, which accepts capitalist production as eternal, necessarily 
leads to proposals of superficial and unworkable reforms in the realm 
of exchange. It is with exchange that state capitalism tinkers, for it 
cannot tinker with the foundations of production. But the problem 
is one of the underlying antagonisms of capitalist production: the ex- 
ploitation of labor, the composition of capital, the drive to beat down 
wages in favor of profits, the tendency to develop the forces of pro- 
duction beyond the forces of consumption, and the resulting excess 
capacity and "unearned" overhead costs. It is a problem of the con- 
tradictions of accumulation. The disastrous results of the contradic- 
tions and antagonisms appear in the realm of exchange, but they 
originate in the realm of production. It is, moreover, a problem of the 
social relations of capitalist production, of their fundamental exploit- 
ing character. For, under socialism, the higher composition of capital 
would mean more output or leisure or both; and there could be no 
excess capacity because the aim of production becomes social consump- 
tion and not private profit. There is no excess capacity in the Soviet 
Union: no unemployment, no overproduction, no cyclical crises and 
breakdowns. ... 

The monster of capitalist accumulation cannot be tamed: it is the 
law of his being to devour not only "us" but capitalism itself. For the 
contradictions of accumulation are always undermining capitalism, 
preparing its decline. But the undermining is relative in the epoch of 
the upswing of capitalism: the contradictions are solved dialectically, 
by the movement of crisis, depression, and recovery, while the long- 
time factors of expansion permit of accumulation on an enlarged 
scale. The mechanization of old and the development of new indus- 
tries, the exploitation of the world's economically backward regions 
(railways, public works and other construction, natural resources, 

Multiplying Contradictions and Decline 139 

new markets), particularly important in the United States because 
of its own continental areas and resources — all these long-time factors 
of expansion provided abundant demand for capital goods, the crea- 
tion and absorption of new capital. There was an ebb and flow, crises 
and breakdowns and destruction of capital, but the long-time factors 
of expansion provided the conditions for enlarged accumulation, for 
an accelerated production and realization of surplus value. When ex- 
pansion is exhausted or approaching exhaustion, and the decline of 
capitalism becomes the dominating fact of economics and politics, the 
contradictions of accumulation begin to undermine capitalism in an 
absolute sense because of the limitations imposed upon the production 
of capital goods, upon the creation and absorption of new capital. 

The prosperity of 1923-29 marked the practical exhaustion of the 
inner long-time factors of expansion, which now depends upon the 
dangerous expedients of imperialism and its exploitation of interna- 
tional long-time factors of expansion. That upsurge of prosperity was 
the "Golden Age" of American capitalism precisely because it can 
never appear again: golden ages are always in the past. The unusually 
great accumulation of capital in 1923-29 completed a cycle of expan- 
sion and measurably exhausted the future possibilities of any consid- 
erable growth in old and new industries. This development is em- 
phasized by the tendency of the population to become stationary. 
Under these conditions of decline, of exhaustion of the long-time fac- 
tors of expansion, national and international, the contradictions of 
accumulation are no longer overcome by the stimulating growth of 
industry. Production of capital goods tends to become mere replace- 
ment. Accumulation proceeds on a lower level, the extortion of sur- 
plus value are limited. Capital becomes relatively more abundant 
(although it may experience an absolute decrease) because of dimin- 
ishing investment opportunities. The contradictions of accumulation 
become more violent and explosive because the accumulation of capi- 
tal, dependent upon the increasing production and absorption of capi- 
tal goods, is limited, repressed. On a lower level, crises and break- 
downs still act as a temporary solution of contradictions, but they are 
no longer overcome by accumulation on an enlarged scale; depressions 
become more grinding and recovery is limited because expansion no 
longer stimulates an upsurge of prosperity. Capitalist decline is ac- 
companied by the desperate resort to imperialism and state capitalism 
— imperialism, to escape contradictions; state capitalism, to "lessen" 
and "solve" by state action the multiplying contradictions of accumu- 

140 The Decline of American Capitalism 

State capitalism originates in the increasing contradiction between 
the older relations o£ competitive capitalism and the newer relations 
of monopoly capitalism, in the inability of monopoly capitalism to 
function without some form of state intervention in industry — itself 
an indication of approaching capitalist decline. When the decline be- 
comes definite and threatening, state capitalism becomes definite and 
inclusive. The institutional arrangements of Niraism must operate 
within the limits of the exhaustion of the forces of expansion, i.e., of 
the decline of capitalism, which is still, moreover, tormented by the 
contradictions of accumulation on a lower level. Niraism cannot alter 
the composition of capital, or destroy large-scale industry, or over- 
come the tendency of the rate of profit to fall and the results of ef- 
forts to check it,* or prevent wages lagging behind profits, or any of 
the other fundamental contradictions and antagonisms of capitalist 
production: these persist and more actively undermine the crumbUng 
foundations of capitalism. 

Where the "controls" of Niraism and state capitalism may modify 
any one contradiction, they create and aggravate other contradictions. 
State capitalism tends (primarily as a result of capitalist decline, not 
of state "controls") to decrease the absolute mass of profits. While 
this may be accompanied by alternating scarcity and abundance of 
capital, the relative mass of profits and capital tends to increase, how- 
ever, because of diminishing opportunities for profitable investment, in- 
tensifying the downward pressure on the rate of profit. That means a 
drive to raise profits by improving technological efficiency, displacing 
labor, and lowering production costs, thus aggravating the problem 
of excess capacity and the falling rate of profit by increasing constant 
capital and restricting markets. As a way out, an engineer^ suggests 
that the NRA impose "an indirect tax which would tend to drive idle 
machinery out of existence and make further investment in unnecessary 
plants and equipment unattractive to capital." As simple as all that! 
Almost as simple as the belief of some management engineers that 
the costs of excess capacity are a problem in the arrangement of ma- 
chines and the more intensive exploitation of labor. As simple as the 

* The downward pressure on the rate of profit becomes stronger under the conditions 
of capitalist decline. "Until the world again enters upon a period of great industrial 
expansion, requiring large expenditures of new capital, the rate of interest obtainable 
from the highest type of security is likely to be low, very low — lower at all events than 
any yet seen." Thomas F. Woodlock, "Money's Hire," Wall Street Journal, June 20, 
1933. Woodlock speaks the jargon of the investment broker and confuses profit and 
interest, but his point is clear. 

Multiplying Contradictions and Decline 141 

idea of progressives that income and inheritance taxes would break 
up the concentration of wealth (which has greatly increased since the 
taxes were imposed). 

The proposal to tax unused capacity ignores the conditions which 
produce "idle machinery" and "unnecessary plants" — the change in 
the composition of capital, the tendency of the rate of profit to fall, 
and the surplus capital pressing for investment. Would not the tax 
intensify the fall in the rate of profit by adding the costs of the tax to 
the costs of unused capacity? And would it not encourage full use of 
capacity, sharpening the threat of overproduction and cycHcal break- 
down ? Is there to be no more surplus capital ? What of wages neces- 
sarily lagging behind profits, of investment income increasing more 
than consumption income? Is surplus capital to be taxed out of ex- 
istence? What of the efforts to increase the mass of profits to check 
the fall in the rate, thereby enlarging the scale of production and ex- 
cess capacity? And what of the unpreventable efforts to increase 
profits by increasing the productivity of labor, which usually cannot 
be done without creating more excess capacity? If Niraism "fixes" 
wages and prices and "restricts" output, would that not tend toward 
more excess capacity? This is admitted by a bourgeois economist: "A 
premium will be put on efforts to lower the cost of production for the 
sake of much higher profits. This will be done by investing more capi- 
tal in order to increase the productivity of labor and may very well 
result in new and revolutionary technical developments . . . and can 
only lead to further overdevelopment of industries." ^ Is a tax on un- 
used capacity to overcome the antagonisms between the output of capi- 
tal goods and consumption goods, between one industry and another, 
between production and consumption — antagonisms resulting from 
the exploiting relations of capitalist industry? 

The tax proposal, moreover, ignores the fact that excess or unused 
capacity is not absolute, except in rare cases: it is relative. It is an ex- 
cess only in relation to existing deficiencies in mass purchasing power 
and markets, not in relation to social needs, for these are clearly abun- 
dant and pressing. The tax proposal amounts to a restriction, instead 
of liberation, of production, and is thus wholly in line with the tend- 
ency to repress economic progress, which is characteristic of state 
capitalism and Niraism and of the decline of capitalism. What is 
necessary is not the capitalist abolition of excess capacity, used or un- 
used, but its socialist utilization to fill social needs. 

These problems constitute a whole chain of causes and effects, one 
problem linked to another with links of steel. The problems involve 

142 The Decline of American Capitalism 

the fundamental, inescapable contradictions of accumulation, of capi- 
talist production; these, in the epoch of the decline of capitalism 
must doom Niraism and devour capitalism, particularly when the 
contradictions explode in imperialist war. And final contradiction and 
synthesis: in large-scale industry, capitalism has prepared the objec- 
tive basis of socialism and has set in motion the dynamic forces of 
class struggle by means of which the working class, organized by the 
mechanism of capitalist production itself, mobilizes for the overthrow 
of capitalism. 


Jl HE accumulation of capital, the production of profits and their con- 
version into capital, means both life and death to capitalism. For ac- 
cumulation is beset with contradictions. It simultaneously promotes 
production and sets in motion forces antagonistic to production and 

Accumulation depends upon an increasing production and realiza- 
tion of surplus value and its conversion into capital by means of an 
increasing output and absorption of capital goods. The consequent 
enlargement of the scale of production results in a higher composi- 
tion of capital : the proportion of variable capital (wages) falls in favor 
of constant capital (equipment and materials). A given quantity of 
labor sets in motion a larger quantity of equipment and materials. 
But this higher composition of capital limits the production and real- 
ization of surplus value. It means a fall in wages and a rise in out- 
put and profits. Mass purchasing power and consumption are restricted. 
The forces of production are developed more highly than the forces 
of consumption. An excess capacity arises, a capacity to produce beyond 
the power to consume of existing markets. If the excess capacity is un- 
used it produces no surplus value and profit, while its fixed and semi- 
fixed costs eat into the realized surplus value and profit. If the excess 
capacity is used, it throws a mass of goods upon the market which can- 
not be sold at profitable prices. Competition is intensified. Profits are 
lowered. The rate of profit falls. In its efforts to check the fall, capi- 
talist enterprise raises the productivity of labor and enlarges the scale 
of production, resulting in a still higher composition of capital, more 
excess capacity and competition, more limitation of the production 
and realization of surplus value, more downward pressure on the rate 
of profit. Among the efforts to check the fall is the resort to monopoly 
and to the export of capital and imperialism. 

The fall in the rate of profit and the efforts to check it are funda- 
mental factors in the instability of capitalist production and prosperity. 
Both are interlocked with cyclical crises and depressions. These break- 
downs temporarily solve the contradictions of accumulation by de- 


144 The Decline of American Capitalism 

stroying and depreciating capital, which permits of a rising rate of 
profit on the surviving capitals. 

In the epoch of the upswing of capitalism, the accumulation of capi- 
tal is renewed, after a depression, on an enlarged scale. There is an 
upward movement in production and prosperity because the long- 
time factors of economic expansion make possible an increasing out- 
put and absorption of capital goods. The rate of profit falls, but the 
fall is compensated by an increase in the mass of profits. 

In the epoch of the decline of capitalism, the accumulation of capital 
is not renewed, after a depression, on an enlarged scale. There is no 
upward movement of production and prosperity because exhaustion 
of the long-time factors of economic expansion now measurably pre- 
vent an increasing output and absorption of capital goods. The rate 
of profit falls, but the fall is no longer compensated by an increase in 
the mass of profits. The contradictions of accumulation are aggravated. 
Greater disproportions and disturbances are created, and there is more 
resort to monopoly and the export of capital and imperialism. 

Excess capacity, a result of the higher composition of capital and the 
forces it sets in motion, is merely a relative excess capacity. It is not 
the peculiarity of a particular enterprise. Nor is it the result of mis- 
judging demand or of defects in the realm of exchange. Excess capacity 
is an inescapable result of accumulation under the social relations of 
capitalist production. Excess capacity — while millions of wants arc 
unsatisfied! Unused capacity — while milHons are unemployed! The 
condition represents a restriction of consumption among the masses 
of workers, farmers, and professionals. For accumulation grows by 
increasing that part of the output of industry which is not consumed 
but is transformed into capital goods. Consumption is thus restricted. 
Yet consumption is necessary to production; new capital goods can 
yield profit only if they produce and sell their output at profitable 
prices. But production is developed more highly than consumption. 
Hence excess capacity, the falling tendency of the rate of profit, and 
the recurrence of cyclical crises and depressions. The contradictions of 
accumulation are entangled with the antagonism between production 
and consumption. 


The Antagonism Between Production 
and Consumption 


JIt seems true to say : man produces to consume. But that is true only 
o£ benighted savages and enlightened communists. Capitalist produc- 
tion aims to make profits. Consumption is subordinate to production, 
and consumption grows incidentally, as a mere by-product of the ac- 
cumulation of capital. The worker works to consume, but capitalist 
production permits him to work and consume only if profits are there- 
by realized to enrich the owners of industry. Capitalist enrichment 
results from accumulation, not from consumption, which is a neces- 
sary evil. But the drive for the production of surplus value, for an 
increasing and absolute production, expansion, and accumulation of 
capital, necessarily restricts the consuming power of society {cf. the 
decline of wages relatively to profits). Production and consumption, 
instead of being complementary, are in fundamental antagonism. 

Most of the early bourgeois economists practically ignored consump- 
tion, considering it merely an aspect of exchange. With the enormous 
increase in the productive forces of society and the multiplication of 
goods, economists began to consider the problem of consumption. But 
they did so in terms of distribution within the limits of existing eco- 
nomic relations, completely ignoring 'the fact that the problem was 
created by capitalist production itself. The problem was considered 
solved by the pre-1929 "new capitalism." But, aggravated by multi- 
plying contraditions, the antagonism between production and con- 
sumption flared up in the most disastrous of cyclical depressions. 

Now Niraism (and state capitalism in general) proposes to solve 
the antagonism between production and consumption, which involves 
the antagonism between profits and wages. President Franklin D. 
Roosevelt says: "We can make possible by democratic self-discipline 
in industry general increases in wages and shortening of hours suffi- 
cient to enable industry to pay its own workers enough to let those 
workers buy and use the things that their labor produces." . . . Gen- 
eral Hugh Johnson, Administrator of the NRA: "Of course we arc 
concerned with profits. The idea is to restore equilibrium, to establish 
and maintain purchasing power. You cannot have business without 
the investment of capital, and you cannot have that without profits. 


148 The Decline of American Capitalism 

During the intense drive for recovery the first emphasis should be put 
on purchasing pow^er rather than profits because we think that is the 
quickest w^ay to regain profits." ... A. J. Morris, banker: "The sum 
total of all the revolutionary legislative and administrative policies 
upon which we have embarked embodies the single objective — 'stimu- 
lation and stabilization of purchasing power.' "... Prof. Rexford 
Guy Tugwell, economist and rationalizer of Niraism: "Unless the 
agricultural, the laboring and the office worker groups in America, 
who comprise in all America the great body of consumers, are pro- 
vided with buying power, our whole economic structure falls into 
idleness and ruin. Only if it [Big Business] is definitely governed 
[can it] assure a general well-being making possible a continuous 
mass consumption." . . . E. A. Filene, businessman, who prophesies 
(again!) the aboUtion of poverty: "It is not only possible to abolish 
poverty, but to raise the masses into a state of well-being." ^ 

The pre-1929 prophets of prosperity (among them, damningly 
enough, Tugwell and Filene) used the same words: production de- 
pends upon consumption: as the workers are the largest consumers, 
prosperity depends upon and is necessarily accompanied by increasing 
consumption among the workers.* . . . An economic historian, in 1928: 
"Gradually, consuming power was recognized to be not only the ba- 
rometer of good times but also their determining element. Hence the 
cultivation of consuming power became the direct concern of manu- 
facturers." . . . The president of the National Industrial Conference 
Board, in October, 1929, while the cyclical breakdown was develop- 
ing and several weeks before the stock market crash: "A definite phi- 
losophy has arisen — the trend of American business policy is toward 
creation of widespread consumer purchasing power by providing high 
wages. There is being established a 'benevolent circle' in place of the 
vicious circle, extending from high wages to high consumer purchas- 
ing power, to increased demand for manufactured goods and services, 
and to still greater industrial production." . . . And a European econ- 
omist, in 1929: "The disastrous business slump of 1920-21 made a 
deep impression upon the minds of American businessmen. It was 

* Among the ballyhoo-makers of prosperity who glorified Niraism was the adver- 
tising promotion staff of True Story, using the old words and tune: "Within the past ten 
years America has been making social and economic changes on the face of the earth. 
. . . The purpose of [Niraism] is to provide this great mass market [the workers] with 
still greater [I] buying power. If you have the mass production you must have mass 
consumption. . . . This method of securing national recovery is already working; it 
had begun to work long before the president's proclamation." Advertisement, New York 
Times, September 12, 1933. 

Introductory 149 

realized as never before, that industrial prosperity depends not only 
upon the ability to produce but also upon consumption keeping pace 
with production."^ 

This great "principle" was no discovery. ... In 1889 David A. 
Wells, an American economist, said: "We produce to consume, and 
we consume to produce, and the one will not go on independently of 
the other. An increase in the production of all useful and desirable 
commodities and services follows every increase in the ability of the 
masses to consume." . . . Twelve years earlier another American, 
frightened by the great strikes of 1877, which he condemned as "in- 
surrectionary" and "communist," urged, in "the best interests of so- 
ciety, the interests of the capitalists themselves," raising the purchas- 
ing power and consumption of the workers: "The number of laborers 
who can buy must be large, or many of those who produce to sell will 
have little or nothing to do. Buyers are as important, in order to have 
prosperity, as sellers." . . . And Ira Steward, an early American labor 
leader, who believed the workers would eventually "consume" the 
capitalists out of private ownership: "Wealth cannot be consumed 
sparingly by the masses and produced rapidly. If the worker obtains 
less he spends less." ^ 

The "principle" was neither new nor American in its origin. Jacob 
Vanderlint, an English merchant-economist, enunciated it in 1734, 
when capitalism was in its revolutionary youth : 

"The labouring People in general are but half the Consumers they 
ought to be. . . . By making the Poor fare harder, or consume less 
than their reasonable Wants in that Station require, they being the 
bulk of Mankind, would affect the consumption of Things in general 
so mightily, that there would be a want of Trade and Business amongst 
the other part of the People. ... If the labourers become much greater 
consumers this would certainly make abundance of Trade and Busi- 
ness. . . . Increase the power of labourers to buy half as many more 
necessaries for their support and comfort, and there would be almost 
half as much more Trade and Business. . . . Raise the wages of the 
labouring People and augment the profits of the trading part." * 

The "principle," in spite of its apparent economic logic (applicable 
only under non-capitalist conditions), contradicts the basis of capitalist 
production. An increase in consumption is profitable regardless of who 
the consumers are and only if it represents an increase in the output 
of capital goods. That is the tribute of the profit economy. As long as 
the output of capital goods rises consumption may increase, because 
consumer purchasing power is created (wages, part of salaries and 

150 The Decline of American Capitalism 

profits), and is spent wholly on the output of the consumption goods 
industries, not on the output of the industries producing capital 
goods. These were the conditions in the epoch of the upswing of capi- 
talism, when the mechanization of older industries, the development 
of new industries, and the industrialization of new regions resulted in 
an increasing output and absorption of capital goods. Even then, how- 
ever, the antagonism between production and consumption flared up 
in recurrent cyclical crises and breakdowns. The antagonism creates 
a permanent crisis in the epoch of the decline of capitalism because 
production and consumption are no longer stimulated by a constantly 
greater output of capital goods. 


Economic and Class Contradictions 

JtiiVEN 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.^ 

But American prosperity, as much as the German, was not "based 
on the prosperity of the ultimate consumer." A high level of consump- 
tion 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 Ameri- 
can prosperity was accompanied by a comparatively high level of 
consumption, it was not because prosperity was based on "the ulti- 
mate 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, more- 
over, 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." ^ 

Consumption in 1922-23 moved sharply upward, scoring an aver- 
age 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 


152 The Decline of American, Capitalism 

for that year being rather more than ^% 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." ^ 

Production in 1922-23 moved sharply upward, scoring more than 
the usual cyclical gains, but the rate of increase was not maintained.* 
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.* But the comparison is mis- 
leading. 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 igo^i^ than in igo2-o6 and smaller in ig22-2g than in igog-i^, 
the rates of growth being 7.6%, 4.6% and 3.8%. The upward move- 
ment 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 move- 
ment of production, there was an unusually large increase in the 
output of capital goods and consequendy 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 eco- 
nomic factors clearly reveals the causes both of capitalist prosperity 
and of cyclical b/eakdown. At the basis of the disproportions is the 
tendency for the output of capital goods to rise more than consump- 

* 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. 

Economic and Class Contradictions 153 




ntagonistic Factors 

in Production and Consumption, 








































114. 6 



II 6.0 










* Not available. 

Source: Production — Census of Manufactures, 1929, v. I, p. 16; capital goods and 
consumption goods — F. C. Mills, Economic Tendencies in the United States, p. 280; 
dividends and interest, all corporations (exclusive of interests paid by banks) — ^Bureau of 
Internal Revenue, Statistics of Income for the respective years; wages (all wage-workers) 
— W. I. King, The National Income and Its Purchasing, p. 132. The index of dividends 
only was 200 in 1929. Interest rose 31%, dividends 100%. 

tion goods and the enormous lag o£ wages behind dividends and 

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 be- 
fore 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." ^ Machinery, the most "pro- 
creative" 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 realiza- 
tion 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 

154 The Decline of American Capitalism 

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 vv^ith an average of 7.6% in 1901-13.^ 
The increase w^as 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 over- 
estimates 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."^ This reveals more clearly 
the tendency of capitalist enterprise toward an unconditional develop- 
ment 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.* 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 

*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 
t>.5%, because that percentage is enlarged by the inclusion of salaries, which rose much 
more than wages. 



m3 +ISiif 




r;^ iqx<^ 



156 The Decline of American Capitalism 

re-invested; the major part of wages is consumed, it is spent on con- 
sumption goods (and services). Because o£ these developments a 
deficiency in consumption is eventually created, an expression o£ the 
antagonism between production and consumption, of the contradic- 
tion between the unconditional increase in production and the con- 
ditional 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 work- 
ers' absolute share may rise, their relative share falls. 

Unequal class distribution of consumption: while the workers' ab- 
solute share may rise, their relative share falls, and proletarian con- 
sumption 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 bour- 
geoisie, 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 consump- 
tion (Table II) became more unequal. CapitaUst 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 consump- 
tion 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 con- 
sumption but that already they were the largest consumers. "The 
worker," said one of them, "is our greatest and most profitable cus- 
tomer. Our prosperity is 86% derived from our working population, 
for the millions of wage-earners constitute just that proportion of 

Economic and Class Contradictions 



Class Distribution 

of Consumption, 











Working Class: 











1 0.0 

































•Wage-workers include 2,300,000 hired farm laborers; farmers include 1,200,000 
farm laborers working on home farms; bourgeoisie — capitalists, rentiers, merchants, etc., 
and managerial, supervisory and technical employees — is grouped according to income: 
lower, incomes below $3000 yearly; intermediate, incomes of $3000 to $10,000; upper, 
incomes of $10,000 and over. Number in class includes only the gainfully occupied. 

Source and methods of computation: Consumption means retail sales of tangible con- 
sumers goods plus food produced and consumed on farms. The Census Bureau estimates 
retail sales in 1929 at $49,000 million (United States, Fifteenth Census, 1930, Distribu- 
tion, V. L Retail Distribution (1930), pp. 47-53). It is assumed that retail sales were 
$1,000 million less in 1928, or $48,000 million. From that is deducted $4,400 million 
for goods which are essentially capital goods or supplies (motor trucks, farm implements, 
office, school, and store supplies, but not automobiles and household appliances), to 
which is added $2,400 million for food produced and consumed on farms, making a 
final total of $46,000 million. The workers' budget is made up of 31% spent on food, 
13% on clothing, 5% on furniture and house furnishings, and 8% miscellaneous goods 
such as radios, refrigerators, etc., or 57% of the workers' income spent on consumption 
goods; balance, 24% for rent, light and fuel and 19% for illness, amusements and sav- 
ings. (These estimates represent a revision of data in the cost of living in the United 
States, U. S. Bureau of Labor Statistics, Bulletin 357.) Of the farmers' income (see 
Chapter VI), $2,100 million spent on consumption goods, to which is added the figure 
for food produced and consumed on farms. Clerical employees are assumed to spend 
55% of their income on consumption. If dwellings were included the share of workers 
and clerical employees in consumption would be materially lowered. "Average" in the 
case of farmers and intermediate and upper bourgeoisie means family share; in the case 
of workers, clerical employees and lower bourgeoisie, the family share in consumption 
is somewhat larger than the "average" in this table, as these families often have more 
than one person working. 

our buying public."® But what Jacob Vanderlint said in 1734 was 
sdll 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 

158 The Decline of American Capitalism 

the goods produced; including clerical employees, the share in con- 
sumption of the working class was only 47.3%, although this class 
was 68.5% of the gainfully occupied.* The combined share in con- 
sumption of the bourgeoisie was 42.9%, although this class includes 
only 15.9% of the gainfully occupied. In the circles of the upper bour- 
geoisie, the enormous total consumption of $6,500 million and average 
consumption of $17,000 measures the conspicuous competitive expend- 
itures 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 farm- 
ers' 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 
capitahst prosperity.f Standards of living among wage-workers, cler- 
ical employees, and farmers (except the prosperous small upper layer) 
were roughly: 

Below subsistence levels, 10,000,000. 

Subsistence levels, 20,000,000. 

Comfort levels, 6,500,000. 

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. Consump- 

* 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%. 

t 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 over- 
whelming 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 

Economic and Class Contradictions 159 

tion is necessary to production, but capitalism is incapable o£ system- 
atically 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: cap- 
italist 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 equi- 
librium 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 


Excess Capacity, Competition, 
and Speculation 

Jl HE antagonism between production and consumption, the conflict 
between the absolute expansion of one and the conditional expansion 
of the other, was particularly sharp in the period 1923-29. The growth 
of new and old industries, the consequent increasing output and ab- 
sorption of capital goods, and the rising productivity of labor greatly 
augmented the forces of production, which clashed with the limited 
conditions of consumption. These developments resulted in a higher 
composition of capital, an increase in excess capacity, the intensifica- 
tion of competition, more superabundant capital, and a stronger down- 
ward pressure on the rate of profit. The situation was already acute 
in 1926; and the danger was recognized by a financial journal: 

"Capital has become so abundant that it seeks to sell itself for use 
in almost any sort of productive enterprise. . . . This country has 
an exceedingly ample equipment of manufacturing plant; its efficiency 
level, in rising decidedly, has for practical purposes increased the 
proportions of our overequipment; and it is enabled to continue for 
the present by the superabundance of capital which seeks incessantly 
some place in which it may earn a reasonable return for its use. This 
is the general mechanism by which manufacturing competition has 
now been sharpened to unprecedented severity. The competition must 
go on, for failure to compete will mean the rapid destruction of 
capital; necessarily the failure to succeed will also mean the loss of 
capital; and loss of this character is certain to occur on a pretty con- 
siderable scale because our production is obviously greater than our 
power to absorb it." ^ 

"Superabundance of capital" — because of low wages and high profits, 
of changes in the composition of capital and the increasing appropri- 
ation of surplus value. 

"Our production is obviously greater than our power to absorb 
it" — because capitalist production and accumulation limit purchasing 
power and consumption among the masses of workers and farmers. 

The tendency of the rate of profit to fall was strengthened. Efforts 


Excess Capacity, Competition, and Speculation i6i 

to check the fall increased competition and excess capacity and created 
more downward pressure on the rate of profit. The experience of 
one company organized in 1919 to manufacture household appliances, 
which within four years captured one-quarter of the market, was 

"The income of this company increased very rapidly until its market 
became satisfied and its competitors caught up, and thereby limited 
sales to a 'fair share' of a market rapidly becoming saturated by the 
efforts of this single manufacturer. In seeking more than a fair share 
of the available market its production facilities were expanded to a 
capacity sufficient to produce two-thirds of the annual requirements 
of the industry. This overcapacity is now a burden on the business, 
since the relative dollar volume of sales from its plant investment 
has fallen off on an average of almost 10% annually since 1926. . . . 
Larger profits were secured in 1923 and 1924 than have been earned 
in recent years on a greater volume of sales. . . . More and more 
markets are being saturated by our methods of mass production, and 
as many of these show signs of becoming limited markets, the tendency 
toward declining income is broadening to include many well-known 
and wealthy corporations."^ 

The tendency of the rate of profit to fall forced efforts to raise 
profits by reducing costs or increasing output to secure a larger share 
of markets, or by a combination of both methods. While this always 
meant greater capacity, it did not always mean greater expenditures 
on capital equipment. More economical use of raw materials, utiliza- 
tion of waste, and standardization of products increased capacity and 
output. Or labor was exploited more intensively; one method was 
the "stretch-out" system, by which one worker tended more machines. 
In the case of cotton mills, although there was in 1924-29 a net 
shrinkage in machinery, hours worked per spindle rose from 2,353 
to 3,073 by growing use of the double-shift.* As these methods increased 
capacity and output without the buying of new equipment, there 
was no corresponding development of purchasing power and con- 
sumption among the workers producing capital goods. The result 
was an aggravation of excess capacity and competition. 

Productive capacity was, however, augmented mainly by investment 
in new equipment. Capital was abundant, because of high profits. 
And credit was abundant, because it is the nature of capitalist pro- 
duction to inflate credit in the prosperity phase of the cycle. Invest- 
ment in new capital equipment was stimulated by the unusually 
rapid improvement in technological efficiency, increasing greatly 

i62 The Decline of American Capitalism 

the productivity of labor and the reduction of labor costs. But this 
meant a higher composition of capital: less variable capital (wages) 
and more constant capital (equipment and materials), limiting the 
workers' purchasing power and consumption. Productive efficiency 
and output were developed regardless of the relatively limited condi- 
tions of mass consumption. The result was an aggravation of excess 
capacity and competition. 

Excess capacity and competition were particularly marked in the 
newer industries. Their initially large profits and constantly growing 
markets led to an overexpansion o£ existing plants and the establish- 
ment of new, unnecessary plants by capital seeking profits anywhere, 
anyhow. "There is no better illustration than the pouring o£ new 
capital into the radio-receiving set industry in 1928 and 1929. Some 
of the pioneers made very large profits which they wasted by in- 
vesting to increase their output. At the same time the cost of pro- 
duction was lowered a great deal by one maker. In the short space 
of 18 months the potential production of this industry was increased 
threefold, to an estimated 15,000,000 sets annually by the end of 1929. 
Even in that year the whole market absorbed only a little over 4,000,000 
sets."* This was generally true of all the newer industries, where an 
initial high rate of profit was transformed into its opposite, a low, fall- 
ing rate of profit. The newer industries' contribution to excess capacity 
was enlarged by their products competing with older products. The 
radio competed with the phonograph, rayon with the older textiles, 
rubber and substitutes with leather, celotex and 21 other products with 
wood. The result was an aggravation of excess capacity and competi- 

The expansion of plant capacity beyond the needs of their own 
markets led many enterprises to "take up the slack with sidelines." 
That is, they added new products to their output. The General Elec- 
tric Company and the Westinghouse Electric and Manufacturing 
Company began to make radios. . . . Two automobile accessories com- 
panies went in for the manufacture of radios, and one of them added 
hardware for good measure. ... A radio company began to manu- 
facture electric refrigerators. So did the Savage Arms Company, and 
it included washing machines. . . . General Motors added electric 
refrigerators, radios, dental apparatus, and other products unrelated to 
automobiles. . . . The American Car and Foundry Company became 
manufacturers of motor buses, the Anaconda Copper Company of 
copper and brass products, the Aluminum Company of America of a 
whole series of new products. . . . The American Ice Company, threat- 


Excess Capacity, Competition, and Speculation 163 

ened by mechanical refrigeration, dipped into surplus and started 
a power laundry business. . . . Another company, manufacturing 
billiard tables, added phonographs and radios to its output. . . . This 
continued during the depression: General Motors began to manufac- 
ture gas refrigerators; the Pennsylvania Railroad built a brass foundry, 
the most efficient of its type.^ . . . Where these "sidelines" meant the 
use mainly of old equipment they tended to raise the rate of profit, 
although lowering it for other enterprises; where new equipment 
was mainly used it tended eventually to lower the rate of profit while 
raising its mass. ... At the same time there was an increase of in- 
tegration, the combination in one enterprise of different processes or 
parts of manufacture. . . . The result of all these efforts to raise the 
mass of profits and check the fall in the rate was an aggravation of 
excess capacity and competition. 

Excess capacity was enormous. In 1928-29, in spite of the sharp 
upward spurt in production, most American industries were capable 
of producing from 25% to 75% more goods than markets could 

The unused portion of excess capacity, ranging up to 75%, was par- 
ticularly great in the newer industries: radio, automobiles, rayon, 
chemicals. . . . Because of the growing use of electric power, more 
efficient combustion methods, and the higher productivity of labor, 
coal mining was increasingly tormented by unused capacity. . . . 
There was an unused capacity of 15% in paper manufacture, 20% in 
petroleum refining, 25% to 40?-^ in glassware, 45% in wheat flour, in 
textiles from 15% in cotton to 40% in silk, and in iron and steel from 
5% in steel ingots to 45% in pig iron. ... In sugar refining the un- 
used capacity was 100%. . . . While capacity in the plants of the 
United States Steel Corporation rose 15%, operations fell from 89% 
of capacity in 1923 to 87% in 1929, with an average of 82% operation 
in 1924-29. . . . Unused capacity was 28% in Portland Cement mills, 
50% in boots and shoes, and 40% in clothing. ... In shipbuilding, 
output fell from 9,472,000 gross tons in 1919-21 to 631,000 gross tons 
in 1927-29, an indication of tremendous unused capacity. ... It 
amounted to 64.2% in central electric stations.^ . . . Considerable ex- 
cess capacity existed also in oil and metal production, on the railroads 
(partly because of bus and motor-truck competition), and in electrical 

Where excess capacity was unused, its fixed costs ate into realized 
profits, forced down the rate of profit and was a perpetual invitation 
to enlarge output regardless of the limited, saturated condition of 

164 The Decline of American Capitalism 

markets. Where excess capacity was used, it meant an output of 
commodities beyond the existing effective demand (in terms of avail- 
able purchasing power), which aggravated competition and lowered 
prices to unprofitable levels. 

Excess capacity is related, both as cause and effect, to the dispro- 
portions always prevailing in capitalist production. Any considerable 
excess capacity in an industry creates disproportions in its own inner 
relations and in its outer relations with other industries. Differences 
in the rate of growth of industries, particularly when new industries 
develop, create new or intensify old disproportions. There is relative 
overdevelopment of some and underdevelopment of other industries. 
One result is instability: competition of industry against industry, more 
pressure on limited markets, a stronger drive toward overproduction. 
The disproportions are a result of the planlessness of capitalist produc- 
tion. But the planlessness itself and the disproportions it engenders 
are an outgrowth of the antagonism between production and con- 
sumption : of the greatest of all disproportions, that between the output 
of capital goods and consumption goods. Capitalist production is a 
"continual process of disproportionality." The disproportions change 
continually; they are not destroyed but "overcome" by disproportions 
creating new relations and assuming new forms which permit an 
upward movement of production. This process results in the temporary, 
unstable equilibrium of prosperity, an equilibrium created and main- 
tained by perpetual changes within itself, temporarily "easing" 
contradictions. But eventually the accumulating disproportions change 
in a manner which upsets the equilibrium, and prosperity collapses 
into depression. 

Where prices are not lowered to unprofitable levels by excess capacity 
and the aggravation of competition, the same result may be indirectly 
achieved by multiplication of the costs and wastes of distribution. 
This is a characteristic aspect of capitalist production. Changes in the 
composition of capital, which increase the productivity of labor, de- 
crease the relative wages of the workers, and thus limit the conditions 
of consumption. The capitalist is continually reducing labor costs; 
it never enters his head to raise wages. But this develops an antago- 
nism. Distribution costs mount as a larger mass of commodities are 
thrown upon relatively smaller markets and competition is aggra- 
vated. The part of consumer price represented by distribution costs 
rose from 30% in 1870 to 55% in 1930. Most of the increase was in 
selling costs. It cost more in 1922-28 to get a $25 order from a retail 
grocer than it did in 1902 to get a $75 order. Traveling salesmen rose 

Excess Capacity, Competition, and Speculation 165 

from 179,320 in 1920 to 223,732 in 1930, or 25%/ Instalment selling 
added greatly to distribution costs. So did advertising. Its devotees 
justify advertising with all sorts of complex arguments. But they are 
w^rong. The increase in advertising (nearly $2,000 million in 1929) is 
a direct result of the growing antagonism between production and 
consumption, of the clash between the expansion of production and 
the limitation of consumption, with which is involved the problems 
of excess capacity, mounting overhead costs, aggravated competition, 
and limited markets. Advertising does not lower prices, it tends to 
raise them: the purpose of an advertiser is "to Hft his product out of 
competition" and secure more sales and higher prices. In its methods 
advertising degrades truth, is cynical of mass intelligence, caters to 
the lowest instincts, and uses fraudulent economics and worse psychol- 
ogy.* That does not worry the capitalist, of course. But there is worry 
in the fact that distribution costs, including advertising, tend 
eventually to lower the rate of profit. 

Capitalist production saves on labor and multiplies the productive 
forces. But two contradictions arise which constantly torment capital- 
ist enterprise. Saving on labor decreases relative wages and limits the 
conditions of consumption. This sets in motion the forces of excess 
capacity, sharpened competition, and mounting distribution costs. 
These costs absorb much, if not most, of the saving on labor, and 
eventually strengthen the downward pressure on the rate of profit. 
The efforts of capitalist enterprise to escape these manifold contra- 
dictions created bedlam: 

"American business has gone 'salesmanship mad' in the last ten 
years, due to increasing economic pressure and narrowing net profits, 
and has utterly overstressed high-pressure personal salesmanship. . . . 
A great horde of salesmen is overruning the country, 'pepped up' and 
trained to the last notch of slick salesmanship. The cost of personal 
selling has in the meanwhile mounted, and the results per unit of 
effort have declined. Dealers and consumers alike have been pressed 
beyond the last degree of decency and good business. The number of 
commodities on the market and the number of salesmen representing 

* "Every human being has a vote every time he makes a purchase. No one is dis- 
franchised. . . . Every day is election day." W. T. Foster and Waddill Catchings, 
Profits (1928), p. 133. This "democracy of the consumer" is as limited as bourgeois 
democracy in general. The consumer's freedom of choice is enormously limited by the 
pressure of advertising, whose job it is to ma\e customers; it is still more limited by 
income. Only the rich enjoy this democracy, as only they really enjoy other forms of 
bourgeois democracy. 

i66 The Decline of American Capitalism 

them is now enormous. . . . The dealers, if they 'fell' for the salesmen, 
would buy 500% to 1000% more goods than they could ever afford — 
or should be asked— to buy. . . . They merely pile up the cost of sell- 
ing and increase waste. . . . The vast bedlam of salesmanship and 
salesmen, and the noise of their competitive shrieking, and the an- 
noyance of their unrelenting, almost desperate tracking down of 
prospects, is growing greater every year. . . . And the amazing thing 
is that with all this enormous effort we can sell only 6<^/q of the prod- 
ucts that American factories can make." ® 

It was bedlam. "The amazing thing is that with all this enormous 
effort we can sell only 65% of the products that American factories 
can make" — while the majority of the people were living at or below 
subsistence levels! Bedlam — because industry retained in higher profits 
and distribution wastes what should have gone into mass consuming 
power. (One part of distribution wastes, it is true, represents wages, 
hence consuming power; but another part represents salaries and 
profits whose recipients tend to invest more than they consume.) 

Bedlam was styled the "new competition." One commodity began 
to compete with all other commodities. Industry competed with in- 
dustry; an industry, otherwise ruthlessly competing within itself, 
combined for cooperative competition with other industries to secure 
"a larger slice of the consumer's dollar." Factors formerly cooperating 
began to compete; where once there was the manufacturer, the whole- 
saler, and the retailer, now chain stores abolished many wholesalers, 
manufacturers opened their own stores, and chain stores opened their 
own manufacturing plants. 

The "new competition" was aggravated by more "monopoly competi- 
tion," both activated by the tendency of the rate of profit to fall. 
Monopolist combinations, the large aggregations of corporate capital, 
competed in the same markets or over the prices of materials (raw and 
semi-finished) they bought and sold among themselves. Monopolist 
combinations competed with small producers by capturing their mar- 
kets or depressing the prices of the semi-finished materials or parts 
bought from the small producers. It is an essential technique of monop- 
olist combinations to raise the price of goods they sell and depress 
the price of goods they buy. Thus monopoly, arising out of competi- 
tion and striving to overcome it, simultaneously intensifies competition 
as a means of increasing the mass of its profits at the expense of non- 
monopolist enterprise. 

It was bedlam. . . . Forced to utilize its excess capacity, the petro- 
leum industry wastefully and unprofitably flooded the markets with 

Excess Capacity, Competition, and Speculation 167 

oil. . . . Excess capacity in refining led to the multiplication of gaso- 
line retail outlets, which rose to 318,000 in 1929, one to every 83 reg- 
istered automobiles; the situation was made worse by Shell Union Oil, 
waging war on all fronts, starting its own chain of gasoline stations. 
. . . Natural gas competed with manufactured gas; the competition 
of electric power made coal a "sick" industry. . . . Bitter competition 
among manufacturers of tires led to the sale of tires through company 
distributing chains, mail-order houses, and service stations. . . . Manu- 
facturers of products competing with wood spent $22,000,000 through 
their associations on promotion and selling campaigns against lumber, 
which retaliated with a campaign of its own. ... To meet the com- 
petition of rayon the older textiles spent "immense" sums on "con- 
sumer advertising," $750,000 yearly by one company alone. . . . The 
National Retail Shoe Dealers Association in 1927 appropriated 
$4,000,000 for an advertising campaign to sell more shoes on the basis 
of style and color appeal; the industry was capable of producing three 
times more shoes than the market was absorbing. . . . The fall in 
food consumption, accompanied by increasing productive capacity, led 
forty different food groups to mobilize and wage war on each other. 
. . . Mayonnaise invaded the butter market; at a convention of the 
Mayonnaise Manufacturers Association a "butterless banquet" was 
served and a campaign was launched to "popularize mayonnaise 
among consumers as a substitute for butter." . . . The advertising of 
a cigarette company, warning against the bad effects of sweets, led 
to organization of a Sugar Institute which spent millions advertising 
the merits of sugar. . . . Appropriations of $300,000 were made by 
the United States Fisheries Congress, by the Ice Cream Manufac- 
turers Association, and by the Allied Baking Industry to "educate" 
consumers to buy more of their products in preference to other prod- 
ucts. . . . The market was flooded with 402 brands of dentifrices, 
whose advertising involved millions of dollars and millions of lies. 
. . . The "woman beautiful" had her choice of 2,500 perfumes and 
nearly as many face powders: one manufacturer advertised: "A face 
powder for every mood!" . . . Automobiles and cigarette advertising 
reached new high levels in money and new lows in tone. . . . Drug 
stores sold 100 more articles than a few years previously; candy was 
sold in clothing, dairy, dry goods, drug and grocery stores and in 
delicatessens, bakeries, auto accessory stores and gasoline stations. . . . 
As if there were not enough products on the markets, chain stores 
increased the number of their "private" brands, sales of which rose 
to $762 million in 1929. . . . Chain stores, considered a "rationaliza- 

i68 The Decline of American Capitalism 

tion" of distribution and a measurable solution of its problems, ag- 
gravated competition and excess capacity. Their pressure forced in- 
dependents to organize "voluntary chains." Chain competed with 
chain, forcing mergers and combinations. The larger chain-store sys- 
tems demanded and secured price concessions from manufacturers; 
some chains simply informed manufacturers at what price their goods 
would be bought. At the same time, chain stores increased their manu- 
facturing activities and plant capacity, competing directly with manu- 
facturers, who met the challenge with mergers and combinations.^ 
... It was, and is, bedlam. 

One result was a great increase in instalment selling, and it added 
to the costs of distribution. In 1929, instalment sales amounted to 
|6,ooo million, or 12% of all retail sales; the amount of instalment 
debt outstanding at any given moment was from $2,225 million to 
$2,500 million.^^ Large profits were made by the finance companies 
dealing in instalment paper, in the creation of artificial purchasing 
power. Instalment selling undoubtedly stimulated consumption and 
production, as outstanding instalment credit represents sales which 
would not have been made for the time being. But instalment selling 
has obvious limitations as an offset to inadequate consumer purchasing 
power. To escape the effects of excess capacity and depressed mass 
consumption, instalment selling must increase progressively and cover 
industry as a whole. The one is impossible because there are limits in 
the incomes of instalment buyers, the other is impossible because in- 
stalment credit is confined to five or six kinds of durable consumption 
goods (clothing is an exception, but unimportant). The creation of 
artificial purchasing power was further limited by its concentration in 
the newer industries — automobiles (one-half of all instalment sales), 
radios, washing machines, mechanical refrigerators; only two of the 
older industries, furniture and sewing machines, were substantially 
represented. In these industries, sales and output were augmented by 
instalment selling; it quickened and enlarged the growth of new 
industries, an important factor in prosperity. But the result was over- 
development, particularly in automobiles and radio. When instalment 
buying reached its limits, manufacturers were left with an enormous 
excess capacity. Moreover, instalment consumer credit, unlike producer 
credit, is not payable out of earnings increased by the credit but out 
of a constant income. It mortgages future income. This means that 
eventually, when instalment sales become stationary or fall, new 
income is used to pay for old goods previously produced and sold and 
limits demand for new goods. (During depression, when new and 

Excess Capacity, Competition, and Speculation 169 

outstanding instalment credit falls, instalment payments lessen 
demand for current consumption goods and make the depression 
worse.) Instalment selling increases the instability of capitalist pro- 
duction by augmenting output and sales of optional or postponable 
goods. The industries using instalment selling waged ruthless competi- 
tive war upon all other industries for a "larger slice of the consumer's 
dollar." Capitalist production is bedlam. 

Bedlam reached its climax in the theory of "progressive obsoles- 
cence," seriously considered by the tormented magnates of industry, 
finance, and advertising: 

"If we are to have increasingly large-scale production there must 
likewise be increasingly large-scale consumption. . , . To get more 
money into the consumers' hands with which to buy . . . is a mere 
minor stopgap. There is, however, a far greater and more powerful 
lever available. I refer to a principle which, for want of a simpler 
term, I name progressive obsolescence. This means simply the more 
intensive spreading — among those people who now have buying sur- 
plus — of the belief in and practice of buying more goods on the basis 
of obsolescence in efficiency, economy, style or taste. We must induce 
people who can afford it to buy a greater variety of goods on the same 
principle that they now buy automobiles, radios and clothes, namely, 
buying goods not to wear out, but to trade in or discard after a short 
time when new or more attractive goods or models come out. The one 
salvation of American industry, which has a capacity for producing 
80% or 100% more goods than are now consumed, is to foster the pro- 
gressive obsolescence principle, which means buying for up-to-dateness, 
efficiency and style, buying for change, whim, fancy. . . . We must 
either use the fruits of our marvelous factories in this highly efficient 
'power' age, or slow them down or shut them down." ^^ 

This is economic and cultural lunacy, but a lunacy wholly in accord 
with the social relations of capitalist production. Capitalism must 
produce and sell goods, but from the standpoint of profit it makes no 
difference what goods or who buys them. 

The lunacy of "progressive obsolescence" was matched by the des- 
peration of proposals to restrict production (now one of the aims of 
state capitalism). Said the president of the Durham Duplex Razor 
Company : 

"Manufacturing merchandise faster than it can be sold is one of 
the principal causes of the increase in competition. . . . We are turn- 
ing out more merchandise than can be sold profitably. . . . Business 

170 The Decline of American Capitalism 

health can only be preserved by maintaining an equilibrium between 
production and consumer sales."" 

Thus was rejected the "principle" that production and prosperity 
depend upon mass consumption: 

"Limit production," with 2,500,000 workers already unemployed! 

"Maintain an equilibrium between production and consumer sales" 
"induce those people who now have buying surplus ... to buy a 
greater variety of goods . . . not to wear out, but for style, change, 
whim, fancy," while 85,000,000 workers and farmers were living on 
or below subsistence levels! 

In spite of the clamor about "mass consumption" and "mass mar- 
kets," the equilibrium of capitalist production came to depend more 
and more on artificially stimulating the "wants" of small groups o£ 
people with an excess of purchasing power (an aspect of the unequal 
distribution of income). Luxury or variety production, representing 
consumption of which the workers are deprived, acquired increasing 
importance. The trade in luxury goods was one o£ the great stimulat- 
ing forces in the rise of capitalism, and capitalist production since has 
increased the output of luxuries more than the necessaries of mass 
consumption. In 1923-29, the American output of luxury or variety 
goods rose substantially because of the great rise in dividends and 
interest, in speculative profits, and in the concentration of income. 
Conspicuous competitive consumption was never as great, while mass 
consumption was practically stationary. In its revolutionary youth 
the bourgeoisie, particularly the Puritans, condemned luxuries, which 
were hated reminders of feudal privilege and power. But the con- 
demnation was withdrawn after the bourgeoisie became the ruling 
class. Luxury is a badge of class differentiation and distinction, a 
ruling class necessity. 

Luxury is also an economic necessity in the capitalist system, based 
upon class exploitation and antagonisms. As mass markets are sat- 
urated because of the limited conditions of mass consumption, an 
increase in production, other than capital goods, comes to depend 
upon "those people who have buying surplus, who buy for style, 
change, whim, fancy," and whose incomes, particularly the speculative, 
rise steadily during prosperity. Surplus capital to flow into luxury or 
variety production, where low wages and the lower composition of 
capital (more variable than constant) yield an exceptionally high rate 
of profit. This eases the pressure of surplus capital on the rate of profit 
in other industries. But the high rate of profit in variety production 
eventually tends to fall, because of excess capacity and competition and 

Excess Capacity, Competition, and Speculation 171 

because modern luxury production often requires large fixed capital. 

Another contradiction arises: as mass production grows, and simul- 
taneously limits mass consumption while augmenting surplus capital 
and the higher incomes, capitalist industry depends increasingly upon 
variety production, the opposite of mass production. This contradiction 
becomes constantly more acute. Its "either or" aspect is thus described 
by Carl Brinkmann, a conservative German economist who is now a 
fascist : 

"A new epoch seems to put modern civilization before the alterna- 
tive either of clinging to the capitalist system with higher although 
less equalized standards of living, or of embarking on a communist 
planned economy with a primarily equalized although possibly very 
low standard." ^^ 

Thus capitalism, in its decline, offers higher standards to the few 
and lower standards to the many! In Germany, where capitalist decline 
is most conspicuous, there is no marked decrease in the output of 
luxuries but a great decrease in the output of mass necessaries. (The 
reference to "possibly very low standards" in a communist society 
is plain special pleading.) 

Variety wants, particularly when they are stimulated artificially by 
high-pressure advertising and are dependent upon speculative profits, 
intensify the instability of production and prosperity. Another factor 
of instability was the increase in the output of durable consumption 
goods, whose buyers include workers and farmers, and which are of 
the optional or postponable type.* The output of these goods falls 
immediately and severely as prosperity sags, accelerating cyclical break- 
down and aggravating depression. 

Luxury or variety buying was enormously stimulated by the profits 
of speculation. Speculative profits shot upward in 1925 (Table III), 
precisely when the output of luxury goods and durable goods began 
to mount most rapidly. Thus, in spite of all the talk of "prosperity 
is mass consumption," from 1925 on, consumption and prosperity in- 

* There is a similar development in England and all more highly industrial coun- 
tries. "The demand for goods satisfying secondary needs . . . must increase the diffi- 
culty of balancing consumption and productive capacity. . . . Instability of demand 
through causes of this kind is associated with rising incomes rather than w^ith incomes 
at a higher level. . . . But there seems no great possibility ■ of a continuous rise in 
income." G. C. Allen, British Industries and Their Organization (1933), pp. 288-89. 
These are the desperate economics of the decline of capitalism. Stationary mass incomes 
and economic stagnation, lower mass standards of living, are to "assure" the stability 
of production! 


The Decline of American Capitalism 


Growth of Speculative Profits, 1^2^— 2g 















1 00.0 




















114. 6 











* Not available. 

Source: Speculative profits — computed from Bureau of Internal Revenue, Statistics of 
Income for the respective years. Speculative profits are realized profits reported by income- 
taxpayers from sale of stocks, bonds, and real estate, and capital net gains from sale of 
assets held more than two years. Speculative profits of banks and other corporations, 
which helped to swell dividends, are not included. While capital gains are not directly 
speculative profits, they mainly are indirectly, as capital gains are largest and most 
realized upon when values are inflated by speculation. 

creasingly depended on the artificial purchasing power created by 
instalment credit and speculative profits. 

The upflare of stock-market speculation was preceded in 1923-24 
by speculation in real estate, particularly the Florida "boom," cap- 
italizing urban growth and greatly inflating values. (Inflation o£ land 
values, which goes on continuously, is partly responsible for the miser- 
able housing of the workers.) Stock speculation rose in 1925 and 
surged upward in 1928—29, when speculative profits were four times 
those of 1923. For the seven years 1923—29, speculative profits amounted 
to $20,380 million. They rose five times as much as dividend and in- 
terest payments and twenty times as much as wages. "Having no 
origin in the manufacture or sale of goods or services, having no imme- 
diate purpose to produce goods or services, speculative profits may 
properly be designated as artificial increments to income. In the period 
1927 to 1929 they served to keep consumer demand ahead of produc- 
tion. ... A potential source of spendable income so vast as this 
would not need to be drawn upon to more than one-fourth of its 
maximum capacity to provide under stable price conditions an addi- 
tion to consumer purchasing power unprecedented for so short a 
period. . . . Speculators usually regarded profits as definitely so much 
'money made,' and governed their spendings accordingly. . . . The 

Excess Capacity, Competition, and Speculation 173 

inference is exceedingly strong that the major influence prolonging the 
last prosperity through its final two years was the enormous stream 
of purchasing power coming from the security markets." ^^ 

Security speculation was never so frenzied. Prices of industrial com- 
mon stocks rose an average of 19.4% yearly in 1922—29 compared with 
2.8?/^ in 1901-13; the "values" of stocks on the New York Stock Ex- 
change rose from $38,500 milHon on January i, 1927 to $59,330 million 
on October i, 1928 and to $89,670 million on September i, 1929, a gain 
of $40,000 million after deducting new issues.^^ Speculative profits 
reported by income-taxpayers rose from $2,311 million in 1918-20 to 
$12,385 million in 1927-29. If to brokers' loans on the New York Ex- 
change, which rose from $3,219 million on April 30, 1926 to $8,549 
million on September 30, 1929, are added margins, the total tied up 
in speculation at its peak was over $11,500 million, and over $15,000 mil- 
lion if all stock exchanges are included. The commissions of brokers 
of the New York Exchange in 1928 amounted to over $400 million, or 
an average of $365,000 for each of the 1,100 members ^^ (in addition to 
speculative profits of their own). Speculation was a major industry. 
Banks and other financial interests tied up with the speculative frater- 
nity easily beat down the mild efforts to "normalize" speculation. "The 
sky's the limit!" Leading stocks sold at from twenty-one to fourty-four 
times their earnings.^^ Stocks sold at yields of less than 3% or 1% or 
nothing — discounting not only the future but eternity itself. 

The speculative fever was inflamed by manipulation, trickery, and 
downright swindle, by all the institutional arrangements of capitalism. 
. . . Investment "analysts" advised: "There are laws governing invest- 
ment and speculation just as there are laws governing the universe. 
Conform to these laws and you reap just rewards. Ignore them, either 
wilfully or through ignorance, and you lose." . . . Halsey, Stuart and 
Company hired at $50 weekly a University of Chicago professor to 
act as Old Counselor in their radio hour, to broadcast material pre- 
pared by the brokerage firm}^ . . . Executives of banks and other 
corporations formed pools in the stocks of their own concerns. . . . 
Corporations split up stocks to inflame the public's speculative hopes. 
... A flood of wholly speculative security issues was unloosed. . . . 
Scores of "trading companies," disguised as investment trusts, were 
organized to speculate in stocks. ... A whole series of mergers pro- 
moted speculative purposes. . . . Investment trusts, practically non- 
existent in 1925 but whose resources by 1929 exceeded $3,000 million,^® 
inflamed the speculative fever by their rapid expansion, their pur- 
chase of stocks and issuance of new securities, their buying on "dips" 

174 The Decline of American Capitalism 

in the market, their absorption of new speculative issues, and their 
connection with brokerage houses. . . . Speculation yielded higher 
profits than production; corporations whose surplus rose greatly, much 
of it in cash, placed billions in brokers' loans. . . . European money 
flowed into American speculative markets; French speculators 
"cleaned up" $307,000,000 in fifteen months in 1928-29.^° . . . Banks 
manufactured speculative credit with the abandon of bankrupt gov- 
ernments issuing paper money, while their security affiliates speculated 
on a large scale; speculation and credit are linked together, an insepara- 
ble part of capitalist accumulation. . . . The speculative fever was 
inflamed by the Coolidge-Hoover administrations, and particularly 
by Secretary of the Treasury Andrew Mellon, with his reductions of 
the surtax on large incomes, his refunds of personal and corporate 
income-tax payments, and his influence on Federal Reserve policy. 
... It was also inflamed by vulgar economists who spoke as if specu- 
lation and its jargon are the source of all values.* . . .One of them 
wrote a whole book denouncing efforts to "moderate" speculation; 
among other passages of cheap eloquence and worse economics was 
this: "With marked progress in individual industries, in an era of 
radical improvement in our economic life comparable to the industrial 
revolution, attended by singular good fortune in the expansion of 
foreign trade and achieving a dominant place in the firmament of in- 
ternational commerce and finance, with peace at home and abroad 
and with an administration in which the country has the greatest 
confidence, it is little wonder that those who buy stocks, who in terms 
of the economist are paying a present sum for an infinite series of 
future incomes, should be inclined to pay a rather high price." ^^ 
Irving Fisher, professor of economics, a day or two before the market 
crash in October, 1929, said prices were not high but low, "gains are 
continuing into the future" and "predictions of heavy reaction find 
little if any foundation in fact." Several weeks after the crash he said 
it had created "false fear" and meant "no permanent ill effects."^* 
. . . The "New Era" prophets rejected economic laws; after the crash, 
ruining the hopes of "an infinite series of future incomes," the 
economist of the Guaranty Trust Company, a Morgan bank, admitted 

* Speculators and financiers are modern medicine-men, who make a fetish of their 
jargon and endow it with magical powers. After two years of declining stock prices 
it was suggested, to end the depression, that the market vocabulary abolish such phrases 
as "selling climaxes," "resistance point" and "technical rally" as "tending to intensify 
the bearish pessimism of the financial community." See New York Times, November 
25, 1931. 


J so 




1^ 79.r/. 1 

^m iHcotAts Of 
^B ^lo.aootip 

^^^i5/ INCOMES 0^^^ 
^^^3000 - $10,000 ^^ 


— — ^ 

— p 


— 1 























-] ^^ 1 












-•^•** •• I 



13 I'W't my Mib HiT WW w 



176 The Decline of American Capitalism 

sadly: "It is evident that economic laws have resumed their svi^ay in 
important particulars"! ^' 

The fever seized upon widening circles of speculators. This was 
magnified by the profiteers of prosperity, who insisted "everybody" 
was speculating — bootblacks, clerks, and millionaires, poor man, rich 
man, beggar man, thief. But millions of shares are not millions of 
speculators. Two New York Stock Exchange firms, doing more than 
10% of the Exchange's total business, had fewer than 12,000 active 
margin accounts.^* In 1928 (the most representative year, as there was 
no crash), 470,889 out of 4,070,851 income-taxpayers reported profits 
from the sale of stocks, bonds, and real-estate, another 27,704 reported 
capital net gains, and 72,829 reported speculative losses.^^ The total is 
571,422 persons, not all of whom were necessarily active speculators, 
offset by others who did not report. In all probability the number of 
speculators was 750,000, and definitely not over 1,000,000. This in itself 
was an enormous increase over pre-war years. Speculation aroused 
get-rich-quick appetites, but the new speculators were mainly from 
the middle class, which was becoming larger and wealthier. The 
limited class character of speculation is clearly indicated in the distribu- 
tion of speculative profits (Table IV). Income-taxpayers with incomes 


Distribution of Speculative Profits, i^i8-2g 




Below $3,000 






Over $10,000 



Total $30,371,000,000 loo.o 

Source: Computed from Bureau of Internal Revenue, Statistics of Income for the re- 
spective years. 

below $3,000 yearly, mainly of the lower bourgeoisie, with a sprinkling 
of better-paid skilled workers and farmers, received only 4.6% of 
speculative profits. These petty speculators lost more than they 
gained: speculation, directly and indirectly, expropriates small savers 
and investors, redistributes wealth, and accelerates the concentration 
of capital. Speculators of the intermediate bourgeoisie or upper middle 
class (incomes of $3,000 to $10,000) "earned" substantial profits: 
$4,920 million, or 16.2% of the total. But the real profits were secured 
by the upper bourgeoisie: a total of $24,064 million, of which $8,000 

Excess Capacity, Competition, and Speculation 177 

million was "earned" in the two years 1928-29. As in 1929 there were 
only 382,241 individuals reporting incomes o£ f 10,000 and over, not all 
of whom were active speculators, the gains of speculation were concen- 
trated in a handful of people. Incomes below $3,000 were barred from 
making any substantial profits, except on a fluke, because they did not 
have money for large-scale speculation; and most of them were 
plucked. A few of them made enough profits to rise to the $5,000 
class, many more rose from the $5,000 to the $10,000 class, while 
speculators with incomes of $10,000 and over secured the largest 
profits and rose to the higher income classes, particularly the highest: 
the number of millionaires tripled, mainly as a result of accumulating 
speculative profits. 

Speculation depends, in final analysis, upon the exploitation of the 
producers. The wages of the workers (and farmers' income) were 
depressed relatively to profits. There was a decidedly more unequal 
distribution and concentration of income, whose distribution favored 
the investing and speculating classes, including the new middle class 
of supervisory, managerial, and merchandising employees in corporate 
industry. According to an apologetic economist: "The demand for 
stocks varies directly with the surplus cash the people of the country 
have after they have paid all living and business expenses and the 
cost of ordinary construction and improvements. The stock market 
has been high recently because the income of the people has been 
large." ^^ But what are the impUcations? "Surplus cash" was high not 
because "the income of the people" was large, but because of the 
unequal distribution and concentration of income; there was not 
much "surplus cash" among workers and farmers. If, and this is in- 
conceivable under capitalism, the increase in the national income had 
gone to the lower-paid workers and poorer farmers for use in con- 
sumption, the larger incomes would have acquired no "surplus cash" 
with which to finance their speculative spree. Much of the money tied- 
up in speculation, moreover, was not new income but money secured 
from loans on stocks and other forms of property: an aspect of the 
concentration of wealth. Apologetic economists always insist on "analyz- 
ing" gross totals and general trends instead of class proportions and 
relatives. . . . 

Speculation capitalized the rising productivity of labor and its 
higher yield of surplus value. It was bound up with all the results of 
changes in the composition of capital. The superabundance of capital 
simultaneously increased excess capacity and inflamed speculation. 
Although the general rate of profit was falling, many corporations 

178 The Decline of American Capitalism 

experienced a rising rate; speculation in their stocks affected other 
stocks. The falling rate of profit drove capital after the higher profits 
of speculation. This included corporations with a large cash surplus; 
their profits were augmented by the high returns on brokers' loans, 
nearly one-third of which was financed by corporations. 

Underlying all these forces was the antagonism between production 
and consumption, which depressing mass consumption and breeding a 
superabundance of capital. Superabundant capital became more and 
more aggressive and adventurous in its search for investment and 
profits, overflowing into risky enterprises and speculation. Speculation 
seized upon technical changes and new industries, which were intro- 
duced planlessly, regardless of the requirements of industry as a 
whole. Large profits were made by simple speculative manipulation. 
In one case a small group bought control of the stock of a railroad 
and sold it to the Pennroad Corporation, a holding company of the 
Pennsylvania Railroad, for $37,898,000: the profit was $12,807,000.^^ 
The fall in the rate of profit stimulated mergers and combinations, 
which grew unprecedentedly in 1923-29. Mergers and combinations 
tried to check the fall in the rate of profit by control of production and 
prices; but as they were enormously overcapitalized and increased 
excess capacity, the final result was to strengthen the tendency of the 
rate of profit to fall. Mergers and combination became the objects of 
speculation; they yielded huge promoter's profits and inflamed specula- 
tive hopes. 

Monopolist combinations interlock with the great banks; there is a 
fusion of financial and industrial capital. The financial oligarchy 
strengthens its control over industry. Ownership increasingly becomes 
a mass of paper claims upon production and income, the means and 
objects of speculation, creating the illusion that paper values are the 
source of all wealth. In the epoch of monopoly capitalism, which in 
1923-29 consolidated its hegemony in the United States and is bound 
up with the decline of capitalism, speculation becomes more active. 
The financial oligarchy operates with the mass of paper claims and 
increasingly subordinates the production of goods to the production of 
speculative profits. It subjects whole industries to predatory specula- 
tion and plunder (Insull, Kreuger). Where the profits of non-financial 
corporations were only 14% higher in 1929 than in 1923, the profits 
of financial corporations were 177% higher. The financial oligarchy is 
necessarily and intimately identified with the banks and their financing 
of speculation, with the stock exchanges, with all the speculative and 
adventurous aspects of capitalist enterprise. Through the export of 

Excess Capacity, Competition, and Speculation 179 

capital, a means of checking the fall in the rate of profit, speculation 
becomes international, encouraged by the financial overlords of mo- 
nopoly capitalism. 

Speculative profits, although they are an artificial creation of in- 
come, constitute real claims upon production and goods, upon the 
labor of the workers and farmers. In the final outcome, when inflated 
values crash, past speculative profits become present and future losses, 
and result in a restriction of consumption. But before the crash, specu- 
lative profits promote prosperity to the extent that they are spent on 
consumption goods (and services). Speculation, however, simulta- 
neously aggravates the instability of prosperity and of capitalist pro- 
duction. In this, speculation resembles excess capacity, which as it 
grows stimulates the demand for capital goods and thus promotes 
prosperity, although it also contributes to the ultimate breakdown of 
prosperity because it intensifies competition, lowers the rate of profit, 
and eventually limits the demand for capital goods. Primarily an 
eiTect, speculation reacts and becomes itself a cause. By inflating 
values, speculation puts pressure on corporate managements to raise 
profits, and tends to increase competition, excess capacity, and over- 
production. Speculation encourages risky enterprises, augments the 
concentration of income, strengthens the adventurous character of 
finance capital, and makes the unstable equilibrium of capitalist pros- 
perity constantly more unstable because of an increasing dependence 
upon luxury production. 


The Onset of Crisis and Depression 

Jl HE antagonism between production and consumption is the basic 
cause of economic instability, and of crises and depressions. It results 
from the tendency toward an absolute exploitation of the workers, 
the increasing production of surplus value, and an absolute devel- 
opment of production while simultaneously limiting consumption. 
But the antagonism is continuous, permanent. How is an equilibrium 
achieved and maintained? Primarily by an increasing output and 
absorption of capital goods. These are the outlines of the movement: 

1. The production and absorption of capital goods directly promotes 
the accumulation of capital: 

a. It converts realized surplus value, profits, into capital, whose 
accumulation is basic in capitaUst production. 

^. It yields new profits, which are investible and become capital 
because of the increasing output and absorption of capital goods. 

2. The output of capital goods indirectly promotes consumption: 
a. Wages are distributed, and are spent mainly on consumption 


h. A part of salaries and profits is similarly spent. 

The consumer purchasing power created by the production of capital 
goods and spent on consumption is a net gain, as it represents no out- 
put of competing consumption goods. Thus the capital goods industries 
contribute to the sustenance of the consumption goods industries. 
The antagonism between production and consumption is temporarily 

3. The output of consumption goods is active and profitable: 

a. Wages are distributed, and spent mainly on consumption goods. 

h. A part of salaries and profits is similarly spent. 

c. Another part of the profits is invested and becomes capital because 
of the increasing output and absorption of capital goods, either in 
the form of capital goods to produce other capital goods or capital 
goods to produce consumption goods (or services). 

Thus the reaction of one department of industry upon the other 
creates an increasing production in which the primary factor is the 
output of capital goods. These goods give profits concrete forms, 


The Onset of Crisis and Depression i8i 

they embody capitaUst ownership and claims to income. Upon these 
forms depend other forms of capital. While creating consumer pur- 
chasing power (wages, part of salaries and profits), the output of 
capital goods makes no direct demands upon such purchasing power. 
Demands are made only eventually, when the new capital goods 
begin to function as productive equipment. Thus pressure upon mar- 
kets is lessened and an equilibrium is temporarily maintained between 
production and consumption. There are other factors in the equilib- 
rium, but the output of capital goods is fundamental. 

Meanwhile speculation flourishes because profits are high. This 
increases the output of luxury or variety goods, distributing wages and 
creating demands for capital goods. 

The equilibrium is temporary, is eventually shattered, because of 
its own underlying causes. One part of capital goods represents con- 
sumption of which the workers are deprived. When new capital 
goods begin to produce there arises an accumulating insufficiency of 
buyers for their output (and the output of older capital goods). The 
lag of wages behind profits, a stimulus to the accumulation of 
capital and the output of capital goods, simultaneously limits the 
conditions of consumption. New capital goods represent an increase 
in the productivity of labor and in the scale of production, and a 
decrease in relative wages, while the output of commodities grows. 
Excess capacity, overproduction, and competition force down the rate 
of profit. This for a time promotes prosperity as it means new invest- 
ment, i.e., creates new demands for capital goods to overcome the 
fall in the rate of profit. More wages are distributed, more capital 
absorbed. But as the new capital goods become "procreative," the 
forces of production become greater, the conditions of consumption 
relatively more limited. The equilibrium begins to totter. A minor 
cyclical depression appears, as in 1927, when the rate of profit in manu- 
factures fell from 12.1 to 10.2 on fixed capital and from 7.1 to 5.5 on 
total capital, a fall of 15.7% and 22.6% respectively. While not 
disastrous, the fall was threatening. It stimulated efforts to raise profits 
by increasing the productivity of labor, and created new demands for 
capital goods. The index of machinery output rose from 153 in 1926 
and 146 in 1927 to 157 in 1928 and 191 in 1929, while the index of total 
output of capital goods moved from 147 and 143 to 145 and 170. (The 
index of total capital goods was slightly lower in 1928 than in 1926 
because of a lower output of transportation equipment, rising again 
in 1929.) In consumption goods the rise was smaller, from 125 and 124 
to 130 and 131.^ The upsurge of prosperity was based on the mount- 

i82 The Decline of American Capitalism 

ing output o£ capital goods, which sustained the (smaller) rise in 
consumption. But this meant an enormous exertion of the productive 
forces— output of manufactures rose from $41,000 million in 1927 to 
$47,000 million in 1929, an unprecedented rise accompanied by a great 
increase in the productivity of labor. An enormous burden was placed 
upon all markets, both for capital goods and consumption goods, 
particularly as the great increase in output took place in the first six 
months of 1929: after June production decreased. While the rate of 
profit and even wages rose slightly,* this was bound up with the con- 
ditions of approaching cyclical breakdown. For the rise in the rate 
of profit and in wages was the temporary result of an absolute exer- 
tion of the productive forces which set in motion: 

1. An overproduction of capital goods (including construction) : 
a. Demand and output both fell as the consumption goods indus- 
tries, their productive powers enormously augmented and markets 
limited, restricted their orders for capital goods. 

h. Employment and wages fell among capital goods workers, les- 
sening demand for consumption goods (and services), restricting the 
creation, by capital goods industries, of that consumer purchasing 
power which sustains a high level of output in the industries producing 
consumption goods. 

2. An overproduction of consumption goods: 

a. The overproduction latent in excess capacity became actual in 
terms of limited markets (particularly durable consumption goods) 
as accumulated capital goods spawned a mass of new commodities. 

h. This condition was aggravated by unemployment and smaller 

* "It is purely a tautology to say that crises are caused by the scarcity of solvent 
consumers, or of a paying consumption. The capitalist system does not know of any 
other modes of consumption but a paying one, except that of the pauper or of the 
'thief.' If any commodities are unsalable, it means that no solvent purchasers have been 
found for them. But if one w^ere to attempt to clothe this tautology with a semblance 
of profounder justification by saying that the working class receive too small a portion 
of their own product, and the evil would be remedied by giving them a larger share 
of it, or raising their wages, we should reply that crises are precisely always preceded 
by a period in which wages rise generally and the working class actually get a larger 
share of the annual product intended for consumption. From the point of view of the 
advocates of 'simple' (!) common sense, such a period should rather remove a crisis. 
It seems, then, that capitalist production comprises certain conditions which are inde- 
pendent of good or bad will and permit the working class to enjoy that relative pros- 
perity only momentarily, and at that always as a harbinger of a crisis." Karl Marx, 
Capital. V. II, p. 476. Marx adds: "Advocates of the theory of crises of Rodbertus are 
requested to make a note of this." And we might add the American advocates of the 
"policy of high wages"! 

The Onset of Crisis and Depression 183 

payrolls in capital goods industries, lowering mass purchasing power 
and consumption. 

c. Consumption goods industries began to retrench; workers were 
fired or wages cut or both, again lowering mass purchasing power and 

d. The decrease in industrial and speculative profits (stock values 
crashed) lessened demands upon the luxury industries, which re- 
trenched on employment and wages, lowering mass purchasing power 
and consumption. 

e. These developments depressed the demand for capital goods (in- 
cluding construction), whose output moved sharply downward, again 
lowering wages, mass purchasing power, and consumption. 

3. A decline in industry as a whole: 

a. The crisis aggravated the disproportions between one industry 
and another and within single industries, and created new dispropor- 
tions which accelerated the slump in production. 

b. Speculative or risky enterprises (all industry had become increas- 
ingly speculative) were easily upset and aggravated the upset in the 
more "sober" industries. 

c. There was a sharp and steady fall in the activity of the industries 
producing materials (raw and semi-finished).* 

d. The slump in industry as a whole sharpened the "crisis" in credit, 
prices, and other monetary factors: these the bourgeois economist 
considers decisive, but they are simply effects reacting upon their 

Overproduction appeared primarily in the industries which had been 
the major sustaining factors in prosperity: 
The output of machinery began to fall in June, 1929; new orders 

* The overproduction of raw materials was an important factor in the breakdown of 
prosperity, particularly on an international scale. In most raw materials the ratio of 
world visible supplies to consumption rose sharply between 1923 and 1929, and still 
more sharply after the crisis. (Robert F. Martin, "World Stocks, Prices and Controls of 
Foodstuffs and Raw Materials," Harvard Business Review, July, 1932, pp. 437-40.) This 
was a result of uncontrolled production, excess capacity, and ruthless competition, and 
of the capitalist exploitation of agriculture in general and of agrarian countries in par- 
ticular. The buying power of countries producing raw materials was severely restricted 
by the disastrous fall in demand and prices. There was an unusually large slump in the 
American export of goods and a total cessation of the export of capital, two of the 
important factors in prosperity. For several years before the" crisis the export of goods 
was practically at a standstill while the export of capital had become primarly an export 
of interest, which strengthened the downward pressure on the rate of profit of excess 
capacity and surplus capital, increased the instability of prosperity, and contributed to 
the coming of crisis and depression. 

184 The Decline of American Capitalism 

for machine tools and foundry equipment had fallen 50% by the end 
of the year, while employment in the machine industries as a whole 
fell nearly 10%. 

The output of automobiles began to fall in July and had fallen 
57% by the end of the year; the output of rubber tires and tubes 
fell 51%. 

Construction began to fall in August and had fallen 52% by the 
end of the year. 

The output of iron and steel began to fall in July and had fallen 
42% by the end of the year. 

By the end of 1929 the output of manufactures as a whole, which 
began to decline in July, had fallen 24%.^ 

As output in the heavy industries producing capital goods and 
materials fell, it restricted the creation of consumer purchasing power 
among the workers and thus lessened demand and output in the 
consumption goods industries.* To a certain extent the fall in the out- 
put of machinery was retarded, because enterprises made efforts to 
overcome the faUing rate of profit by again increasing the produc- 
tivity of labor with more efficient equipment. But these efforts, suc- 
cessful in a minor depression, aggravate conditions in the midst of a 
developing major depression, when markets break down precipitously 
and extensively. Now the rate of profit fell disastrously — from 13.9 on 
fixed capital and 7.5 on total capital in 1929 to 3.0 and 1.7 in 1930, a 
decrease of 78.4% and 77.3% respectively. With the onsweep of the 
crisis the output of capital goods fell more than that of other goods, 
and much more than in the 1920—22 depression. In 1932 the output 
of machine tools was 92.5% lower than in 1929, of foundry equipment 
82% lower, of woodworking machinery 96% lower (the decrease in 
construction was equally great) ; inability to make profits and convert 
realized profits into capital led to a drop in investment from $15,000 
million in 1929 to $3,000 million in 1932.^ Prosperity depends upon the 
production of profit and its conversion into capital, a process which 
determines whether the workers may work and live. 

* "The excess capacity always present in such industries encourages the production 
of more goods than the market will absorb at any price, and overproduction results. In 
this manner the peak of production is driven ever upward, dealers* stocks begin to 
mount as business recedes, and when the slump comes it is much more severe because 
of almost complete shutdown of production. This is what happened to the passenger 
car business, and the same overproduction, followed by collapse of production, took 
place in other limited industries." W. W. Hay, "Manufacture of New Products an 
Escape from Effects of Saturated Markets," Annalist, December 12, 1930, p. 988. 

The Onset of Crisis and Depression 185 

It was a crisis of overproduction in terms of the limited class con- 
ditions of consumption. In the words of Marx: "If it is said that there 
is no general overproduction, but that a disproportion grows up be- 
tween various lines of production, then this is tantamount to saying 
that within capitalist production, the proportionality of the individual 
lines of production is brought about through a continual process of 
disproportionality, that is, the interrelations of production as a whole 
enforce themselves as a blind law upon the agents of production in- 
stead of having brought the productive process under their common 
control as a law understood by the social mind. ... If it is said that 
overproduction is only relative, then the statement is correct; but the 
entire mode of production is only a relative one, whose barriers are 
not absolute, but have absoluteness in so far as it is capitalist. Other- 
wise how could there be a lack of demand for the very commodities 
which the mass of the people want? . . . All these objections to the 
obvious phenomena of overproduction (phenomena which do not pay 
any attention to these objections) amount to this, that the barriers of 
capitalist production are not absolute barriers of production itself 
and therefore no barriers of this specific, capitalist production. But the 
contradiction of this capitalist mode of production consists precisely 
in its tendency to an absolute development of the productive forces, a 
development which comes continually in conflict with the specific 
conditions of production in which capital moves and alone can move. 
... It is not a fact that too much wealth is produced. But it is true 
that there is a periodical overproduction of wealth in its capitalist and 
self-contradictory form. . . . Capitalist production comes to a stand- 
still at a point determined by the production and realization of profit, 
not by the satisfaction of social needs. . . . The real barrier of capital- 
ist production is capital itself. It is the fact that capital and its self- 
expansion appear as the starting and closing point, as the motive and 
aim of production; that production is merely production for capital, 
and not the means of production mere means for an ever-expanding 
system of the life process, for the benefit of the society of producers." * 

The contradictory forces set in motion by the antagonism between 
production and consumption are aggravated by other factors, includ- 
ing monetary factors. But these monetary factors are not primary, 
they are simply effects which react upon the fundamental productive 
relations. Irving Fisher insists that crises are a result of fluctuations in 
prices caused by changes in the value of money; that crises can be 
avoided if there is no change in the general level of prices, wholly 
possible if the "circulation of goods and the circulation of money . . . 

1 86 The Decline of American Capitalism 

should keep going at the same even pace ... or both streams grow 
greater at the same rate or grow less at the same rate." ^ This is 
theoretically and historically wrong. Crises and depressions have been 
preceded by constant prices (1857), by falling prices (1873, 1893), by 
rising prices (1907, 1920), and again by constant prices (1929). Fluc- 
tuations in prices are a factor of instability in the measure that they 
express and react upon underlying economic forces. They do aggra- 
vate disproportions. But these disproportions always develop: price 
movements merely affect the relation of one disproportion to another 
and the combinations in which they appear. 

Falling prices force efforts to raise profits by an increase in the 
productivity of labor. But this results in a higher composition of 
capital, lower relative wages (real wages may rise), greater excess 
capacity, aggravated competition, a falling rate of profit, speculation, 
and a drive toward overproduction under conditions of restricted 
mass purchasing power and consumption. 

Rising prices increase profits, although much of the increase is 
fictitious and depends for its full realization upon lower prices to 
come. But rising prices negate one of the fundamentals of capitalism, 
the urge to produce and sell more abundantly and cheaply. Rising 
prices and profits lower real wages (the productivity of labor rises, 
if not much), redistribute income and purchasing power, encourage 
speculation, and restrict mass consumption. The rate of profit tends 
to rise, but falls again as the crisis develops. Excess capacity rises 
primarily because markets are restricted by higher prices. Production 
may be stationary or fall but overproduction develop in terms of 
rising prices and the falling real value of mass incomes. 

In both cases there are disproportions, although the relations and 
combinations vary. And in both cases the basic disproportion is the 
maladjustment between production and consumption. 

But constant prices are no way out. There was a practically con- 
stant price level in 1925-29. Irving Fisher considered this constancy, 
which he attributed to the "manipulations" of the Federal Reserve 
Board, a guarantee of continuing prosperity. The outcome was the 
greatest of all cyclical breakdowns. For the constant price level was 
itself a factor of instability. Constant prices contributed to an unusual 
rise in profits because of the great increase in the productivity of 
labor. This temporarily aided prosperity, under the prevailing con- 
ditions, as it stimulated the output and absorption of capital goods. 
But eventually constant prices hastened the coming of the crisis be- 
cause they restricted purchasing power and consumption, while fall- 

The Onset of Crisis and Depression 187 

ing prices might temporarily have postponed the crisis by increasing 
consumption. The constant price level wsls accompanied by rising 
productivity and profits, practically stationary real w^ages, accelerated 
accumulation, and changes in the composition of capital, more excess 
capacity, a falling rate of profit, aggravated competition, frenzied 
speculation, and an increasing production v^^ithin the limits of re- 
stricted mass purchasing power and consumption. Prosperity crashed 
into depression. 

Prices affect the demand for capital goods, although other factors 
are more important. Rising prices may limit demand and thus weaken 
prosperity by limiting the increase in the output and absorption of 
capital goods. Falling prices may stimulate demand and hasten the 
overproduction of capital goods and the breakdown of prosperity. 
Either one or the other may result from constant prices, depending 
upon the level of prosperity. But whatever the particular combination 
of factors, the moment must come when the output and absorption 
of capital goods begins to fall because consumption has not kept 
pace with production. 

Thus prices act within the limits of the underlying economic factors : 
these are primary. Cyclical breakdown develops under conditions 
of falling, rising, and constant prices. The disastrous fall in prices 
after a crisis, aggravating the cyclical breakdown and depression, 
is itself an effect of the crisis — an effect which becomes a major cause 
only in the analyses of the bourgeois economists. 

In the pre-1929 era of prosperity everlasting, a whole school of 
economists, accepting the temporary and incidental as permanent and 
fundamental, stressed the importance of constant prices, of stabiliza- 
tion. In spite of the demonstration that stable prices do not avert 
cyclical breakdown, the theory reappears in the proposals of the 
NRA, and of state capitaHsm, in general to "fix" prices and "stabilize" 
the value of money. But the needs of capitalist production are identified 
with higher output and lower prices, although these simultaneously 
torment and upset it. Prices may be stable, but not productivity. 
Profits rise disproportionately. The benefits of improved productive 
efficiency are not passed on in the form of lower prices. Real wages 
are adversely affected, as they generally rise only in periods of falling 
prices. Instability is an element of capitalist growth. Stabilization, 
along with its twin, the restriction of production, is an element of 
capitalist decHne and stagnation. 

The monetary approach appears more substantial in the arguments 
of John Maynard Keynes, the economist of capitalism in extremis. 

i88 The Decline of American Capitalism 

Accepting the necessity of stabilization, he incorporates it in a larger 
analysis which recognizes that prosperity depends upon the output 
of capital goods, upon the increase in profitable investment. But he 
stresses the monetary aspects and makes the output of capital goods 
a function of the rate of interest. "It is," he says, "a large volume 
of saving which does not lead to a correspondingly large volume of 
investment (not one which does) which is the root of the trouble"; 
the slump in 1929 was "initially engendered ... by the deficiency of 
current investment relatively to saving." ® The high market-rate of 
interest discouraged new investment in capital goods, savings exceeded 
investment, and the resulting decline in the output of capital goods 
produced the crisis and depression. If the market-rate of interest had 
fallen to the level of the natural-rate, i.e., a rate making it profit- 
able for enterprise to borrow money to buy new capital goods, there 
would have been no crisis and depression. The assumption is that, 
if there is no divergence between the "market-rate" and the "natural- 
rate" of interest, and investment equals savings, capitalist production 
can uninterruptedly absorb a constantly greater output of capital goods 
and prosperity flourish undisturbed. This ignores the crucial factors: 

In 1928-29 there was an upsurge in new investment and in the 
output of capital goods regardless of the prevailing interest rate: 
buyers of new stock issues were plentiful and corporate surplus ample. 

Increasing investment itself and the constantly greater output of 
capital goods, not the interest rate, tormented capitalist enterprise 
because of accumulating excess capacity, saturated markets, aggravated 
competition, and the tendency of the rate of profit to fall, a fall 
independent of any rise in the interest rate. 

The increasing output of capital goods was (and always is!) accom- 
panied by an accumulating deficiency in consumption. 

While the immediate cause of the breakdown of prosperity was 
the deficiency in the output of capital goods, the underlying cause was 
the deficiency in consumption. 

Oversaving is a factor in the cyclical process. Not because it creates 
a deficiency in capital investment (and production) but because it 
creates a deficiency in consumption by diverting to investment income 
which should go into consumption. Keynes, who slights consumption, 
does not consider "oversaving" that part of invested savings identi- 
fied with excess capacity. Yet this part and the part which is not 
invested at all both tend eventually to create a deficiency in con- 
sumption. Assume that a "managed currency" so manipulates the 
interest rate that investment comes to equal savings. Good. But what 

The Onset of Crisis and Depression 189 

of the deficiency in consumption, of a greatly increasing output of 
consumption goods in the midst of hmited markets? 

New investment, an increasing output of capital goods, is not 
primarily a function of the rate of interest. It is a function of indus- 
try's capacity to absorb new capital goods, dispose of consumption 
goods at profitable prices, and yield a satisfactory rate of profit. Keynes 
makes a satisfactory rate of profit depend upon the interest rate, in- 
vestment depend upon the proportion of the expected rate of profit 
to the current rate of interest. Actually it is, save in exceptional cases, 
the reverse: the interest rate becomes unsatisfactory or "unprofitable" 
after the rate of profit itself falls. The rate of profit, which rose slightly 
early in 1929, began to fall as the crisis approached, and fell disas- 
trously after the crisis. It fell disastrously because of the collapse of 
demand, prices, and production, not because of the divergence between 
the rate of profit and the rate of interest. The divergence was itself 
an effect of the crisis and the fall in the rate of profit. 

The monetary approach is responsible for another error. This is 
Keynes' insistence that speculation contributed to the cyclical break- 
down because "the 'speculative' borrowers were borrowing not for 
investment in new productive enterprise, but in order to participate 
in the feverish 'bull' movement," ^ thus increasing the deficiency in 
investment. On the contrary, speculation contributed to postponement 
of the crisis by encouraging the luxury industries and by preventing 
an earlier overproduction of capital goods. Most speculative profits are 
either re-employed in the market or are spent; the part which may 
be invested in productive enterprises is smaller than the cash and 
credit tied up in speculation. The "immobilization" of a part of super- 
abundant capital by speculation performs the same function in keep- 
ing prosperity going that is performed by destruction and deprecia- 
tion of capital and waste in general. But while speculation aided 
prosperity it simultaneously aggravated the instability of prosperity, 
sharpened the crisis when it came, and deepened the depression. 

Of the depression and recovery, Keynes writes: "Capital goods will 
not be produced on a large scale unless the producers of such goods 
are making a profit. Upon what do the profits of the producers of 
capital goods depend? They depend upon whether the public prefers 
to keep its savings liquid in the shape of money or the equivalent 
or use them to buy capital goods or the equivalent. . . . The funda- 
mental cause of the trouble is the lack of new enterprise due to an 
unsatisfactory market for capital investment. Lenders were, and are, 
asking higher terms for loans than new enterprise can afford."® 

igo The Decline of American Capitalism 

That is clearly an effect, however, not a cause. Where production and 
consumption are prostrate, as in a major depression, any large in- 
vestment in new capital goods may be unprofitable no matter how 
low the interest rate. It might even be unprofitable if no interest were 
asked but only safety. For an unusually severe depression is preceded 
by an unusually large output of capital goods. There is an unusual 
overdevelopment of plant equipment, and new investment is prac- 
tically limited to unpostponable replacements, considerably more effi- 
cient equipment which might yield competitive advantages to a 
particular enterprise, and equipment to produce new goods which 
meet no competition and whose market is assured. Depression is 
finally overcome, and new investment again becomes profitable, pri- 
marily by destruction and depreciation of existing capitals, the piling 
up of unpostponable replacements, and the development of new in- 
dustries, thus setting in motion a demand for capital goods and a rise 
in the rate of profit. At this stage the rate of interest may become 
an accelerating or retarding factor. But the fundamental factors are 
the rate of profit itself and the capacity of industry to absorb an 
increasing output of capital goods. So great was the overdevelopment 
of productive enterprise in the United States that the government's 
efforts to "ease" credit — through the loans, or rather grants, of the 
Reconstruction Finance Corporation, and the pressure on industry 
to borrow and on banks to lend — yielded slight results because indus- 
try was tormented by overdevelopment of capacity and lack of markets, 
not by lack of credit or capital.* 

The admission by many bourgeois economists, among them Keynes, 
that prosperity depends upon capital investment is correct. It is, how- 
ever, one-sided because it excludes, wholly or in part, the factor of 

* Keynes, "Causes of the World Depression," Forum, January, 1931, p. 24, sees 
this overdevelopment of enterprise without appreciating its significance: "In the United 
States the vast scale on vi^hich new capital enterprise has been undertaken in the last 
five years has somewhat exhausted for the time being — at any rate so long as the 
atmosphere of business depression continues — the profitable opportunities for further 
enterprise." Where art thou now, O rate of interest! In Germany, in 1932, the govern- 
ment of Chancellor Briining and the Reichsbank lowered interest rates to stimulate 
industry. Failure was attributed to the fact that only short-time borrowing was affected. 
But failure also marked the efforts of the government of Chancellor von Papen, which 
tried to stimulate expenditures on capital goods by giving industry a practical subsidy 
of 750 million marks at no interest (in the form of certificates discountable for cash 
and acceptable some years later in payment of taxes). Enterprises receiving the money 
used it to pay off debts, and there was no revival in the output of capital goods. Gerhard 
Colm, "Why the 'Papen Plan' for Economic Recovery Failed," Social Research. February, 
1934. P- 93- 

The Onset of Crisis and Depression 191 

consumption. Capitalist prosperity depends upon an increasing output 
and absorption of capital goods. But this depends in final analysis 
upon the capacity of industry profitably to dispose of an increasing 
output of consumption goods. The constant clash of one with the 
other is inescapable and decisive. Because he ignores this, Keynes 
becomes entangled (much like the money cranks) in proposals for 
monetary manipulations to revive and maintain prosperity. All such 
proposals emphasize the secondary factors of exchange, not the pri- 
mary factors of production. While exchange reacts upon production, 
the relations of exchange are determined by the relations of pro- 
duction. If exchange is emphasized the causes of cycles appear either 
bewilderingly complex, where the economist is "scientific," or ex- 
tremely simple, where the economist is "practical." In either case 
effects are transformed into causes. Thus an effect, the deficiency 
in investment, becomes with Keynes, who is both "scientific" and 
"practical," the cause of cyclical breakdown. If it is proposed to prevent 
crises or save capitalism, effects must become causes: for it is possible 
to dnker only with effects, not with causes. Prosperity depends upon 
capital investment. This means that capitalism is a profit economy. 
No profit — no prosperity. This in turn creates an antagonism be- 
tween production and consumption: capitalism is unable to develop 
freely and fully the conditions of consumption. The conclusion is 
inevitable : crises and depressions are inherent in the capitalist relations 
of production, they can be avoided only by the abolition of those 
relations. But this conclusion is either evaded or openly rejected by 
the bourgeois economists. Even where the conclusion arises logically 
out of their own analysis, if consistently pursued, they fly off at a 
tangent and offer "cures" based on secondary factors. They prefer, 
in theory and pracdce, to cling to capitahsm. 

In every cycle, in prosperity, crisis, and depression, there are varying 
combinations of the secondary factors. An analysis which emphasizes 
these factors makes every cycle appear unique in itself. This is wrong. 
For there are primary factors underlying and determining the cyclical 
process. These factors are always the same. The secondary factors 
may combine differently in the unstable equilibrium of capitalist 
prosperity. But the primary factor is -the accumulation of capital, an 
increasing output and absorpdon of capital goods. The secondary 
factors may combine differently to produce the onset of crisis and 
depression. But the primary factor is the deficiency in consumption. 
The inescapable antagonism between production and consumption 
is decisive. 

192 The Decline of American Capitalism 

Thus the conclusion becomes inescapable that capitalist production 
is strangled by its own enormous productive forces, which arc de- 
veloped beyond the social forces of consumption. When industry 
tends to use all its forces, the result is overproduction and crisis. 
Even then, however, only a part of the productive forces is utilized. 
Yet this sort of thing is still taught in American colleges: "The one 
great hope of mankind for greater abundance of goods lies in remov- 
ing ineffectiveness of labor as a cause of scarcity, or, in other words, 
in improving the methods of production." ® But labor is not ineffective. 
The methods of production are improved. There is abundance. These 
conditions are, however, transformed into causes of scarcity, both in 
prosperity and depression. Capitalist industry is menaced by its power 
to provide abundance — by the inexorable drive to produce more 
cheaply and abundantly, by excess capacity, by overproduction. Abun- 
dance creates scarcity because abundance becomes relatively unprofit- 
able. Thus under capitalism, production appears as a malevolent fate: 
man is enslaved and tormented by his own material creations.* 

The productivity which torments capitalist industry — and the masses 
— is a result of the objective socialization of production. Capital, 
materials, and labor are concentrated in large-scale enterprises, forms 
of social property, multiplying the productivity of labor. All the 
powers of society work toward improving the social methods of 
production. More and more, industry assumes institutional forms: 
ownership is separated from management and control, the direction 
of industry becomes collective. Only ownership and appropriation are 
individual (although ownership itself acquires measurably social forms 
in corporate enterprise). This contradiction is the basis of the an- 
tagonism between production and consumption. The antagonism can 
be ended only by the socialization of ownership, appropriation, and 
consumption: by making consumption, not accumulation, the aim 
of production. Man, the worker, must produce to consume. 

* "Things cannot be otherwise in a mode of production where the worker exists to 
promote the expansion of existing values, as contrasted with a mode of production 
where weahh exists to promote the developmental needs of the worker. Just as, in the 
sphere of religion, man is dominated by the creature of his own brain, so in the sphere 
of capitalist production, he is dominated by the creature of his own hand." Marx, 
Capital, V. I, p. 685. 


Production and Consumption: 
Capitalist Decline 

JLf capitalist production and prosperity depend upon an increasing 
output and absorption of capital goods, as Keynes and other bour- 
geois economists admit, it follows that there are limits to the economic 
development of capitalism, to the accumulation of capital. 

These limits result periodically in crises and depressions. Cyclical 
breakdowns express an overdevelopment of capital equipment, which 
lessens the output and absorption of capital goods and checks the 
expansion of industry. In the epoch of the upswing of capitalism the 
limits were only relative, as overdevelopment of capital equipment 
was relative and temporary. Depression, overcome by the action of 
cyclical forces, was succeeded by a new upsurge of prosperity resulting 
from new and larger demands for capital goods, because of the 
working of the long-time factors of expansion. But as these factors 
approach exhaustion, the overdevelopment of capital equipment be- 
gins to assume absolute and permanent forms. Industry is now unable 
to absorb an increasing output of capital goods: the limits to the 
development of capitalist production and prosperity become absolute. 

At the same time, and necessarily, the limits to the development 
of consumption become absolute. An increase in consumption depends 
upon a still larger increase in the output of capital goods. As this 
output rose in the epoch of the upswing of capitalism, the limits 
upon consumption were only relative. Overdevelopment of capital 
equipment was accompanied and made possible by underdevelopment 
of consumption, the final cause of crises and depressions; but there 
was a rise in consumption. As, however, the capacity of industry to 
absorb new capital goods begins to decrease, consumption must remain 
stationary or fall : the limits to the development of capitalist production 
and prosperity become absolute. 

Thus the; movement of production and consumption brings about 
a permanent crisis in production and prosperity. The crisis can be 
solved only by intensive development of the social forces of consump- 
tion. As, under capitalist conditions, however, increasing consumption 


194 Th^ Decline of American Capitalism 

is a by-product of an increasing output o£ capital goods, which now 

tends to decrease, the crisis is insoluble. This is the decline of capitalism. 

But why cannot capitalist production develop the forces of consump- 
tion ? They can and must be developed, insist many bourgeois econo- 
mists, whose discussion of the problem of consumption is growing. 
Attention is forced upon this problem because the productive forces 
are now so great, the antagonism between production and consump- 
tion so apparent. Nor is this merely a result of the depression: con- 
sumption was stressed in the pre-1929 mythology of prosperity. The 
discussion of consumption, wherein two groups may be distinguished, 
is wholly inadequate, as it is entangled in all the contradictory rela- 
tions of production which make the problem insoluble under cap- 

One group insists that the problem of consumption can be solved 
if the monetary mechanism is manipulated to force prices to fall and 
permit absorption of an increasing output of goods. Or if marketing, 
including advertising, is made more efficient. Or if "consumer credit" 
becomes as general as producer credit and "finances" consumption. 
Or if distribution is "rationalized" by still greater growth of the 
chain stores. These proposals may all be dismissed without much 
consideration: they emphasize secondary factors of exchange and not 
the primary factors of production and its relations. The proposals 
would tend, moreover, to create more disproportions. Falling prices 
are a source of instability, increase consumption only temporarily, 
and threaten the rate of profit. "More efficient" marketing multiplies 
overhead costs and the wastes of distribution. "Consumer credit" 
is merely a disguised form of instalment selling. The chain stores 
neither make distribution more rational nor increase mass purchasing 
power and consumption: they create new disturbing factors, increase 
unemployment in the distributive trades, and are associated with 
monopolist abuses. 

Another group insists that the problem of consumption can be 
solved only through industry disbursing more mass purchasing power 
to permit more consumption. Mass production must depend upon 
mass consumption: only greater consumption can absorb the output 
of the enormously productive forces of industry. This is an approach 
to the real problem. But it ignores the crucial questions of how, under 
capitalist conditions, consumption can increase while the output of 
capital goods tends to decrease, and of what would happen to the 
rate of profit and capitalism itself if the output of consumption goods 
rises while the output of capital goods falls. The "consumption" econo- 

Production and Consumption: Capitalist Decline 195 

mists neglect the factor o£ capital goods, where Keynes and others 
neglect the factor of consumption. 

In one form or another the promise to "increase consumption" 
appears in all the arguments of the apologists of state capitalism. 
In Italy and Germany, in Britain and France, there is a mass of words 
and acts "in favor" of greater mass consumption: meanwhile it tends 
to remain stationary or fall. The National Industrial Recovery Act 
proclaims its aim thus: "To increase the consumption of industrial 
and agricultural products by increasing purchasing power." ^ What 
all the words and acts mean in practice is a concern with markets 
to absorb the output of industry and insure capitalist profits. This 
involves, however, a fundamental economic problem, most clearly 
formulated (among the apologists of Niraism) by Rexford Guy Tug- 
well.^ His analysis is incomplete but it reveals the desperate straits 
of capitalist production. 

The older "era of development" of the productive forces has defi- 
nitely come to an end, Tugwell maintains. Unrestrained competition, 
while it formerly "may have been a useful economic creed," is now 
"the final suicide compulsion which afflicts free industry. It throtdes 
itself by closing off its access to markets." Economic development and 
competition must decline. 

This is both cause and effect of a new era in American capitalism: 
"Our economic course has carried us from the era of economic de- 
velopment to an era which confronts us with the necessity for economic 
maintenance. In this period of maintenance there is no scarcity of 
production. There is, in fact, a present capacity for more production 
than is consumable, at least under a system which shortens purchasing 
power while it is lengthening the capacity to produce." 

In this "new era" the dominant problem is consumption. "More 
and more conspicuous," Tugwell insists, "is the dependence of our 
economic existence upon the purchasing power of the consumer — 
upon wages, that is, and protected prices. . . . Only a socialized industry 
can market its goods continuously because, until it is socialized, it 
cannot join in the protection of demand. . . . This era of mainte- 
nance, the era of our present and future existence . . . demands a 
new control, a control designed to conserve and maintain our economic 

The crucial point in Tugwell's argument is the contrasting of the 
era of development with the era of maintenance. Or, in other words, 
the epoch of the upswing of capitalism has been succeeded by the 
epoch of its decline. 

196 The Decline of American Capitalism 

What was the "era of development"? It was the era when the 
older industries were being mechanized, new industries arising, and 
new regions conquered by industrialism. This meant an increasing 
output and absorption of capital goods, an increasing accumulation of 
capital. The curve of production was upward. 

What is the "era of maintenance" .f' It is the era when the older 
industries are all mechanized, scarcely any new industries are develop- 
ing, and the industrialization of new regions is declining. The pro- 
ductive forces are ample, highly efficient, capable of producing more 
goods than the markets can absorb because consumption is limited 
by the social relations of capitalist production. Only to "maintain," 
not to increase, the existing productive forces requires a tremendous 
growth in mass consumption. Under these conditions the tendency 
is to restrict new capital goods to replacements, to "maintenance" 
of equipment. This means a decreasing output of capital goods, a 
decreasing accumulation of capital. The curve of production is down- 

The downward tendency of production is not something new. Its 
first manifestation is a decrease in the average yearly rate of indus- 
trial growth (7.6% in 1902-06, 4.6% in 1909-14 and 3.8% in 1922-29). 
The decrease was relative, a flattening of the upward movement. 
Yet that in itself is ominous, as capitalism must expand or decline: 
it cannot stand still. Moreover, it is significant that the flattening 
took place when there was an increasing output of capital goods, 
particularly in 1922-29. If the output tends to decrease, the downward 
movement of production must become absolute. And this develop- 
ment, as well as the economic decline with which it is identified, 
is inherent in the dynamics of capitalist production. . . . 

While Tugwell distinguishes the two epochs of capitalism, he does 
not recognize the implications. It is, of course, a problem of con- 
sumption. The barriers of capitalist production can be broken down 
only by an upsurge of mass consumption. But the barriers are created 
by capitalist production itself, which always restricts consumption. The 
problem is now more acute, as the formerly relative limits imposed 
upon the development of consumption (and production) tend to 
become absolute, because of the decreasing output of capital goods. 
Thus, instead of making possible greater mass consumption and eco- 
nomic stability, the "era of maintenance" creates new disturbances and 
engenders a state of permanent crisis. Tugwell ignores the funda- 
mental problem: How, under capitalism, can consumption rise while 
there is a jail in the output and absorption of capital goods? 

Production and Consumption: Capitalist Decline 197 

The basic nature of this problem appears clearly in a concrete 
analysis of the relation of the production of capital goods to prosperity 
and depression (Table V). This relation is the controlling factor in 
all stages of capitalist production. It conditions both the upswing of 
capitalism and its decline. 


Output of Capital Goods 

in Prosperity and 

Depression, i^ig- 























Iron and Steel 







Other Metal 







Transport Equipment 







Stone, Clay, Glass 







Lumber Products 










2,685,000 ] 




Percentage of All 








OTHER industries: 








Mining Products t 







* Not available. 

t Includes quarries and oil wells. 

Estimates include: all machinery except mechanical refrigerators, sewing machines, 
washing machines, incandescent lamps, radio, household electrical appliances; 70% of 
iron and steel; 70% of non-ferrous metals and their products; 20% of automobiles, 
50% of value output of railroad repair shops, all other transportation equipment; all 
stone products, 50% of clay and glass; 25% of forest products; all construction; 25% of 
mining products (used as structural materials in capital goods or as power fuels in their 
production). Estimates are approximate, but with minima stressed. 

Source: Computed from material in Census of Manufactures, 1929 and the Census 
preliminary reports for 1931; Commerce Yearbook., 1932, v. I, p. 262; Statistical Ab- 
stract, 1932, pp. 686-87; W. I. King, National Income and Its Purchasing Power, 
pp. 56, 108, 132, 138. 

In 1929, the gross value output of capital goods industries was 
$18,000 million, br 25.6% of all manufactures. These figures contain 
a considerable amount of duplication, representing the value of mate- 
rials. But there are no duplications in the final form of capital goods, 
in machinery and transportation equipment, whose value was $8,450 
million. Add $4,190 million as the probable unduplicated value of 

198 The Decline of American Capitalism 

construction. That makes approximately 112,640 million, an output 
of capital goods equal to nearly 25% of the net value ($51,290 million) 
of non-agricultural goods produced in the United States in 1929.* 

In their various stages the manufacture of capital goods employed 
2,685,000 workers and paid out $3,955 million in wages, or 30.4% 
of all workers and 33.9% of all wages in 'manufactures. (There are 
no duplications in these figures.) Including construction and mining, 
the production of capital goods and their materials employed 4,435,000 
workers, who received $6,730 million in wages. Another 450,000 
workers and $700 million in wages must be added on the assumption 
that one-quarter of transportation is occupied in moving capital goods 
and their materials. Thus in 1929 the production of capital goods 
employed 4,885,000 workers, 31.5% of industrial workers and 17.5% 
of all workers, and paid out $7,430 million in wages, 40% of industrial 
wages and 22.8% of all wages.f This is exclusive of probably 750,000 
clerical workers receiving $1,125 million in salaries who were similarly 
employed. It is also exclusive of the millions of workers in the con- 
sumption goods industries, the distributive trades, and professional 
occupations who are dependent upon the demand and purchasing 
power of capital goods workers. 

The figures of output, employment, and wages clearly reveal the 
direct economic significance of capital goods. They have a still greater 
significance in the relations of capitalist production as a whole. 

The output of capital goods is a fundamental factor in accumu- 
lation. It permits the conversion of profits into capital. Capital is a 
social relation, the private ownership of the means of production, 
which gives the capitalist owners the power to exploit the workers 
and secure an income. The workers are exploited by providing them 
with the instruments of labor, with capital goods. If the output of 
capital goods slows down, it means a decrease in the mass of workers 
exploited by the capitalist class and a consequent lowering of its income 
and wealth. 

The two departments of industry, one producing capital goods, in- 

*In 1929 the net value of manufactures, less $13,300 million of duplicated materials, 
was $47,100 million. The net value of construction, less a probable $2,000 million 
of materials supplied bj' manufactures and mining, v^^as $4,190 million. Thus the net 
value of non-agricultural goods produced was approximately $51,290. 

t The sharp difference in the percentage of workers and of wages is explained by 
the fact that there are millions of hired farm laborers, servants, and other groups who 
receive unusually low wages. In 1929, the average yearly wage for workers employed 
in the production of capital goods and their materials was approximately $1,500; it was 
only $1,180 for the workers as a whole. 

Production and Consumption: Capitalist Decline 199 

eluding materials, and the other producing consumption goods, are 
interdependent. The first supplies the means of production which the 
second uses to produce means of consumption. Capitalists in the 
consumption goods industries convert their unconsumcd profits into 
capital by investing them in capital goods to produce more consump- 
tion goods. (Some of them may invest a part of their profits in 
capital goods to produce more capital goods, while some of the 
capitalists in the capital goods industries may invest a part of their 
profits in capital goods to produce consumption goods.) Profits flow 
from the department producing consumption goods to the department 
producing capital goods and return in the form of "concrete" capital, 
of capital goods to produce more profits. From the standpoint of the 
individual capitalists in the two departments, only that part of their 
workers' output is surplus value or surplus product which represents 
unpaid labor. But from the standpoint of capitaUst production and 
the capitalist class as a whole, all the output of workers producing 
capital goods is in a sense "surplus product," because the part which 
represents paid labor (wages) is paid for with the output of the 
unpaid labor (surplus means of subsistence) of workers producing 
consumption goods. Upon this fundamental relation is based the 
whole economic superstructure. If there were no output of capital 
goods their producers, of course, would make no profits. Still more 
serious, there would be no accumulation; the profits of capitalists 
in the consumption goods industries would have to be consumed or 
put into non-productive investments, becoming a burden upon indus- 
try and profits. 

As long as the relation between the two departments of industry 
is undisturbed, production is on the upswing and prosperity prevails. 
There is an active accumulation of capital, the conversion of sur- 
plus value, of profit, into capital by means of an increasing output 
and absorption of capital goods. 

But the process of accumulation simultaneously depends upon 
consumption and limits its development. If consumption is not in- 
creasing, the demand for capital goods must eventually fall. And 
accumulation tends to restrict mass purchasing power and consump- 
tion. The antagonism is overcome, for a time, and in spite of the 
lag of wages behind profits, because the production of capital goods 
sustains consumption by creating consumer purchasing power. Un- 
like industries producing consumption goods, the capital goods indus- 
tries offer nothing for sale to consumers: their customers are capitalists, 

200 The Decline of American Capitalism 

who buy and pay with profits. They make no direct demands upon 

the consumer purchasing power created by them. 

Eventually, of course, most capital goods offer consumption goods 
or services for sale. But this is only eventually and conditionally true. 

The greater part of construction, public works and industrial build- 
ings, never offers any competition to the producers and sellers of 
consumption goods. Only a small part of construction, private dwell- 
ings, is offered for sale to consumers; another part, apartments, offers 
services. Transportation and electric power equipment also offer serv- 
ices eventually (part of their output, however, is absorbed by in- 
dustry). But in all these cases the capital investment is heavy, and 
many years elapse before full demands are made upon consumers. 

Only one form of capital goods, industrial machinery, throws its 
output upon the market for direct sale to consumers. This, however, 
is done gradually. For a time the new industrial machinery put into 
operation is offset by the production of other machinery, provided 
orders increase more than output. 

The production of capital goods, which do not throw their output 
upon the market or do so only eventually, creates consumer purchasing 
power in the form of wages and clerical salaries (and part of other 
salaries and profits). Of this purchasing power, amounting in 1929 
to $8,550 million, not one penny is spent on the output of capital 
goods industries. All of the wages and clerical salaries, except minor 
savings and expenditures on services, is spent on the output of con- 
sumption goods industries. These industries, of course, create pur- 
chasing power of their own. But of this an important part represents 
the wages of workers producing consumption goods which are con- 
sumed by the workers who produce capital goods. If the output of 
capital goods falls, the workers thrown out of work lessen or cease 
their demands for consumption goods. The result is a decrease in 
the output of consumption goods and an increase in unemployment 
among the workers whose output was bought and consumed by the 
workers who formerly were engaged in the production of capital 
goods. This is not all. As the newly unemployed consumption goods 
workers lessen or cease their demands, there is another decrease in 
output and more unemployment in the consumption goods industries. 
Total consumer purchasing power drops much more than the mere 
drop in the purchasing power of capital goods workers. The rela- 
tion between the two departments of industry must be adjusted on 
a lower level of general production. (Necessarily there is a fall also 
in the demand for services, including professional services.) 


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202 The Decline of American Capitalism 

The fundamental nature of this relation appears clearly if we assume 
that there is no output of capital goods and that the industries pro- 
ducing consumption goods must depend exclusively upon the pur- 
chasing power they create. In this case their output, other than the 
part consumed by the capitalists, managerial employees, and non- 
workers generally, must be bought and consumed by the workers 
producing the consumption goods. This requires either a great rise 
in wages or a great fall in prices. Profits are limited to what the 
capitaUst class can consume. There are no real profits and no con- 
version of these profits into capital because they depend upon that 
part of consumption goods consumed by the workers producing capital 

Thus the production of capital goods, with its creation of consumer 
purchasing power, sustains consumption and makes its increase pos- 
sible. But only as long as an increasing output and absorption of 
capital goods creates new purchasing power greater than the sum 
of prices of the additional consumption goods thrown upon the mar\et 
by newly producing capital goods. 

The temporary equilibrium is eventually upset by an overproduction 
of both capital goods and consumption goods. Cyclical limits arise 
to check the further expansion of production. There is crisis, break- 
down, and depression. 

The crisis initially may be engendered by a restriction of the pro- 
duction of capital goods or of consumption goods, or of both simul- 
taneously. But basically it is a crisis in capital goods, the demand 
for which falls because the consumption goods industries are over- 
equipped in terms of available consumer purchasing power. For, in 
spite of the purchasing power distributed by the capital goods in- 
dustries, the lag of wages behind profits creates a deficiency in con- 
sumption. This makes it impossible to sell the mounting mass of 
products thrown upon the market by the consumption goods indus- 
tries, whose productive powers have been greatly augmented by 
newly producing capital goods. As the crisis develops the output of 
capital goods falls much more than the output of consumption goods, 
the depth of the fall measuring the depth of the depression. In 1931, 
the output of capital goods (in manufactures) was 54.9% lower than 
in 1929, the output of consumption goods only 36.6% lower; employ- 
ment among capital goods workers was 36.3% lower and their wages 
49.1% lower, and only 21.9% and 32.6% lower among consump- 

Production and Consumption: Capitalist Decline 203 

tion goods workers.* While the proportional fall of wages in the 
capital goods industries was greater, the absolute fall was greater 
in the consumption goods industries — $1,940 million compared with 
$2,520 million. Theoretically the decrease in both employment and 
wages in the consumption goods industries should be larger; this does 
not happen because unemployed capital goods workers (and others) 
maintain a limited consumer demand by means of savings, loans, 
and charity. By 1932 the output of all forms of capital goods was 
75% lower than in 1929; in addition, the output of durable consump- 
tion goods was 75% lower and of non-durable consumption goods 
30% lower.^ 

Depression persists as long as there is a shrinkage in the consumer 
purchasing power of workers in the capital goods industries, which 
creates a still larger absolute shrinkage in the purchasing power of 
workers in the consumption goods industries, the distributive trades, 
and professional occupations. A renewed demand for capital goods 
is necessary to stimulate cyclical revival. While it throws no consump- 
tion goods upon the market, an increase in the output of capital 
goods creates purchasing power among the workers re-employed to 
produce them, and invigorates consumer buying. The renewed demand 
for capital goods usually starts with orders for replacements of equip- 
ment, eventually no longer postponable, or with orders for more 
efficient equipment to save labor costs, or with equipment required 
by a new industry. Production begins to revive. 

If the demand for capital goods is sufficiently large, and if the 
resulting revival is accompanied by an increasing output and absorp- 
tion of capital goods, the revival moves onward to recovery and 

If, however, the demand for capital goods is insufficient and does 
not increase, because of considerable overequipment in the older con- 
sumption goods industries and the failure of new industries to develop 
— in other words, because of exhaustion of the long-time factors of 
expansion — there can be no complete recovery and no upsurge of 

The demand for capital goods must consist of more than mere 
replacements. It must be an increasing demand. Otherwise recovery 
and prosperity will be limited. An increasing demand for capital 
goods depends upon the expansion of older industries and the develop- 

* In both departments of industry, wages decreased more than employment because 
of reductions in wage rates and the resort to the "stagger" system or part-time work. 
Both are methods of throwing the burdens of depression upon the workers. 

204 The Decline of American Capitalism 

ment of new industries. But the older industries are enormously 
overequipped and no new industries are developing. Hence industry 
lacks, and will continue to lack, the stimulus of a vigorous demand 
for capital goods. This explains the depth and duration of the depres- 
sion. More important, it explains why capitalism is now in an "era 
of maintenance," why it becomes impossible to restore prosperity 
on any considerable scale.* 

The "era of maintenance" means that industry is no longer able 
to absorb an increasing output of capital goods. And this means that 
the conditions of depression — on a somewhat higher level, however — 
will be the conditions of prosperity. Employment and consumer pur- 
chasing power are restricted among capital goods workers (even if 
the output of capital goods is merely constant, because of improving 
technological efficiency and the coming of new workers into the 
labor market). The result is unemployment and restriction of pur- 
chasing power among consumption goods workers, and among the 
workers in clerical, distributive, and professional occupations. The 
general level of production must fall, resulting in a "depressed" pros- 
perity. Permanent and absolute Hmits arise to the development of 
capitalist production. The resulting economic decline persists, as in 
the case of depression, as long as there is no upward movement in 
the output and absorption of capital goods. 

Why not stimulate the output of capital goods? But this cannot 
be done if the consumption goods industries are overequipped, if 
no new industries arise, if the long-time factors of expansion are 
exhausted. The NRA's efforts artificially to stimulate the output of cap- 
ital goods have been largely unsuccessful. Similar efforts in Germany, 
on a much greater scale, merely intensified the economic crisis. Nor 
are public works a substitute for profit-yielding capital goods. They 
are not an accumulation of capital. They must be paid for with public 
money; and whether this is done by means of loans or taxation, it 
imposes a burden upon industry, profits, and wages (particularly 
wages). There may be an increase in the export of goods and of 
capital, which results in capital accumulation. But the scope of this 
is limited, under the conditions of the world to-day, and it means 

Why not stimulate consumption? This is the obvious solution. 
The productive forces are highly developed. Their mere use means 
the abolition of unemployment and poverty. But the question is not 

* This is discussed more fully in Chapter XXIII, "Prosperity and Capitalist Decline." 

Production and Consumption: Capitalist Decline 205 

whether an increase in consumption is possible and would result 
in permanent industrial revival. It is and it would. The question 
is whether capitalism can and will promote an increase in consump- 
tion which interferes with the ma\ing of profits. This the apologists 
of Niraism ignore, or they insist that higher profits and higher con- 
sumption are not mutually exclusive. In other words, they believe 
that the problem can be solved within the limits o£ capitalist relations. 
Thus William Green, president, American Federation of Labor, says: 
"Refusal to share gains with producing workers dries up the sources 
of larger income for industry. There are two main channels through 
which workers share in the prosperity and progress of an industry: 
a shorter work week and higher wages as measured by buying power. 
... If workers could buy all they need and want, industries could 
be earning more, wages and dividends would rise. . . . Our power to 
produce is practically unlimited so far as the mechanics of production 
go. The controlling limit is the ability of consumers to buy. Here 
we run into a difficulty created by our failure to realize the inter- 
dependence between production and retail buying. Not only have we 
failed to do industry-wide and nation-wide planning for our business 
institutions, but the individual employer has failed to realize that 
the wages paid his employees constitute part of the retail market 
upon which his business depends. . . . Unless a much larger propor- 
tion of the returns on products goes to wage and salary workers there 
will not be the market for the increased output." * 

That is exactly what William Green was preaching in the pre-1929 
"Golden Age," when he insisted that "high wages" was the accepted 
policy of American employers. It did not work then. How can it 
work now? Employers would not reject shorter hours and higher 
wages if they really meant higher profits. In the epoch of the up- 
swing of capitalism shorter hours and higher wages were, within 
limits, compatible with higher profits because of the increasing out- 
put and absorption of capital goods. That condition does not exist 
in the "era of maintenance." Nor is Green's theory unworkable only 
if there is no national planning. For planning must proceed within 
the orbit of capitalist production, whose "controlling limit" is not 
"the ability of the consumer to buy," but the making of profits and 
their realization as capital by means of an increasing output of capital 
goods, an increasing accumulation of capital. 

If there is a definite downward tendency in the output of capital 
goods, three conditions are necessary to insure an increase in mass 
consumption : 

2o6 The Decline of American Capitalism 

Workers unemployable in the production of capital goods must 
secure employment in the industries producing consumption goods. 

To absorb these workers (and other unemployed workers) the 
hours of labor must be considerably shortened. 

And the wages or consumer purchasing power of these and all 
other workers must rise substantially in order to absorb the augmented 
output of consumption goods. 

Upon these fundamental adjustments depends an increase in em- 
ployment, income, and consumption among workers and professionals 
engaged in the production of services. 

The three conditions are, of course, economically realizable. But 
not under the relations of capitalist production, as they would tend 
to force the rate of profit down to zero. (Nevertheless, the workers 
must fight for shorter hours and higher wages, whatever the effect 
upon profits. For the workers must resist the capitalist efforts to 
impose upon them the burdens of decline. But as any really shorter 
hours and higher wages threaten the existence of profit, the capitalists 
will not yield and the workers must broaden their action: the issue 
becomes one of saving capitalism or of overthrowing it. In this situa- 
tion the real interests of the farmers and professionals are identified 
with the struggle of the workers. Only an increasing mass purchas- 
ing power can create an effective demand for agricultural products 
and for services, particularly of the more poorly paid professionals; 
and only socialism can release the productive forces to serve all man- 

How is the rate of profit threatened by adoption of the three con- 
ditions to absorb the unemployed and increase mass consumption.? 
That part of the output of consumption goods workers which was 
formerly consumed by capital goods workers must now be consumed, 
through higher wages, by workers who produce consumption goods. 
Every capitalist appropriates surplus value. This becomes capital, how- 
ever, only in the form of capital goods. The output of workers 
producing consumption goods is all consumed. It is consumed by 
themselves, by workers producing capital goods, and by other classes, 
including capitalists. The output of workers producing capital goods 
is not consumed. It becomes concrete capital, capable of producing 
more profit. Or consider the matter in terms of wages: The wages of 
workers producing consumption goods are spent on buying part of 
their own output, which is consumed. The wages of workers pro- 
ducing capital goods are not spent on their own output, but on con- 
sumption goods. All their output becomes income-yielding wealth. 

Production and Consumption: Capitalist Decline 207 

Thus the wages and consumption o£ other than capital goods workers 
are, from the angle of capitalist production as a whole, sheer, if neces- 
sary, waste. The surplus product or profit appropriated by the capitalist 
class must decrease in the measure that workers producing consump- 
tion goods consume more of their product. This is inevitable if unem- 
ployed capital goods workers are absorbed in the production of con- 
sumption goods. They now consume their own product instead of 
the surplus product of other workers, formerly appropriated by the 
capitalists and converted into capital. And their consumption now 
produces no compensation in the form of capital goods. The situation 
becomes clear under the assumed condition of no output of capital 
goods: surplus product or profit would practically disappear except 
for capitalist consumption of necessaries and luxuries. (Hence the 
production of luxuries tends to increase in the epoch of the decline of 

Under these conditions, and from a capitalist angle, the only way 
out is an intensification of the export of capital and imperialism. For 
then an increase in production and employment does not depend upon 
an increase in wages and mass consumption which results in no ac- 
cumulation of capital. The additional output (both consumption goods 
and capital goods) is exported and payment received in the form of 
foreign investments, or capital claims upon foreign labor, production, 
and income. Thus the export of capital is a capitalization of the labor 
of workers who otherwise would be unemployed ; or who, if employed, 
would merely produce goods for their own consumption, and thereby 
threaten profits. . . . 

How much chance is there, then, of an increase in mass consump- 
tion.? Even in the epoch of the upswing of capitalism, and of an 
increasing output and absorption of capital goods, there were periods 
when mass consumption was merely stationary or fell, although it 
tended in general to rise. In the epoch of the decline of capitalism, 
mass consumption must fall because of the decrease in the output and 
absorption of capital goods.''^ For an increase in mass consumption, 

•Would not more consumption mean more demand for capital goods? Only within 
limits, as the productive powers of industry are already highly developed. It would not 
compensate for the shorter hours necessary to absorb the unemployed in the production 
of consumption goods and for the higher wages necessary to .absorb the output. Sub- 
stantial and profitable demands for capital goods depend upon the development of new 
industries and the industrialization of new regions. The solution is possible under 
socialism: increase the output of "capital goods" in the form of finer homes and schools, 
shorten hours and raise "wages," increase mass consumption and leisure. 

2o8 The Decline of American Capitalism 

involving shorter hours and higher wages, simultaneously with a de- 
crease in the output of capital goods, would not only disastrously lower 
the rate of profit but tend to abolish profit altogether. Capitalists are 
not going to raise wages and shorten hours merely to sell more goods 
to workers on which they make no profit, particularly as this tends 
to abolish profit if done on a sufficiently large scale. It is more advan- 
tageous to depress the level o£ production, to restrict it within profitable 
limits, however small. This means millions of unemployed and lower 
mass standards of living: but that is of secondary importance in a profit 
economy. The problem is thus one of the abolition of capitalism, not 
of reconciliation and collaboration. . . . 

Capitalism has always restricted production — ^by its underdevelop- 
ment of the forces of consumption, by the restrictive practices of 
monopolist combinations, by the decHne of production in depressions. 
In 1928—29, years of unprecedented prosperity, many industries were 
producing from 25% to 75% below capacity. Yet there was overpro- 
duction. And in the pre-1929 years of prosperity the efforts to "con- 
trol" production and prices resulted in the organization of "trade 
institutes," intended to adjust output to demand. "Organized with 
the approval of the Federal Trade Commission, they desire to do 
within the law what the law expressly forbids, and profess to avoid the 
charge of illegality which wrecked the open-price associations."® 
Restriction of production was justified on the plea that it meant 
avoidance of overproduction and depression. Demand is not, however, 
restricted by lack of wants but by lack of purchasing power to satisfy 
them. Overproduction was not the result of misjudging demand, but 
of the whole movement of production and consumption. If output had 
been adjusted to demand, on the basis of stifling wants instead of 
satisfying them, it would have lowered employment, wages, and 
consumer purchasing power and upset the very economic equilibrium 
it was intended to maintain — exactly what happened in 1929-30. 

Where, however, the restriction of production was formerly only 
relative, it tends to become absolute in the epoch of the decline of 
capitalism. This expresses itself both in objective developments and 
in deliberate policy. Capitalism rebels against its historical function, 
the development of production. Where once it offered economic prog- 
ress, it now offers economic stagnation. 

Since the World War, large-scale efforts have been made to restrict 
the output of agricultural commodities, particularly wheat, cotton, 
rubber, sugar, and coffee. . . . Brazil "controls" coffee production, 
burns the "surplus" crop, and spends $1,000,000 advertising in Amer- 

Production and Consumption: Capitalist Decline 209 

ican newspapers — to increase consumption! . . . International cartels 
"regulate" the output of minerals. . . . France and England limit 
production in one form or another. . . . Fascist Italy restricts con- 
sumption (and production) because of its unfavorable trade balance: 
exports must go up, imports down. . . . Fascist Germany increases 
the power of cartels to "fix" production downward and prices upward, 
while "excess production" in agriculture is made legally punishable: 
output must be limited to "what the German economic body is able 
to consume" — on the basis of the prevailing mass starvation! . . . 
Fascism everywhere magnifies the tendency toward economic national- 
ism and "autarchy," which necessarily means a decrease in production 
and consumption. . . . General Eoin O'Duffy, leader of the Irish 
Fascists, says: "The revival of Irish industry is my first aim. My idea 
is not heavy industries but hand industries which would have a 
double advantage for us: they would enable us to find work for our 
people and also to keep them on the land instead of encouraging them 
to herd in towns."® . . . These are manifestations of deliberate revolt 
against the productive forces of modern industry and their capacity 
to liberate mankind from want. 

Niraism also tends to restrict production. The policy of restriction 
appears most clearly in the program of the Agricultural Adjustment 
Administration, which destroys "surplus" crops and offers the farmers 
inducements to reduce output. It appears also in the program of the 
National Recovery Administration. And the policy is impHcit in the 
National Industrial Recovery Act itself: "To avoid undue restriction 
of production (except as may be temporarily required.)"^ The "tem- 
porarily" is interpreted in their own fashion by capitalist interests: 

"The methods which many business groups are proposing for curing 
the depression all come down to one essential — produce less and col- 
lect more. Rule out new capacity or improved methods; restrict the 
output of present plants; eliminate price-cutting and other cruel 
devices of unrestricted competition; base prices on the high cost of 
producing little; produce only as much as can be sold at cost — these 
are typical of the suggestions which appear over and over again." ® 

In agreement is the president of the Building Trades Council of the 
American Federation of Labor, who, in advocating control of industrial 
production and the allocation of quotas, says: 

"We should go the whole length necessary to complete recovery as 
soon as possible, or, in other words, to adopt in manufacturing, min- 
ing and construction the same direct, comprehensive policies that are 

210 The Decline of American Capitalism 

being put into effect by the Agricultural Adjustment Administra- 
tion." « 

In accord with its state capitalist nature, the NRA creates an ap- 
paratus and policy for the deliberate restriction of production — dis- 
guised as "controlled production." Practices formerly illegal are now 
sanctioned by the government: the National Industrial Recovery Act 
categorically suspended the anti-trust laws. Trustification of industry is 
encouraged, and trade associations are practically given the powers of 
cartels to "regulate" production and prices. The "fair" competition 
prescribed in the codes means higher prices and profits and lower 
output. Prices are fixed to insure "fair" profits, although lower prices 
and profits might induce more consumption, production, and employ- 
ment. The NRA enormously enlarges the scale of monopoly conditions 
and practices, and monopoly tends toward the restriction of production. 

Yet the avowed aim of the National Industrial Recovery Act is "to 
increase the consumption of industrial and agricultural products by 
increasing purchasing power"! ^^ This is merely one of the contradic- 
tions of Niraism, of state capitalism, which professes to increase 
simultaneously consumption and prices, wages and profits, employ- 
ment and technological efficiency. 

Consumption must necessarily fall in the epoch of the decline of 
capitalism because of the permanent economic crisis, unmistakably 
evident in the policy of restricting production. The necessity is accepted 
and rationalized by fascism. Thus an American fascist says: "Coun- 
tries with a less abundant supply of natural wealth and capital will be 
compelled to introduce a restricted consumption system of one sort 
or another — ^possibly by the strict regulation of wages and price levels." 
To make the Fascist medicine more palatable he excepts the United 
States, "whose productive capacity is already great enough to guaran- 
tee a more than adequate standard of Hfe for the entire population." ^^ 
But American capitalism is not using and cannot use, without danger, 
its "productive capacity, already great enough to guarantee a more 
than adequate standard of life." The great productivity of industry 
itself creates the conditions which result in decreasing consumption. 
And who will consume less ? Not the capitalists, the upper bourgeoisie. 
Those who will consume less are the workers and farmers, the lower 
bourgeoisie, the unemployed or poorly paid professionals. In the epoch 
of the upswing of capitalism the workers' consumption decreased only 
relatively; now capitalism, in the epoch of its decline, forces an abso- 
lute decrease in consumption upon the workers. Mass standards of 

Production and Consumption: Capitalist Decline 211 

living must fall precisely when industry is capable of raising them to 
unheard-of heights. . . . 

The policy of restricting production (and consumption) includes 
"fixing" prices and "insuring" profits. These measures are not always 
successful; or, if successful, create new disturbing conditions. 

Efforts to restrict, on a world scale, the output of agricultural com- 
modities (sugar, coffee, rubber) resulted in temporarily higher prices; 
but this encouraged new competitive plantings and more output, and 
the "control" schemes broke down. Prices are raised by the American 
farmers' reduction of acreage and crops; the government wastes mil- 
lions of public money to "compensate" the farmers, whose critical 
situation becomes worse; and, unless the policy is temporary, experience 
shows that the restriction schemes will fail. 

The efforts to restrict industrial production go hand in hand with 
efforts to increase it. This contradiction reflects a more fundamental 
one: the conditions of decline force capitalist industry to restrict 
production. But the restriction of production, whether or not it is a 
result of deliberate policy, threatens the foundations of capitalism, as 
large-scale industry depends upon increasing output. Restriction is 
profitable only when practiced by a limited number of industries or 
enterprises; when all of them restrict output, they strangle each other 
and industry itself. 

If production is restricted, larger profit margins become necessary 
on the smaller output. The result is higher prices and lower demand. 
Or improved technological efficiency and more unemployment. "The 
NRA wants business to buy new machinery, modernize its plants, and 
compete through increased efficiency in producing low-cost prod- 
ucts." ^^ Or a combination of both. And consumption tends to fall. 

If prices are fixed, they will usually be fixed upward. But if prices 
rise while output falls, increasing unemployment and decreasing 
wages, demand and consumption must fall. 

If prices are not fixed but are left, under the conditions of decline, 
to find their own level, bankruptcy and the depreciation of capitals 
will develop on an unprecedented scale because of unprofitable prices 
and intensified competition. 

If industry is assured "fair" profits by means of "fair competition" 
and an upward fixing of prices, survival becomes .easier, and bank- 
ruptcy and the depreciation of capitals will tend to diminish. The 
drive to improve technological efficiency loses much of its force and 
lessens the demand for capital goods. Surplus capital will increase, 
seeking investment anywhere, anyhow, strengthening competitive 

212 The Decline of American Capitalism 

pressures. Eventually the "balance" o£ fixed prices and profits is upset, 
and both fall disastrously. 

If competition is limited within an industry, it will intensify the 
competition of increasing technological efficiency and the competition 
of industry against industry. Dam competition here, it overflows there. 

Thus "controls," particularly in the epoch of decline, do not abolish 
the contradictions and antagonisms of capitalist production, but ag- 
gravate them. Nor do they abolish overproduction, which is a relative 
condition. On a lower level of economic activity, wages will still lag 
behind profits and consumption behind production. There will still 
be cyclical crises and breakdowns. These disasters were not averted in 
the highly cartellized and "controlled" industry of Germany. Whether 
industry is "free" or under "controls," whether prices rise or fall,* or 
capitalism is on the upswing or downswing, there is still that alternat- 
ing expansion and contraction in the output of capital goods which 
determines the cycle of prosperity and depression. 

The deliberate policy of restriction is not the major factor tending 
to drive production downward in the epoch of the decline of capital- 
ism. That is determined primarily by the forces of decline itself, by 
the inability of industry to absorb an increasing output of capital 
goods. The lower level of production is the outcome of efforts to avert 
the disastrous fall in the rate of profit which would ensue if mass 
consumption rose simultaneously with a decrease in the output of 
capital goods. But on the lower level of production the rate of profit 
still tends to fall disastrously. For all the contradictions pressing 
down the rate of profit in the epoch of the upswing of capitalism 
must necessarily work with greater force in the epoch of decline. 

While production tends to lower levels, there will be no reversion to 
small-scale industry (one of the demagogic promises of fascism).! 

* "Steadying industry by steadying prices . . . may, of course, simply mean steadying 
dividends without regard to output. . . . Under perfectly steady prices there would still 
be great booms and depressions in the capital-making industries, and resulting booms 
and depressions in industry at large." J. M. Clark, The Economics of Overhead Costs 
(1924) pp. 404-06. 

t The German fascists made far-sweeping and categorical promises to help the 
"small man," the small producer. A dispatch to the New York Times, December 24, 
I933> says: "The policy in industry is ambiguous. Cartel combinations have been 
favored, even enforced, in the interest of big industry, but, simultaneously, numerous 
small measures have been taken to encourage petty undertakings and hand workers." 
Thus the promises are completely repudiated, for the measures "to encourage petty 
undertakings and hand workers" are unimportant, in the nature partly of demagogy 
and partly of "relief." A similar situation prevails in Fascist Italy. The basis of modern 
industry is large-scale production. 

Production and Consumption: Capitalist Decline 213 

On the contrary, larger masses of fixed capital will be required because 
of the desperate endeavors to raise profits by lowering costs. There 
will be an augmenting of the higher composition of capital, variable 
capital (wages) decreasing in favor of constant capital (equipment 
and materials). The fixed portion of constant capital particularly will 
increase because the downward tendency of production limits the 
demand for raw materials. Under the conditions of decline, changes 
in the composition of capital may not be as great, in an absolute sense, 
as in the past, but they will be greater relatively to the lower level of 
production. And on this lower level, the contradictions and antagonisms 
set in motion by the higher composition of capital become more acute 
and devastating. 

In the epoch of economic upswing, and increasing production, vari- 
able capital fell only relatively to constant capital : there was an absolute 
rise in employment and wages (and mass consumption). In the epoch 
of decline, and economic stagnation, variable capital tends to fall 
absolutely, and this means a decrease in employment, wages, and 
mass consumption. While consumption falls, the capacity of in- 
dustry rises, the more so as technological progress makes new ma- 
chinery much more efficient than the old. The problem of excess 
capacity is enormously aggravated. Overhead costs become greater as 
output fails, more than formerly, to grow sufficiently. Each unit of 
product requires a constantly larger capital investment. Excess capacity 
becomes worse if "controls" assure "fair" profits and make survival 
easier, or if prices are fixed upward and demand and consumption 
are thereby lessened. High profits create more disturbances because 
of the downward tendency of production.* While the conditions of 
decline mean a considerable destruction of capital and depreciation of 
capital values, the problem of surplus capital becomes more acute be- 
cause of the lower level of production and the narrowing of invest- 
ment opportunities. Surplus capital is still more abundant if "controls" 
assure "fair" profits and prevent destruction and depreciation of 
capitals. In both cases an increase in excess capacity occurs. The pro- 
ductive forces become so great that their full utilization is unprofit- 

• "There is possibly a permanent slackening of the rate of increase of needed new 
investment which, by requiring smaller savings, will make larger profits a more dis- 
turbing problem in the future. . . . We shall not need such a large increase of invest- 
ment." Ralph E, Flanders, "The Economics of Machine Production," Mechanical En- 
gineering, September, 1932, p. 608. Proportions arc decisive in this connection. Profits 
are proportionately higher where, on a lower level of production, their ratio to "needed" 
investment is as 5 to 3 than where, on a higher level of production, the ratio is 10 to 9. 

214 The Decline of American Capitalism 

able; yet production is unprofitable if capacity is not fully utilized. 
The rate of profit tends to fall disastrously. 

Control excess capacity? But that means a lower output of capital 
goods, the basis of prosperity. Increase consumption? But that tends 
to abolish profits. Capitalist production must expand or decline: it 
cannot be stabilized. And the capitalists are forced to do the very 
things which aggravate their problems. A ruling class is the slave of 
the contradictions and the destiny of its being. Thus the American 
slave power, beset by the necessity of expansion or the inevitability of 
decline, chose the suicidal adventure of war. . . . 

Not only, in the epoch of decHne, is there a greater downward 
pressure on the rate of profit: the mass of profits tends to fall. For- 
merly, a fall in the rate was offset by a rise in the mass of profits. The 
capitalists are enriched more by an income of $2,000,000 on a capital 
yielding 5% than by an income of $1,000,000 on a capital yielding 
10%. And the mass of profits must tend to fall under the conditions 
of constantly larger fixed capital, lower production, and increasing 
excess capacity.* The rate of profit falls more precipitously and 
aggravates all the disturbances created by the fall. In the effort to 
save itself capitalism strengthens the downward pressure on the rate 
and mass of profit. The state spends money lavishly to prop up the 
sagging foundations of capitalism — loans to industry and subsidies, 
public works, promotion of exports, imperiaixsm, and war. It must 
also spend money on relief, to prevent a revolt of the masses. These 
expenditures increase the public debt and taxation. The burdens of 
taxation are thrust mainly upon the workers, farmers, and lower 
bourgeoisie, but profits are also taxed, and tends to lower the mass 
and rate of profit. (If the drain on profits becomes too great, relief is 
cut, and capitalism, by means of Fascism, throws all the burdens of 
decHne upon the masses.) 

The fall in the rate of profit, particularly in the epoch of decline, 
is the most serious threat to capitalism. Many bourgeois economists, 
among them Keynes, admit the prospect of a steadily falling rate of 

* "As soon as a point is reached where the increased capital produces no larger, 
or even smaller, quantities of surplus value than it did before its increase, there would 
be an absolute overproduction of capital. . . . There would be a strong and sudden 
fall in the average rate of profit. ... A portion of the capital would lie fallow com- 
pletely or partially . . . while the active portion would produce values at a lower rate 
of profit, owing to the pressure of the unemployed or partly employed capital. . . . The 
fall in the rate of profit would then be accompanied by an absolute decrease in the mass 
of profits." Karl Marx, Capital, v. Ill, p. 295. 

Production and Consumption: Capitalist Decline 215 

profit (or rate of interest). But some of them view the matter with 
equanimity. Thus Keynes says: 

"The prospect for the next twenty years appears to me to be a strong 
tendency for the natural-rate of interest to fall, with a danger lest this 
consummation be delayed and much waste and depression unneces- 
sarily created in the meantime by central banking policy preventing 
the market-rate of interest from falling as fast as it should. . . . The 
risk ahead of us is . . . lest we experience the operation of a market- 
rate of interest which is falling but never fast enough to catch up 
with the natural-rate of interest, so that there is a recurrent profit 
deflation and a sagging price level. If this occurs our present regime 
of capitalist individualism will assuredly be replaced by a far-reaching 
socialism." ^^ 

By a stroke of hocus-pocus, Keynes converts the threat to capitalism 
into a promise of life everlasting. If only the capitalists accept a lower 
rate of profit! But they won't. Keynes himself proves this, by his 
unsuccessful agitation to lower the interest rate. Capitalist production 
is a perpetual struggle against the tendency of the rate of profit to 
fall. The struggle becomes more desperate in the epoch of decline. 
If a small fall in the rate of profit creates crises and depressions, a 
considerable fall necessarily throws capitalism into convulsions. For 
profit is practically abolished if the rate falls too low, as profits would 
be absorbed by capital replacements. 

An American fascist, Lawrence Dennis, clearly appreciates the 
danger: "The present financial organization of society is such that a 
progressive decline of the interest rate to near zero would entail con- 
sequences which seem humanly unendurable. The declining interest 
rate would paralyze economic activity long before a zero interest rate 
was approximated."^"* Why? Because capitalism will not passively 
accept a rate of profit which threatens profit itself. It will not volun- 
tarily accept doom. Capitalism will struggle against the falling rate of 
profit. It will destroy and depreciate capitals, so that the rate on the 
surviving capitals may rise. It will limit production, throw millions 
out of work, lower wages, and depress mass consumption, in order to 
"earn" a higher rate of profit. Yes, capitalism will struggle, desperately 
and brutally. It will resort to the export of capital and imperialism, 
and war, to prevent the rate from falling. It will resort to Fascism, as 
is urged by Dennis, whose heart bleeds over the fall in the interest rate, 
subjugating the workers and farmers, degrading the professionals, 
mobilizing savagery in defense of the profit system. The fall in the 
rate of profit is not, as Keynes seems to imagine, the means of a 

2i6 The Decline of American Capitalism 

smooth transition to a "new social order" which "is" and yet is "not" 
capitalism. It is the expression of economic decline and an omen of 
violent class struggles, social explosions, and wars. 

But the fall in the rate of profit is also the omen of a really new 
social order. For Keynes is right on one thing: because of disturbances 
created by the falling rate of profit, "capitalist individualism will be 
replaced by far-reaching socialism." In final analysis, the falling rate 
is due to the antagonism between production and consumption under 
capitalism; and the growing antagonism is an expression of the 
objective socialization of industry and the enormous increase in its 
productivity, the objective basis of socialism. The fall in the rate 
of profit indicates, moreover, that there are economic limits to the 
development of capitalism, that it nurtures the seeds of its own decay. 
In the words of Marx: 

"The rate of profit is the compelling power of capitalist production, 
and only such things are produced as yield a profit. Hence the fright 
of the English economists over the decline of the rate of profit. That 
the bare possibility of such a thing should worry Ricardo shows his 
profound understanding of the conditions of capitalist production. 
. . . What worries Ricardo is the fact that the rate of profit, the 
stimulating principle of capitalist production, the fundamental premise 
and driving force of accumulation, should be endangered by the 
development of production itself. There is indeed something deeper 
than this hidden at this point, which he vaguely feels. It is here 
demonstrated in a purely economic way, that is, from a bourgeois 
point of view, within the confines of capitalist understanding, from 
the standpoint of capitalist production itself, that it has a barrier, that 
it is relative, that it is not an absolute but only an historical mode of 
production corresponding to a definite and limited epoch in the 
development of the material conditions of production."** 


Capitalism develops the forces of production more than the forces 
of consumption. This is a condition of the accumulation of capital. 
Consumption grows only if an increasing output of capital goods, the 
means of converting profits into capital, creates consumer purchasing 
power which is spent on consumption goods (and services). If it be- 
comes unprofitable to produce capital goods, and their output falls, 
production and consumption must fall simultaneously. For the capital- 
ist system is based on the making of profits and their conversion into 
capital, and this creates an irreconcilable antagonism between produc- 
tion and consumption. 

One result of the antagonism is cyclical crisis and breakdown. 
Although the production of capital goods creates purchasing power, 
the lag of wages behind profits eventually engenders a deficiency in 
consumption, which becomes acute when markets are saturated by 
the mounting output of newly producing capital goods. The consump- 
tion goods industries, overequipped and overproducing, lessen their 
demands for capital goods. The output of capital goods falls, and the 
crisis moves on to depression. Production revives if and when there is 
a renewed demand for capital goods; and if the demand is an increas- 
ing one, revival moves on to recovery and prosperity. 

Another result of the antagonism between production and con- 
sumption is that the productive forces are never fully utilized. This 
amounts to a restriction of production and consumption. The re- 
striction was relative to the epoch of the upswing of capitalism. Both 
production and consumption scored an absolute increase, although 
the increase was always below the possibilities of industry; and while 
the workers' consumption rose (in spite of periods when it was sta- 
tionary or decreased) it fell relatively to the share of the propertied 
classes. In the epoch of decline, however, the tendency toward the 
restriction of production and consumption becomes absolute. Capitalist 
prosperity depends upon an increasing output and absorption of capital 
goods. With the older industries mechanized, no new industries de- 
veloping, and the industrialization of new regions declining — with 
measurable exhaustion of the long-time factors of economic expansion 


2i8 The Decline of American Capitalism 

and their increasing demand for capital goods — there is no chance of 
an upsurge in the production o£ capital goods and, consequently, of 
an upsurge in prosperity. For capitalist industry fully to utilize its 
productive forces would require a great increase in mass consumption 
by absorbing the unemployed, shortening hours, and raising wages; 
but this would seriously reduce profits and threaten profit itself. Under 
these conditions, capitalist industry tends toward an absolute restrict- 
tion of production and consumption. 

The average yearly rate of growth of production has been slowing 
down for many years. It is the inevitable expression of growth itself. 
Nevertheless the slowing down of the rate of growth is eventually 
ruinous economically, as it tends to approximate to zero and expansion 
is a necessity of capitalist production. Expansion must primarily, how- 
ever, take the form of an increasing output of capital goods, which 
produce more profits and embody the capitalist claims to wealth and 
income. If expansion is primarily in consumption goods the rate of 
profit must fall disastrously. The capitalists restrict production. Re- 
striction, if it becomes general, means not only a rate of growth ap- 
proximating zero but an absolute decrease in production, with the 
rate of profit eventually tending to fall disastrously. These develop- 
ments and contradictions create a permanent crisis. It is the decline of 

Decline is not collapse. The decline of capitalism does not mean 
that the economic order is unable to function, but that it must func- 
tion on a lower level. It does not mean an inability to restore produc- 
tion and prosperity, but an inability to restore them on any considerable 
scale. While the decline may be interrupted, the downward movement 
will persist. Capitalist decline involves, primarily, an increase in 
class-economic, social, and international disturbances, a tendency toward 
stagnation simultaneously with the aggravation of instability, a reaction 
against progress in all its forms. 

The capitalist class strives to throw the burdens of decline upon the 
workers (and farmers and professionals). It slashes their wages, throws 
millions out of work, and limits their consumption. In particular, 
unemployment becomes greater and increasingly permanent, a develop- 
ment inherent in the dynamics of capitalist production. In the epoch 
of the upswing of capitaHsm unemployment, other than seasonal 
and cyclical, was essentially technological — ^the result of displacement 
of labor by more efficient machinery. Displaced workers were even- 
tually absorbed because of the upward movement of production (the 
tendency was, however, for unemployment to increase). In the epoch 

Summary 219 

of the decline of capitalism unemployment is essentially economic — 
workers are still displaced by improved technological efficiency, but 
they are no longer reabsorbed because of the downward movement 
of production; and this becomes the main cause of unemployment. 
Increasing technological efficiency is no longer accompanied by in- 
creasing expansion of industry. Unemployment becomes disemploy- 
ment. A growing mass of unemployable workers, whom the profit 
economy condemns to a living death, is characteristic of the decline 
of capitalism. 

Unemployment, Technology, and Capitalism 


Jl HE problem of increasingly great permanent unemployment, of the 
inability to provide work for millions of men and women eager to 
work, was not a creation of the depression. Like the decline of capital- 
ism, it emerged in the midst of the flourishing prosperity of 1923-29. 
For employment, during that "Golden Age," moved downward while 
production and profits were moving upward. 

Mass unemployment is essentially a peculiarity of capitalism. It has 
three forms: seasonal unemployment, existing only because it is 
more profitable not to regularize employment; cyclical unemployment, 
the result of the recurrent breakdowns of industry, of depression; and 
the minimum unemployment which is independent of seasonal and 
cyclical influences. The third form of unemployment is styled "nor- 
mal," the expression of an economic system in which the abnormal 
so often becomes the normal. "The unemployed percentage," accord- 
ing to one bourgeois economist, "however it may fluctuate, never 
fluctuates down to zero."^ Normal unemployment means simply that 
capitalist industry is so organized and managed that there must 
always be a reserve of unemployed workers, even in the most pros- 
perous times, to provide labor for new enterprises and as a means 
of forcing down wages. Under capitalist conditions, the providing of 
steady employment would hamper expansion (which is unplanned) 
and tend to raise wages to unprofitable levels. Normal unemployment 
is therefore a condition of capitalist production and accumulation. 

In the United States, because of its greater and more violent expan- 
sion, normal unemployment has always exceeded that in other coun- 
tries. Unemployment averaged 7.8% of the available workers in the 
prosperous years 1900-13 (excluding the major depression of 1907- 
09).^ It became worse in 1923-29, as a direct result of unusual pros- 

If the theoretical assumptions of the "new capitalism" (and now of 
Niraism) were valid, there would have been no cyclical crisis and 
breakdown. Nor would there have been any substantial increase in 
unemployment. But the assumptions, where they were not sheerly 
apologetic, were wholly unreal. They were compact of doctrinal ab- 


224 The Decline of American Capitalism 

stractions, having little relation to a dynamic capitalism rent by strains 
and stresses and contradictions, and ignoring the antagonisms o£ an 
economic system dominated by the production o£ profits. It was, and 
is, assumed that increasingly higher employment and wages follow 
an increase in the productivity of labor and in production; that as 
production costs decrease and output rises, prices fall, consumer pur- 
chasing power and mass consumption mount, and more goods are 
produced and more employment is created. In other words, the 
assumption is that the gains of greater productivity and production 
are proportionally distributed. But there is no such proportional dis- 
tribution under capitalism, whose main characteristic is disproportion- 
aUty. Hence crisis and breakdown. Hence the spread of unemployment, 
like creeping paralysis, in the midst of unprecedented prosperity. 

An examination of the fluctuations of employment, in their rela- 
tion to production, prosperity, and depression, demonstrates that there 
is no objective basis for the wholly unreal theories of capitalist 


Prosperity and Unemployment 

iU NEMPLOYMENT is essentially an aspect of the higher productivity 
of labor under the social relations of capitalist production. Normal 
unemployment grows when the productivity of labor rises dispropor- 
tionately to output. Cyclical unemployment prevails in depressions, 
brought about primarily by forces identified with the higher 
productivity of labor (which is not matched by higher employment 
and wages). And the increasingly greater unemployment of capitalist 
decline is a result of industry having become so highly productive 
that it is unprofitable to use all its capacity: hence millions of 
workers are thrown out of work. The increasing efficiency of 
American industry in 1920-29 considerably raised the total of "nor- 
mally" unemployed workers. For while the higher productivity of 
labor may mean higher wages, it always means a displacement of 
labor because fewer workers are required to produce a larger output. 
Thus labor is penalized by its own efficiency. 

The great rise in the productivity of labor, in output per worker, 
started in 1921-22, under the impact of falling prices and rising real 
wages. In 1922, after a temporary shutdown, during which equipment 
was improved, the Ford Motor Car Company turned out more work 
with 40,000 workers than formerly with 57,000. ... In 1925, the 
Owens automatic bottle machine was adapted to the production of 
prescription ovals, and man-hour productivity rose 4,100 times. . . . 
A survey of thirty-five plants in 1927 showed that output per worker 
was 75% higher than in 1919 and 39% higher than in 1924. . . . The 
productivity of labor rose 98?^ in 1919-27 in the manufacture of 
automobiles and 198% in rubber tires. ... In blast furnaces, with 
operation becoming increasingly automatic and almost manless, the 
productivity of labor in 1929 was 135% higher than in 1919, and 43% 
higher in steel works and rolling mills. ... In 1923-29, productivity 
rose 65% in the coke industry, 48% in beet sugar and condensed milk, 
46% in tanning, and 44% in petroleum refining. ... It rose 30% in 
the electrical manufacturing industry and over 27% in electric power 
plants. . . . The dial telephone displaced more than half the operators. 
. . . Building construction was intensively mechanized. The cement 


226 The Decline of American Capitalism 

gun and the paint spray cut in half the labor of painting; a sanding 
machine for flooring did the work of six hand workers; the time 
needed to erect large buildings was cut 30% to 40%. ... In road- 
building, output per worker rose from 4.7 lineal feet in 1919 to 17.7 
lineal feet in 1928.^ . . . Many equally great increases in productivity 
took place in various processes of labor on the railroads and in mining 
and agriculture. 

The rise in the productivity of labor was uneven, but it rose sub- 
stantially in all industries. In 1927, productivity in manufactures was 
42.5% higher than in 1919, 40.5% higher in mining, 12.5% higher on 
the railroads, and 29.5% higher in agriculture. (For the period 1899- 
1927 the increases were: manufactures 48%, mining 118%, railroads 
63%, and agriculture 6i%.) ^ The productivity of labor kept on rising: 
thus on the railroads in 1930 it was 20% higher than in 1920.* 

There was, naturally, a displacement of labor because of technolog- 
ical changes and higher productivity. This is a normal aspect of cap- 
italist development. "It is," according to one bourgeois economist, "as 
old as the present industrial system and it is inherent in this system 
... a constant accompaniment of progress in modern industry." ^ But 
technological displacement is a constant torment to the workers, as 
it deprives many of them of skill and occupation. 

The significant aspect of the rising productivity of labor in 1919-29 
was not its rate nor its technological displacement of workers. Only 
in manufactures was the rate unusually high in comparison with 
1 899-1 9 1 9, when there was a lag in the increase of productivity among 
factory workers: it was not materially higher than in the i86o's — 90*5. 
And in the past, displaced workers were almost wholly reabsorbed by 
the expansion of industry, accompanied by an increase in the total 
number of workers employed. The significant aspect of the rising 
productivity of labor in 1919-29 was that for the first time in Amer- 
ican history there was an absolute displacement of labor, a decrease 
in the employment of directly productive workers. 

Large numbers of workers were permanently displaced in manufac- 
tures and mining and on the railroads (Table I). By 1929 the higher 
productivity of labor in manufactures had displaced 2,1832,000 workers, 
of whom 2,416,000 were, however, reabsorbed by an increase in pro- 
duction; the absolute displacement was 416,000 workers. On the rail- 
roads 345,000 workers were displaced by higher productivity and 71,000 
by a decrease in output, making the displacement 416,000 workers. 
In coal mining higher productivity displaced 95,000 workers but the 
absolute displacement was raised to 171,000 workers by lower out- 

Prosperity and Unemployment 



The Displacement of Labor by 
and its Absorption by A 


Changes in Employment (-\-) or ( — ) 

During the Current Year 




1921 163,000 2,045,000 2,208,000 

1922 — 935,000 +1,759,000 — 1,384,000 

1923 183,000 +1,350,000 217,000 

1924 276,000 584,000 1,077,000 

1925 — 495,000 +948,000 — 624,000 

1926 93,000 +211,000 506,000 

1927 — 68,000 — 204,000 — 778,000 

1928 — 503,000 +440,000 — 841,000 

1929 — 116,000 +541,000 — 416,000 

Increasing Productive Efficiency 
merican Industry, i^20-2g 


Changes in Employment (-\-) or 
( — ) During the Current Year 


+2,000 494,000 492,000 

— 36,000 +100,000 — 428,000 

52,000 +286,000 194,000 

— 47,000 — 103,000 — 344,000 

— 82,000 +80,000 — 346,000 

— 39,000 +93,000 — 292,000 

+9,000 — 67,000 — 350,000 

— 74,000 — 5,000 — 429,000 

— 26,000 +39,000 — 416,000 


Changes in Employment (-{-) or 

( — ) During the Current Year 



y OUTPUT 1920 

165,000 180,000 

62,000 269,000 

+224,000 60,000 

94,000 146,000 

19,000 172,000 

+ 102,000 65,000 

— 66,000 — 142,000 
— 25,000 — 188,000 
+29,000 — 171,000 










+ 8,000 












Changes in Employment C+J or 

( — ) During the Current Year 


176,000 2,704,000 2,880,000 

998,000 +1,797,000 2,081,000 

250,000 +1,860,000 < 471,000 

315,000 782,000 1,567,000 

584,000 +1,009,000 1,142,000 

127,000 +406,000 863,000 

70,000 337,000 1,270,000 

598,000 +410,000 '1,458,000 

154,000 +604,000 1,003,000 

• Class I railroads. 

t Anthracite and bituminous coal mining combined. 

Source: David Weintraub, "The Displacement of Workers Through Increases in 
Efficiency and Their Absorption by Industry," Journal of the American Statistical Associ- 
ation, December, 1932, pp. 396-97. The table covers wage-workers only. 

put. (In both these cases the immediate cause o£ the decrease in 
output was essentially technological. Improved motor trucks competed 
more effectively with the railroads; electricity increasingly cut into 
the demand for coal by industry and the home, steam power plants 
used less coal because of more efficient combustion, and hydroelectric 
plants dispensed with coal altogether.) Thus the higher productivity 

228 The Decline of Americaa Capitalism 

of labor permanently displaced 1,003,000 workers in manufactures and 
coal mining and on the railroads. 

But that was not all. There was, also for the first time, an absolute 
displacement of labor in agriculture. In 1929 American farms gave 
work to 540,000 fewer persons than in 1919. The number of farms, 
rising steadily from 1,449,073 in 1850 to 6,448,342 in 1920, fell to 
6,288,648 in 1930, a decrease of 159,695. Thus most of the displacement 
was of farm laborers, either hired or the children of farmers. As, how- 
ever, the farm population fell from 31,614,000 in 1920 to 30,447,000 in 
1930, the actual displacement was much greater, there being, probably, 
1,000,000 persons who had to find work in other than agricultural 
occupations.® A surplus farm population appeared in 1909-19, because 
of the small increase in the number of persons working on farms. It 
has since grown and it will continue to grow as productivity in farm- 
ing rises and output is stationary or falls. This completes the profound 
change inaugurated by the closing of the frontier, which still left, 
however, some few opportunities of absorbing new workers in farm- 
ing and of rising on the agricultural ladder; but even those few oppor- 
tunities are now ended. American farming is becoming as stagnant 
and hopeless as European farming has been for the past century. The 
surplus farm population of Europe was absorbed by the expansion of 
industry and by emigration, much of it to the United States when the 
frontier was being renewed. But American farming begins to produce 
a surplus population in the epoch of the decline of capitalism, when 
industry is unable to absorb those who cannot find work on the farms. 
This has long been true of European farming — and nearly all nations, 
moreover, are now restricting immigration. . . . 

The absolute displacement of directly productive workers is of ex- 
traordinary significance. It was a result of the development of the 
forces underlying the decline of capitalism. The direct significance 
appears clearly in a comparison of the absorption and displacement 
of workers in the thirty years 1899-1929 (Table II). In 1899-1919, 
7,010,000 workers were absorbed by employment in manufactures, 
mining, agriculture, and the railroads. In 1919-29, on the contrary, the 
same industries displaced 1,155,000 workers (including clerical work- 
ers, whose labor was increasingly mechanized) . And this displacement 
was accompanied by greater output, except for a small decrease on 
the railroads.* 

The significance of the absolute displacement of labor becomes more 

• While the output of coal decreased, there was an increase in other minerals: total 
mining output rose. 

Prosperity and Unemployment 229 

apparent if comparisons are made on the basis of two ten-year periods. 
In 1909-19, three major industry groups absorbed 3^847,000 new work- 


Absorption and Displacement of Workers, iS^g-igig 


















Railroads X 





Mining t 















•Percentage of increase over workers employed in 1899. 

t Percentage of decrease over workers employed in 191 9. (The displacement figures 
are lower than those in Table I because 191 9 instead of 1920 is used as the base year.) 

t The figures on mining (including quarrying) start with 1902; on railroads with 

Workers include "salaried employees" in manufactures, railroads, and mining. In 
1919-29, non-clerical salaried employees increased, so that only clerical workers were 

Source: Computed from statistics in Bureau of the Census, Manufactures, 1929 and 
Mines and Quarries, 1929; Statistical Abstract, 1932. 

crs: manufactures 35175,390, railroads 457,615, and agriculture 214,000. 
The process of absolute displacement began in mines and quarries, 
with a decrease of 42,325 workers. While there was a rise in the total 
number of workers absorbed, from 3,163,000 to 3,847,000, the rate of 
absorption fell slighdy, from 20.7% in 1899-1909 to 20.1% in 1909-19. 
This slackening was a forecast of the 5.2% rate of displacement in 
1919-29, which necessarily produced an increase in unemployment. 

In 1909-19, there was an increase of 6,027,000 in the number of 
persons gainfully occupied. To that must be added the 42,325 workers 
displaced in mining because of the rising productivity of labor, and 
310,000 workers displaced in construction because of the decrease in 
building during the World War and shortly after.^ Of the 6,388,000 
workers who had to find new jobs, 3,847,000 found them in manufac- 
tures, railroads, and agriculture. All other occupations had to absorb 
only 2,541,000, of whom 822,000 were absorbed in trade. 

In 1919-29, there was an increase of 7,180,000 in the number of 

230 The Decline of American Capitalism 

persons gainfully occupied/ to which must be added the minimum 
of 1,155,000 * workers displaced by the rising productivity of labor. 
Of the 8,335,000 persons (mainly wage-workers) who had to find 
new jobs, all had to find them in occupations other than in manufac- 
tures, railroads, mining, and agriculture. 

This was an unprecedented development, of profound significance. 
For it meant that the four major industry groups which formerly 
absorbed most of the new workers, now displaced a considerable 
number of workers. It meant that, to provide employment for the 
8,335,000 persons who sought work, occupations other than in manu- 
factures, railroads, mining, and agriculture had to grow nearly three 
and one-half times as much as in igo^-ig. They did experience an un- 
usual growth. Distribution, motor transportation, and trade (including 
automotive and radio products, garages, chauffeurs, motion pictures, in- 
surance agents), gave employment probably to over 3,000,000 persons. 
There were similar great increases in some other occupations. But 
absorption in the construction industry, in spite of its unusual 
expansion, was limited to 320,000, and in 1929 its total employees (at- 
tached to the industry, but not necessarily regularly employed) was 
somewhat lower than in 1909.^ The statistical evidence is incomplete. 
The decrease in the number of directly productive workers is a clear 
indication, however, that there was, after all absorptions, a substantial 
remainder of unabsorbed and unabsorbable workers. Prof. Wesley C. 
Mitchell, writing early in 1929, said: 

"The supply of new jobs has not been equal to the number of new 
workers plus the old workers displaced. Hence there has been a net 
increase of unemployment, between 1920 and 1927, which exceeds 
650,000 people."® 

That was admittedly a minimum estimate. Agricultural workers are 
not included, and the figures of unemployment in groups comprising 
nearly one-half of total employees are conceded to be "the least reliable 
of all and probably much too low." It is much more likely that unem- 
ployment increased by at least 1,000,000. As there were probably 
1,500,000 unemployed workers in 1920, normal unemployment (includ- 
ing clerical workers) in 1927-29 rose to 2,500,000, excluding the unem- 
ployed in professional occupations. And this great increase in the 

♦Actual displacement was over 1,500,000 workers if the calculation is made for 
the years 1920-29. Employment in 1920 was greater than in 191 9, and the absolute 
displacement of labor began only in 1922-23. 




7X5 ^ 



P OF LA80R n 

Mm W04 woq |qi4 Wn \<\X\ \^2h WZ5 RX7 l*JM 


232 The Decline of American. Capitalism 

reserve army of the unemployed took place in the midst of the most 
flourishing prosperity.* 

That unemployment did rise, whatever the magnitude of the in- 
crease, is an indisputable fact. It was observed and admitted by a 
number of bourgeois economists. They maintained that technological 
efficiency, or the productivity of labor, was rising faster than produc- 
tion, and displacing many workers. This was denied by the more 
sheerly apologetic economists. One of them, the president of the Na- 
tional Industrial Conference Board, said: 

"It is a well demonstrated economic principle that increased pro- 
duction creates new wants and that new industries bring with them 
new demands for both materials and services. As mechanization of 
industry with its requirement of fewer workers per unit of product 
decreases production costs and prices, the demand for commodities 
simultaneously increases and causes not only the theoretically released 
workers to be absorbed but in addition calls new workers into pro- 

Not necessarily. For the argument assumes "ideal" general principles 
regardless of whether they work in reality. Production costs decrease, 
but prices may not fall correspondingly: capitalist enterprise retains 
as much as it can of the gains of the higher productivity of labor. 
Prices in 1923-29 did not move downward as productivity moved 
upward. Even if prices fall, they may not do so as much as costs, and 
consumer gains are offset by the losses of displaced workers. Dispro- 

• Increasing unemployment aggravated competition in the labor market and helped 
to prevent any general rise in wages, one of the most important uses of the reserve 
army of the unemployed. "The overwork of the employed part of the working class 
swells the ranks of the reserve; while, conversely, the increased pressure which, through 
competition, the members of the reserve exert upon those who are in work, spurs 
these latter to overwork, and subjects them more completely to the dictatorship of 
capital." Karl Marx, Capital, v. I, p. 702. "The difficulty of obtaining employment 
has discouraged workers from leaving the jobs which they have held — the resignation 
rate among factory employees between 1920 and 1926 decreased two-thirds." Sumner 
H. Slichter, "Market Shifts, Price Movements, and Unemployment," Ameiican Economic 
Review, Supplement, March, 1929, p. 13. "Unemployment is reducing labor costs per 

unit of output Invariably labor efficiency increases whenever there are more 

men than jobs." John Moody, "Review and Forecast," Moody's Investors Service, 
January 5, 1928, p. i. "The labor reserve in the United States, despite immigration 
restrictions, is slowly increasing and is likely to act as a bar to any further general 
rise in the wage level." Magnus W. Alexander, president, National Industrial Con- 
ference Board, New York Tames, January i, 1928. "We face an increase in unemploy- 
ment. . . . Unemployment, disagreeable though it be, has its use despite the heartaches 
which accompany it. . . . The shadow of unemployment will reduce labor to sanity." 
Nelson, Cook and Company, bankers, New York Times, March 11, 1928. 

Prosperity and Unemployment 233 

portions in prices and profits, in production and consumption, are 
intensified by the fact that gains in efficiency are unevenly distributed * 
within an industry and between industries. Prices are affected by pro- 
ductivity, but they are also affected by long-time price movements and 
by the resistance o£ monopolist combinations to lower prices. Increas- 
ing productivity, where it requires new equipment, stimulates output 
and employment in the machinery industries; but the labor incorpo- 
rated in the making of the new machinery is always less than the labor 
it displaces, otherwise there would be no gain to the buyer. Moreover, 
the greater efficiency of new machinery may flow from qualitative 
changes, and thus reduce the amount of new equipment. Or higher 
productivity may result from more intensive exploitation of labor, 
requiring no capital expenditure. Workers are displaced in the ma- 
chinery industries because there, too, the productivity of labor rises. 
New industries create new demands for labor, but such demands arc 
relatively small, as these industries, adopting the most efficient methods 
of production, have a high composition of capital (with a low ratio of 
labor and wages to equipment and raw materials). And new indus- 
tries may not develop rapidly enough or on a scale proportionate to the 
displacement of labor. The demand for luxuries may increase, but their 
production may also require less labor as its productivity rises. Finally, 
because of high profits, low wages, and the concentration of income, 
the demand for commodities may not rise simultaneously and equally 
with the rise in productivity and production : if it did, there would be 
neither an increase in unemployment nor cyclical crises and break- 
downs. Thus changes may go on within the limits of magnitudes and 
proportions which upset the "ideal" assumptions of apologetic eco- 

A liberal reformer, Prof. Paul H. Douglas, also accepted the "ideal" 
assumptions of apologetic economics : 

"It is clear that permanent technological unemployment is impos- 
sible. . . . Improvements in industrial processes, like changes in 
demand, will produce a shifting of labor and capital within the 

•There must be, under capitalism, an uneven distribution of technical efficiency. 
The simultaneous adoption by all enterprises of improved methods of production would 
tend, from the standpoint of competition and profit, to cancel the gains. A rise in 
the rate of profit ensues where an enterprise has the exclusive use of more efficient 
methods and can undersell its competitors; but when their use becomes general the 
rate of profit tends to fall because of the higher composition of capital, excess capacity, 
and competition. The profit motive is the basic cause of the planless nature of capitalist 
production: they arc inseparable. 

234 TTi^ Decline of American Capitalism 

But the "shifting of labor and capital" is always within definite limits, 
permanently excluding from employment a part of the available work- 
ers — small in the epoch of the upswing of capitalism, increasingly larger 
in the epoch of decline. And Douglas' modification of his conclusion 
permits drawing one which is the complete opposite of his own: 

"There is likely to be a considerable intervening period of unem- 
ployment before all the [displaced] workers find employment. During 
this period they will not receive wages and their purchasing power 
will in consequence be reduced. Some unemployment will tend to 
result elsewhere. This element of instability is multiplied if improve- 
ments are taking place simultaneously in a large number of industries 
and is particularly aggravated if the commodities are subject to in- 
elastic demand. If the rate of technical progress in a society is, more- 
over, accelerated, the number who are thrown out of employment 
temporarily is increased. The purchasing power of these workers is 
temporarily reduced and their demand for goods curtailed. This 
transitional loss of employment has therefore a magnified effect and 
prevents the previous analysis from working out to the full extent 
and with the precision which has hitherto been implied." ^^ 

Precisely! The "considerable intervening period of unemployment" 
and the "element of instability" upset all the "ideal" assumptions 
that workers displaced by the higher productivity of labor are neces- 
sarily absorbed by higher output. And if there are factors which 
prevent the process of absorption "from working out to the full extent 
and with precision," why insist categorically that "permanent tech- 
nological unemployment is impossible'} Combinations of the same 
factors underlying "considerable intervening periods of unem- 
ployment" may conceivably produce absolute displacement and an 
increase in permanent unemployment. It is not only conceivable 
theoretically, it is demonstrated by the granite facts of the steady, 
if small, increase in the reserve army of the unemployed in the epoch 
of the upswing of capitalism, and of the constantly greater increase 
in the epoch of decline.* 

Even if it were true that workers displaced by technological changes 

* Technological displacement of labor added to the unemployment produced by 
capitalist decline in Germany, England, and other capitalist nations of Europe. An 
English economist says: "The introduction of new and improved methods into an 
industry has the immediate effect of displacing labor by enabling the industry to satisfy 
its market with a smaller supply of labor. ... At any particular moment of time there 
is a considerable number of workers who have been displaced and who have not yet 
been absorbed. Hence, during a period of rapid progress, technological unemployment 
is abnormally high." Allan W. Rather, U Britain Decadent? (i 931), pp. 25-26. 

Prosperity and Unemployment 235 

and higher productivity are absorbed as output rises, great hardships 
would still be imposed upon them. Unless the displaced workers 
are absorbed by greater output in the same plant and on the same 
job, they lose their skills or familiarity with particular processes, the 
older workers are thrown upon the scrap heap, and at least an 
interval of unemployment must ensue. A survey in Philadelphia in 
April, 1929, when prosperity was still on high levels, disclosed 100,000 
unemployed workers, io.47o of the available labor force; 16% of all 
families were experiencing unemployment. Of these, 50% had been 
out of work for three months, 28% for six months, and 12% for 
one year or more.^^ Even more significant were the findings of a 
survey of displaced workers "to see just how many were being absorbed 
by American industry," conducted during the summer of 1928 in 
Baltimore, Chicago, Columbus, Ohio, and Worcester, Mass. The find- 
ings are here summarized: 

Of 754 workers, who had been discharged during the twelve months 
prior to the survey, 45.5% had been unable to secure employment 
other than odd jobs. 

Of the workers still unemployed, the majority had been out of 
work four months or longer: 8.4% for a year, 9.3% for eleven months 
or longer, and only 58.8% had been unemployed for less than six 

Of the 54.5% who were absorbed in new jobs, only 12% had found 
permanent work within a month after discharge; one half had been 
out of work three months or longer and one-fifth six months or 

Of the displaced workers who found new jobs, more than one-half 
had to accept work other than the kind to which they were accus- 
tomed, usually of a type where their former s\ills were useless. The 
older workers had the greatest difficulty in finding new jobs, as it 
is a general policy not to employ workers who are past the age of 45. 

Of the displaced workers, only 13% were absorbed in the "newer" 
industries or occupations — radio, gasoline stations, garages, chauffeurs, 
moving pictures, hotels and restaurants, beauty parlors, bootlegging. 

Of the workers who found new jobs, 27.1% made about the same 
as in their old jobs and 18.8% made rnore, while the majority made 
less than their former earnings.^^ 

Thus there is wanton human suffering and wastage even if the 
displaced workers are eventually absorbed. Workers are forced to 
take new jobs at lower wages. They are deprived of old skills and 
experience. Months and months of unemployment intervene, while 

236 The Decline of American Capitalism 

their paltry savings melt away, and the compulsion arises to accept 
charity. In 1927, when the Ford automobile plants in Detroit threw 
60,000 workers out of work, the city was forced to spend $1,954,000 
on charity relief, more than in the two previous years combined. 
Henry Ford generously contributed $175,000 and this bit of wisdom: 
"I know it's done them a lot of good — everybody gets extravagant — 
to let them know that things are not going along too even always." ^* 
And in 1928, H. W. Morehouse, president, Brookmire Economic 
Service, insisted that the increasing unemployment was really increas- 
ing leisure: "With such progress in well-being, no wonder some 
members of the family have decided to take life easier by ceasing to 
work."" A book by Clinch Calkins, So7ne Fol\s Won't Work^, re- 
vealed the reality, the conditions among the unemployed before March, 
1929, in the midst of unprecedented prosperity. It gave 300 cases 
chosen at random in thirty cities of twenty-three states. Let Miss 
Calkins speak: 

"In a group of twenty men on relief work cleaning streets, fifteen 
had been displaced from skilled trades." 

"When Riley lost his work he had no savings. The combination 
of four children and a peak income of $28.50 weekly is not conducive 
to savings accounts or investment. . . . Just what part of the $28.50 
could the Rileys have put away in a sock ? ... So they ran into debt. 
They fell behind on their furniture and insurance. At first Mrs. Riley 
rather went to pieces and rushed about trying to get help. Then 
she made frantic attempts to get a job herself. Novels could be written 
about this particular period in unemployment — the almost invariable 
shift of wage-earning from the man's to the woman's shoulders 
because women work for less pay. . . . Finally she got work in a 
cafeteria from eleven to three. She was paid $9 a week. And what 
wonders she did with her $9! She slapped it on insurance. She slapped 
it on the rent arrears. She slapped it on the furniture instalments. 
. . . Then suddenly five or six of the newest comers were dismissed, 
Mrs. Riley among them. . . . Since then she has worked at the sand- 
wich counter of the Five and Ten and at several obscure eating 
places near the docks. She received less pay and had longer hours. 
. . . But she had to give up even this work when Rosey, aged eight, 
contracted an illness which seemed directly traceable to 'poverty and 
makeshifts resulting from unemployment.'" 

Jervis was a skilled worker, a mixer of colored inks used by lithog- 
raphers; he earned the comparatively high wages of $37 weekly, 
and lived in a seven-room house with his wife and four children. 

Prosperity and Unemployment 237 

"During the last lay-off, machines were installed which laid on solid 
colors of ink and blended them. Between October, 1928 and March, 
1929 (six months), Jervis made fioo — at anything he could get — 
for the most part laboring and stevedoring. When their savings were 
gone and when they could no longer pay their rent, the Jervises went 
to stay for a month with friends while they located a place to live. 
He finally found one for $12 a month. To meet expenses he pawned 
their possessions and sold their radio. The new house is one room 
deep, has an outside toilet, no heater, and no kitchen stove. When 
their case was reported, both parents and children were destitute of 
shoes and clothing. A city nurse obtained for them a $3-a-week order 
for groceries. Fortunately for the family, Jervis was injured on his 
last day's work as a stevedore and went to bed with ulcerated legs 
and a strained back. I say fortunately, for besides medical aid the 
company paid him $15 a week for indemnity." 

"He was out of work for fourteen months and got so discouraged 
he turned on the gas." . . . "She resented her husband's idleness, 
said he did not try to find work. He became inert and fatalistic. They 
quarreled and were under constant domestic strain." . . . "Now that 
he has lost his work she attempts to do outside housework besides 
caring for her seven children. Frequently, over periods of time, she 
had only bread and black coffee to feed them." 

The Negro worker is hardest hit by unemployment. "The Lovejoy 
saga is a clear case of race prejudice as such, since this family is 
superior both in intelligence and education to many of the white 
workers who have received preferment at their expense. . . . From 
the spring of 1928 to December, 1928, they lived mainly on an occa- 
sional day's work done either by the father and the mother and the 
$2 or $3 a week earned by George in shining shoes." 

The workers, when unemployed, resort to charity only as a last 
resort, not until they are practically broken in body and spirit: 

"Mrs. White of Philadelphia said she watched her children starving 
until she could not stand it any longer. Before she asked for help 
she undoubtedly went through the equivalent sacrifice of Fred John- 
son, who, when he was accused by some one of standing on the 
corners with other men, was defended by his wife. He stayed there 
all noon, she said, for fear if he came home he would be tempted 
to eat what they had been able to put on the table for the children. 
. . . The six young Murphys of Boston are reported by their teacher 
as being *soft' from lack of food. . . . The Hagers of Louisville made 
their savings spin for two years of unemployment and then went 

238 The Decline of American Capitalism 

without food rather than ask for charity. . . . The Browns of Phila- 
delphia were reported by their grocer as having lived on bread and 
tea for six weeks. . . . An undernourished child was given by the 
school teacher a medicine to whet her appetite. As time went on, 
and she continued to give evidence that she was not eating enough, 
a visit was paid to her home. Then it was discovered she had litde 
to eat." ^^ 

These are the heartbreaking accompaniments of technological un- 
employment, an aspect of the steadily increasing normal unemploy- 
ment in 1923-29, while prosperity surged upward. (On a greatly 
enlarged scale they are the accompaniments of cyclical unemployment.) 
"1 J^now it's done them a lot of good." "Ta\ing life easier." . . . 

The output of goods, of the means of Hvelihood, rose because of 
the higher productivity of labor, of more efficient methods of pro- 
duction. Simultaneously, however, the higher productivity of labor 
deprived many workers of means of livelihood by depriving them 
of employment. And industry operated below its capacity. 

While millions of workers were unemployed there was, contrary 
to the earlier trend, a tendency for child labor to increase during 
1927-29, when both prosperity and unemployment reached their peaks. 
According to Grace Abbott, Chief of the United States Children's 
Bureau, full-time working certificates issued to children fourteen 
to eighteen years old (sixty cities in thirty-three states) increased 
from 150,000 in 1928 to 220,000 in 1929.^^ Although registering a 
decrease over 1920, the number of children ten to seventeen years 
old gainfully occupied in 1930 was 2,145,000.^® "The great mass of 
working children," according to the National Child Labor Com- 
mittee, "enter occupations that are monotonous in the extreme, lack- 
ing all educative content other than a certain amount of training 
in habits of work. What they must do can usually be learned in a 
few hours or at the best a few days; after that it is a matter of re- 
peating the same tasks over and over again. Such a procedure involves 
more than the usual waste during the years when mental growth 
and acquisition are at their highest and offers a poor substitute for 
the training and self-expression of school life." ^^ Many children were 
forced to work because of the technological displacement of their 
fathers. And the number of working children was about equal to 
the number of unemployed adults. 

Another result of the higher exploitation of labor, besides the aug- 
menting of normal unemployment, was a tendency for accidents to 

Prosperity and Unemployment 239 

increase in many industries. One method of raising the rate of ex- 
ploitation is to make labor more productive by the introduction of 
more efficient equipment. Another method is the intensification of 
labor: the use of speedier and more complicated machines and more 
speed-up, multiplying the pressure on the muscle and nerves of the 
v^^orker. Work tended to become more dangerous. . . . From 1922 
to 1925, in thirty-four industries employing 254,529 w^orkers, output 
per worker rose 14.4% and the accident severity rate 2.5%. ... In 
1925-26, eighteen out of twenty-four industries, employing 1,000,000 
workers, had a rising accident severity rate. ... In 1929, plants re- 
porting to the National Safety Council had a small decrease in acci- 
dents but a small increase in the fatality rate. . . . Industrial accidents 
in New York State rose from 346,000 in 1922-23 to 518,000 in 1926-27; 
in 1929 there were 20,000 more compensatable accidents than in the 
previous year. ... In this state's building trades the rise in accidents 
was much greater than in employment — from 10,000 in 1923 to 21,600 
in 1927. . . . The fatality rate in coal mining in 1921-25 was 2.73 per 
1,000 employed workers; it was 3.32 in 1926, 2.94 in 1927, and 3.19 
in 1928; or, on another basis, the fatality rate rose from 3.93 in 1916 
to 4.54 in 1929. . . . The risks of the American coal miner (and 
of the worker in general) are infinitely greater than those of the 
European. In 1929, the death rate per 1,000 full-time 300-day workers 
was 4.54 in the United States, 2.19 in Prussia, 1.31 in England, 1.29 
in Belgium, and 1.15 in France. And the natural conditions in mining 
are more favorable in the United States than in Europe. . . . The 
iron and steel industry is usually considered a "model" of accident 
prevention work. Yet, while the frequency rate fell in 1920-29, the 
fatality rate was stationary and the permanent disability rate rose. 
... In 1928, according to the National Safety Council, there were 
24,000 fatal industrial accidents and 3,250,000 non-fatal. . . . Manage- 
ments are directly responsible. Not more than 10% of industrial 
enterprises are members of safety organizations. In 1928, the American 
Gas Association sent an accident questionnaire to its members, but 
the great majority did not reply. . . . Safety devices multiply but 
employers refuse to spend the necessary money. The high accident 
rate in the New York building trades is due, according to the Indus- 
trial Commissioner, mainly to defective equipment and the disregard 
of safety devices by employers. In the electric power industry the 
most important safety devices are not being introduced because of 
the cost. Safety engineers are usually limited in their efforts by con- 
siderations of output, costs, and profits. . . . The responsibility was 

240 The Decline of American Capitalism 

placed squarely upon management by H. W. Heinrich, of the Trav- 
elers Insurance Company, who completed an analysis o£ 73,000 indus- 
trial accident cases, 10,000 from records of his company and others 
from the records of plants. His conclusion was that 9^% of all acci- 
dents are preventable; only 10% were due to physical or mechanical 
hazards, while 88% were due to neglect by management. ... In one 
of its reports the United States Department of Labor said: "All Ameri- 
can industry has been much influenced by the effort for increased 
production. The speeding up has not been accompanied by an equally 
intense effort toward accident prevention." '^^ 

The tendency for accidents to increase in many industries was a 
reversal of earlier trends.* It may become more marked; for, as the 
mass of profits tends to fall, employers will introduce more speed-up 
and will be more unwilling to pay for safety devices. 

But the increase in unemployment was not a reversal. It merely 
strengthened the tendency of capitalist industry to augment unem- 
ployment. And this must become more marked under the conditions 
of the decline of capitalism. 

*In Germany, where rationalization raised productivity as much as in American 
industry, there was a similar intensification of labor and an increase in accidents. 
"Labor expressions of opinion on these problems have been particularly outspoken, 
critical and bitter. Mechanization and speeding of work routines are held to have 
increased fatal, major and minor accidents and the number of persons suffering from 
industrial diseases. Speeds are adjusted without regard to cumulative fatigue, and the 
killing pace which workers must keep shortens their life cycles and throws them into 
the discard at an early age. Injuries reported have steadily increased as output per 
worker, indicating greater productivity through rationalization, has risen." Output per 
worker rose from loo in 1924 to 140 in 1929; the number of workers injured per 
100 rose from 6 to 10, an increase of 66.6%- "The data given by both industrial and 
professional classifications in the Statistisches Jahrbuch show, in nearly all cases, increases 
in accident rates between 1927 and 1928. Estimates for 1929 are still higher. In all 
cases the post-war figures are much larger than those for 1913." Robert A. Brady, 
The Rationalization Movement in German Industry (1933), pp. 346-48. 


Disemployment and Surplus Population 

JLn the past, industry absorbed more workers than it displaced, and 
employment rose steadily. This historical fact is used as an argument 
against the contemporary fact of increasing unemployment. Since the 
industrial revolution, it is argued, technological change has created 
new industries and a multitude of new jobs; although there was in 
1920-29, a small displacement of workers, the total of employed 
workers was greater in 1929 than in 1899. While "the expansion of 
old industries," according to one economist, writing in 1929, "is not 
sufficiently rapid, apparently, to absorb the rising generations, up 
to the present time the increase over and above those absorbed by 
the old callings has been taken up by the new industries."^ The 
increase in unemployed workers is temporary: they will be eventually 
absorbed by renewed expansion. So runs the apology. 

But what has been need not always be. The theory that workers 
displaced by machinery are absorbed by new occupations was formu- 
lated a century ago, when capitalism was at the beginnings of its 
great expansion, of an immense upward movement in production. 
Now capitalism is in the epoch of decline, of a downward movement 
in production. This fundamental fact must influence all interpretation 
of former experience. Moreover, even in the epoch of the upswing 
of capitalism there was a definite tendency for unemployment to in- 
crease. In the United States, from 1865 on, constantly greater cyclical 
and normal unemployment tormented the workers. Prosperity prevailed 
in 1889 and 1899, yet unemployment among workers in manufactures, 
transportation, and the building trades rose from 5.6% to 7%.^ And 
in the following years the percentage of unemployed workers rose 
steadily, both in prosperity and depression (Table III). In spite of 
greater talk of "stabilizing" employment (as if words become deeds 
by the sheer magic of words!) there was greater unemployment. 
In the two periods of prosperity immediately preceding the World 
War, unemployment, both absolute and relative, rose. It fell only 
slightly during the war years, in spite of conscription and the mobiliza- 
tion of industry. Unemployment in periods of depression showed the 
greatest increase, rising from 10.7% in 1907-09 to 15.9% in 1914-15. 



The Decline of American Capitalism 




Upward Trend 

of Unemployment, 















































• Includes workers in manufactures, coal mining, railroads, and the building trades. 

Source: 1900 to 1926 — computed and rearranged, according to cyclical periods, from 
statistics in Paul H. Douglas, Real Wages in the United States, i8go-ig26, p. 460; 1927 
to 1933 — computed on the basis of statistics in Tables II and IV. 

Usually unemployment was ascribed to unrestricted immigration, 
which had been so important in American expansion. Yet after the 
war, when immigration, now no longer economically necessary be- 
cause of a declining rate of expansion, was severely restricted, normal 
unemployment increased more rapidly than in the pre-war years. 
In the depression of 1921-22, unemployment was twice as high as 
in the depression of 1907-09 and nearly 50% higher than in that of 
1914-15. Normal unemployment rose to 9% in 1923-26 and 9.5% in 
1927-29, an increase of one-fifth over the two pre-war periods of 
prosperity. The absolute number of unemployed workers in the pros- 
perity years 1923-29 was greater than in the 1907-08 depression. 
Average yearly unemployment during 1920-26 was 12.1% of the avail- 
able workers, considerably higher than the 10.2% during the years 
1897-1926.^ And for the four depression years 1930-33 average yearly 
unemployment rose to 35.2% of the available industrial workers, over 
three times as much as in 1907-09 and nearly twice as much as in 
1921-22. . . . 

The accelerated increase of normal unemployment in 1920-29 was 
the result of a fundamental change in the American economy: for 
the first time the rise in the productivity of labor was greater than 
the rise in production. This condition is the basic cause of an abso- 
lute displacement of workers. 

A definite, if proportionally changing, relation exists between em- 

Disemployment and Surplus Population 243 

ployment and the productivity of labor and output. An increase in 
productivity must be matched by a corresponding increase in output, 
otherv^ise there is an absolute displacement of workers. But v^^here 
formerly an X% increase in output v^as enough to absorb a certain 
number of new workers, now, because of the higher productivity 
of labor, a still greater increase in output is necessary. Production 
must grow faster than productivity.* 

If output rises more rapidly than the productivity of labor, there is a 
relative but no absolute displacement of workers. The theoretically 
displaced workers and new workers in addition are absorbed by the 
expansion of production. (It also makes possible higher wages and 
shorter hours.) Because the increases are not proportional, normal 
unemployment tends to rise, but not much. This is the epoch of the 
upswing of capitalism. 

If, however, the productivity of labor rises more than output, the 
tendency is toward an absolute displacement of workers. There is 
an expansion of production, but not enough to absorb all the workers 
displaced by higher productivity plus a part of the newly available 
workers. Normal unemployment rises more rapidly. 

If productivity rises more than output and, in addition, the move- 
ment of production is downward, workers are displaced both by 
higher productivity and lower output. Normal unemployment be- 
comes constantly greater. (Wages tend toward lower levels; and while 
hours of labor may not be lengthened, they are at least not shortened 
in accord with technical-economic possibilities.) This is the epoch 
of the decline of capitalism. 

From 1899 to 1919, and in earlier years, output rose more than 
the productivity of labor. In manufactures, in 1 899-1909, the increase 
in output was 59%, in productivity only 16%; 2,182,427 new wage- 
workers were absorbed. For the whole period 1 899-1919, the increase 
in output was 59%, in productivity only 16%; 2,183,427 new wage- 
workers were absorbed.* There was a similar trend on the railroads. 

• Production, of course, includes the new industries. For the sake of simplification, the 
factor of the distributive and service trades is excluded. Employment in these trades tends 
to increase much more than in directly productive occupations (a great part of it is 
wholly useless and parasitic). But the increase, as shown in 1923-29, is not great enough 
to absorb all the available workers. In any event, employment in the distributive and 
service trades is dependent primarily upon production, which supplies means of livelihood 
for all occupations. As a sop to its supporters, fascism tends to increase arbitrarily the 
number of non-productive jobs; but this also is not enough to absorb all the unem- 
ployed, there are definite limits to the creation of such jobs, and they multiply the 
burdens imposed upon the workers employed in productive work. 

244 T'he Decline of American Capitalism 

In agriculture the movement of productivity and output w^as such 
that only a small number of newr workers was absorbed, while in 
mining (exclusive of oil wells) there was a small absolute displace- 
ment. The expansion of production was enough to absorb most of 
the available workers; there was only a small rise in normal unem- 

This relation was, however, completely reversed in 1919-29: the 
productivity of labor rose more than output. The rise in the produc- 
tivity of labor in manufactures was over 40%, in output only 38%. 
Productivity rose 12.5% and output 2.5% on the railroads, and 30% 
and 20% respectively in agriculture. There was a similar tendency 
in mining. As the expansion of production was smaller than the 
rise in the productivity of labor, an absolute displacement of 1,155,000 
workers, wage and clerical, took place. Displacement was most severe 
in agriculture; in this industry, for the whole period 1 899-1 929, pro- 
ductivity rose over 61% and output not much more than 56%.^ The 
expansion of production was great (although the rate of increase was 
smaller than in 1900-14), but it was not enough to absorb any new 
workers or even all of the displaced workers; hence normal unem- 
ployment rose considerably. 

Under capitalist conditions, an expansion of production depends 
upon an increasing output and absorption of capital goods. It depends, 
in other words, upon an increasing accumulation of capital; this 
means that a constantly greater proportion of the workers are em- 
ployed in the capital goods industries. But these industries, because 
of the higher productivity of labor, displaced a large number of workers 
in 1919-29, although the rate of increase in their output was greater 
than in pre-war years. There was a similar displacement in mining. 
Construction augmented its labor force by 320,000 workers. In all 
branches there was a small net loss of workers in the production of 
capital goods. And the higher composition of capital, made possible 
by the greater output of capital goods, displaced many workers in 
the industries producing consumption goods.* 

In most of the European nations normal unemployment was aug- 
mented both by the increasing productivity of labor and the down- 
ward movement of production. . . . The tendency for productivity 
to outstrip production was already manifest in the pre-war years. 
Thus in Great Britain, in 1907-13, output in basic industries rose 
7% and trade-union employment only 0.5%. ... In the pre-war 

•This subject is discussed more fully in Chapter XVI, "The Economics of Tech- 


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nofe iqo*^ ni3 isi5 isao nz2 i*?z4 )^z^ IS33 


246 The Decline of American Capitalism 

years, British unemployment averaged 500,000, or 5%, yearly; it was 
1,450,000, or 12%, in the post-war years (before 1929). The output 
of mines and quarries was slightly higher in 1930 than in 1925, but 
20% fewer workers were employed. In ten industries, an 11% increase 
in output was accompanied by an 8% decrease in workers. The ele- 
ment of British economic decline appears clearly in the fact that 
the number of workers employed in the export industries was 2,465,000 
in 1907, 2,485,000 in 1924, and 2,000,000 in 1930; their proportion to 
the total workers in manufactures fell from 44% in 1907 to 38% 
in 1924 and 33% in 1930. . . . Trade-union unemployment in Ger- 
many rose from a yearly average of 2.3% in 1907-13 to over 11% 
in 1923-27, and from 11.1% in 1927 to 20.7% in 1929. The former 
relation between productivity and output was reversed. Productivity 
rose 23% in the "boom" years 1925-27, and output 24%. In 1930, 
of 1,500,000 unemployed workers, 1,000,000 had been displaced by the 
higher productivity of labor and 500,000 by the lower level of pro- 
duction. ... In the prosperous year of 1929, according to the Inter- 
national Labour Office, 3,258,000 workers were unemployed in Ger- 
many, Great Britain, and Italy. Total unemployment in the capitalist 
nations of Europe rose from 3,616,000 in 1923 to 4,330,000 in 1929, an 
increase of 20%.*^ . . . But the official unemployment figures are under- 
estimates. Some include only those "on relief," others only those regis- 
tered at the labor exchanges. It is probable that over 4,000,000 workers 
were unemployed in Britain, Germany, and Italy, and 6,000,000 in 
all Europe. 

The same factors underlying the increase in normal unemployment 
also produce an increase in cyclical unemployment. The tendency of 
productivity to rise more than output is aggravated by industrial 
breakdown. In Germany, the productivity of labor was 17% higher 
in 1932 than in 1929, and output 40% lower. In the United States, 
according to the National Bureau of Economic Research, productivity 
per man hour rose 12% in 1929-32.^ Workers were thrown out of 
work both by the higher productivity of labor and the lower level 
of production. The output of capital goods, whose decreasing rate 
of labor absorption accelerates the rise in normal unemployment, now 
falls more in depression than formerly because of higher produc- 
tivity, the more disastrous nature of cyclical breakdown, and the 
lower demand for capital goods. And the output of luxury and 
durable consumption goods, upon which prosperity increasingly de- 
pends, falls in depression in about the same ratio as the output of 

Disemployment and Surplus Population 247 

capital goods. Thus, as prosperity becomes more unstable, depression 
tends to become more severe. 

The depression which set in after 1929 augmented unemployment 
steadily and on an unprecedented scale.* During 1932, average un- 
employment in Germany affected 5,579,858 workers, 30.2% of the 
available labor force; of the trade-unionists 43.8% were wholly un- 
employed and 22.6% partly unemployed. In Great Britain 2,272,590 
workers or 17.6% were wholly unemployed, and 573,805 workers or 
4.5°^ partly unemployed. Fascist Italy, whose statistics are notoriously 
unreliable, officially admitted the existence of 1,040,910 jobless workers. 
In all of capitalist Europe, average unemployment during 1932 was 
12,178,000, exclusive of part-time workers. But these are the official 
figures, which are not inclusive. In Germany, for example, there were 
in December, 1932, probably 3,400,000 unregistered unemployed.® Ac- 
tual unemployment in Europe was over 20,000,000. Never before 
had cyclical depression afflicted such a large proportion of the working 

Still greater was the rise of unemployment in the United States. 
During 1930, when, because of the illusions of prosperity everlasting, 
the masters of industry, finance, and politics simply couldn't believe 
there was a depression, unemployment rose to 5,000,000, compared 
with half that amount in 1929. It kept on rising. In manufactures 
alone there were 2,327,000 fewer workers employed in 1931 than 
two years earlier,® while total unemployment rose to 8,250,000. But 

* Except in the Soviet Union, which passed through the "years of world depression 
apparently with comparatively small loss, continuing, indeed, to new and greater gains. 
. . . Standards of living are debatable, always, but in the present instance can hardly be 
considered as other than improved. The average real wage of the industrial worker cer- 
tainly has been improved and that with the hours of work reduced. . . . The result of 
the experience of Soviet Russia would seem to be primarily twofold: the leveling of 
distribution and a new control over economic forces. It is not argued that the effects of 
the world depression have not been felt there. Most certainly they have been, but not in 
the production processes, nor in employment; wages, also, have been maintained and 
increased" Susan M. Kingsbury and Mildred Fairchild, "Employment and Unemploy- 
ment in Pre-War and Soviet Russia," World Social Economic Congress, International 
Unemployment (1931), p. 421. It is often said: "Of course the Soviet Union has no 
depression and no unemployment; that country is industrializing itself, and work is more 
plentiful than workers." This is an obviously wrong argument. Every capitalist country 
has had depressions and a resulting increase in unemployment during its period of 
industrialization: in the United States there were three major depressions from 1837 to 
1873. The element of socialist planning and control makes the difference. Cyclical crisis 
and breakdown is a function of the contradictions and antagonisms of capitalist produc- 
tion, not of industrialization (or of industrialism itself). 

248 The Decline of American Capitalism 

this was only a midway point. By the spring of 1933, the lowest depth 
of the depression, unemployment in all occupations had reached the 
staggering total of 17,252,000 (Table IV), an increase of 14,750,000 
over 1929. The blight of unemployment fell upon 35% of the gain- 
fully occupied : 14,252,000 or nearly 50% of the wage- workers, 2,000,000 





Spring, I9SS 







Building Trades* 








Personal Service 


Professional Service 


All Other 






Grand Total 


• These classifications differ from those in previous tables. Transportation includes 
telephones and telegraph, garages, service stations, street railw^ays, and buses; building 
trades includes w^orkers who are not engaged directly on new construction; mining in- 
cludes oil and gas wells. 

Source: For November, 1932 Business Wee\ (January 18, 1933) estimated unemploy- 
ment at 15,252,000. But its starting point was a Federal Census estimate of unemploy- 
ment (3,700,000) for April, 1930, which was too small by about 750,000. And Business 
Week, made no allowance for new workers seeking employment, which may be conserva- 
tively estimated at 750,000. An additional 500,000 is included to allow for the increase 
in unemployment from November, 1932 to March, 1933. These revisions would raise 
the number of unemployed in professional occupations to 500,000. 

or 40% of the clerical workers, and 500,000 or 15% of the persons 
in professional occupations. (Unemployment among professionals is 
not a complete measure of their plight, as those independently occu- 
pied, such as architects, physicians, and dentists, might not be unem- 
ployed and yet suffer keenly from the depression.) Just as normal 
unemployment in 1923-29 was greater than in any previous period 
of prosperity, so cyclical unemployment was greater than in any 
previous depression. This is progress in the epoch of the decline of 

Disemployment and Surplus Population 249 

In addition to wholly jobless workers, other millions were working 
only part time. This was due to the generosity o£ employers, who 
"made" work by "staggering" and "spreading" employment, thereby 
throwing the burdens of the crisis upon the employed workers. In 
January, 1933, 20% of the members of the American Federation of 
Labor were working part time.^° The animus of the employers was 
thus frankly admitted by Virgil Jordan, editor of Business Wee\: "The 
spread-work movement will probably gain momentum as a means 
of shifting the burdens of unemployment relief from income to 
wages." ^^ 

Because of the severity of the crisis (typical of the decline of cap- 
italism), unemployment swooped down mercilessly on professional 
and clerical workers. ... A survey by Columbia University in 1933 
showed unemployment as high as 98% among architects, 85% among 
engineers, and 65% among chemists. . . . Five societies of engineers 
in 1 93 1 formed a national committee to aid their jobless; within 
one year they had spent 1441,737, of which $307,119 was in the form 
of wages on "made" work paid for by semi-public bodies, the balance 
in cash, old clothes, and other relief. . . . Unemployment was intensi- 
fied among musicians, 9,885 or 50% of whom had been displaced 
in motion picture theaters by the sound films. ... In New York City, 
40% of those seeking jobs from the Emergency Work and Relief 
Bureau were "white collar" workers, including executives, technicians, 
statisticians, editors, efficiency experts, engineers, and personnel man- 
agers. . . . An executive of a New York employment agency said in 
1932: "Employment conditions among 'white collar' women are so 
appalling this fall that I haven't the heart to think about them from 
a statistical angle." ... A survey in 1933 of 3,000 charity patients 
in New York City hospitals showed that 175 were professional workers 
and 430 clerical workers, a greater proportion than in previous years 
of patients who are called the "new poor." ^^ . . . The tremendous in- 
crease in the number of jobless "white collar" workers is not only 
a necessary result of greater unemployment among wage-workers, 
upon whose employment, in final analysis, depends the employment 
of "white collar" workers. Their situation is aggravated by the over- 
crowding of clerical and professional occupations, a condition which 
developed ominously during the pre-1929 prosperity. The "scarcity 
value" of the "educated" workers is no more; for, turned out by 
mass production methods, their numbers increase while the oppor- 
tunities of finding work decrease. 

The need for relief was great. ... In October, 1930, President 

250 The Decline of American Capitalism 

Hoover at the convention of the American Federation of Labor 
condemned unemployment insurance as involving "doles of various 
kinds w^hich limit the independence of men." The condemnation, 
according to the New York Times, 'Vas particularly pleasing to 
some of the Federation leaders, who are opposed to compulsory un- 
employment insurance under Federal or state supervision." . . . Three 
days later, William Green, the Federation's president, urged govern- 
ment officials to prepare winter relief for the unemployed. And Hoover 
set machinery in motion to "coordinate" relief in the form of charity. 
No doles! ... It was charity of the most demoralizing kind. . . . 
Arthur .Woods, chief of the President's Emergency Committee for 
Unemployment Relief, broadcast appeals for money: "Increased funds 
for local relief are needed if human misery is to be prevented. Hos- 
pitals and dispensaries must receive more free patients; children's 
organizations will be crowded as broken homes are increasing." (In 
New York City, in 1930, evictions increased 30%, children in institu- 
tions 12%, and foundlings 100%. ) . . . Workers, with lower earnings, 
were forced to contribute to money-raising drives, public school teach- 
ers to pay for free lunches to children. . . . For the first time women 
and children appeared in breadlines. "We must," urged Grace Abbott 
of the United States Children's Bureau, "get the children out of the 
breadlines." . . . Two years later she added: "Relief agencies have 
been unable to meet the needs of those dependent in cities and 
towns and able to give little or no assistance to small mining com- 
munities, where undernourishment among children is widespread." 
. . . Relief was niggardly, ungracious, humiliating. ... It was par- 
ticularly so in the case of Negroes and "aliens." The aliens were 
thrown out of jobs, denied relief. In New York City, the Emergency 
Work Bureau discouraged the registration of Negroes, and few 
of those who registered got jobs. . . . Needy families were told to 
go to the police, who gave them a basket of food once a week, 
old clothes, occasionally some money for rent. . . . Charitable persons 
organized more, bigger, and better breadlines. . . . Hotels, restaurants, 
and produce merchants gave waste food to the needy, and bakeries 
gave stale bread. . . . Garbage cans were ransacked at night. . . . 
One man made it a business to hand out a batch of nickels to ap- 
plicants and the advice: "Have the will to do, have patience, have 
hope, place your faith in God, and you will come out on top." . . . 
Unemployed workers sold apples on the streets of New York, and 
wholesale prices went up in a few days. . . . Well-to-do women 
(some of them!) made clothes for the children of the unemployed. 

Disemployment and Surplus Population 251 

. . . The President's Emergency Committee for Unemployment Relief 
made much pother about "providing employment" — the old, old appeal 
to "make" work. . . . Employers were begged to "stretch matters 
a little to give added employment for a few months at least." This 
was done by "spreading" work, taking from one worker to give to 
another. . . . Corporations announced proudly that they would not 
discharge any workers; investigation revealed they had either had 
no decrease or an increase in business. . . . Department stores "helped" 
by advertising that they had hired new salespeople — during the few 
days of a special sale, workers they would have hired anyway. . . . 
The housewife was asked to "study her budget, find out what she 
can aflford to do in the matter of advancing work to be done in 
her home, and then have it attended to immediately." . . . Rich men 
were implored to build rock gardens and yachts to "make jobs" and 
revive prosperity. . . . Some unions made their working members 
take time off one or two days a week to make work for the unem- 
ployed. . . . The Federal government rejected pleas for direct relief 
to the jobless workers. It was contrary to the American traditions 
of rugged individualism. (Apparently rugged individualism was not 
menaced by the doles of local government relief and charity.) The 
government instead issued considerable publicity on new public 
works construction, adding, however, that "a long time is required 
to prepare construction work." ... By January, 1932, millions were 
starving or approaching starvation, 500,000 in Chicago alone. . . . 
Meanwhile the unemployed were becoming more and more resentful, 
more and more desperate. Demonstrations of the jobless, in many 
of which the communists had the leadership, broke loose all over the 
country. . . . They were met with the hatred of the well-to-do. The 
workers in one such demonstration in Seattle were called "bums" 
by a prominent businessman, "hobos" by a lady active in social afJairs, 
and "criminals" by a millionaire factory owner in an address to his 
employees. . . . Henry Ford said: "Men who want work can get 
it." . . . The communists, whose idea spread, started the Unemployed 
Councils, to carry on an aggressive struggle for relief and social insur- 
ance; organized state and national hunger marches, dramatized the 
plight and will to struggle of the unemployed. . . . Demonstrations 
and hunger marches were answered with clubs, bullets, and tear gas, 
brutally revealing the repressive class nature of the state. . . . The 
Federal government deported 18,000 aliens in 1931, many of them 
because they were radicals or took active part in demonstrations and 
strikes. . . . The upflare of lynchings of Negroes in the South was 

252 The Decline of Americain Capitalism 

not disconnected with the depression and unemployment. . . . Farmers 
organized resistance to foreclosures, went on strikes, demanded mora- 
toriums on debts and the end of foreclosures, tax sales, and evictions. 
... In 1931, the Illinois National Guard issued the following docu- 
ment to its members: "Blank cartridges should never be fired at a 
mob. When troops of the National Guard are ordered on active 
duty to suppress domestic disorders, under no circumstances will blan\ 
ammunition he issued to them. Never fire over the heads of rioters. 
The aim should be low, with full charge and the battle sight. Officers 
and men should not fear reprisal in case one or more people are 
killed. Officers of troops aiding civil authorities should not permit 
the latter to indicate how their duties should be performed" ... A 
survey by the United States Public Health Service showed that in 
1932 one-fifth of a representative group o£ wage- worker families were 
"on relief." It was niggardly enough, this relief: some jobs on "made" 
work, some food, some rent money; and many didn't even get that. 
. . . According to the Children's Bureau, one-fifth of the children 
in the country "are showing the effects of poor nutrition, of inade- 
quate housing, of lack of medical care, of anxiety and insecurity. 
In some regions, without question, the proportion of below par chil- 
dren is far greater, reaching truly appalling figures." . . . Conditions 
among the unemployed had become unbearable by 1933. In January, 
William Green denounced "the money-fat enemies of America, who, 
through one device or another, have wrung from the people such a 
proportion of the fruit of their toil that they are stranded in a motion- 
less sea of depression. After three years of suffering we, the organized 
workers, declare to the world: 'Enough. We shall use our might to 
compel the plain remedies withheld by those whose misfeasance has 
caused our woe.'" . . . All Green asked was a small Federal relief 
appropriation. But such talk by a conservative labor leader was a 
reflection of the underlying resentment and pressure of the masses. 
. . . The efforts of the government, of Niraism, to "revive" industry 
in 1933 by pouring billions into private enterprise had to include 
some measures of aid for the unemployed. The masses were des- 
perate. The sight of billions going to corporations and nothing to 
themselves would inflame their desperation. Moreover, local govern- 
ments, which had borne the burden of what relief there was, were 
virtually bankrupt; Federal aid for the unemployed was in a sense 
a measure of financial relief for the local governments. ... In October, 
1933, according to the Federal Emergency Relief Administration, 
3,143,678 families were "on relief," 12,500,000 persons, including 5,500,- 

Disemployment and Surplus Population 253 

000 children. Millions more were on local relief or no relief at all. 
And the Federal appropriation for relief was a small part of the 
billions spent by Niraism/^ 

Employment reached its lowest point in March, 1933. It rose there- 
after because of the inflationary stimulus to production, and reached 
a high point in July; but output and profits rose more than jobs 
and wages. After July, the NRA got into action, and there were 
some small gains in employment. But by November only 3,500,000 
more persons were at work than in March. Nearly all the increase 
under NRA, moreover, was mere "spreading" of work. Employment 
in the iron and steel industry was higher in October than in preceding 
months, but hours worked decreased and average monthly earnings 
were only $91. In 312 New England factories, 90% operating under 
NRA codes, employment rose 20.7% from June to October, but man 
hours rose only 1.3% and average weekly hours worked decreased 
16%. And in New York City, according to the NRA Administrator, 
employment rose 20% from August i to November i, but payrolls 
rose only 13%, indicating an increase in part-time work (and lower 
wages). Then employment again slumped disastrously. From mid- 
October to mid-November 580,000 workers lost their jobs, 330,000 
in manufactures alone. In December the United States Department 
of Labor reported a decrease of 113,000 workers in manufactures; 
and the Department's survey includes less than half of the manu- 
facturing industries. The percentage of decrease was greater than 
the average for the ten-year period 192^-33- The rise in total em- 
ployment dwindled to less than 2,500,000. All the gains made after 
the NRA got into action were wiped out. And average unemploy- 
ment was higher in /pjj than in 1932. According to the American 
Federation of Labor it rose from 11,489,000 to 11,888,000.^* (These 
figures minimize total unemployment; they underestimate the num- 
ber of the jobless in 1930, the starting point of the calculation, the 
increase in newly available workers, and the unemployment in agri- 
cultural and professional occupations.) In January, 1934, over 15,000,000 
persons were still unemployed, including those engaged on temporary 
"made work" provided by the Civil Works Administration as a sub- 
stitute for direct relief. 

The unprecedented mass of cyclical unemployment, its great rela- 
tive increase over previous depressions, and the inability to restore 
prosperity on any considerable scale, all indubitably forecast a tre- 
mendous rise in normal unemployment. Productivity is grov^ing at 
an accelerated rate. The National Bureau of Economic Research esti- 

254 The Decline of American Capitalism 

mates that man-hour productivity rose 12% in 1929-32 compared 
with only 7% in 1927-29/^ In some cases the increase is much greater; 
thus man-hour output in the manufacture of pneumatic tires was 
34% higher in 1931 than in 1929/^ Total average unemployment in 
^933 ^^^ ^% higher than in 1932, yet, according to the Federal Reserve 
Board, production and trade rose 10%}'^ The displacement of labor 
goes on; and as the tendency of production must be downward after 
revival, while productivity moves upward, absolute displacement will 
take place on an increasingly larger scale. One estimate is that if 
production in 1934 reaches the 1923-25 level, with the average work 
week reduced to forty hours and no further rise in the productivity 
of labor, 12,200,000 wage and clerical workers will still be jobless, 
a total which may be reduced by part-time work; if the 35-hour week 
is introduced, the unemployed will still number 9,000,000, which 
would become greater if the productivity of labor rises.^® If produc- 
tion reaches the 1929 level, 4,000,000 workers, according to General 
Hugh Johnson, NRA Administrator, will still be jobless.^^ But that 
is an underestimate. It forgets that the unemployed workers in 1929 
numbered 2,500,000, and makes too small an allowance for the rising 
productivity of labor and the new workers coming into the labor 
market. Production at the 1929 level, not an immediate expectation, 
would involve the unemployment of 7,000,000 to 9,000,000 workers.* 
It is absolutely certain that there will be a tremendous increase in 
"normal" unemployment. The surplus population must grow, an in- 
creasing mass of workers for whom capitalist production cannot pro- 

• The social-economic losses of unemployment are tremendous. A worker in manu- 
factures in 1929 produced $5,330 (unduplicated value) worth of commodities. If, in 
1923-29, 1,000,000 of the unemployed workers had been put to work on some of the 
unused capacity, they would have produced an output of $37,000 million. If 500,000 
more workers, who were available, had been working on construction, they would have 
produced around $7,500 million (excluding value of materials) of new housing. If in 
1930-33 manufactures had employed 4,000,000 unemployed workers, they would have 
produced an output of $60,000 million. Unemployed construction workers involved loss 
of an output of $15,000 million. This rough calculation indicates a wastage, in 1923-33, 
of $120,000 million in goods which might have been produced. That is two and one-half 
times the combined value of manufactures and construction in 1929. And it does not 
include services which might have been performed. Nor other forms of waste. There is 
tremendous waste in the production of useless and shoddy goods and services, and in the 
growth of non-productive occupations; millions of workers might be released for socially 
useful labor. And it is notorious that capitalist industry, in spite of its excess capacity,, 
docs not always utilize the newest and most efficient technology. The social-economic 
losses o£ unemployment become increasingly greater in the epoch of the decline of 
capitalism. Industry can easily wipe out poverty; capitaUsm retains the abomination. 

Disemployment and Surplus Population 255 

vide work. Marx thus described the underlying causes of the surplus 
population : 

"The working population, while efiFecting the accumulation of 
capital, also produces the means whereby it is itself rendered relatively 
superfluous, is turned into a relatively superfluous population; and it 
does so to an ever increasing extent. . . . The supplementary capital 
formed in the course of normal accumulation serves chiefly as means 
for the utilization of new inventions and discoveries, especially of ad- 
vances in industrial technique. But, as time passes, the moment neces- 
sarily comes when the old capital renews its head and limbs, sheds its 
skin, and is reborn with a perfected technique, so that a comparatively 
small quantity of labor will thenceforward suffice to set a comparatively 
large quantity of machinery and raw materials in motion. . . . The 
supplementary capital formed in the course of accumulation attracts 
fewer and fewer workers; the old capital, periodically reproduced with 
a new composition, tends more and more to repel workers whom it 
used to employ. . . . The demand for labor falls progressively as the 
total capital increases. . . . An accelerated accumulation of that capital 
(accelerated in geometric proportion) is needed to absorb an additional 
number of workers, or even, on account of the continuous metamor- 
phosis of the old capital, to keep in employment those already at work. 
. . . Capitalist accumulation constantly produces, and produces in di- 
rect proportion to its energy and its extent, a relatively redundant popu- 
lation of workers — a surplus population . . . promoting capitalist 
accumulation and indeed a necessary condition of the existence of the 
capitalist method of production.* It forms an available industrial 
reserve army which belongs to capital for its own varying needs in the 
way of self-expansion ... an ever-ready supply of human material 
fit for exploitation. As accumulation proceeds, and as the accompany- 
ing development in the productivity of labor takes place, capital's 
power of sudden expansion grows. . . . The mass of social wealth, 
become superabundant owing to the advance of accumulation, and 
transformable into additional capital, urgently seeks investment, either 
in old branches of production for whose products the market has 
suddenly expanded, or else in newly formed branches the need for 
which has grown out of the development of the old ones. In all such 
cases, it is essential that there should be a possibility of providing great 

• Marx quotes David Ricardo: "The same cause which may increase the net revenue 
of the country, may at the same time render the population redundant, and deteriorate 
the condition of the laborer." With increase of capital "the demand for labor will be in 
diminishing ratio." Marx, Capital, v. I, p. 697. 

256 The Decline of American Capitalism 

masses of workers whose activities can be engaged at the decisive points 
without any interruption in the work o£ production in other spheres. 
... A sudden and fitful expansion is a prelude to equally sudden 
and fitful contractions. The latter, in turn, evoke the former; but the 
former, the expansions, are impossible unless there is available human 
material, unless there has been an increase in the number of available 
workers irrespective of the absolute growth in population. This supply 
of available human material is dependent upon the simple fact that 
some of the workers are continually 'being set at liberty' by methods 
which reduce the number of employed workers. . . . The production 
of a relatively superfluous population has become an indispensable 
condition of modern industry. The greater the social wealth, the 
amount of capital at work, the extent and energy o£ its growth, 
and the greater, therefore, the absolute size of the proletariat and the 
productivity of its labor, the larger is the industrial reserve army. The 
available labor power has its extent promoted by the same causes 
which promote the expansive force of capital. Consequently the rela- 
tive magnitude of the industrial reserve army increases as wealth 
increases. But the larger the reserve army as compared with the active 
labor army, the larger is the mass of the consolidated surplus popula- 
tion, whose poverty is in inverse ratio to its torment of labor. Finally, 
the larger the Lazarus stratum of the working class and the larger 
the industrial reserve army, the larger, too, is the army of those who are 
officially paupers." ^° 

Marx added: "This is the absolute law of capitalist accumulation. 
Like all other laws, it is modified by numerous considerations." The 
most important consideration is the rate of expansion in production. 
(Another consideration is the growth of non-productive occupations.) 
If, as in the epoch of the upswing of capitalism, production rises more 
than the productivity of labor, the surplus population grows, but 
slowly. It grows rapidly in the epoch of the decline of capitalism, be- 
cause the rate of expansion in production falls while productivity rises; 
and it grows still more rapidly if there is an absolute downward tend- 
ency in production. 

The Marxist theory of an increasing surplus population was (and is!) 
scorned by bourgeois economists, by the post-Ricardian epigones. 
"Look," they said, "look at the constantly greater number of workers." 
But they ignored the increase in normal unemployment, in the inse- 
curity of work. Now the surplus population is so large that it must be 
recognized and dealt with. In 1932, the British Royal Commission on 
Unemployment Insurance admitted the existence of "an element 

Disemployment and Surplus Population 257 

of unemployment that is not temporary and will not disappear with 
trade revival." It used such phrases as "persistent unemployment," 
"redundant element of workers," "surplus labor," and "excess of 
workers." It accepted the fact of permanent unemployment: 

"Until 1928 the view was taken that all or most unemployment was 
due to trade depression of the ordinary type. Had this been the case, 
its duration would have been limited, its incidence would have been 
limited. ... It is now clear that the greater part of the unemployment 
of the period 1923 to 1929 was not due to trade depression, but was 
of a more persistent character due to causes that were not transient. 
... It is, of course, true that the present depression has involved 
workers who have every prospect of re-employment when industry 
generally improves. . . . But the difference remains that the unem- 
ployment caused by trade depression will pass, while the other unem- 
ployment will persist when trade improves, as it persisted through the 
good years 1924, 1927 and 1928 . . . associated with some more per- 
manent condition of British industry." ^^ 

The Commission on Unemployment Insurance estimated, for seven 
industries with one-quarter of all the insured workers, an excess of 
from 395,000 to 718,000 workers (out of a total of 3,264,000). It foresaw 
the more or less permanent unemployment of 3,000,000 workers. The 
Commission proposed, and the British government has since substan- 
tially accepted the proposal, to "reform" the unemployment insurance 
system, which has broken down because of the increase in "redundant" 
and "excess" workers. The insurance system is to be made self-sup- 
porting: it is to cover only employed workers who are temporarily 
unemployed and only for so long a period as they have paid for with 
contributions to the insurance fund; all other jobless workers, the 
great majority, are to go upon poor relief. Even before the adoption 
of the new system, "reductions in, and disallowances of, benefits" 
had, according to the minority report of the Unemployment Commis- 
sion, "caused a great increase in pauperism and vagrancy." ^^ "The 
larger," in the words of Marx, "is the army of those who are officially 
paupers." This is also true of Germany, Italy, and France, where most 
of the aid for the unemployed is on the basis of poor (very poor!) 
relief. Unemployment insurance in Germany is insignificant in com- 
parison with "emergency relief" and "poor relief." An unemployed 
worker must "prove" his right to relief, which was always small and 
is still smaller under the brutal Hitler regime. In England, where 
relief allowances are a bit larger than in the other three nations, the 
minimum diet prescribed by the government for an unemployed 

258 The Decline of American Capitalism 

worker is less than that for soldiers and convicts; and in many areas, 
the food expenditures of unemployed and part-time workers are far 
below even the government's low minimum ration.^^ 

These conditions of constantly greater unemployment and mass 
pauperization appeared in capitalist Europe before the depression 
which began in 1929. They have since appeared in the United States, 
after gathering force during the flourishing prosperity of 1923-29. 
One of the worst by-products is the growth of an army of homeless 
children. They are larger in number than in the period after the 
Civil War, when, according to a conservative estimate of the New 
York Times, there were in New York City alone 10,000 completely 
homeless children, "exposed to incessant and overwhelming tempta- 
tion, who suffer severely in winter and stormy weather — a fearful 
mass of childish misery and crime." ^* In 1932, 200,000, probably 300,000 
homeless youngsters, many of them girls, wandered over the high- 
ways of the nation, "meagerly fed, scantily clothed, told endlessly to 
'move on'. No use to go home — even if they could get there — for home 
offers even less in sustenance than the open road. No jobs to be had 
regularly. Few beds to sleep in, except the hard ground in tramp 
'jungles' along the railroad tracks." Many are killed "stealing" rides on 
trains. Others, as "criminal" vagabonds, are sentenced to serve in the 
horrible chain-gangs of the South. The conversation of three of them is 

Tom [mournfully] : If I ever get home I'll just park. 

Red [wistfully] : Y'oughta be glad you got a home. 

Mike : I've got a home, but the folks don't want me. So I'm on my 
way. What would you give for a dish of ice cream? 

Red: Ice cream! I ain't seen any in months. ... I used to get a 
job delivering for a butcher, but after my relations lost their jobs I 
lost mine too. Guess they got tired of having me around when I didn't 
make no money, so I thought I'd better leave. . . . Fun? [ruefully] 
I ain't had no fun since I left school.^^ 

Now, when it is too late, American reformism, and this is char- 
acteristic of it, proposes compulsory, self-supporting unemployment 
insurance. In 1932, the Executive Council of the American Federation 
of Labor, "with considerable reluctance, abandoned its long opposition 
to compulsory state insurance," and its action was approved by the 
convention. But the plan proposed was merely, "after a waiting period 
of three weeks, to pay benefits for a maximum period of sixteen weeks 
in a year based upon 50% of the normal weekly wages, but not to 
exceed $15 a week."^^ Niggardly as it is, that plan might have been 

Disemployment and Surplus Population 259 

of value in the epoch of the upswing of capitalism, when unemploy- 
ment in periods of prosperity was relatively small and temporary; 
although the plan would have had little value in depression. But now 
unemployment is increasingly permanent; it is ^//employment, a com- 
plete separation of the worker from the job. This is most apparent 
in the millions of young workers in Europe and the United States 
who do not know work and have no chance to work, who merely 
swell the surplus population. The permanently unemployed workers 
are not covered by unemployment insurance; they are thrust upon 
emergency or poor relief.* This appears clearly in the 1933 report of 
the Secretary of Labor, Frances Perkins: 

"Some form of unemployment reserves should be set up in the 
different states so that in future it may take the place of the breadlines 
or other charities. . . . No one has yet found a cure for unemploy- 
ment. ... In urging unemployment reserves, I realize that adoption 
would not mean the throwing up of economic bulwarks for all wage- 
earners. . . . There should be a definite and fairly long waiting period. 
The number of weeks of benefit should be limited to bear a definite 
relationship to the amount of contributions made or the premiums 
paid." " 

That is a proposal to force the great majority of unemployed workers 
to be satisfied with emergency or poor relief or no relief at all. This 
is emphasized by the fact that in the reports of various state unem- 
ployment commissions "there is," according to a member of the re- 
search staff of the National Industrial Conference Board (an em- 
ployers' organization), "a recognition that unemployment is not an 
insurable risk, and the proposed plans are labeled 'unemployment 
reserves.' . . . No provision is made for state contributions, no benefits 
are paid after the reserve fund is exhausted, each employer is respon- 
sible only for his own workers, and no attempt is made to 'insure' 
against unemployment — that is, to give full security to the worker as 
long as he is unemployed." ^^ Thus capitalism offers merely niggardly 
relief or no relief at all to the surplus population for whom it cannot 
provide work, and for whom there is small prospect that work will 
ever be provided. 

* Because of this, the working class must demand and struggle for real unemployment 
insurance covering all forms of unemployment and all workers. The "white collar" 
workers, whom mechanization and economic decline thrust increasingly into the surplus 
population, must also demand real unemployment insurance, and become allies of the 


The Economics of Technology 

il HE absolute displacement o£ labor by technological progress is not 
a result of technology itself. "Technological unemployment" is a con- 
venient term with, however, a limited application. In one sense, it 
describes the unemployment of workers whom new machines have 
deprived of jobs or skills or both. In another sense, it describes the 
element in increasing unemployment which is brought about by im- 
proved technological efficiency and not by a decrease in production. 
But technological unemployment becomes permanent only if there is 
an insufficient rate of expansion in production or if working hours 
are not reduced in conformity with the higher productivity of labor, 
both of which factors make it impossible for industry to absorb dis- 
placed land newly available workers. Hence permanent unemploy- 
ment, the surplus population, is essentially a social-economic problem, 
not a technological one, and is the result of capitalist incapacity to 
adjust consumption to production. 

Yet technology is, within the limits of the social relations of capi- 
talist production, a causal factor of first importance. It conditions the 
whole process of production, including unemployment. Where the 
rate of expansion is upward, industry might provide work for all 
available workers if technological efficiency did not disproportionately 
raise the productivity of labor. Where the rate of expansion is down- 
ward, as in depression and in the epoch of capitalist decline, tech- 
nological displacement of labor adds to the unemployment already 
created by the lower level of production. Technology is an accelerat- 
ing factor in economic development. It has, moreover, an antagonistic 
and disruptive impact on capitalist production, which has allowed 
technology to become a demon it cannot control. 

But this must be true only because of the black magic of capitalist 
decline. For technology is a part of the progress of mankind, since 
man is a tool-making and tool-using animal. When it was crude and 
empirical, technology was dwarfed by the natural environment. Its 
development strengthened man's control over natural forces and, 
consequently, his capacity to produce. When technology, under capi- 
talism, became the purposive application of science to industry, it 


The Economics of Technology 261 

resulted in an enormous increase of the productive forces o£ society 
and of man's mastery over nature. Now^ these developments are un- 
dermining capitalism. Technology is being limited in its progress 
and uncontrolled in its results. The great productive forces of society 
bring permanent unemployment and w^ant in the midst of plenty. 
And the mastery of natural forces threatens universal ruin because of 
its use for destructive purposes of w^ar. Thus capitalism reacts against 
progress. It makes necessary a new social order in which technology, 
stripped of its capitalist limitations, becomes more fully and creatively 
the purposive application of science and the means of man's mastery 
over his environment and himself.* . . . 

As the mechanical equipment of production, materials, and 
processes, and the accumulation of technical knowledge and skills, 
technology is the basis of industry. It determines the material relations 
of production; and it influences, but is itself also influenced by, the 
prevailing property, class, and social relations. The mode of produc- 
tion as a whole is decisive, and not its technology. Thus technology is 
not an independent but an historical factor; its forms, development, 
and uses are interlocked with the social-economic relations of produc- 
tion. It is the mode of production as a whole which is decisive, and not 
merely its technology. The emphasis on technology as an independent 
factor distorts both the understanding of history and the understanding 
of present-day problems. 

The technology and economics of production inseparably condition 

* "Technology reveals man's dealings with nature, discloses the direct productive 
activities of his life, thus throwing light upon social relations and the resultant mental 
conceptions. . . . Primarily, labor is a process going on between man and nature, a 
process in which man, through his own activity, initiates, regulates and controls the 
material reactions between himself and nature. He confronts nature as one of her own 
forces, setting in motion arms and legs, head and hands, in order to appropriate nature's 
productions in a form suitable to his own wants. By thus acting on the external world 
and changing it, he at the same time changes his own nature. He develops the poten- 
tialities that slumber within him, and subjects these inner forces to his own control. 
. . . The labor process ends in the creation of something which, when the process 
began, already existed in the worker's imagination, already existed in an ideal form. 
What happens is, not merely that the worker brings about a change of form in natural 
objects; at the same time, in the nature that exists apart from himself, he realizes his 
own purpose, the purpose which gives the law to his activities, the purpose to which 
he has to subordinate his own will. . . . He makes use of the mechanical, physical 
and chemical properties of things as means of exerting power over other things, and 
in order to make these other things subservient to his aims. . . . Thus nature becomes 
an instrument of his activities with which he supplements his own bodily organs, 
adding a cubit and more to his stature. Scripture notwithstanding." Karl Marx, Capital, 
V. I, pp. 169-71, 393. 

262 The Decline of American Capitalism 

one another, but their relative importance varies in time and place. 
Technology has acquired an accumulating influence. It was small in 
primitive society, where man was dominated by his natural environ- 
ment; yet even here man could not have become man without the 
making and using of tools. In ancient civilizations, the slowness of 
technological change was a primary cause of the slowness of social 
change, which, with the contempt-for-work spirit of slave cultures, 
hampered the development of technology. There was no direct tech- 
nological influence on the great change in the mode of production 
from slavery to serfdom; it was the result of the economic-political 
breakdown of the Roman Empire, of slave agriculture having become 
unprofitable, and of the introduction of new labor relations in agri- 
culture. But technology tremendously influenced the coming of the 
Renaissance and the commercial revolution. While the early Middle 
Ages were retrogressive or stagnant in their technology and economy, 
an increasing number of significant inventions and technical improve- 
ments were developed from the tenth to the fourteenth century. There 
were new forms of harnessing for work animals and an improved 
plow; wind and water mills, mechanical clocks, a new type of plane, 
improved bellows, and better construction methods; the compass and 
the steering rudder for ships; more efficient processes in metal work- 
ing; many other improvements in tools and many new machines 
(one, for example, to press the heads of pins and a silk-reeling machine 
operated by a water wheel) ; the use of gunpowder and the casting of 
increasingly larger cannon.^ Gunpowder and cannon "democratized" 
war and had an explosive effect on the hierarchical organization of 
society. The technical-economic changes led to division of labor and 
specialization of crafts, stimulated the rise of industry, trade, and the 
commercial bourgeoisie, and influenced social life and mental con- 
ceptions by an increasing production and distribution of old and new 
products. Improvements in tools and the construction of more complex 
machines stimulated the rise of experimental science, of the practical 
spirit of doing which is a characteristic of both science and the bour- 
geoisie. Experimental science itself requires a technology. New vistas 
opened up in all fields of life. All these changes merged into the com- 
mercial revolution of the sixteenth and seventeenth centuries, which 
was, however, essentially a social-economic, not a technological, proc- 
ess. While it was accompanied by many improvements in tools and 
machines, the distinctive features of the commercial revolution were 
the growth of the trading class, increasing production for the market, 
emergence of the class of "free" wage-workers, expropriation of the 

The Economics of Technology 263 

peasants from the soil and the creation of a labor reserve,* develop- 
ment o£ the world market, breakdown o£ the system o£ independent 
handicrafts and guilds, increasing division and specialization of labor 
in the early factory system, and the rise of large-scale capitalist enter- 
prise. These changes in the mode of production prepared the condi- 
tions for the industrial revolution of the eighteenth century, in which 
technology was relatively the most important factor. They developed 
all the essential features of the factory system, whose basis is not 
machinery but the speciaHzation and division of labor for more eco- 
nomical production. All the fundamental social relations of capitalist 
production — free wage labor, separation of the worker from the 
means of production and their conversion into capital, the system of 
production for profit, price and the market as "regulators" of industry 
— conquered the older economic relations during the period of the 
commercial revolution. The technological revolution of the eighteenth 
century did not create the social relations dominating the devel- 
opment and functioning of modern technology. It is these relations 
which create the "technological" problems of to-day. Socialism means 
a change in the social relations of production, not in its technology. . . . 
Another aspect of the overemphasis on technology is the overem- 
phasis on energy or power as the decisive factor in both technology 
and economics. An American "technocrat" and professor of industrial 
engineering says: "For a period of about 6,000 years, before the be- 
ginning of the nineteenth century . . . civilization was dependent on 
the energy of man power for the goods and services provided. . . . 
From the technologist's point of view there was no social change 
whatever during all this vast period of time. There was no change in 
the rate of doing work." ^ But energy can no more be separated from 
technology in general than technology can be separated from the mode 
of production as a whole. During that "changeless" period of time, 
man developed the basic features of technology, in the gradual im- 
provement of his tools, materials, and processes. There were social 

* The expropriation of peasants from the soil, by means of enclosures of the land and 
with fire and sword, was particularly severe in England; but in other countries also it 
was a factor in creating a mass of propertiless and helpless workers for the use of 
capitalist enterprise. Dissolution of the monasteries, innumerable wars, and disruptions 
of the guilds increased the number of beggars, orphans, and adventurers; many of these 
were driven into factories or forced to work, unpaid, on the construction of roads by 
savage decrees of the absolute monarchy. There was no expropriation of peasants from 
the soil in the North American colonies, where land was abundant and free; indentured 
labor was secured from helpless colonial orphans and from the mass of unfortunates in 
England, but its conditions, while bad enough, were better than in Europe. 

264 The Decline of American Capitalism 

changes of the utmost importance. Even in the field of energy there 
was the introduction and increasingly more efficient utilization of wind 
and water power. Technology moved slowly, but it moved, augment- 
ing man's control over nature and his capacity to produce. Without 
the constantly greater accumulation of technical equipment and knowl- 
edge from the thirteenth to the eighteenth century (including steam 
engines used for pumping in mines), there could have been no devel- 
opment of a new source of power. And the industrial revolution was 
ushered in by fundamental changes in machinery, not in power. 

The technology of tools and machines already in existence served 
as the starting point for the development of new machinery which 
culminated in the industrial revolution. An increasing construction of 
larger and more complex machines improved mechanical engineering 
and led to the technological application of scientific discoveries. In the 
early factory system, where formerly independent craftsmen worked 
together in one shop under control of a capitalist, tools were improved 
and simplified, and many new forms of tools were created to meet 
the requirements of increasing specialization and division of labor. 
This simplification and multiplication in turn suggested the mechani- 
cal combination of tools into machines. The early factory used con- 
stantly more machinery, particularly in the making of metal products; 
in one metal factory there was an imposing array of water-driven 
slitting, pressing, shearing, and rolling machines.^ 

The machine of the industrial revolution was basically a contrivance 
which mechanized existing tools and reproduced manual actions.'* 
The tool formerly held and operated by the worker was incorporated 
in the machine, thus combining and mechanically operating a number 
of identical or similar tools. A machine might incorporate only a single 
tool, but it increased the power, speed, accuracy, and capacity to pro- 
duce. The manual actions of crocheting and knitting were mechani- 
cally combined in the stocking knitting machine. Prior to the inven- 
tion of spinning machinery the spinner held a single thread between 
the thumb and forefinger; this was replaced by the movable carriage 
in Hargreaves' spinning jenny. Mechanical substitutes for the human 
fingers appeared again in the rollers of Arkwright's spinning frame, 
which twisted the yarn as it was wound on the spindles. While the 
machines of the industrial revolution were essentially mechanized 
tools reproducing manual actions, this is true only in part and 
frequently not at all of a whole series of machines created by later 
technological developments, which also increased enormously the im- 
portance of apparatus, a means of production totally dissimilar to 

The Economics of Technology 265 

machines and tools. As machines became more complex and heavier, 
they stimulated the search for a new source of power. Water power 
was used more and more, but it involved limitations in the location 
of industry, and the relatively inefficient water wheels were incapable 
of moving very heavy machinery. Newcomen's steam engine was 
Hmited to pumping in mines, until Watt transformed it into a mechan- 
ism which from reciprocating motion produced the rotary motion 
necessary to drive machines. Human and water power were displaced. 
A single prime mover was now able to supply power to several work- 
ing machines; and the factory became a weird maze of belts, ropes, 
and pulleys whirling overhead and alongside the machines. The steam 
engine and the new and heavier machines it made possible required 
large amounts of iron; this stimulated the development of new tech- 
niques in metallurgy, a combination of mechanical and chemical im- 

The final phase of the technological revolution was the great change 
in metal working, in the production of means of production. Existing 
metal-working machines were neither powerful enough nor accurate 
enough to produce the precise parts needed for the new machines, 
especially the steam engine. The creation of an industry manufactur- 
ing the mechanical equipment of production, a basic necessity of the 
new industrial capitalism, required making the construction of ma- 
chinery itself a function of machinery, increasingly independent of 
the skill and muscle of the worker. Machine tools, which shape metal 
into wrought forms by bending, pressing, shearii^g, paring, and bor- 
ing, had to become larger, more powerful, and of greater precision. 
The trend of developments was symbolized in the slide rest, a device 
replacing the highly skilled operator, who formerly held and guided 
the cutting tool, with an ordinary worker who simply turned a screw 
handle; and the worker himself was displaced when the slide rest 
was made automatic. "This mechanical appliance does not replace 
another tool but the human hand itself. . . . Thus it became possible 
to produce the geometrical forms requisite for the individual parts 
of machinery 'with the degree of ease, accuracy and speed that no 
accumulated experience in the hand of the most skilled workman 
could give.' " ^ The liberation of machine tools (and of machinery in 
general) from the limitations of manual labor resulted in the trans- 
formation or disappearance of the tool formerly operated by a skilled 
worker. But the scope of labor was enlarged, quantitatively in the 
performance of heavier work and qualitatively in greater accuracy. 
Machinery did work which manual labor could not do and did better 

266 The Decline of American Capitalism 

the work which it could do. The construction of machinery became 
increasingly dependent upon the "replacement of human force by the 
forces of nature, and of rule-of-thumb methods by the purposive ap- 
plication of natural science." ® 

By the 1830's all the fundamental aspects, including the central one 
of labor displacement, of the new technology were clearly evident, 
particularly in England. All subsequent technological developments 
have had essentially an accelerating and quantitative influence. 

1. The progressive realization of the technical function of machinery 
revolutionizes the relations between labor and production (and social- 
economic relations in general), a development which increasingly 
conditions the nature of machinery. The creation and improvement of 
tools emphasized the primacy of manual labor in production; tech- 
nology was essentially an accumulation of manual skills in operating 
tools. But machinery transfers skill to the machine, and subordi- 
nates the worker to the mechanical equipment of production; tech- 
nology becomes essentially an accumulation of engineering knowledge 
and skills, and of machines, apparatus, and processes which constantly 
reduce the relative importance of manual skill and human labor. 
The early factory, in contrast to the independent handicrafts, needed 
and used large numbers of unskilled workers; they were greatly 
augmented by the machinery of the industrial revolution, most evident 
in the preference given to women and children in the textile mills. 
New skills arose, especially in the construction of machinery; but 
they, and unskilled workers in general, were gradually replaced by 
semi-skilled labor as machines became more efficient and automatic. 
The automatic principle, although at first imperfectly realized, is 
inherent in machinery. And the automatic principle means not merely 
the transfer of skill to the machine but eventually of all work itself. 
The machine is an arrogant monster. It seeks to be sufficient unto 
itself, to displace the human worker, and tends to make the worker a 
technician who repairs, controls, and directs. 

2. The new technology, with its constantly greater demands for 
mechanical equipment and raw materials, profoundly altered the com- 
position of capital. In the early factory system, in spite of the increasing 
use of machines, the main element in production was still human labor; 
the composition of capital was low, with a preponderance of variable 
capital (wages) over constant capital (equipment and materials). Fac- 
tories were small, moreover, and did not absorb any large amounts of 
capital. And while the factory was increasing in importance, the "putting 
out" system existed on a large scale. In this system, the craftsmen pro- 

The Economics of Technology 267 

vided their own tools and worked in their own homes; the commercial 
capitalist, who marketed the product, supplied the raw materials but 
did not invest capital in equipment and factory buildings. As a whole, 
consequently, production needed little fixed capital. This was changed 
by the technological revolution. Machinery and factory buildings made 
larger investment in fixed capital necessary. The investment became 
still larger as machines increased in size and number, with a correspond- 
ing increase in the size of factories. More raw material was consumed 
as the efficiency and the scale of production rose. Thus constant capital 
was continuously augmented. There was an absolute increase in the 
number of workers; but the rising productivity of labor brought about 
a relative displacement of workers, and variable capital (wages) fell 
steadily in relation to fixed capital, raw materials, and output. 

3. The higher composition of capital necessarily meant an increasing 
concentration of industry. This tendency appeared very early in the iron 
and steel industry, which was transformed by the industrial revolution. 
As fixed capital requirements grew rapidly, the formerly small and 
decentralized concerns became larger and more integrated; they mined 
ore and coal, smelted, refined, rolled, and slit the iron in its finished 
forms.^ Profits were high, but competition was savage and failures 
many; the industry started a series of amalgamations, increasing 
both the scale of production and the fixed capital requirements. The 
process of concentration went on inexorably, if unequally, in all branches 
of industry, urged onward by the constantly greater scale of production, 
the mounting capital requirements, and the intensification of competi- 
tion, in which the bigger capitalist usually devoured the smaller. Con- 
centration was encouraged by the increasing technological application 
of science and its production of machines both more efficient and more 
expensive. The mechanization and concentration of industry thrust 
aside both the independent producer and the commercial capitalist. 
Up to the industrial revolution, the commercial capitalist, who was 
interested mainly in the marketing of goods, was dominant. He was 
replaced by the industrial capitalist, who assumed responsibility for 
the whole process of production. Small producers were either expro- 
priated or permitted to survive only in comparatively unimportant 
branches of industry. The middle class was transformed; one part 
rose into the class of large industrial capitalists, who now dominated 
the bourgeoisie, the other part became increasingly an intermediate, 
subordinate class of petty traders, managerial (including technical) 
employees in large-scale corporate enterprise, and professional work- 

268 The Decline of Americaa Capitalism 

4. The new technology raised the productivity of labor tremendously. 
But it lagged behind the existing possibilities, national and interna- 
tional. For the introduction of new machinery did not depend merely 
upon its efficiency, but upon whether it saved enough in wages; in 
other words, upon whether it aided the capitalist in the competitive 
struggle and in the making of larger profits. England, moreover, tried 
to monopolize the fruits of technological progress, to prevent other 
countries sharing in them. The uneven development of capitalism 
meant that at any particular time or place the utilization of new 
machinery might not be profitable. "That is why to-day," Marx wrote, 
"machines are sometimes invented in England which can only be put 
to use in North America; just as, during the sixteenth and seventeenth 
centuries, machines were invented in Germany which were only put 
to use in Holland; and just as many French inventions of the 
eighteenth century were only utilized in England. In the older coun- 
tries, machinery, when employed in some branches of industry, creates 
such a superfluity of labor ('redundancy of labor' is Ricardo's phrase) 
in other branches, that in these the fall of wages below the value of 
labor power hinders the use of machinery, and, from the standpoint 
of capital, whose profit comes, not from a diminution of the labor 
employed, but from a diminution of the labor paid for, renders that 
use superfluous and often impossible. . . . Before the labor of women 
and that of children under ten years of age was prohibited in mines, 
the capitalists found the employment of naked women and girls, often 
harnessed side by side with men, perfectly compatible with their moral 
code, and still more compatible with satisfactory entries in their ledgers, 
so that it was only after the prohibition had come into force that they 
had recourse to machinery. The Yankees have invented a stone-breaking 
machine. The English do not make use of it, because the 'wretch' [a 
recognized term for the agricultural worker] who breaks stone by hand 
is paid for so small a proportion of his labor that machinery would in- 
crease the cost of production for the capitalist." ^ Nevertheless there was 
a constant increase in the productivity of labor because of the introduc- 
tion of new machinery. And out of this arose the problems which now, 
in more acute form, torment capitalist industry. The development of 
the productive forces outstripped consumption. Classes other than the 
workers (including the old feudal aristocracy) gained most from the 
higher output of industry. Cyclical crises and depressions made their 
appearance, arising out of the dynamics of capitalist production itself. 
England tried to overcome the contradictions by cultivating the export 
markets, which did not abolish cyclical breakdowns but did accelerate 

The Economics of Technology 269 

capitalist development. One result, however, was mass starvation (par- 
ticularly in the Hungry Forties) in the midst o£ relative plenty. Another 
result was the overdevelopment of industrialism (and consequent ruin 
of agriculture), which, "balanced" and profitable while England was 
the world's workshop, was increasingly undermined by the progress 
of international industrialization. 

5. Agriculture was the stepchild of the new technical-economic de- 
velopments. The expropriation of peasants from the soil had already 
shown what capitalism had in store for workers on the land. The new 
technology was used in a very niggardly fashion in European agricul- 
ture, yet there was a great increase in productivity. Millions of farm 
workers were displaced, a new expropriation of peasants from the soil. 
They became the human raw material of the factory system or servants 
of the well-to-do. And as immigrants they became manual workers 
and servants in the United States. In spite of the limited use of the 
new technology in agriculture, even among American farmers, there 
was an increasing adoption of capitalist methods and concentration of 
production. But agriculture lagged behind the general economic prog- 
ress. It lagged because the older social-economic relations lingered 
on, and because agriculture was exploited by capitalism. In the indus- 
trial countries of Europe, especially England, agriculture was discour- 
aged in favor of intensive industrialization, which based the national 
economy on the export of manufactures and the import of agricultural 
products. In the United States it took the form of forcing agricultural 
expansion beyond the point where it was profitable, and using the 
farmers' surplus to pay for the imports of capital necessary for rapid 
industrialization. And the exploitation of agriculture forced colonial 
and other economically backward countries to concentrate on the pro- 
duction of one or two crops, in the interest of foreign capitalism, with 
eventually disastrous results to the local economy. Technology, in the 
form of improved agricultural implements and means of transporta- 
tion, facilitated the exploitation of agriculture. The plight of world 
agriculture to-day is the cumulative result of the whole development 
of capitalist production. 

6. All the developments of the industrial revolution, its transforma- 
tion of the technological basis of production, contributed in one way 
or another to the creation of a surplus population.. The beggars, vaga- 
bonds, and adventurers, the outcasts of a feudal order which was break- 
ing down from the fifteenth to the eighteenth centuries, were not a 
true surplus population; this is shown by the measures adopted by the 
absolute monarchy to force them to work, to develop a labor reserve 

270 The Decline of American Capitalism 

for capitalist enterprise. Changes in the composition of capital and the 
resulting rise in the productivity of labor moved slow^ly, although 
some v^orkers were displaced. The demand for labor usually exceeded 
the supply. Where workers were unemployed it was mainly because of 
the bad organization of the labor market. But the surplus population 
arising after the industrial revolution was the direct result of the 
workings of capitalist production itself. For industrial growth, the ex- 
pansion of old and creation of new industries, required a large and 
growing labor reserve. Labor was displaced by the higher composition 
of capital. Productivity of labor, in general, rose faster than production. 
The rise, moreover, was uneven, haphazard; workers displaced in one 
industry were not absorbed by expansion in another. And, as yet, the 
production of capital goods was not sufficiently developed to provide 
employment for many workers. In addition to the displacement of 
workers by more efficient mechanical equipment, there was more dis- 
placement because of the barbarous exploitation of labor. Women and 
children were increasingly employed in preference to men. The work- 
ing time, which was predominantly ten hours daily in the England 
of the seventeenth century, rose steadily as a result of the industrial 
revolution; by 1800 the 14-hour day was customary and the 18-hour 
day not unusual.^ The surplus population was augmented by peasants 
who flocked to the towns looking for work. Wages fell under pressure 
of unemployed men and working women and children. It was an 
epoch of increasing misery for the working class.* 

The earlier industrialism was marked by an absolute displacement 
of labor and increasing misery among the workers. This was checked 
in the epoch of the upswing of capitalism, from the 1850's to the 1890's. 
In the more highly industrial countries working hours fell and 
wages rose. Much of the newer and more complex technology, in con- 
trast to the crude machines of the industrial revolution, was incom- 

* For some years, research students have been trying to disprove that the industrial 
revolution produced a surplus population and increasing misery from, say, 1750 on. 
But this represents the necessity for being "original," where it is not sheer apologetics. 
Conditions were, of course, not so bad in the United States prior to the Civil War, a 
most important peculiarity in shaping American social development in general and the 
labor movement in particular. The factory system expropriated the crafts of the artisans 
and preferred to employ women, children, and orphans. But this development pro- 
ceeded on a small scale, because industrialization was slow; and wages were relatively 
high, a colonial heritage which persisted because, owing to continued existence of the free 
lands of the frontier, wages tended to approximate the level of the farmers' income. 
Under frontier conditions a surplus population, except in depressions, could not arise; 
any surplus was absorbed in the westward migrations. 

The Economics of Technology 271 

patible with excessive fatigue. The miUtary and poHtical interests of 
the state, moreover, required an improvement in the Hving conditions 
of the workers. And the workers, organized by the mechanism of 
capitahst production itself, forced other improvements through their 
accumulation of economic and political power. 

Lower working hours, more employment, and higher wages were 
made possible by greater production, the rising productivity of labor, 
and higher profits; in turn, these developments depended upon and 
constantly augmented the output and absorption of capital goods. The 
most important single factor in the increasing production of capital 
goods, the basis of the capitalist upswing, was the technological revo- 
lution in transportation. It flung, in addition to internal railroad con- 
struction, a net of iron rails and iron ships around the world, and 
absorbed more new capital and equipment than manufactures. (By 
1890, American manufactures had $6,525 million of invested capital, 
the railroads $7,577 million.) ^^ The construction of railroads in eco- 
nomically backward countries, including Europe, was the most im- 
portant aspect of the British export of capital in the 1840's and after. 
But the revolution in transportation was even more significant than 
the direct absorption of capital goods, for it broadened the world 
market and the international basis of capitalism.* This enlarged the 
scale of production, and the amount and efficiency of machinery, by 
permitting the sale in foreign markets of surplus products which other- 
wise would have saturated the home market and held back economic 
and technical advance. In addition, recovery and prosperity after depres- 
sion were frequently stimulated by new foreign markets and indus- 
trialization overseas (or, in the case of the United States, in its own 
continental areas), with its construction of railroads, urban transit, 
public works, and factories, requiring heavy imports of building 
materials and productive equipment from the more industrial na- 
tions. Technology combined with other factors to initiate and sustain 
the upswing of capitalism; for, unlike the tendency of to-day, new 

* The downward curve of demand for new transportation equipment is one of the 
elements of the decUne of capitaUsm. Shipbuilding has been one of the most de- 
pressed industries since the World War. The motor truck and airplane, among the 
most important of recent technological creations, have been economically insufficient 
to offset the decrease in railroad construction. Yet the world's transportation net is incom- 
plete, and there is abundant need for railroads, motor trucks, and airplanes in eco- 
nomically backward countries. But these countries, under imperialist exploitation and 
caught in the whirlpool of capitalist decline, are unable to develop their economic 
possibilities. Their expansion or retrogression is interlocked with that of world 

272 The Decline of American Capitalism 

inventions did not merely improve the efficiency of existing equipment, 
but revolutionized the technological basis o£ a w^hole series of old in- 
dustries (ships, boots and shoes, glass, iron and steel, printing, food, 
the use of metal in building construction), or created entirely new 
industries (railroads, electric powder, telephones, pulp paper, urban elec- 
tric transit). Underlying all these developments, in their influence on 
employment and the surplus population, were two fundamental factors: 

1. The rate of increase in production was greater than in the pro- 
ductivity of labor. While in some cases productivity rose more than 
production, this was offset by the general development, and particu- 
larly the technical-economic creation of new industries. 

2. The rate of growth in industries producing capital goods was 
greater than in the industries producing consumption goods. The ef- 
forts to raise the productivity of labor, the increasingly higher composi- 
tion of capital, the enlargement of the scale of production, the revolution 
in transportation, and the construction needs in new, undeveloped 
areas — all these factors augmented the output and absorption of capital 
goods, whose production required a constantly larger proportion of the 

Because of these two factors, the displacement of labor was relative, 
not absolute. The expansion of production in general, and of the indus- 
tries producing capital goods in particular, absorbed the majority of 
displaced and newly available workers. (Another, and increasingly im- 
portant, factor was the growth of clerical, technical, and managerial 
employees in corporate industry, and of professional and service occu- 
pations.) The tendency toward the creation of a surplus population 
was checked. 

But it was checked only partly and temporarily. Workers displaced 
by technological changes and the rising productivity of labor were not 
absorbed until after an intervening period of unemployment; and many 
of them, the highly skilled and the older workers, were either forced to 
accept lower-paid jobs or thrown into the ranks of the unemployables. 
Normal unemployment, the reserve army of labor, tended to rise, even 
if not as rapidly as in the earlier industrialism. And in periods of de- 
pression the tendency of capitalism to augment the surplus population 
appeared in all its unanswerable and terrible reality : for there was both 
an absolute and a relative increase in cyclical unemployment. The sur- 
plus population expanded much more in depression than it contracted 
in prosperity. 

The partial and temporary check on the increase of the surplus popu- 
lation was, moreover, limited to the highly industrial countries. It 

The Economics of Technology 273 

was, in large measure, the result of the exploitation of economically 
backward peoples. The industrialization, after the 1850's, of agricul- 
tural countries in Europe was distorted, made lopsided and incomplete, 
by the pressure of the more highly capitalist countries, from whom 
they imported goods and capital. Workers were displaced by the higher 
productivity of labor, which rose more than production. Increasing 
efficiency in agriculture displaced more workers than industry could 
absorb.* Economic progress was sufficient to increase the population, 
but not to provide all with work. Only the great migrations overseas 
held the surplus population in check. Conditions were much worse in 
such colonial and semi-colonial countries as India, China, and Mexico. 
The import of foreign manufactures disrupted the native handicraft 
economy, aggravated by the growth of local industrialism. Disrup- 
tion appeared also in agriculture, because of the increase in efficiency 
and the demand of the industrial nations for the production and export 
of one or two particular crops. Workers were displaced on a large scale; 
but industry could not absorb them, because its development was even 
tnore incomplete than in the newer industrial nations of Europe. Nor 
could emigration much reduce the surplus population, for most doors 
were slammed in the faces of colored peoples. Worst of all, however, 
were conditions in the tropical countries, in Africa and most of Latin- 
America, in Malaysia and the Philippines. Natives were deprived of 
land upon which their livelihood depended, an expropriation from the 

• Intensive industrialization* in the Soviet Union is not accompanied by unemploy- 
ment. Henry Hazlitt, "These Economic Experiments," American Mercury, February, 
1934, pp. 141-42, says: "There is nothing particularly remarkable about an absence 
of unemployment under any social system vi^hen an agricultural country is being rapidly 
industrialized." Isn't there? All through the nineteenth century, unemployment v/zs 
widespread in agricultural countries being industrialized. But perhaps Hazlitt stresses 
the "rapidly." Nowhere was industrialization more rapid than in the United States 
from i860 to 1900. Yet cyclical unemployment was greater than in earlier depres- 
sions. Technological and normal unemployment both increased, and was higher than 
in other countries. According to the Douglas estimates, unemployment in manufactures, 
building trades, and transportation rose from 5.6% in 1889 to 7% in 1899. In countries 
being industrialized to-day, unemployment moves in about the same manner as in the 
more highly industrial countries. Trade union unemployment in Australia was 7% 
in 1927, 11.1% in 1929, and 29.4% in 1932; in Canada, for the same years, it was 
4-9%» 5-7%> and 22%. (International Labour Review, June, 1933, p. 809.) The implica- 
tion of HazUtt's statement, moreover, is that unemployment must exist where indus- 
trialization is not "rapid" or is measurably complete. But why, if not for the social rela- 
tions of capitalist production? Industrialization in the Soviet Union, in comparison with 
capitalist countries, is marked by a qualitative difference: a socialist planned economy, 
where production for use and not for profit is the motive. 

274 The Decline of American Capitalism 

soil much more brutal than in the Europe of the commercial revolu- 
tion, with the deliberate purpose of creating a labor reserve of "free" 
workers. There was forced labor to build highways and railroads; 
forced labor in the mines and on plantations. In spite of all the forced 
labor, the surplus population grew. A handful of European nations 
(Britain, France, Germany, Holland, Belgium) secured cheap foods 
and raw materials, new markets for surplus goods and capital. But the 
economically backward peoples paid in sweat and blood, although the 
upper ruling layers shared in the spoils. All these developments, includ- 
ing Congo atrocities, colonial revolts and wars, were a part of imperi- 
aUsm, an essential element in the upswing of capitalism. But the up- 
swing was, for the world as a whole, marked by growth of the surplus 
population and increasing misery among the masses. 

The technology of the upswing of capitalism, in addition to the revo- 
lution in transportation, built upon and developed more fully the tech- 
nology of the earlier industrialism. There was an increasing transfer 
of skill, machines became more precise and automatic, and they made 
larger capital investment necessary. These were universal trends, but 
they were particularly marked in the United States. "The keynote of 
the American development was mass production of standardized ar- 
ticles, each part of which was made by machinery designed for one 
task. Skilled labor was scarce; the frontier consumer wanted goods 
which were cheap, serviceable, or labor saving rather than polished, 
well finished and long of life. . . . The designing of special machines 
which could be attended and fed by unskilled workers therefore became 
the first manifestation of 'Yankee ingenuity.' " ^^ 

New and improved working machines were adopted in one branch 
of manufactures after another. Not only were the earlier textile ma- 
chines improved, but new machines were created for other phases of 
the work, for mechanization of one process makes necessary the mech- 
anization of other processes. The characteristic of the Jacquard loom, 
whose system of cords simultaneously and automatically selected and 
moved the needed warp threads, was incorporated in a large variety of 
machines which performed mechanically all operations involved in the 
production of textiles. A collateral development was the application of 
machinery to the production of garments, initiated by the sewing ma- 
chine. Starting with the invention of the skiving machine in 1845, 
a mechanization of the skiving knife, the making of boots and shoes 
was completely transformed by an intensive division of labor and spe- 
cialization of machinery, based on one hundred operations and scores 
of machines. The manufacture of pulp paper, while essentially a prod- 

The Economics of Technology 275 

uct of chemical research and its industrial application, required also 
many new machines. By the 1870's, paper making was almost entirely 
automatic. In a modern paper plant, the fluid pulp is fed in at one end 
and emerges as rolled paper at the other — all operations are automatic 
within the limits of the machine and apparatus. The making of steel 
was rapidly mechanized by means of machines and apparatus of im- 
mense size, complexity and capacity, forcing labor requirements down 
to a minimum. Use of the regenerative furnace with the continuous 
melting tank was followed by the mechanization of glassmaking and 
the perfection of the astonishingly complex Owens automatic bottle 
machine, which wiped out one of the most highly skilled groups of 
craftsmen.''^ While the linotype machine replaced one skill with an- 
other, the printing press developed to the point where all operations 
are performed automatically by one giant machine. The canning of 
foods involved the use of almost completely automatic cooking and 
cooling apparatus, measuring devices, and can-packing machines. The 
milling, measuring, and packing of flour was mechanized until only 
a relatively trifling labor force was necessary. Workers were inexorably 
displaced, not only by the transfer of skill but of labor itself to the 
mechanical equipment of production, because of increasing realization 
of the automatic principle. In addition, scores of devices for homes and 
offices mechanized not merely manual skills but human intelligence, 
as in the case of calculating machines. Scientific research became con- 
stantly more technological, more and more organized on an industrial 
basis in great laboratories with intricate mechanical equipment and the 
division and specialization of labor. And the technological basis of 
agriculture was revolutionized by machinery, which, starting with im- 
provements in the older implements and tools and the invention of a 
mechanical reaper, was augmented by an increasing variety of machines 
and implements. (In addition, theie were advances in soil fertilization 
and in plant breeding.) 

The construction of more and more diversified machinery could not 
have been accomplished without the greater automatization of machine 
tools and advances in the manufacture of interchangeable parts, the 

* The organized glass manufacturers of Europe prevented, for many years, the intro- 
duction of the Owens machine because it was unprofitable. This is another illustration 
of how social-economic relations condition technology, as the machine was profitable in 
the United States because of the high wages of glassmaking craftsmen and the existence 
of large markets which made economical large-scale production possible. It also illus- 
trates how capitalist interests retard technological progress. In the United States as well 
many machines were not used because they were unprofitable, although socially useful 
and desirable. 

276 The Decline of American Capitalism 

basis of mass production. Profound changes took place in the machin- 
ery industries from the 1850's to the 1890's, particularly in the United 
States, whose machine tools began to invade the European markets. 
While the parts of machines became more complex and varied, they 
also acquired more regularity, and this created nev^ standards of pre- 
cision for machine tools, indispensable in the production of interchange- 
able parts. These standards were made possible by innumerable im- 
provements in machine tools and particularly by the development of 
the turret lathe, the universal milling machine, and the automatic screw 
machine. The turret lathe enhanced precision and control. Constructed 
in a variety o£ types, the universal milling machine displaced consider- 
able manual labor, performed high quality work, and was peculiarly 
adapted to mass production, since the rigidity of the cutting tool and 
its multiple edges permitted accurate and cheap reproduction of shapes 
and forms. The automatic screw machine, several of which could be 
attended by one worker, meant production of cheaper and better 
screws. Hand filing had been formerly necessary, but it was now done 
more accurately and with less labor by improved machine tools. There 
were many other great advances. New tools developed, among them 
the pneumatic drill operated by compressed air and working at tremen- 
dous speeds. Higher speeds and deeper cuts, more than doubling 
the output of a machine, were made possible by the introduction of 
high-speed steel after the i88o's; twenty years later machine-shop 
practice was revolutionized by the growing use of alloy steel for cutting 
tools. The greater the rigidity of the tool, the greater the precision and 
automatic character of operation; hence the development of jigs, fix- 
tures, and other appliances to guide the tool or hold the work in place. 
Not only was machinery construction more purposively the techno- 
logical application of science, it was increasingly liberated from the 
limitations of manual labor. 

The transfer of both skill and labor appeared most clearly in appa- 
ratus, a means of production whose importance grew as the techno- 
logical application of chemistry created new and modified old indus- 
tries. Apparatus is most highly developed in the chemical industry with 
its vats, pipes, and similar contrivances, but it is also of great impor- 
tance in other industries which require one or more chemical processes. 
It was first used on a large scale in the production and distribution of 
gas, in the chemical industry itself, in metallurgy, the manufacture of 
rubber, glass, and soap, the production of alloys, the refining of petro- 
leum, and in electrolysis. With the development of synthetic products 
(dyestuffs, pulp paper, cement, celluloid, nitrates, rayon, regenerated 

The Economics of Technology 277 

and artificial leather and rubber, distillates of coal), whose tech- 
nology involves complex chemical action and precise control, apparatus 
attained still greater significance. It makes usable formerly unused rav^ 
materials and makes possible new uses for many others; reproduces 
rare materials or creates new ones by synthetic transformation of com- 
mon and widespread raw materials. Apparatus, whose output may be 
solid, liquid, or gaseous, produces a series of products, raw and finished, 
beyond the capacity of machines, and takes on constantly greater im- 
portance as production increasingly turns toward the synthetic.^^ 
(There are political aspects to this, in the efforts of nations to become 
independent of foreign raw materials.) Very little labor is needed in 
production by means of apparatus; it is highly automatic, the workers 
are either unskilled or semi-skilled, and act under orders of a handful 
of engineers whose work is also highly mechanized. More and more 
the mechanical equipment of production assumes the form of ap- 
paratus. This means a still higher composition of capital, driving 
toward the absolute displacement of labor and aggravating all the 
contradictions and antagonisms of capitalist production. Yet the 
promise of apparatus is great. For it makes possible more abundance 
— utilizing hitherto unusable and common raw materials, creating 
cheaply many new products. And it liberates mankind from the 
drudgery of production, lowering the amount of necessary labor and 
transforming it into higher forms. . . . 

More automatic machinery emphasized the transfer of skill and labor 
and the specialization of machines. No more than average manual 
dexterity, intelligence, and attention are necessary to "operate" auto- 
matic machines. Although machines were built which performed all 
operations needed to turn out one product, the tendency was toward 
the specialization and seriaUzation of machines. The work to be done 
was considered as a mechanical problem, split up into its separate and 
constituent elements, with a series of machines for the different proc- 
esses. The work "flowed" from operation to operation and from ma- 
chine to machine; neither the worker nor the machine was the decisive 
consideration but the work itself and its increasingly mechanical and 
automatic performance. These technical developments were accom- 
panied by the steady growth of mass production, with intensive 
specialization and serialization involving the use of. considerable auxil- 
iary appliances, particularly the automatic conveyor. 

Technical-economic progress after the 1850's resulted in a constantly 
greater investment of capital; in American manufactures it amounted 
to $533 million in 1849 and $9,813 million in 1899. Capital investment 

278 The Decline of American Capitalism 

per worker rose from $557 to $1,840 and output per worker from $1,065 
to $2,450. The number of workers rose from 957,000 to 5,306,000, an 
increase of 454%, compared with 1,741% in capital and 1,043% in out- 
put/^ Hence, although labor was relatively displaced on a large scale 
by the higher composition of capital, there was no absolute displace- 
ment because production tended to rise more than the productivity of 
labor. In addition, millions of workers were absorbed by the tremen- 
dous growth of transportation, construction, and agriculture, a direct 
result of the inner continental areas (the American equivalent of 
Europe's overseas markets),* whose development, moreover, provided 
a vast internal market for consumption goods. Accumulation of capital, 
the making of profits and their conversion into capital, was extremely 
active. Not only did production rise more than productivity, but the 
output of capital goods was constantly and greatly augmented, absorb- 
ing relatively more workers than the industries producing consumption 

All these conditions checked the tendency toward the creation of an 
overlarge and threatening surplus population, in spite of the increase 
in normal and cyclical unemployment. But the significant thing is 
that a surplus population did appear: for it was practically non-existent 
before the Civil War (except in its cyclical aspects), when technical- 
economic changes were slow, industrialism was only acquiring mo- 
mentum, and the new lands of the frontier offered more possibilities 
of escape than after the 1870's. Unlike England, moreover, the Ameri- 
can industrial revolution and the upswing of capitalism measurably 
coincided in time, the conditions of one modifying those of the other. 
Not only did a surplus population arise, it was greater than in the 
industrial nations of Europe, Cyclical and normal, including techno- 
logical, unemployment was an increasing torment to the workers, an 
important cause of the labor discontent and struggles of the 1870's- 
90's. The large surplus population did not create more unrest and 
militant action because its composition was repeatedly changed by 
immigration; only in depression was there prolonged unemployment 
among the same groups of workers. 

* It must not be assumed that foreign trade was not an important factor in American 
economic development. It was. The United States, in spite of its peculiarities, was insepa- 
rably bound up with the world market. Agriculture exported its surplus to Europe, with- 
out which its expansion would have been Umited. Capital, raw materials, and manufac- 
tures were imported, accelerating industrial development. After the 1870's, the American 
scale of production was enlarged by an increasing cultivation of export markets, particu- 
larly for textiles, meats, boots and shoes, petroleum, and metal products, including 
agricultural and other machinery. 

The Economics of Technology 279 

American technological progress was unparalleled in both its inven- 
tive and practical aspects. Where an invention or discovery was Euro- 
pean in origin (railroads, the dynamo), it was developed most highly 
and applied most generally in the United States. Almost everywhere 
the urge was to let mechanical equipment do the work, to scrap the old 
and accept the new. Not only that: as industry tended to adopt the 
most efficient equipment, so machinery tended to conform strictly to 
mechanical requirements, to become completely functional. The engi- 
neering approach was interlocked with an important element of 
American life, the spirit of being practical, experimental, even revo- 
lutionary in a limited empirical sense. Technological progress was 
hampered by the profit motive, it had a crude, devastating effect on 
culture; but that was the result of capitalist relations, for technology 
is the liberator of man and the basis of a new, human culture. The 
urge for increasing technological efficiency marked the upswing of 
capitalism; its decline is marked by a revolt against technology, by 
proposals for a "moratorium" on invention. 

The unparalleled progress of American technology was conditioned 
by three basic social-economic factors: 

1. The relative insignificance of tradition, resulting in a "pure" 
capitalist ideology (except in the slave-owning South) . There were few 
vested interests, especially of a feudal character, to hamper technology 
and industrialization. The European farmer was conservative, still 
partly in the clutch of an older ideology and mode of living; the 
American farmer was as practical as the capitalist, unusually eager 
for technological change. In Europe the industrial revolution had to 
struggle and move slowly against traditional, class, and political oppo- 
sition; in the United States it swept onward practically unopposed, 
building, in addition, upon the pioneer work of other nations. The 
social atmosphere favored the engineering approach of the new tech- 

2. Under capitalism, technological progress depends upon the mak- 
ing of profits and their conversion into capital. This, in turn, depends 
upon the scale of production and the output of capital goods. Both 
were tremendously augmented by development of the great mass 
markets of the inner continental areas, much more than in the case of 
Europe, with its dependence upon foreign markets. The use of many 
machines, unprofitable in other countries, was made possible by the 
greater American scale of production and the more active accumula- 
tion of capital. (Yet there was excess capacity and capital investment 
rose more than output, making necessary an increasing capital invest- 

28o The Decline of American Capitalism 

ment to produce a unit of product.) American capitalism imposed the 

fewest economic limitations upon the development of technology. 

3. The comparatively high level of American wages encouraged the 
introduction of wage-saving machinery. (This, and not labor-saving, 
is the real objective of machinery under capitalism; for while it saves 
labor, this becomes a saving on wages accompanied by intensification 
of labor. Only socialism can realize fully the inherent labor-saving 
function of machinery.) The high level o£ wages was not a result of 
capitalist development but a colonial heritage, which capitaHst pro- 
duction tried to break down; the differences between American and 
European wages were relatively about the same in the nineteenth 
century as in earlier periods. Colonial governors denounced the "in- 
tolerable" wages and the "exorbitant" demands of the workers. Gov- 
ernor Winthrop, of the Massachusetts Bay Colony, observed in 1633 
that the "excessive" rates asked by workers had given rise to "general 
complaint" and urged legislative action.^* The policy was to beat down 
wages. Maximum-wage laws were passed, to force workers to work 
for lower pay. Indentured labor and Negro slaves were imported. 
But only slavery was partly successful; the other measures failed. 
There was a scarcity of labor in general and of craftsmen in particular; 
land being abundant, cultivation paid better than work at low wages. 
The factory system, early in the nineteenth century, again tried to 
lower the level of wages. Women and children, often mere babes 
from the almshouses, were employed in preference to men. One textile 
manufacturer, commenting on the economy of the new machinery 
and water power, wrote: "We got rid of 60 weavers, and substituted 
for them 30 girls, who were easily managed and did more and better 
work." ^^ But the opportunity of becoming an independent farmer on 
the new lands of the frontier created an income norm around which 
wages tended to fluctuate, and much below which they could not 
permanently fall. Thus historical elements (and they are important 
in wage determination) maintained American wages, low as they 
were, at levels generally higher than the European. The necessity of 
wage-saving stimulated technological progress. 

The onward sweep of technical-economic change destroyed the rule 
of the old middle class, dominated by the commercial and agrarian 
bourgeoisie, the merchants and large landowners. Economic and po- 
litical power was usurped by the industrial capitalist. But the develop- 
ment of large-scale industry, with its increasing capital needs and 
constantly higher composition of capital, meant the decay of the class 
of small industrial producers, who were either wiped out or subordi- 

The Economics of Technology 281 

nated by the concentration and trustification of industry. This in turn 
produced another change within the ruHng class. As industry, with 
its growing capital needs, raked in the savings of smaller investors, 
and was more and more trustified, the multiplication o£ stockholders 
separated ownership, management, and control. Management was 
vested in managerial employees; control was usurped by financial 
capitalists, the masters of monopoly capitalism, an oligarchy operating 
through the institutional mechanism of the great banks. This develop- 
ment, which appeared in the 1870's, was ascendant by 1900 and com- 
pletely triumphant twenty years later. Its basis was the technological 
transformation of industry, out of which arose industrial concentration 
and monopoly and the centralization o£ financial control. 

There were important changes also in the other classes. All per- 
sons engaged in agriculture, although scoring an absolute increase, 
fell from 52.8% of the gainfully occupied in 1870 to 35.9% in 1900. 
The wage-workers, more and more a class o£ unskilled or semi-skilled 
workers, became an increasingly larger proportion of the gainfully 
occupied. "White collar" occupations made the largest relative gains. 
Technicians increased from 8,000 in 1870 to 102,000 in 1900, clerks and 
stenographers from 148,000 to 499,000, salespeople and clerks in stores 
from 105,000 to 811,000, with an increase of 60% in the number o£ 
persons in professional occupations.^® There was a similar growth in 
the managerial and merchandising employees of corporate industry. 
This is a general tendency of capitalist production; in England, from 
1861 to 1891, the number of the gainfully occupied rose 100%, with a rise 
of nearly 200%, however, in clerks, brokers, agents, and salesmen.^^ 
Although the small producer was becoming relatively unimportant 
in the shadow of trustified industry, a "new" middle class was shaping 
itself. It was new, however, only in the sense of inner proportional 
changes; for its elements were old — professionals, technicians, brokers, 
merchandising employees, storekeepers, salesmen, and agents. 
The newest and most important element were the managerial em- 
ployees in corporate industry, made necessary by trustification and the 
separation of ownership and management, once the combined function 
of the industrial capitalist. 

The later stages of the upswing of capitalism, from the 1890's on, 
were marked by the increasing use of electric and oil power in indus- 
try, especially the former. This coincided, in Europe, with the pre-war 
beginnings of decline, which would have been much more severe if 
not for the stimulus of electric power to the output of capital goods. 
In the post-war period the decline of capitalism in Europe was acceler- 

282 The Decline of American Capitalism 

ated in spite of the expansion in electric power; only in the United 
States, in 1923-29, was it a factor in a new upsurge of prosperity. 
Now electrical expansion, comparable only to the railroads in the de- 
mand it created for capital goods, is practically at an end.* 

As in the case of the steam engine, the development of new sources 
of power profoundly influenced the structure and operation of ma- 
chines and the character of the labor force. The limitations of steam 
power were broken by the electric motor and the internal combustion 

Agricultural machinery was especially influenced by the oil engine. 
Steam power had been used to pull plows on large farms, but the 
results were unsatisfactory. The new oil engine was early adapted to 
the use of agricultural machinery; with its improvement and the 
construction of light, general-purpose tractors, the way was opened 
for the growing use of motor power on farms and their intensive 
mechanization. The tractor forced modifications of the older agricul- 
tural machinery and the development of many new implements; the 
tendency is toward the universal machine with interchangeable im- 
plements. The tractor is adapted to the performance of all sorts of 
farm work; it can now be used both for small farms and for hilly, 
stony, and boggy soils. Efficiency was increased, particularly during 
and after the World War, but this tended to multiply the farmers' 
burdens. Larger capital needs meant more mortgages and interest 
payments. Larger output saturated markets and lowered prices, ag- 
gravating the permanent agricultural crisis. As productive efficiency 
(stimulated also by more progress in soil fertilization and plant breed- 
ing) increased more than output, labor was displaced and a surplus 
farm population created. 

In industry, electric power not only accelerated mechanization but 
greatly augmented the automatic character of machinery and its dis- 

* The period after the 1 890's was marked, because of the increasingly higher com- 
position of capital and keener competition, by more downward pressure on the rate of 
profit. Capitalists sought eagerly for methods to raise the productivity of labor and the rate 
of surplus value without the costs of investment in more efficient equipment. The answer 
was Taylorism, or scientific management, whose basic element is improving the efficiency 
of labor in terms of labor itself. This still means a higher composition of capital, for 
fewer but more efficient workers set in motion the same quantity of fixed capital and a 
larger quantity of raw materials. But the higher productivity of labor is not compen- 
sated by an increase in the output of capital goods. Scientific management made enor- 
mous strides in 1922-29. It makes still greater strides under the conditions of capitalist 
decline. But scientific management means an absolute displacement of labor and lower 
total wages. 

The Economics of Technology 283 

placement of labor, emphasized by the increasing use of chemistry and 
apparatus as means of production. Electric drive changed the early 
transmitting mechanism of belts, shafts, and pulleys. Individual drive 
w^ith a motor for each machine made possible the most logical arrange- 
ment of machinery, of prime importance in serialization and mass pro- 
duction. The conveyor system depends upon the electric motor. Motors 
were designed and constructed for the needs of particular machines; 
finally the motor itself v^^as made an integral part of the machine, 
which increasingly became an electrical mechanism. In rayon plants 
there are spinning frames on which every spindle is driven by its own 
motor, far outstripping the older mechanical spindles; electrification 
has made rayon production practically automatic in all its varied 
stages. All machines are virtually automatic in the silk industry, 
with the exception of reeling, in which the operator still performs a 
large part of the work. In rolling mills, the electrification of main-roll 
drive and controls has resulted in automatic continuous operation. 
In blast furnaces and power plants coal is automatically stoked; the 
stokers are replaced by "combustion engineers" who supervise control 
dials. The electric teletypesetter, using a worker no more skilled than 
an ordinary typist, displaces compositors with perforated cards which 
are attached to the linotypes and operated automatically; and the rolls 
may, by radio, be sent from a central point to any number of plants. 
A photoelectric device sets type automatically direct from typewritten 
copy. Non-factory work is marked by similar developments; in open 
pit mining an electric shovel digs enough dirt in twenty-four hours 
to fill 7,500 motor trucks.^^ While in some cases the tendency is toward 
the one-job machine, in others it is toward the multiple automatic 
combining operations formerly performed by separate machines. A 
modern drilling machine performs 132 operations. An automatic 
monster makes complete automobile frames in one plant. In a paint 
factory the raw materials are fed into the machine and move mechan- 
ically from one process to another until the filled and sealed cans arrive 
at the shipping floor.^^ Auxiliary appliances also become constantly 
more automatic, operated with electric, pneumatic, or hydraulic power. 
There are machines which count 25,000 pieces to the ounce and others 
which count tons of heavier pieces. Electric devices, often within the 
machine itself, increasingly control precision and quality. Industry 
is multiplying its automatic thermostats, automatic mixing devices, 
and more highly accurate gauges. In steel, aluminum, and pulp-paper 
mills, temperatures and pressures are under electric control; in an 
electric heater for forgings a photoelectric cell passes the heated billet 

284 The Decline of American Capitalism 

on when it reaches the right temperature, eliminating overheating, 
which weakens the metal, and underheating, which breaks the die; 
an electric machine inspects the surface of quality products and dis- 
cards those with defects.^^ The levers and push-buttons, which control 
the operation of automatic machines and apparatus, find their highest 
expression in remote control and the automatic plant. Control appli- 
ances are concentrated on switchboards in a "cabin" at some central 
point; a few workers, each attending one or more switchboards and 
dials, control the plant's automatic operation. The plant becomes 
almost manless. In some hydroelectric plants there is not a single 
worker; reports are made and control is exercised through automatic 
electric devices. 

The photoelectric cell, or "electric eye," has become a most powerful 
factor in the fuller realization of the automatic principle. "An unusual 
variety of uses has been found for this mechanical eye, which never 
knows fatigue, is marvellously swift and accurate, can see with invisible 
light, and coordinates with all the resources of electricity. It sorts 
beans, fruit, and eggs, measures illumination in studios and theatres, 
appraises color better than the human eye, classifies minerals, counts 
bills and throws out counterfeits, counts people and vehicles, deter- 
mines thickness and transparency of cloth, detects and measures strains 
in glass, sees through fog, is indispensable in facsimile telegraphy, 
television, and sound-on-film pictures, directs traffic automatically, 
and serves as an automatic train control." ^^ Electricity functions as 
power, regulates precision and quality, and makes possible the remote 
control of automatic machinery, apparatus, and plants. It is also used 
more constantly in chemical processes, in the creation of alloys and 
of synthetic materials and products, which has, moreover, only begun. 
Modern industry depends upon electricity and chemistry; and both 
make for an increasingly automatic performance of work by the more 
purposive application of science. 

Automatic machines and apparatus and the automatic plant, fully 
reahzing the principle inherent in mechanical work, are completing 
the revolution in the relations between labor and production. The 
mechanical equipment not only absorbs skill but labor itself; it no 
longer merely displaces workers by performing their function more 
efficiently but absorbs the function itself. There is a change both in 
the relations of labor and in the character of labor. 

In the handicraft system, all labor was skilled, whether it was the 
artisan working on machines and appliances or the craftsman working 

The Economics of Technology 285 

directly on raw material, or a combination of both types of labor. 
All-around sJ^illed labor was the basis of production. 

In the early factory and in the earlier stages of the industrial revo- 
lution, unskilled workers appeared and became increasingly numerous. 
It was the dominant type of labor, although more and more machinists 
or mechanics were necessary to superintend the machinery. The divi- 
sion and specialization of labor was the basis of production. 

In the later stages of industrialism, with its large-scale industry and 
more efficient and skill-absorbing equipment, the tendency was to 
make the mass of workers semi-skilled. The need was neither for 
highly skilled nor wholly unskilled labor, but for workers whose partial 
skills were easily acquired. Relatively fewer mechanics were needed to 
superintend the more efficient machines and apparatus. (At the same 
time a new class of mechanics arose, such as locomotive engineers, 
linotype operators, and electricians.) The division and specialization 
of both labor and increasingly automatic mechanical equipment are the 
basis of production.^ 

This third stage is still the predominant one. But a fourth stage 
has already definitely appeared, although limited to the more highly 
developed industries and plants. Complete automatic production trans- 
forms the labor force into a small group of skilled supervisors and 
repairmen. "The development of more automatic machinery requires 
the *key' man, a new and higher type of mechanic, the junior tech- 
nician. Labor formerly unskilled becomes highly technical; thus the 
occupation of stoker — traditionally the lowest — gave way to that of 
the junior technician who operates the boilers by tending a gauge. . . . 
All types of automatic machinery demand the services either of the 
mechanic or of the junior technician." ^^ The modern mechanic and 
the junior technician need almost as much technical knowledge as 
engineers; they can, at a pinch and temporarily, replace the engineers. 
The division and specialization of automatic mechanical equipment 
becomes the basis of production. 

Not only labor but management also is profoundly affected by 
mechanization and automatic production. One-man management is 
in the discard. Managerial functions are simplified, specialized, and 
mechanized, and need increasingly smaller skill to perform. Managerial 
skill and labor are transferred to mechanical devices. In automatic 

* All these developments involve a tremendous socialization of production, in the 
form of large-scale industry. It also involves a socialization of invention, for all large 
industrial corporations have highly organized and eflScient laboratories employing hired 
"inventors" who systematically develop new technological applications of science. 

286 The Decline of American Capitalism 

plants only a thin line divides managerial and ordinary work : manage- 
ment itself tends to become an automatic mechanical function. 

Of the utmost cultural importance is the tendency of highly devel- 
oped technology to brea\^ down the division of labor between wor\er 
and wor\er and management and the worl^ers. The worker's new 
requirements of "mental alertness, general intelligence, 'polytechnic 
literacy' and loyal dependability" make him, according to one observ- 
ant management engineer, "more and more an intelligent human 
being, an all-around educated man, defining 'educated men' as 'those 
who can do everything that others do.' This transition in the functional 
characteristics of workers is slowly but surely obliterating not only the 
'division of labor' . . . but it is also steadily abolishing the distinction 
between the 'man in overalls' and the 'white collar man.' " -^ Thus 
technology itself confirms one of the most derided "utopian" ideas of 
Marx, who, fifty years ago, wrote of the "higher phase of communist 
society, after the enslaving subordination of individuals to the division 
of labor and with it also the antagonism between manual and intel- 
lectual labor have disappeared, after labor has become not merely a 
means to live but is itself the first necessity of living." ^* ObUteration 
of the division of labor, which means that division and specialization 
of "labor" increasingly becomes a function of the mechanical equip- 
ment, is now merely a tendency. Its fulfillment presupposes a constantly 
greater development of the forces of technology; but this multiplies 
the contradictions and antagonisms of capitalist production, and there 
is, consequently, a growing revolt against and limitation of techno- 
logical progress. It presupposes, moreover, definite social-economic con- 
ditions. The cleavage between town and country must be ended by the 
socialization of agriculture and its combination with industrial produc- 
tion, the liberation of industry, made possible by electric power, from 
the fetters of geographical concentration. (Capitalism uses only slightly 
the opportunity to decentralize industry: too many vested interests are 
menaced. The Henry Ford idea of "combining" industry and agricul- 
ture means simply that workers, after their labor in the factory, are 
to "farm" vegetable gardens to supplement insufficient wages; the real 
farmers, of course, would suffer from the lower demand.) There must 
be, and this is wholly possible, a mass participation in higher learning. 
Out of these conditions will arise the new ideology of stressing the 
dignity of wor\, and not its forms. . . . 

While the technology conditioned by electricity means partly "^a 
different \ind of machine," it does not mean "a different 1{ind of social 
relations," ^^ does not change the fundamental social-economic relations 

The Economics of Technology 287 

of capitalist production.* Electricity, technologically, has induced many 

* A group of engineering mystics, the Technocrats, worship at the shrine of Power. 
They forget that power does not function in emptiness, that it needs machines, apparatus, 
and labor, and that all the factors are conditioned by social-economic relations. From i860 
to 1 890, the productivity of labor increased more than the consumption of power, because 
machinery increasingly supplanted manual labor. From 1890 to 1914, the consumption of 
power increased more than productivity, because there were no fundamental changes in 
machinery. From 191 9 to 1929, productivity increased more than power consumption, 
because, primarily, of an essentially new type of machine. In terms of electric power, the 
electrification of American manufactures rose from 5% in 1899 to 56% in 1919, 
with a very small increase in the productivity of labor; it rose to 82% in 1929, a 
smaller rate of growth accompanied by a great increase in productivity. {Census of 
Manufactures, 1929, v. I, p. 112.) The greater increase in the productivity of labor in 
1919-29 was primarily the result, not of electric power in itself, but of the development 
of the electrical machine and of electrochemistry. In 1 899-1 91 9, electricity, by and large, 
was merely used to replace steam power in driving old types of machinery. Moreover, 
productivity in 1919-29 was increased by changes in the organization of labor, by the 
more scientific utihzation of raw materials and their wastes, and by the increasing use 
of synthetic materials (in the creation of which chemistry is as important as electricity). 
While horsepower per wage- worker rose 54% in 1899-19 19, it rose only 49% in 
1919-29. Manufactures in 1929 used less than 6% of installed horsepower; 80% was 
used in buses and automobiles, 90% of it under the hoods of pleasure cars. (C. J. 
Hirshfeld, "Power," Toward Civilization, p. 74-75.) The use of power in automobiles 
and the home undoubtedly has a profound influence on social life, but not directly on 
production (except in demand for goods), and production is basic. Price spoils the 
promise of power, say the Technocrats, in the manner of the most doctrinaire price 
economists. But price is only one element in the capitalist mechanism, and not the most 
basic; price in the Soviet Union exists without the disturbances characteristic of the 
capitalist economy. And do they think they can tinker with price relations without 
abolition of private property and profit? The Technocrats' power-mysticism makes them 
speak of "ergs" and "energy money" as a medium of exchange. This is sheer techno- 
logical idolatry. It forgets that at every point in the productive process you meet human 
labor, either living labor in the form of workers or dead labor in the form of the means 
of production. This is recognized by two engineers, L. P. Alford and J. E. Hannum, 
who urge that production be measured by a time-rate based on 1,000 productive man- 
hours, the "kilo man-hour" or kmh: "One hour of human work is the objective equiva- 
lent of any other hour of human work, when each hour is averaged from the total 
number of productive hours worked by the group to which the worker belongs. This is 
the principle of economic or exchange equality, which must be enforced to stabilize 
the interchange of goods, articles and services between the members of one producing 
group and those of any other working group." (New York Times, February 4, 1934.) 
The kmh is urged, fantastically, as the basis for capitalist planning; but what is it, in 
final analysis, but the labor theory of value, which Marx analysed most thoroughly? 
The amount of socially necessary labor incorporated in a commodity determines its 
value; this is distorted by capitalist production, and commodities nearly always sell 
above or below their value (a basic factor in capitalist disturbances), but only changes 
in the amount of labor incorporated in commodities can explain long-time changes in 

288 The Decline of American Capitalism 

qualitative changes in the machinery, apparatus, and chemical processes 
of production; and without it remote control would be impossible. But 
economically, the changes are merely quantitative; electricity realizes 
more fully the inherent automatic principle of machinery, and, by 
tremendously increasing the productivity of labor, aggravates the 
antagonism between production and consumption and multiplies the 
strains and stresses of capitalist industry. Thus the newer electric tech- 
nology is an accelerating agent, as were all former great technological 
changes. But this acceleration is the more significant because of an 
economic change : in the epoch of the upswing of capitalism the curve 
of production was upward, now it is downward. The threefold results 
are an expression of the general crisis and decline of capitalism: 

The rate of increase in production is smaller (where it is not minus) 
than in the productivity of labor. 

The displacement of labor becomes absolute; where formerly the 
industries producing capital goods absorbed relatively more workers 
than the consumption goods industries, now they displace more 


The Increase in 


, Capital Claim <:, and 









Production Capital 





























1 1 4.0 





no. I 


114. 1 


1 1 1.2 
















* Not available. 

Production is value output of manufactures. New capital is net issues of securities, 
less issues of investment trusts and trading and holding companies; debts includes 
funded and unfunded obligations; total capital includes net new issues and corporate 
savings, or surplus. Industrial wages is the wages of workers in manufactures, mines, 
quarries and oil wells, construction and transportation (including electric power, tele- 
phones and telegraphs), water transportation, and municipal traction; these wages 
amounted to $18,105 million in 1923 and $18,050 million in 1928. 

Source: Production — Census of Manufactures, 1929, v. I, p. 16; new capital — F. C. 
Mills, Economic Tendencies in the United States, pp. 427, 438; total capital — Bureau of 
Internal Revenue, Statistics of Income for the respective years; total debts — Robert R. 
Doane, The Measurement of American Wealth, p. 173; wages— W. I. King, The 
National Income and Its Purchasing Power, pp. 132-33. 






4 \ 



1 1 
1 1 


1 1 

1 1 

1 1 










EBTS h / 


/ Ik 

1 Ik 

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1^^ — ■ 







/ i 

t M 

7 ^ / 

a ^ 1 
B X 1 
f ^ / 
F A / 
5c / 

^ 1 ^ 

^ 1 
X j 










* \ 

1 • 

7 • 
f • 










iJ ♦WM NiS Ilii Ni7 m» 11 




290 The Decline of American Capitalism 

The tendency for capital claims to increase faster than production 
becomes more marked. 

Capital claims, profits, and interest in 1923-29 grew at a faster rate 
than production (Table V), much faster than in former years. This is 
particularly evident in new capital investment, which rose 36.1% com- 
pared with 20.6% in production. While the growth of capital claims 
always outstrips production, this becomes more marked as capitalism 
approaches maturity and decline. Much of the higher productivity of 
labor represented no new capital investment; but the composition of 
capital, nevertheless, was increasingly higher, and, because of excess 
capacity and the tendency of the rate of profit to fall, a constantly 
greater capital investment was necessary to produce a unit of product. 
Capital claims, moreover, do not arise only out of investment in pro- 
duction, but out of "investment" in mere claims upon production. 
This tendency was sharpened in 1923—29, because the increasingly spec- 
ulative character of industry multiplied capital claims regardless of 
production. The marvels of technology enlarge the wholly predatory 
superstructure of production, a decisive aspect of monopoly capitalism. 

Corporate debts increased nearly as much as other forms of capital 
claims. To make this the causal factor in "unbalancing" the economic 
system is a total misunderstanding of the facts, where it is not mere 
apologetics. Debt is itself a capital claim. It can be separated only in a 
functional sense, not on principle. The debt of industrial corporations 
is an expression of the constantly greater capital investment needed to 
produce a unit of product, of the excess capacity and intensified compe- 
tition which force down the rate of profit and result in deficits and bor- 
rowing. The debt of non-industrial corporations, and most of their 
non-debt capital, represents mere claims upon production. Pressure of 
surplus capital, the outcome of capital, profits, and interest increasing 
more than production, multiplies mere "claim" capital, particularly in 
the form of debt. The debts of the farmers represent an intensification 
of capitalist exploitation and the permanent agricultural crisis (smaller 
markets, larger output, and still larger productivity) . Thus the increase 
in debt arises out of the aggravation of basic maladjustments and dis- 
turbances in the capitalist economy. It is also evidence of growing 
parasitism, the "purest" form of which are the world's enormous gov- 
ernment debts. As an element of rigidity in the economic structure, 
debt is simply one of the many rigid elements in monopoly capitalism — 
control over output, markets, and prices, and, in depression, interference 
with the forces of liquidation. All of these elements intensify depres- 
sion and hamper recovery. Scale down debts or abolish them, and they 

The Economics of Technology 291 

rise anew; for debt must increase under the conditions of capitalist 

As capital claims grow faster than production, more pressure is put 
on capitalist enterprise to "earn" larger profits. Excess capacity and 
competition are aggravated, including the struggle for foreign markets. 
Higher profits and interest payments proportionally lower mass pur- 
chasing power, and sharpen the antagonism between production and 
consumption. Wages are slashed or merely maintained: during three 
of the five years 1924-29, total industrial wages were below 1923, while 
capital claims, profits, and interest rose. More efficient equipment is 
introduced and labor displaced. (In the epoch of the upswing of capi- 
talism the introduction of more efficient equipment, and the resulting 
higher composition of capital, lowered relative wages, but total and 
average wages rose because of the increase in production and markets. 
Under the conditions of capitalist decline, however, the tendency is 
for new equipment to result in lower total and average wages, as the 
great costs of the newer machines and apparatus become relatively 
still greater because production and markets are restricted and the costs 
of excess capacity rise.) 

Higher capital claims and labor displacement are interlocked. Dis- 
placement is most significant in the industries producing capital goods, 
upon which capitalist production depends (Table VI). Up to 1919 these 
industries absorbed an increasingly large number of workers, relatively 
more than the industries producing consumption goods. That meant 


Displacement of Labor in Capital Goods Industries, igi^-2g 

Number of Workers Employed: 










Iron and Steel 





Other Metal 





Transport Equipment 





Stone, Clay, Glass 





Lumber Products 















Mines and Quarries 





* Not available. 

Source and methods of computation: same as in Table V, Chapter XIII, except that, 
because of exclusion of oil wells, one-third of workers in mines and quarries are 
credited to capital goods work. 

292 The Decline of American Capitalism 

an upswing o£ capitalism, an increasing output and absorption o£ capi- 
tal goods. It meant also an oflfset to the displacement of workers by the 
rising productivity of labor. But the rate of absorption of workers in 
capital goods industries slowed down considerably from 1914 to 1919, 
with the rate thereafter changing to one of displacement. The number 
of capital goods workers rose from 3,777,000 in 1914 to 4,348,000 in 
1929, an increase of only 15%; but the increase in fact was much smaller 
because the one was a year of depression and the other one of pros- 
perity.* While the statistics indicate that the rate of absorption was at 
a standstill in 1919-29, it actually became one of displacement; for the 
decrease in the number of capital goods workers from 4,359,000 to 
4,348,000 was small only because the number of construction workers 
in 1919 was unusually small owing to the war-time drop in building. 
In 1929 the number of construction workers was below the 1914 level. 
(In 1914 construction workers represented 39% of all capital goods 
workers, in 1929 only 32/0. This decrease is of extraordinary signifi- 
cance; because of the undeveloped inner continental areas, construction 
has played a more important part in the American accumulation of 
capital than elsewhere.) If construction is omitted, the number of 
capital goods workers fell from 3,281,000 in 1919 to 2,948,000 in 1929. 
The lo>s was wholly in transport equipment and mining, but with 
employment stationary, although labor was relatively displaced, in the 
other industries. These other industries in the past absorbed increas- 
ingly more workers and the production of transport equipment was 
for a time the most important element in the accumulation of capital; 
its displacement of labor is an expression of the exhaustion of the long- 
time factors of expansion in transportation, offset only in small part by 
the motor truck. 

In the epoch of the upswing of capitalism the number of industrial 
workers grew constantly. In particular, the capital goods industries 
absorbed more workers than the industries producing consumption 
goods; but now they displace more workers. In manufactures, in 
1919-29, the decrease in capital goods workers was 300,000 or 10%, in 

* The slowing down of capital goods production is a world development. The num- 
ber of workers engaged directly in the manufacture of industrial machinery in England, 
Germany and France, according to Friedrich Kruspi, "Machinery, Industrial," Encyclo- 
pedia of the Social Sciences, v. X (1933), p. 6, rose from 875,000 in 1913 to 1,037,000 
in 1925; in the world as a whole from 1,891,000 to 2,055,000, or only 9%. The increase 
was almost wholly English, and was due more to the relatively small rise in the produc- 
tivity of labor than to any considerable rise in output. In all industrial countries, more- 
over, the number of workers in capital goods industries tended to decrease from 
1920 to 1929. 

The Economics of Technology 293 

consumption goods workers 138,000 or 2%. This complete reversal of 
previous trends took place when the American economy was still on 
the upswing, although the rate of expansion was downward; it now 
becomes the creator of an increasing surplus population of unemployed 
and unemployable workers. For it not only means that the productivity 
of labor is rising more than production, but that technological displace- 
ment of wor\ers is aggravated by the downward movement of pro- 
duction, particularly in capital goods. 

Some urge "control" of the machine. But since the machine acts as 
it does only because of the social-economic relations of capitalist pro- 
duction, control is possible only when socialism abolishes private 
property and profit. The Cigar Makers International Union, supported 
by William Green, urges legislation to tax employers to contribute 
"toward the relief of the displaced employees until such time as they 
may be absorbed elsewhere." ^^ This proposal might have been of some 
value in the epoch of the upswing of capitalism, when absorption was 
greater than displacement. But now, with permanent displacement 
on a mass scale? It means poor relief. 

Others urge a revolt against the machine. Either "down with ma- 
chines" or a "moratorium" on the introduction of new machines. 
(Many NRA codes forbid the introduction of new machinery unless 
first approved by the code authorities.) That is revolt against the 
increasing purposive application of science, against all the possibili- 
ties of plenty, leisure, and culture inherent in technology if freed 
of its capitalist fetters. These possibilities might be measurably real- 
ized by mere use of existing equipment. The efficiency of this equip- 
ment, moreover, is very uneven; in blast furnaces the range of 
production is from 145 tons per 1000 man-hours to 1,313 tons, and in 
petroleum refineries from 633 barrels to 141,829 barrels.^^ Thus pro- 
ductive efficiency, and the mass of goods and services, might be greatly 
augmented by raising all industry to the level of the most efficient 
existing equipment. But still greater are the possibilities of techno- 
logical progress, and of plenty and leisure for all. "Our chemical 
techniques and manufacturing processes," in the opinion of Prof. 
Richard Willstaetter, Nobel Prize winner in chemistry, "are usually 
drastic and crude, resembling forces of the inorganic rather than of 
the organic world. It is our task to appropriate more and more the 
delicate methods of the living cell, where reactions proceed at normal 
temperatures and pressures, with mild reagents, and with the most 
subtle catalysts." ^^ And when American scientists produced in fur- 
naces metals which occur rarely in nature and which are indistinguish- 

294 The Decline of American Capitalism 

able from the natural product, the scientific comment was: "It is 
impossible to say when the theory of to-day will become the practice 
of to-morrow." ^® Yet both research and its application are being 
restricted by capitalist decline. Only the Soviet Union offers an un- 
limited opportunity for science and its technological application, freed 
of capitalist fetters. 

But the technological basis of capitalism is a force which perpetually 
changes the material relations of production.* Decline will limit the 
progress of technology, but will not stop it. (The greatest technological 
advance will be made in armaments, increasing their powers of destruc- 
tion.) In the midst of the greatest depression in history there was 
technological improvement, an increase in the productivity of labor. 
This limited progress will not realize the full possibilities of science. 
But it will aggravate economic maladjustments and disturbances; for 
technological improvements will proceed even more haphazardly and 
unevenly than in the past. And a smaller rate of technological change 
than formerly will be more disturbing because of the downward move- 
ment of production and the absolute displacement of labor. 

The resulting surplus population is composed mainly of workers. But 
it includes other elements of the population, who also feel the pressure 
of capitalist decline. 

From 191 9 to 1929, large numbers of farmers and farm workers 
were displaced, at least 500,000. The main factor was increasing pro- 
ductive efficiency, as the markets for agricultural products were virtu- 
ally constant. The government's "farm relief" program accelerated 
displacement and augments the agricultural surplus population. Thus 
R. G. Tugwell, Assistant Secretary of Agriculture, says: "We must 
study and classify American soil, taking out of production not just 
one part of a field or farm, but whole farms, whole ridges, perhaps 
whole regions. ... It has been estimated that when lands now unfit 
to till are removed from cultivation, something around 2,000,000 per- 
sons who now farm will have to be absorbed by other occupations." ^° 
But these "other occupations" are also displacing workers who must 
find other work. Moreover, if all farms used the most efficient meth- 

* "The bourgeoisie cannot exist without constantly revolutionizing the instruments 
of production, and thereby the relations of production, and with them the whole rela- 
tions of society. Conservation of the old modes of production in unaltered form was, on 
the contrary, the first condition of existence for all earlier industrial classes. Constant 
revolutionizing of production, uninterrupted disturbance of all social conditions, ever- 
lasting uncertainty and agitation distinguish the bourgeois epoch from all earlier ones." 
Karl Marx and Friedrich Engels, The Communist Manijesto. 

The Economics of Technology 295 

ods, the displacement would be even larger than the 2,000,000 envis- 
aged by Tugv^^ell. The movement for "subsistence farms" means simply 
a desperate evasion of the problem and a lowering of living standards. 
If large-scale farming grows, it will intensify, because of constant 
markets, the economic pressure on the smaller farmers, displacing 
them or lowering their income. The American farmers are steadily 
becoming peasants, v^th many of them thrown into the surplus popu- 

Clerical workers are also swelling the surplus population. The num- 
ber of "salaried employees" in manufactures fell from 1,447,000 in 1919 
to 1,358,000 in 1929,^^ a loss of 6.1% (compared with 1.8% among wage- 
workers). But the loss was actually greater, as the figures include 
managerial employees and officers, whose numbers increased. The 
modern office, with its array of machines and appliances, resembles a 
factory. There is increasing mechanization, transfer of skill, and divi- 
sion of labor. Clerks, statisticians, and bookkeepers are replaced by 
machines tended largely by semi-skilled workers. Many of the machines 
are automatic. Mechanization lagged in office work; its speeding-up 
resulted in a displacement of clerical workers greater than among 

From 1 91 9 to 1929, the number of technical workers increased much 
faster than the demand. Already before the depression it was hard for 
graduates of technical schools to find jobs; it is becoming harder. 
Technicians are scourged by permanent unemployment. The situation 
in Germany is characteristic, if most acute; in 1930, according to one 
professor of engineering, only 20% of technical graduates got jobs, 
another 10% continued studying, 20% took any kind of job, and 50% 
were wholly unemployed. And the only suggestion the professor has 
is this: "Is it not time to put a stop to this mass striving for higher 
learning?" ^^ (That is exactly what fascism is doing, with a similar 
trend in non-fascist countries: one of the most suggestive aspects of 
the decHne of capitalism.) 

Most clerical and technical workers have been pushed down to the 
occupational level of wage-workers. In the earlier stages of capitalism 
the clerical worker was measurably a "higher" employee, in the 
confidence of the employer, considering himself in the same class. The 
technician, who originated in the master mechanics of the early fac- 
tory system, was made a member of the "free" professions by the tech- 
nological transformation of industry; now he is practically a wage- 
worker, in many cases earning less than the organized skilled workers. 
Yet these "white collar" workers still cling in large measure to the 

296 The Decline of American Capitalism 

elder ideology, still consider themselves apart from the working class. 
This is true also of the non-industrial "free" professions, although 
many of their members are employees either of corporations or public 
institutions. All of these groups are heavily represented in the surplus 
population. In January, 1934, of 25,127 "white collar" workers on Civil 
Works Service relief payrolls, 6,240 were professionals: 1,841 teachers, 
763 doctors, dentists and nurses, 632 engineers, chemists, architects and 
draftsmen, and hundreds of musicians, artists, sculptors, actors, li- 
brarians, cartographers, botanists, geologists, research workers, statis- 
ticians and translators.^^ The "new" middle class is being rapidly 
proletarianized, thrown into the surplus population. 

The surplus population not only grows quantitatively, it also changes 
qualitatively. In the epoch of the upswing of capitaHsm the surplus 
population grew slowly; it was essentially a labor reserve, facilitating 
the expansion of capitalist production. In the epoch of decline, how- 
ever, the rapidly growing surplus population ceases being a mere labor 
reserve; it restricts the production of surplus value and profits and 
threatens capitalist domination. 

Increasing unemployment means a decrease in the number of work- 
ers producing surplus value, whose realized form is profit. "Profit 
comes, not from a diminishing of the labor employed, but from a 
diminishing of the labor paid for." ^* This is bound up with a basic 
contradiction of the capitalist mode of production: "The workers as 
buyers of commodities are important for the market. But as sellers of 
their own commodity — labor power — capitalist society tends to depress 
them to the lowest price." ^^ Consumption is necessary to production; 
but capitalism limits the wages and consumption of the workers, thus 
creating cyclical crises and breakdowns. Another form of the contra- 
diction: capitalist production depends upon the workers, upon the 
living labor which yields surplus value and profit; but capitalism 
tends to displace workers. In the epoch of the upswing of capitalism 
the displacement was relative; the increase in the number of workers 
meant an increase in the mass of surplus value and profit, which 
checked the tendency of the rate of profit to fall. Now absolute dis- 
placement of workers on a constantly greater scale means a decrease 
in the mass of surplus value and profit. Unemployed workers do not 
produce surplus value. Neither do they consume, or they consume very 
little. The mass of surplus value shrinks, in spite of a rise in the rate, 
as the mass of workers shrinks. And markets shrink as the workers 
consume less. Excess capacity rises and the rate of profit falls. For 
machines neither produce surplus value nor do they consume. The 

The Economics of Technology 297 

one is necessary to yield profit, the other to sustain production. These 
are the conditions which exist in depression, and they become chronic 
in the epoch of decline. Thus the surplus population threatens the 
economic foundations of capitalism. 

It also threatens capitalism poHtically. Mass disemployment is poten- 
tial with revolution. Unemployed workers must be fed (as niggardly, 
of course, as possible) to prevent revolt. This means a drain upon the 
wages of employed workers; it also means a drain upon profits in the 
form of higher taxes, as long as there is the fear or possibility of action 
by the workers. By every means in its power, however, the capitalist 
class attempts to throw all the burdens of disemployment and decline 
upon the workers; where "democratic" means fail, it resorts to fascism. 
Social disturbances become social upheavals. Capitalist monopoly 
tightens its grip upon industry, the capitalist oligarchy its grip upon 
society and government. The resort to war becomes more possible and 
more frightful. Technology, although limited in its progress and be- 
cause of it, creates new economic maladjustments and disturbances; 
and it becomes clearer that the capitalist mode of production is wholly 
relative and historical, that it imposes new fetters upon the technical- 
economic forces of society. These forces revolt against the fetters 
imposed upon them, they thrust forth the need for new social rela- 
tions of production. As mass standards of living fall and mass misery 
grows, the struggles of the workers take on new and higher forms, 
attracting other exploited elements. For while, in the words of Marx, 
there is "an increase in the mass of misery, oppression, enslavement, 
degradation and exploitation," with this "grows the wrath of the 
working class, a class always growing in numbers, and disciplined, 
united, organized by the very mechanism of capitaHst production itself. 
The monopoly of capital becomes a fetter upon the mode of production 
which has flourished with it and under it. The centralization of the 
means of production and the socialization of labor reach a point where 
they are incompatible with their capitalist husk. This is burst asunder. 
The knell of capitaUst private property sounds. The expropriators are 
expropriated." ^^ 


iU NEMPLOYMENT is a normal aspect of capitalist production, which 
needs a labor reserve for the expansion of industry and to beat down 
wages. The amount and character of unemployment are closely asso- 
ciated with the development of capitalism. 

In the earlier stages of industrialism, the displacement of labor by 
machinery tended to be absolute, because the productivity of labor 
generally rose more than production. There was the growth of a sur- 
plus population and increasing misery. 

In the epoch of the upswing of capitalism the creation of a large 
surplus population was checked in the industrial countries. Production, 
particularly of capital goods, rose more than the productivity of labor. 
Displacement was relative, employment increased. Nevertheless, nor- 
mal, technological, and cyclical unemployment was a constant and 
increasing torment to the workers. This was especially true in the 
United States after i860, when a surplus population appeared for the 
first time. And the check in the growth of the surplus population in 
the industrial countries of Europe was mainly due to the exploitation 
of economically backward peoples, among whom there was an increase 
in the surplus population and increasing misery. 

If, in the epoch of the upswing of capitalism, unemployment in- 
creased in spite of the fact that production rose more than the produc- 
tivity of labor, it must increase still more in the epoch of decline, when 
the curve of production moves downward while technological effi- 
ciency and productivity move upward. The displacement of labor is 
absolute, unemployment tends to become permanent ^/Vemployment, 
and the surplus population grows. After the World War, under the 
impact of economic decline, normal unemployment was greatly aug- 
mented in most of the capitalist nations of Europe. It compelled adop- 
tion or extension of unemployment insurance and relief plans, which 
American businessmen considered the sad necessity or moral flabbi- 
ness of people not nourished on the traditions of "rugged individual- 
ism." But during the same period, in spite of and because of prosperity, 
unemployment was increasing in the United States, although not as 
yet on the European scale. This was more than mere repetition of 


Summary 299 

former experience. For the first time in American history there was 
an absolute displacement of labor in manufactures, transportation, and 
agriculture. It marked the coming to maturity of the elements of 
the decline of American capitalism. 

The tremendous cyclical unemployment in 1930-34, nearly twice as 
great relatively as in the worst of former depressions, is an indication 
of what is to come. If and when production reaches the 1929 level, 
there will still be 6,000,000 to 8,000,000 unemployed workers. Nor can 
state capitalism or fascism check this development, for it is a re- 
sult of economic decline, of the fact that production moves down- 
ward while technological efficiency and the productivity of labor move 
upward. Workers are thrown out of work both by lower production 
and higher productivity. Where formerly technological changes meant 
only a relative displacement of labor, now they mean an absolute dis- 
placement. The surplus population grows. It threatens capitalist profit, 
because permanent unemployment limits the production of surplus 
value. And it threatens capitalist domination, because mass disemploy- 
ment is potential with the threat of revolution. 

Underlying permanent unemployment is the unequal division of the 
proceeds of industry. For unemployment is essentially the result of the 
antagonism between production and consumption, of the fact that 
capitalism augments production and profits while it limits the income 
and consumption of the workers. A piling up of capital claims, profits, 
and interest occurs as the composition of capital becomes increasingly 
higher. This forces lower wages and displacement of labor. The 
unequal distribution of income and wealth tends to become more 
unequal. The increase in capital claims and unemployment are inter- 
locked with each other; both are interlocked with the distribution of 
income and wealth, which responds sensitively to technical-economic 
and class changes. 

Concentration of Income and Wealth 


Jl HE unequal distribution of income and wealth renders absurd all 
capitalist society's pretensions to democracy and equality. It sticks like 
a bone in the throat. And it threatens to choke capitalism, for the 
unequal distribution arises out of and aggravates all the maladjust- 
ments and disturbances of capitalist production. 

Although the concentration of income and wealth has become con- 
stantly greater, many capitalist apologists have always insisted that 
it was breaking down. This was one of the major claims of the pre-1929 
"new capitalism." The logic of the illogical assumption that the 
"policy" of increasingly higher wages was accepted by the employers 
led the prophets of the "new capitalism" to insist : 

That, in the words of President Calvin Coolidge, "the results of 
prosperity are going more and more into the homes of the land and 
less into the enrichment of the few." ^ 

That, consequently, the distribution of income and wealth was 
becoming more equal, more democratic; the indubitable proof of 
which, according to the apologists, being the "enormous" increase of 
"mass" participation in stock ownership. 

Now, in the cold gray dawn of the morning after, it is said that // 
the distribution of the proceeds of industry had been less unequal 
there would have been no cyclical crisis and depression. This was 
also said by the prophets of the new "new capitalism" of Niraism. 
Thus Rexford Guy Tugwell declared that "imperious necessity" com- 
pels a "more even" and "just" distribution of wealth and income 
among "the people as a whole," otherwise "our whole economic struc- 
ture falls into idleness and ruin." And Harold L. Ickes, Roosevelt 
Secretary of the Interior, said: 

"A bloodless revolution has occurred, turning out from the seats of 
power the representatives of wealth and privilege. ... I believe that 
we are at the dawn of a new era when the average man and woman 
and child in the United States will have an opportunity for a happier 
and richer life. And it is just and desirable that this should be so. After 
all, we are not in this world to work like galley slaves for long hours 


304 The Decline of American Capitalism 

at toilsome tasks, in order to accumulate in the hands of 2% of the 
population 80% of the wealth of the country." ^ 

Thus Niraism created its ballyhoo. And "practical" economists 
manufacture theory to make the deception appear rational. But the 
history of capitalism is full of promises to "equalize" income and 
wealth, while their concentration was becoming steadily greater. And 
the promises burst into new life precisely at the moment when, under 
the conditions of capitalist decline, the income of the workers must 
decrease while the concentration of wealth and income becomes rela- 
tively greater. 


Class Distribution of Income 


HiLE some capitalist apologists, contrary to the facts, have in- 
sisted that the distribution of income was becoming more equal, others 
have used economic theory to justify the existing unequal distribution. 
It was assumed that "fixed natural laws" determined "distributive 
shares," according to productive function performed. The theory was 
fundamental in the system of the American economist, John Bates 

"There are fixed laws of distribution which society is not at liberty 
to violate. . . . Where natural laws have their way, the share of income 
that attaches to any productive function is gauged by the actual product 
of it. . . . Wages are the whole product of labor. . . . Every laborer 
is paid the exact equivalent of what he produces and capital receives 
the exact equivalent of what it produces. . . , Natural law, so far as 
it has its way, excludes all spoliation." ^ 

The animus is clear — the same animus of the efforts to disprove the 
Marxist theory of value by means of the subjective theory of marginal 
utility, now discredited: labor is not necessarily exploited under the 
social relations of capitalist production, and its share of the national 
income, however small, is fixed, natural, and just. 

A variant of the "fixed shares" theory is the "law" formulated by 
Vilfredo Pareto, the "philosopher" of fascism, that income distribution 
is essentially the same in all countries and at all times. Analysis has 
demonstrated, however, that the "law" is mathematically inaccurate 
and statistically disprovable. (It is also disproved by Pareto's Italy, 
where, since the advent of fascism, the unequal distribution of income 
has become more unequal.) 

These theories rest on the assumption, unreal and apologetic, of an 
economic order based on "natural law," in which the free play of 
economic forces assures functional harmony and the "larger good." 
But there is no such order. Economic forces are not eternal, they are 
historical. They work, not in an unreal world of "natural law," but in 
the midst of class rule and exploitation, of social-economic change and 
conflict which affect the movement of economic forces, including the 
distribution of income. The only "eternal" aspect of income is that, 


3o6 The Decline of American Capitalism 

under a system of private property and class rule, its distribution must 
be unequal, with the producers getting the smallest share. There are 
long-time movements and short-time fluctuations, but concentration 
of income always tends upward* 

Capitalism augments the unequal distribution of income. One of the 
most competent investigators of the subject writes: "General his- 
torical knowledge would lead one to infer that numerically the income 
inequality must have been smaller in pre-capitalist Europe than at 
present, if only for the reason that incomes were then absolutely lower 
and that the lower limit of incomes is more rigid than the upper. . . . 
In those countries in which personal distribution of income has been 
measured for some time past the preponderance of evidence is toward 
increasing inequality of incomes." ^ In the earlier stages of capitalism 
there was a "broadening" of income concentration at the top of the 
social pyramid, because of the emergence of rich bourgeois merchants 
and speculators; but concentration was increased relatively to the 
mass of the people, and kept on increasing. The curve of income dis- 
tribution in capitalist society is not constant; its upward movement and 
fluctuations profoundly aifect social-economic maladjustments and 
disturbances. . . . 

In the colonial and early national periods of the United States, the 
unequal distribution of income, largely because of an agrarian economy, 

* It is suggestive that engineers, who think they have a "new^" approach to economics, 
merely vulgarize the older unreal concepts. Thus the Technocrats emphasize price, in 
the manner of the most extreme price economists, but with a slant of their own. 
Another engineer economist swallows Pareto's law: "Competition has always distributed 
incomes according to some sort of a probability curve. ... In the same way we could 
express the probability that any molecule in a mass of gas would have any one of various 
velocities. ... In any particular nation and at any particular stage of social progress the 
distribution appears to have a certain normal form about which it fluctuates but toward 
which it always tends to return. In fact, the general form of this normal distribution prob- 
ably has not changed greatly throughout history." H. C. Dickinson, "The Mechanics of 
Recovery," S. A. E. Journal (Society of Automotive Engineers), February, 1933, p. 2. 
Dickinson, who thinks the economic system "is a mechanism, a machine," argues that its 
"instability can be controlled through adjustments of the mechanism itself without disturb- 
ing the present competitive economic system." But the instability is a result of the working 
of the capitalist system itself. And the "adjustments" needed are not mechanical: they 
are social, involving class interests and class conflicts. This angle meets the engineer at 
every turn. How often is he thwarted in the mechanical, functional approach toward 
the construction of, say, machines and bridges, by the pressure of capitalist profit and 
vested interests! How often is his suggestion for the installation of safety devices 
rejected because of their cost! How little attention is paid to his arguments that tech- 
nology is capable of providing plenty for all! 

Class Distribution of Income 307 

was not great, although increasing. It increased tremendously during 
the Civil War, because of the growth of industrial capitalism and, 
particularly, of speculation. A slight downward tendency was apparent 
from 1870 on; but this was temporary and was accompanied by a 
multiplication of millionaires — 4,000 in 1892 compared with probably 
500 in 1860.^ Concentration thereafter grew swiftly, in the period of 
relative economic decline; the share of the national income received 
by the richest 1.6% of the population rose from 10.8% in 1896 to 19% 
in 1909,* an increase of nearly 100%. In the early years of the World 
War concentration mounted to new heights; incomes of f 100,000 up 
rose from 2,290 in 1914 to 6,633 in 1916,^ a year of extraordinary profits 
nourished by speculation and the butchery of European peoples. Con- 
centration of income tended downward after the United States entered 
the war, because of high taxation and the depreciation of fixed incomes 
through sharply rising prices. Fortunes connected with war industries 
and speculation increased enormously, however, and many new fortunes 
were created. Much of the decrease in concentration was nominal, and 
all of it was temporary. A large part of corporate earnings, to escape 
taxation and expand production, was reinvested in the enlargement or 
modernization of plant and equipment. This, in the post-war period, 
accrued to the benefit of stockholders in the form of high cash and 
stock dividends; the latter alone amounted to $4,240 million in 1922-23.® 

The wholly temporary downward fluctuations of the war period 
were used to back up the argument that income was being "equaUzed" 
and "democratized." It was backed up by more "proof" in the form 
of an apparent reduction of income concentration in 1921-22. But 
those were depression years, when swollen incomes are deflated and 
all incomes move downward. This is not, however, an indication of 
more equal distribution of income, for millions of workers, farmers 
and professionals stop being income receivers. Mass unemployment 
augments the concentration of income. In 1932, one study reveals, 
salaries and wages were 40% lower than in 1929, property income only 
31% lower. Wages alone were 60.2^/0 lower, twice the loss in property 
income, indicating greater concentration of income in depression!' 
Moreover, throughout 1923-29, when the apologists insisted that in- 
come distribution was becoming more equal, it was in fact becoming 
more unequal (Table I). The concentration of income was greater 
than in any pre-war period, and greater than in any other country in 
the world. 

While the farmers' income fell disastrously and wages almost stood 
still, the income of the upper bourgeoisie (incomes of $10,000 up) rose 

3o8 The Decline of American Capitalism 


The Movement in the Distribution of Income, 1^20-2^ 

Incomes of 

Incomes of 


and Up 

$3,000 to 
















































II 7.0 







1 17.0 












104. 1 
























109. 1 











♦Not available. Incomes of $3,000 to $10,000 kept on rising; in the case of incomes 
from $5,000 to $10,000, for which data ^re available, the index rose from 111.9 in 1925 
to 145. 1 in 1929. 

Source: Incomes of $3,000 to $10,000 and up — computed from Bureau of Internal 
Revenue, Statistics of Income for the respective years; wages and farmers' income — 
W. I. King, The National Income and Its Purchasing Power, pp. 108, 132. 

114% in nine years. Substantial gains were also made by the inter- 
mediate incomes of l3,ooo to $10,000. Gains were greatest in the higher 
brackets. The number of persons with incomes o£ $100,000 up increased 
from 4,182 in 1923 to 14,816 in 1929, compared with 6,633 ^^ ip^^j ^^^Y 
reported a total income of $1,127 million in 1923 and $5,088 million in 
1929.^ Income was redistributed — upward. 

Any downward fluctuations in the concentration of income are not 
only temporary, they must be temporary. Capitalism is based upon 
private property in the means of production; and property constitutes 
an economic and legal claim upon income, which must be satisfied by 
the labor of the producers. The concentration of income becomes con- 
stantly greater under capitalism because it is an economic system in 
which wealth breeds more wealth than in other systems. Exploitation 
of the workers yields surplus value and income, part of which is invested, 
is capitalized, yielding more surplus value and new income. As the 
capital needs of industry grow, under pressure of expansion and the 
increasingly higher composition of capital, capital and capital claims 
grow and impose a larger tribute on production, which does not cor- 
respondingly grow. Profits and interest rose from $10,998 million in 1923 
to $15,816 million in 1929, an increase of 44%; production rose only 

Class Distribution of Income 309 

20%. This, since ownership of capital and capital claims is highly con- 
centrated, was the solid basis of the growing inequality of incomes. 

By and large, the farther an occupation is from directly productive 
wor\, the larger the income it yields. This is the functional or occupa- 
tional aspect of class exploitation in a society based on private property. 
For 1916, the Bureau of Internal Revenue reported (a practice since 
discontinued) the occupational distribution of income. The statistics, 
covering incomes of $3,000 up, give the following interesting results: 

Labor, 2,304 returns, 0.2% of the income reported; engineers and 
architects, 8,047 returns, 1.2% of the income; intellectuals (artists, writ- 
ers, journalists, actors, musicians, statisticians, teachers), 13,048 returns, 
1.5% of the income; farmers, 14,407 returns, 2% of the income, in a year 
when agriculture was unusually prosperous; salesmen and insurance 
agents, 19,517 returns, 2.1% of the income; medical profession, includ- 
ing dentists, oculists, and nurses, 20,348 returns^ 2.2% of the income; 
bankers, 6,518 returns, 3.2% of the income; lawyers, 21,273 returns, 
3.8% of the income; managerial employees (superintendents, foremen, 
and others), 38,388 returns, 4% of the income; brokers and real estate 
and securities salesmen, 17,878 returns, 6.1% of the income; corporation 
officers, 53,060 returns, 11.3% of the income; industrial capitalists (manu- 
facturers, mine owners, and lumbermen), 27,504 returns, 11.4% of the 
income; merchants, 54,363 returns, 13.2% of the income; financial capi- 
talists, investors, and speculators, 85,465 returns, 26.6% of the income.® 

Labor is naturally the smallest of the groups. The more parasitical 
"functional" occupations (brokers, salesmen, lawyers) secure a fair 
slice of the pie. Engineers and other professional workers make a poor 
showing; they acquire large incomes only when they cease being pro- 
fessionals and become primarily promoters and capitalist exploiters. 
The largest part of the pie is eaten by the capitalists, particularly the 
financial capitalists, investors, and speculators. 

The direct appropriation of surplus value, of workers' unpaid labor, 
is the source of capitalist income. On the basis of this a struggle goes on 
to secure larger incomes and incomes from any source. . . . Political 
power not only sustains class rule and the claims of property to income, 
it becomes itself a source of income. Politicians plunder the public 
finances and sell favors to individual capitalists, which in turn become 
sources of income. . . . The vast natural resources of the United States 
passed into private ownership mainly through the manipulations of 
corrupt politicians. The Western railroads were built with grants of 
public money and public lands, yet their ownership and income ac- 
crued to capitalists. . . . The manipulation of political power for 

310 The Decline of American Capitalism 

personal ends became after i860 an increasingly important source of 
income. . . . This was true also during the World War and the post- 
war period. The conspiracy to steal the government's oil reserves in 
Teapot Dome, which was only accidentally frustrated, revealed a cess- 
pool of poHtical corruption. . . . Seventeen officers and directors, in- 
cluding the president, of an oil company mixed up in the Teapot 
Dome scandal, were sued by stockholders for the return of $6,000,000 
to $8,000,000. . . . The air-mail contracts let by Postmaster General 
Walter F. Brown, of the Hoover Administration were enmeshed in 
conspiracy. Enormous profits were made by officers of the favored 
lines; the president of one company turned an investment of $253 into 
$9,514,000. . . . Contractors have been making as high as 90% profit 
on army airplane orders. . . . Officers of corporations not only receive 
inflated salaries and profits on their stock, but they have other means 
of adding to their income. One is the "bonus" system. Five officers 
of one company received bonus payments of $2,225,000 in 1929. (The 
company is bankrupt.) Three officers of another company received 
$2,770,000 in 1931—32. In a third company the president in 1931 re- 
ceived $2,627,000 in salary and bonus payments. Stockholders' protests 
have been unavailing. . . . Another bankrupt company paid $1,300,000 
in 1923-32 to three bankers serving on its finance committee. . . . The 
chairman of the Chase National Bank received in four years salaries 
and bonuses of $1,500,000, made millions speculating in the bank's 
stock while the bank itself was losing money, and upon his retirement 
was voted a life "salary" of $100,000.^°. . . Corporation lawyers amass 
millions by a little legal trickery here and there. . . . Corporation 
directors use their influence to get business for other interests with 
which they are identified, palm off property they own on the cor- 
porations they serve, and speculate on inside information. . . . Bribery 
is rampant in business. "There are few branches of American business 
which are not honeycombed by its corroding influence. The average 
politician is the merest amateur in the gentle art of graft compared 
with his brother in the field of business. There is more graft in business 
than there is in political life." ^^. . . Where, under these conditions, 
are the "fixed distributive shares" determined by performance of pro- 
ductive functions? 

In 1928, wage- workers received 34.3% of the total national income, 
clerical workers 6.7% (Table II) . The upper bourgeoisie, only 0.8% of 
the gainfully occupied, received 21.8% of the national income; the 
bourgeoisie as a whole 51.9%, although they constitute only 15.9% of 
the gainfully occupied and the workers 58.5%. American workers 


200 _ 

ns _ 



lllllllll NUMB£R 


♦ 3^000 TO 

♦ lO.OOO 

^1 — 


















Rzo wzi i<iza H23 iiz4 my HZ6 mr ms iw*j 


312 The Decline of American Capitalism 

probably receive the smallest share of the national income; the share 

of the English workers is approximately 45%.^^ 


Class Distribution of 

the National Income, 

















Working Class: 





37.4 $1,189 







7-3 1,350 







7-7 923 



Bourgeoisie: * 





12.6 2,575 







16.6 5,110 







18.4 42,400 




47,462,241 100,0 $88,200 loo.o $1,858 $96,200 lOO.O 

• Lower bourgeoisie, incomes below $3,000; intermediate, incomes of $3,000 to $10,000; 
upper, incomes of $10,000 up. 

Source and methods of computation: Money incomes, excluding "imputed" income on 
durable consumers' goods, was $81,000 million (M. A. Copeland, "The National Income 
and its Distribution," Recent Economic Changes, v. II, p. 763); to this is added $2,400 
million for food produced and consumed on farms, and $4,807 million for realized spec- 
ulative profits {Statistics of Income, 1928, p. 12). Total income is the money income plus 
business savings — ^$6,600 million added to corporate surplus and an estimate of $1,400 
million for reinvested earnings of non-corporate enterprises {Statistics of Income, 1928, p. 
125). Workers' income is W. I. King's estimate of wages plus an allowance for other 
income. Income of the upper bourgeoisie is the reported income plus tax-exempt income 
and an allowance of 10% for under-reporting; this allowance of 10%, according to 
Maurice Leven, Income in the Various States, p. 286, "seems to be a conservative esti- 
mate, and it is quite probable that, if anything, it is too low." Speculative profits arc 
included because, unlike "imputed" income, they are realized money income with which 
the recipients may buy goods and services, and which profoundly affect investment, 
production, and consumption, and, consequently, the whole cyclical movement. 

The distribution of income is closely associated with class relations. 
While it alone does not determine the character of a class (that de- 
|>ends primarily upon its place in the production process), income 
throws light on changes in class relations and within classes. 

In 1923-29, the bourgeoisie increased its share of the national in- 
come; as usual it took most of the gains o£ prosperity. There was, 
however, a growing concentration of income, more than in former 
years, within the bourgeoisie. Incomes of $5,000 to $10,000 rose from 

Class Distribution of Income 313 

455,442 in 1920 to 658,039 in 1929, or 45%, while incomes of $10,000 
up rose from 226,120 to 374,032 or 65%. Concentration also increased 
within the upper bourgeoisie. Incomes of $100,000 up rose from 3,649 
to 14,816 or 306%, and incomes of $1,000,000 up rose from 33 to 513 
or 1,454%. ^^^ ^^^ income of the million-dollar-income group rose 
from $727 million in 1920 to $4,368 million in 1929, an unprecedented 
absolute and relative increase.^^ At the same time the upper bourgeoisie, 
and to a lesser extent the intermediate bourgeoisie, became more mark- 
edly a class of financial and speculative capitalists. As finance capital 
and the banks strengthen their control over industry, financial cor- 
porations "earn" the largest profits; this is an expression of the in- 
creasingly speculative character of industry under the conditions of 
monopoly capitalism. The upper bourgeoisie is separated from direct 
participation in production; as a class of financial and speculative 
capitalists (with a large element of passively parasitic rentiers) it 
roams the field of industry, plundering where it may. In 1920-29, the 
upper bourgeoisie "earned" $24,064 million in realized speculative 
profits, of which $8,000 million were "earned" in the two years 1928- 
29. They are the masters of industry. 

The middle class, the intermediate and lower bourgeoisie with in- 
comes below $10,000, made great gains both in numbers and in income; 
the income gains ranged from 40% to 50%. It was the heyday of the 
middle class. But this class is no longer the old middle class of inde- 
pendent small producers. In 1924, 125,559 individual, non-corporate 
manufacturers reported net profits of only $380 million, compared 
with $3,437 million for corporate enterprises. Of the total net profits 
of $4,755 million reported by 1,645,971 individuals in business (an 
average of only $2,900), $3,150 million was "earned" in trade, amuse- 
ments, hotels, professional service, and similar occupations. In corporate 
manufactures, 43,984 of the smaller producers, 50% of the total, made 
only 1.7% of the aggregate net income, while 967 of the larger pro- 
ducers, 1.1% of the total, made 65.6% of the net income; in 1929, 
1,289 of the larger producers, 1.3% of the total, made 75.6% of the 
aggregate net income.^* Thus the small, independent industrial pro- 
ducers, the essential element in the old middle class, merely linger on, 
an economic anachronism deprived of real power. Their importance 
steadily decreased in 1920—29. The real gains were made by the "newer" 
elements of the middle class, concentrated in the intermediate bour- 
geoisie with incomes of $3,000 to $10,000. More than half of them, 
the most important group, are corporate employees; in 1928 about 
$7,000 million of the $14,700 million income of the intermediate hour- 

314 The Decline of American Capitalism 

geoisie was derived from salaries, commissions, and directors' fees. 
Another $788 million came from dividends and possibly $1,000 million 
from speculative profits. This group, particularly those in the income 
class of $5,000 to $10,000, performs the "professional" function of man- 
agement in corporate industry, because of the separation of ownership 
from management by monopoly capitalism and the multiplication of 
stockholders. It is directly dependent upon and is wholly identified 
with the interests of monopoly capitalism — the real "new" middle 
class. Most of the elements of the old middle class, the small producers, 
merchants, and professionals, are concentrated in the lower bourgeoisie. 
Their income gains were considerable; but they were accompanied 
by an intensification of competition and a pressure for jobs which 
created increasing class insecurity, now evident in the crisis which 
afflicts the small producers and storekeepers, the technicians and pro- 
fessional workers. For the growth of the middle class, identified with 
all the maturing elements of capitalist decline, was a final burst of 
splendor before the coming of darkness. Many middle-aged workers, 
thrown out of work by technological changes, took their petty savings 
and became small storekeepers, sharpending the struggle to survive. 
The automobile gave many the chance to become "independent" 
owners of garages and gasoline stations. Rationalization of industry 
gave work to many technicians, but also developed the conditions of 
eventual displacement. Much of the middle class growth, however, 
represents cancerous elements of social-economic parasitism, multiply- 
ing the burdens upon productive labor. The more parasitic occupa- 
tions (advertising, merchandising, speculation, the law) fattened upon 
an inflated prosperity. But the middle class grew faster than its eco- 
nomic opportunities. The number of students in universities, colleges, 
and professional schools, all of them middle-class aspirants, grew from 
521,754 in 1920 to 919,381 in 1928,^^ creating a constantly greater mass 
of actually and potentially unemployed and unemployable "intellec- 
tuals." They now swell the surplus population. 

The "fixed productive share" of the farmers moved downward. In 
the "deflation" of 1921, their share of the national income fell disas- 
trously; during the next four years a small part of the loss was pain- 
fully recovered, only to slump again in the peak years of prosperity 
1926-29. The farmers increased their productivity over 30% and de- 
creased only 25% as a proportion of the gainfully occupied, yet their 
share of the national income fell to one-half the pre-war share. The 
farmers' share (including food produced and consumed at home) 
was only 7.1% in 1928, although they were 15.6% of the gainfully 

Class Distribution of Income 315 

occupied. And the fall was absolute, affecting per-capita income. The 
farmers' share of the national income began to fall after the Civil War 
(defeat of the slave power was also an agrarian defeat, as it assured the 
supremacy of capitalist industrialism). The fall was temporarily re- 
versed by rising prices after 1900, up to and including the World War; 
but it reasserted itself on a more devastating scale during 1921-29 and 
the 1930—34 depression. At the same time, the farmers' mortgage 
burden rose from $7,857 million in 1920 to 19,468 million in 1928, 
exclusive of over $3,000 million of other debts. The burden was all 
the greater because of the fall in agricultural prices and income, and 
in the "value" of farms from $71,791 million to $58,141 million. As a 
business proposition, farming was almost a total loss; the rate of return 
on operators' net capital investment fell from 5.4% in 1919 to 3.7% 
in 1928, with only 1.6% as the average for 1920-28.^® Non-farmer 
elements increased their tribute from agriculture; payment of interest 
to non-farmer mortgage holders practically trebled between 1909 and 
1927.^'' The sharp drop in the farmers' share of the national income 
expressed the crisis and economic decline of agriculture. But this did 
not affect all groups alike. The inequality of agrarian incomes was 
augmented. A small upper layer of capitalist farmers was relatively 
prosperous. Owners of leased farms enlarged their share of agricul- 
tural income 60% between 1909 and 1927. "Retired" farmers drew an 
increasingly large real income from their $1,000 million of farm mort- 
gages.^^ The mass of farmers were, however, impoverished, expressed 
in the growth of tenancy from 38.1% in 1920 to 42.4% in 1930,^® the 
largest increase in thirty years. By 1932 the farmers' gross income had 
fallen to 44% of the 1929 level; ^° the fall in net income was even 
greater. The result is a profound change in agrarian class relations; 
the poor farmers, the majority of tenants and small owners, are defi- 
nitely thrust into the peasant class, while the position of the inter- 
mediate middle class farmers becomes continuously more precarious.* 
All through this period, while income was being "equalized" and 
"democratized," wages constituted a diminishing proportion of the 
national income. The wage-workers' share fell from more than 40% in 
1920 to 37.4% in 1928. (Their share in the total national income was 

* Yet reformers urge "Back to the land!" as a cure for unemployment. Among the 
most miserable farmers are many who took that advice in the pre-war days. It is sug- 
gestive that what is now urged is "subsistence farms," that is, farms which are to 
yield a man and his family merely enough to keep from starvation. Other reformers, 
however, insist that "farm relief" depends upon the displacement of 2,000,000 more 

3i6 The Decline of American Capitalism 

still lower, only 34.3% in 1928.) Part of the decrease was due to the 
fact that, for the first time in American history, the number of workers 
increased only slightly as a ratio o£ the gainfully occupied, while the 
better-paid industrial workers decreased. And increasing unemploy- 
ment cut into the workers' share. But the larger part of the decrease in 
the workers' share of the national income was due to the fact that 
wages did not move upward in line with productivity, production, 
and the national income, while the bourgeoisie appropriated constantly 
more of industry's proceeds as capital and capital claims were aug- 
mented. The majority of working class incomes were at or below the 
poverty line. In the "paradise" of the Ford automobile plants, the 
average family income of a worker in 1929 was only $1,711 yearly! 
The family income of the majority was even smaller. Inequality of 
incomes within the working class was intensified, especially in the 
case of the skilled union trades and the unemployed. This inequaUty, 
along with craft and racial prejudices, helps to create and maintain 
divisions among the workers, which the employers exploit. 

The concentration of income means poverty among the many and 
swollen incomes among the few; underconsumption among the masses 
and conspicuous overconsumption among the classes. It is urged that 
the national income, and this means essentially the existing productive 
equipment, is insufficient to abolish poverty. Thus Irving Fisher said 
in 1928: "If the share of the richest class were divided up to increase 
the share of the lowest income group, comprising nearly two-thirds of 
the population, it would not go far." Another economist agreed, and 
added: "A basic trouble is that, in spite of our unprecedented wealth, 
our national product is not yet large enough to supply anything but 
the barest essentials to everyone, even if it were equally divided." ^^ 
That is much too simple, and evasive. For in 1929, a more equal dis- 
tribution of the national income (inconceivable under capitalism) 
would not merely have wiped out the worst forms of poverty, it would 
have materially improved the living conditions of the masses as a 
whole. This was all the more possible if wasteful, useless goods and 
services had been replaced with more necessary things, and if the 
enormous excess capacity of industry had been utilized. The mere 
elimination of these social-economic wastes, inseparable aspects of the 
social relations of income inequality, would enormously increase real 
social income and mass welfare. All arguments to the contrary are 
mere repetitions of Pareto's "law" that welfare can be increased only 
by raising the national income — a justification of capitalist distribution. 
It is necessary, of course, to raise the total income. But the unequal 

Class Distribution of Income 317 

distribution of income is interlocked with all the class-economic forces 
which prevent a full use of the existing and potential social forces of 
production: low wages, excess capacity, recurrent cyclical crises and 
breakdowns, limitation of technological progress, and the mass dis- 
employment of the decline of capitalism.* 

Inequality of income is not merely an expression of capitalist exploi- 
tation and injustice. It is itself an economic force, expressing and ag- 
gravating all the maladjustments and disturbances of capitalist 
industry : 

Disproportionate development of production and consumption: 
Unequal distribution of income is firmly based on the appropriation of 
surplus value and its realization as profit, the accumulation of capital. 
This means low wages and high profits, depressed mass purchasing 
power and consumption, the lag of consumption behind the growth 
of production. 

The increase in capital and capital claims: While the increase in 
capital and capital claims augments the concentration of income, this 
in turn increases capital and capital claims, as surplus income must be 
invested, anywhere, anyhow. 

Excess capacity: Unequal distribution of income depresses consum- 
ing income in favor of investment income. More of the proceeds of 
industry go into capital goods than into consumption, markets are 
relatively restricted, and excess capacity and competition are aggra- 

Surplus capital : As investment income grows more thaa consuming 
income, and capital and capital claims grow faster than production, 
a surplus capital arises, in spite of the constantly greater capital needs 
of industry. This surplus, whether used for unnecessary investment or 

* This sort of stuff still appears in textbooks used in many American universities: 
"If incomes were equalized, all would be poor. . . . The idle rich and other loafers 
are more conspicuous than numerous, and if they were all set to useful labor the total 
output of industry would not be substantially increased nor would the burden of toil 
of the rest of the people be much lightened. ... A considerable part of the income 
of the rich is already being used directly or indirectly for the benefit of the poor in 
the form of huge donations to philanthropic, scientific and educational institutions, in 
the form of taxes, and in the form of savings which add to the industrial equipment 
of society and thereby increase the effectiveness of labor. . . . The possible gains to 
the poor from increasing the effectiveness of labor are infinitely greater than the possible 
direct gains from equal distribution of wealth and income." L. A. Rufener, Price, Profit 
and Production: Principles of Economics (1928), pp. 803-04. But why can't the "poor" 
own the industrial equipment? And why not add that the rich make work for the poor — 
don't they hire servants, spend millions on dress and jewels, on entertainments and 
debauchery, give work to the makers of yachts, Rolls-Royces, and private railroad cars? 

31 8 The Decline of American Capitalism 

for speculation, aggravates the maladjustments and disturbances of 
capitalist production. 

Speculation: Itself partly a result of the concentration of income, 
speculation increases concentration and all its disturbing effects. 

Increasing unemployment: As a result of all the preceding develop- 
ments, unemployment tends constantly to grow. Millions of workers, 
who might be adding to the national income, are deprived of work 
and of the power to consume. This, in its form as mass disemployment 
in the epoch of the decline of capitalism, is bound up with more 
definite limitation of technological progress. 

The export of capital and imperialism: Surplus incomes and capital, 
excess capacity and limitation of markets intensify the struggle for 
foreign markets to absorb surplus capital and goods. Itself interlocked 
with the concentration of income, imperialism augments concentration 
by making an increasingly larger part of the national income depend- 
ent upon the profits of foreign enterprises, which provides no work or 
income to "our own" workers. 

Thus the concentration of income not only deprives the workers 
of a larger immediate share in income and consumption, it prevents 
a fuller development of production, income, and consumption in 
prosperity, and thrusts them downward in depression. For unequal 
distribution of income is the synthesis of all the forces of cyclical crisis 
and breakdown.* Unequal distribution is dynamic, not stationary; its 
variations, within the limits of the long-time upward trend, correspond 
closely with the cyclical movement of prosperity and depression. As 

* "The theory [of Marx] rests on the supposition that wages are a fixed quantity, 
always near the minimum of subsistence; and further, that labor's proportion of the 
national income is ever decreasing. . . . Marx' theory is subject to two conditions: 
(i) that there are only two classes in existence, capitalists and proletariat; and (2) that 
wages are rigidly fixed and near the minimum of subsistence." L. V. Birck, "Theories 
of Overproduction," Economic Journal, March, 1927, pp. 22, 25. After setting up this 
man of straw, Prof. Birck cleverly demolishes it. But Marx never said that wages are 
fixed or that there is a fixed minimum of subsistence: that was the Rodbertus-Lassalle 
"iron law of wages," specifically repudiated by Marx. Wages may and do rise, under 
certain conditions; this is itself an aspect of the movement of capitalist contradictions 
and antagonisms. Wages tend toward a minimum of subsistence, but this is an historical 
category subject to change; the minimum rises in the epoch of the upswing of capital- 
ism and falls in the epoch of decline. The workers' share of the national income does 
decrease; but this is not conditioned by fixed wages and minimum of subsistence, for 
while wages may rise, profits and capitalist income rise still more. Marx never said there 
are only two classes (he recognized the existence of landlords, of farmers, of the middle 
class); but industrialism dominates the class-economic relations of contemporary society, 
and industrialism is dominated by the relations between the proletariat and the capitalist 
class, whose antagonism shapes, in general, the movement of other classes. 

Class Distribution of Income 319 

prosperity moves upward, the concentration of income is augmented 
from three sources: more intensive production and realization of 
surplus value; speculative profits, which are both a redistribution of 
previously realized surplus value and a manufacture of new claims 
upon production; and the increasing "profits" of middle class services. 
Even if wages and mass purchasing power rise, they shrink relatively 
to the income gains of the bourgeoisie, to the mounting accumulation 
of capital and capital claims. Both investment and speculation aggra- 
vate old disproportions and create new ones. The moment comes when 
prosperity crashes. The tremendous increase, in 1927-29, in the in- 
comes of the upper and intermediate bourgeoisie, while wages were 
nearly stationary and farmers' income moved downward, inexorably 
prepared the conditions of breakdown and depression. 

Some bourgeois economists admit that cyclical fluctuations originate 
in "the adverse balance of consumption over production," in the 
"deficiency" of consumer income distributed by industry .^^ But they 
insist that the deficiency is not the result of appropriation of profits and 
concentration of income, that stability is possible without interfering 
with them. Yet, if industry does not distribute enough of its proceeds 
as consumer income, is it not because profits * take more than wages ? 
And if investment income increases more than consumption income, 
is it not because unequal distribution of income favors investors and 
speculators? The uses of profits are threefold: 

1. Consumption income for the appropriators of profits, their tribute 
upon labor and production. 

2. Investment income for the progressive expansion of production, 
a conversion of part of the proceeds of industry into "capital" equip- 
ment, which is necessary under any social system. 

3. A surplus which becomes excessive investment and speculation, 
instead of consuming power. 

Even the consumption of the appropriators of profits and their 
"necessary" investments create maladjustments and disturbances, for 
they are carried out haphazardly, without regard to the balanced needs 
of industry. (This is apparent, for one thing, in the constantly greater 
dependence of production upon luxury consumption.) The malad- 
justments and disturbances are enormously aggravated, however, by 

* In this connection, "profits" includes all forms of tribute levied upon labor — ^profits, 
interest, rent, "fancy" corporate salaries, excessive charges for professional services, etc. 
That part of professional income vv^hich represents services to workers is a vi^ithdravi^al of 
labor consumption; if invested by the professional, it adds to the deficiency in con- 

320 The Decline of American Capitalism 

the surplus capital involved in excessive investment and speculation: 

it means an accumulating deficiency in consumption, expansion of 

production beyond the capacity of markets, and growing speculative 

violence. For a time, an unstable balance is maintained by a variety 

of means; but the balance is eventually upset, and crisis and depression 


Unequal distribution of income is not, however, an independent 
factor. It expresses all the underlying relations of capitalist production. 
Hence the liberal economists are stressing secondary and not primary 
causes when they urge more equal distribution to prevent cycHcal 
breakdowns. (This theory is identified with John A. Hobson; while 
his emphasis is wrong, his analysis is as suggestive as his earlier, the 
pioneer, study of imperialism.) For the social relations of capitalist 
production make an increasing concentration of income inevitable, 
because of the exploitation of labor and the multipHcation of owner- 
ship claims. Ownership and exploitation are responsible, not only for 
income concentration, but also for its disastrous economic results. 
More equal distribution, under capitalism, could favor only the middle 
class, and would simply whet its appetite for ownership, investment, 
and speculation. Essentially the same result follows if income distribu- 
tion favors the upper layers of the workers, who would save more for 
the "rainy day," the savings becoming "institutional" means for invest- 
ment and speculation. It is necessary to change the social relations of 
capitalist production.* 

As the distribution of income is inseparably identified with the 
class-economic relations of capitalist production, it is profoundly 
affected by the decline of capitalism. The lower level of the national 
income makes more ruthless the efforts of those in economic and 
political power to get a larger share. Labor's share moves downward, 
because of lower wages and the millions of disemployed workers. 
Capitalist decline strengthens the tendency toward an increase in the 
most parasitic form of income, the interest on private and public debts. 
Corporate debt mounts as excess capacity and capital claims rise and 
production falls. Public debt mounts as government revenues fall and 

• Unequal distribution of income exists in the Soviet Union. But it is enormously 
smaller than in capitalist society; there is no concentration of income in the real sense. 
Moreover, what income inequality exists has no disastrous economic results, for there 
is no private ownership in the means of production, no capitaUst investment and specula- 
tion: income cannot become private capital, a source of economic maladjustments and 
disturbances, and production is managed according to plan. While income inequality 
exists in the earlier stage of socialism, the drive is toward continual modification and 
its final abolition under communism. 

Class Distribution of Income 321 

expenditures to "revive" industry rise (and this includes greater ex- 
penditures on armaments because of sharpened imperialist rivalry). 
As imperialism grows, a larger part of capitalist income flow^s from 
foreign investment and exploitation; this means more income concen- 
tration, for after capital is exported its interest or profit yield creates 
no income for other classes of the "home" population. From 1900 to 
1 914, the concentration of income in Great Britain w^as increased by 
the income from accumulated overseas investments.^^ Concentration 
is also increased in the capital importing countries, for in crisis and 
decline the interest is paid by extorting more from the workers and 
peasants, in higher taxes and lower wages. And, unlike the experience 
in the epoch of capitalist upswing, labor's share of the national income 
now tends toward an absolute fall. This is particularly marked under 
fascism, which recognizes that incomes must be limited, thrusts the 
burden upon the masses, deprives them of the means of resistance, 
and cuts down on relief and the social services. The movement in the 
distribution of income becomes one of the most explosive elements of 
the decline of capitalism. 


The Multiplication of Stockholders 

Jl HE concentration of income has strong roots in the concentration 
of stock ownership, the most characteristic form of property in modern 
capitaHst society. In the ballyhoo of Niraism, of state capitalism, there 
is nothing about "democratizing" corporate ownership and thus realiz- 
ing "industrial democracy," a new social order. Yet this was the heart 
of the "economic revolution" proclaimed by the pre-1929 "new capi- 
talism," and the only one of the older claims which does not reappear 
in the new ballyhoo. It was all very simple: corporate ownership was 
being democratized by the multiplication of stockholders; the stock- 
holdings of large investors, of the capitalists, had decreased, were still 
decreasing, and would continue to decrease; in the redistribution of 
stock ownership the wage-workers, because of their increasingly 
higher wages and larger share of the national income, were the largest 
beneficiaries. Workers were becoming capitalists, the capitalists becom- 
ing workers. Consequently: "There is no doubt whatever that Ameri- 
can labor is headed toward the control of American industry." ^ This 
was a prophecy made in 1926; where now are labor's stockholdings 
and control of industry ? 

The multiplication of stockholders is an indisputable fact. But it 
was, and is, grossly misunderstood and exaggerated. Thus, in 1929, 
the President's Committee on Recent Economic Changes stated that 
"the number of shareholders in the country's business enterprises has 
grown from about 2,000,000 to 17,000,000."^ The statement implied 
individual stockholders, although the figures mean only boo\ stock- 
holders, whose names may appear scores of times in the lists of as 
many corporations. Book stockholders multiplied to a truly great 
extent, from 4,400,000 in 1900 to 18,000,000 in 1928. The greatest up- 
ward movement took place during and shortly after the World War; 
book stockholders increased an average of 12% yearly in 1917—20, 
6.2% in 1920-23, and 4.5% in 1923-28.^ The smallest rate of growth 
was in the period after 1923, when the prophets of the "new capital- 
ism" were insisting that corporate ownership was being rapidly "dem- 
ocratized." And book stockholders multiply more rapidly than 
individual stockholders. If each of 3,000,000 small investors owns 


The Multiplication of Stockholders 323 

one share of stock worth fioo in various corporations, they figure as 
3,000,000 book stockholders; i£ 100,000 large investors each owns 
$300,000 worth of stock distributed over thirty corporations, they also 
figure as 3,000,000 book stockholders, although their total holdings 
are $30,000 miUion as against the $300 miUion o£ the other group. 
According to a statistician of the United States income-tax bureau, there 
were, in 1927, not more than 3,300,000 individual stockholders, who 
received dividends ranging from $5 to $15,000,000. The distribution 

In the group with net incomes over $5,000, there were 516,000 stock- 
holders, who received $3,762 million in dividends. 

In the group with net incomes below $5,000, there were 484,000 
stockholders, who received $493 million in dividends. 

In the group of over 40,000,000 persons gainfully occupied, not filing 
income-tax reports, there were 2,300,000 stockholders, who received 
$45,000,000 in dividends.* 

By 1928, the number of stockholders had probably grown to 3,750,000, 
compared with 1,250,000 in 1900. This was a substantial increase, but 
its significance was more absolute than relative. For the increase in 
stockholders, corresponding with that in corporate enterprise, was not 
much larger than the increase in the number of persons gainfully 
occupied, and was smaller than the increase in production and cor- 
porate wealth. Thus the multiplication of stockholders does not mean 
more "democratic" ownership of industry. Its real meaning lies in the 
important class-economic changes in capitalist production, in the 
development from small-scale to large-scale industry and from the 
older capitalism to monopoly. The multiplication of stockholders is 
interlocked both with the upswing and the decHne of capitalism. 

Capitalist production moves inexorably toward large-scale industry, 
with capital needs beyond the resources of individual capitalists. Cor- 
porations become increasingly ascendant, combining small scattered 
capitals into one enterprise. Small corporations merge into larger, and 
these merge into monopolist combinations, which use the capital re- 
sources of multitudes of stockholders. Ownership, management, and 
control are separated. This is a fundamental change in the forms of 
capitalist property, once wholly individual : impersonal, corporate prop- 
erty becomes dominant. According to one bourgeois economist: 

"Most fundamental of all, the position of ownership has changed 
from that of an active to that of a passive agent. In place of actual 
physical properties over which the owner could exercise direction and 
for which he was responsible, the owner now holds a piece of paper 

324 The Decline of American Capitalism 

representing a set of rights and expectations with respect to an enter- 
prise. . . . He bears no responsibility for the enterprise or its physical 
property. It has often been said that the owner of a horse is responsible. 
If the horse lives he must feed it. If the horse dies he must bury it. 
No such responsibility attaches to a share of stock. . . . The value of 
an individual's wealth is coming to depend on forces outside himself 
and his own efforts. Instead, its value is determined on the one hand 
by the actions of the individuals in command of the enterprise — indi- 
viduals over whom the typical owner has no control; and on the other 
hand, by the actions of others in a sensitive and often capricious 
market." = 

The implications, which the economist does not draw, are clear: 
capitalist property is no longer private property in the full sense of the 
term; it is social property, expressing an objective socialization of pro- 
duction, while ownership rights and claims remain individual. Thus 
modern capitalist property is wholly parasitic. The antagonism between 
social property and individual appropriation aggravates all the malad- 
justments and disturbances of capitalist production. It also conditions, 
in its class-economic aspects, the possibility of and the struggle for a 
new social order.*. . . 

The multiplication of stockholders, because of the transformation of 

• Corporate property involves: "An enormous expansion of the scale of production and 
enterprises, which vv^ere impossible for individual capitals. . . . Capital, which rests on 
a socialized mode of production and presupposes a social concentration of means of 
production and labor powers, is here directly endowed with the form of social capital as 
distinguished from private capital, and its enterprises assume the form of social enter- 
prises as distinguished from individual enterprises. It is the abolition of capital as private 
property within the boundaries of capitalist production itself. Transformation of the 
actually functioning capitalist into a mere manager, an administrator of other people's 
capital, and of the owners of capital into mere owners, mere money capitalists. . . . 
Total profit is henceforth received only in the form of interest, that is, in the form 
of mere compensation of the ownership of capital, which is now separated from its 
function in the actual process of production, in the same way in which this function, in 
the person of the manager, is separated from the ownership of capital. The profit now 
presents itself as a mere appropriation of the surplus labor of others, arising from the 
transformation of means of production into capital, that is, from its alienation from 
its actual producers, from its antagonism as another's property opposed to the individuals 
actually at work in production, from the manager down to the laborer. . . . The func- 
tion of management is separated from the ownership of capital, and labor, of course, 
is entirely separated from the ownership of means of production and surplus labor. 
This result of the highest development of capitalist production is a necessary transition 
to the reconversion of capital into the property of the producers, no longer as the private 
property of individual producers, but as common property, as social property outright." 
Karl Marx, Capital, v. Ill, pp. 516-17. 

The Multiplication of Stockholders 325 

individual productive property into corporate property, is a character- 
istic expression of the upswing of capitalism. Independent capitalists, 
where they are not totally wiped out, become stockholders in the cor- 
porations which absorb their enterprises. Individuals who formerly 
might have been independent enterprisers become, under the new 
conditions, officers or supervisory and technical employees of corpora- 
tions;, in which they may acquire stock. The number of these employees 
is greatly augmented by monopoly capitalism. Another source of 
stockholders are the merchandising and advertising employees and 
professional workers, and all sorts of other middle class elements 
which have money to invest. Underlying these developments was the 
upward movement in production, the increasing accumulation of 
capital, and the multiplication of capital claims, making possible more 
widespread ownership of stock. 

This multiplication of stockholders is also identified with large- 
scale industry's increasingly greater capital requirements, not only 
absolute but relative, as capital investment rises more than production 
and profits. The fall in the rate of profit augments the investment of 
capital, and there is a drive to get capital anywhere, anyhow (includ- 
ing the small savings of workers, in the form of institutional invest- 
ment). One aspect of the growth of monopoly is the "recapitalization" 
of corporate combinations, which is successful only if their stock is 
absorbed by a multitude of stockholders. At the same time, efforts to 
overcome the fall in the rate of profit involve the plundering of stock- 
holders. There is a great turnover among small stockholders. Large 
corporations augment their profits at the expense of the smaller. Small 
stockholders are plundered by promoters and financial capitalists, who 
unload securities upon the gullibles and expropriate small investors in 
corporate reorganizations. A large part of the profits of holding com- 
panies come from plundering the stockholders of underlying corpora- 
tions. The pressure of surplus capital results in the organization of 
many fly-by-night concerns, and more stockholders. Finally, the high- 
pressure salesmanship of investment bankers and brokers swells the 
stockholding multitudes. 

These developments do not, however, break down the monopoly 
of ownership. For corporate ownership is concentrated in the upper 
bourgeoisie. But the character of this class changes. "It is now composed 
primarily of financial capitalists, whose resources are invested in scores 
of enterprises, none of which they own but all of which they control. 
Their capital, unlike that of the industrial capitalist, is not bound up 
directly v^th production; a mass of paper rights and claims upon 

326 The Decline of American Capitalism 

production and income, it migrates from enterprise to enterprise, in 
line with business conditions, the prospects of profit, and the needs 
of speculation. The Rockefeller interests, originally associated wholly 
with Standard Oil, came to include hundreds of industrial, utility, and 
financial corporations throughout the world. But though the financial 
capitalists seldom own any large part of a corporation's stock, they 
control its destiny, while management is the function of hired em- 
ployees: the more stockholders there are in an enterprise, the more 
ownership is separated from control, the easier it is for a minority to 
usurp control. And this control by a financial clique ruthlessly tramples 
upon both the stockholders and rival minority cliques. This was an 
early accompaniment of the growth of large corporations. A classic 
illustration was the meeting, in 1902, of the stockholders of the Metro- 
politan Street Railway Company of New York City. The chairman 
of the meeting was P. A. B. Widener, millionaire capitalist, director 
in the United States Steel Corporation and other affiliated enterprises 
of the House of Morgan. The meeting went on in this manner: 

widener: The tellers will now take the vote. 

stockholder: We wish a discussion of the matter. Let us discuss it 
before we vote for it. 

widener: Well, you can vote for it and discuss it afterward. 

STOCKHOLDER [amazed, incredulously'\ : Do you mean to say that 
we must vote and then discuss? 

ANOTHER stockholder: You wish us to be executed first, then tried, 
is that it? We object to voting before discussion. 

WIDENER [l^ored, smilingly] : Well, sir, you may withhold your vote 
until after the discussion. The Chair orders that the vote shall be 
taken. [It is.] 

These methods have not changed in essentials; they are merely more 
formal, more labyrinthine, smeared with the holy oil of "service." 
In fact, stockholders to-day are even more helpless, because of their 
increasing numbers, the greater size of corporations}, and greater use of 
holding company devices. The financial oligarchy has tightened its 
control. And this oligarchy is merely interested in the production of 
profits and speculation, in the plunder of corporations and their stock- 
holders, including stockholders of the upper bourgeoisie itself; for in 
this the oligarchy knows no class brothers or sisters. Thus it increases 
its share of profits, of the surplus value produced by labor, in spite 
of the tendency of the rate of profit to fall. The separation of manage- 
ment and control by the multiplication of stockholders, arising out 
of the progressive socialization of production, the transformation of 

The Multiplication of Stockholders 327 

individual property into social corporate property, becomes a means 
for the intensification of capitalist plunder and capitalist disorganiza- 
tion. . . . 

There was no decrease in the stockholdings of the upper bourgeoisie 
(Table III) . On the contrary, dividends received by incomes of $10,000 




of Dividends by 


me Groups, igiy-2<) 

$3,000 to 



to $ 






















































II. I 








































* Not available. Total dividend payments by corporations were not compiled for 
19 1 7-2 1. Income-tax changes in 1925 substantially reduced the number of individuals 
required to report in the brackets below $5,000. 

Percentages are based on total dividend payments less intercorporate dividends. 

Source: Computed from Bureau of Internal Revenue, Statistics of Income for the 
respective years. 

Up were 140% higher in 1929 than in 1917; the slight falling tendency 
in the early post-war years was reversed after 1921. At the same time 
the upper b6urgeoisie, especially the rentiers in this class, invested 
heavily in tax-exempt government bonds, amounting to $5,373 million 
in 1929,^ in addition to more millions invested in foreign securities. 
Statistically, however, the share in dividends of the upper bourgeoisie 
was a trifle smaller than in the pre-war years. But this was only appar- 
ent, not real. For the dividends reported by incomes of $10,000 up is 
not the total they receive; they are underreported to evade the surtax. 
Stockholdings are distributed among other members of the family, in 
the form of gifts, the creation of trusts, or partnerships. (These part- 
nerships, although clearly a tax-dodging device, have been declared 
legal by the courts.) This part of the dividends of incomes of $10,000 
up are reported in the lower brackets. According to a statistician of the 

328 The Decline of American Capitalism 

income-tax bureau, there were, in 1924, in the income groups below 
$2,500, 200,000 stockholders who received dividends either from inheri- 
tances or trusts/ Another tax-dodging device is the personal holding 
or investment company (one banker maintained six such companies!),* 
which receives dividends, reinvests them, and avoids the surtax. Such 
dividends appear as part of intercorporate dividends, but are really 
received by the upper bourgeoisie. Increasing tax-dodging created a ficti- 
tious relative decrease in the dividends and stockholdings of the upper 

There were fluctuations in the share of dividends received by the 
intermediate and upper bourgeoisie, mainly because of temporary shifts 
in income from one class to the other. But the movement was definitely 
upward, if for no other reason than because these two classes increased 
numerically more than the total of gainfully occupied persons. The 
most significant gains, from a class angle, were scored by the inter- 
mediate bourgeoisie, especially those with incomes of $5,000 to $10,000. 
This is because the most important part of this class is composed of 
officers and managerial employees in corporate industry; they steadily 
augment their ownership of stock (often received as a bonus) in the 
corporations which employ them, and are encouraged to do so by their 
financial masters to make them more "loyal." In the middle class as a 
whole, stockholdings were increased by employee stock ownership, 
by the drive of public utilities to sell stock to customers (to create 
"reserves" of public opinion against immediate government regulation 
and possible government ownership), by the stimulation of get-rich- 
quick appetites. 

The workers made some small gains in stock ownership, but they 
were absolute, not relative. And their share was insignificant: cor- 
porate ownership is a monopoly of the bourgeoisie (Table IV). The 
working class, wage and clerical, while 68.5% of the gainfully occu- 
pied, owned only $750 million of corporate stock, an insignificant stake 
of 1.2%. The bourgeoisie, only 15.9% of the gainfully occupied, owned 
$61,137 million, a monopoly stake in corporate ownership of 97.8%. 
Of this, the largest share was owned by the upper bourgeoisie, 0.8% 
of the gainfully occupied : $48,322 million, or 77.3%. That is, however, 
a minimum; their real share was at least 80%. For a part of the divi- 
dends received by the lower income brackets appear there only because 
of the tax-dodging devices of the upper bourgeoisie; another part 
was reported by individuals with gross incomes over $5,000, but no net 
income; and a third part is credited to intercorporate dividends, because 
of the use of personal investment companies. The share of the lower 

The Multiplication of Stockholders 


Class Distribution of Corporate Ownership, igiS 












Working Class: 





































Source and methods of computation: In 1928, corporations disbursed $7,073 million 
in dividends, of which $1,916 million were intercorporate dividend payments. Among 
the 4,070,851 income-taxpayers there were 791,579 stockholders, who received a total 
of $4,350 million in dividends, distributed as follows: incomes below $5,000, $341 
million; incomes of $5,000 to $10,000, $438 million; incomes of $10,000 up, $3,571 
million. (Statistics of Income, 1928, pp. 11-12.) The balance of $807 million was 
received by non-income-taxpayers, non-profit institutions, and foreign stockholders. 
Non-profit institutions (endowments, foundations, churches) greatly increased their 
stockholdings after the World War. Foreign holdings in American corporations, which, 
in 1912, constituted 9% of the stock of representative corporations, and were nearly 
wiped out in 1915-20, became again important; in 1922, foreigners owned 1.5% of 
common and 2.5% of preferred stock. (New York Times, January 5, 1913; Federal 
Trade Commission, National Wealth and Income, p. 156.) These holdings rose after 1922, 
because of American prosperity and European economic decline. It is assumed that 
non-profit institutions and foreign stockholders received $450 million in dividends. 
Another deduction must be made: individuals with gross incomes over $5,000 but no 
net income received, in 1928, $88,000,000 in dividends, which do not appear in 
the income-tax total. That leaves approximately $269 million received by individuals 
not filing income-tax reports. All incomes below $5,000 received approximately $610 
million in dividends; of this amount, probably $350 million went to stockholders with 
incomes of $3,000 to $5,000, who are not wage or clerical workers. Of the $260 
million in dividends received by incomes below $3,000, not all of whom are workers, 
the probable distribution was: wage-workers, $30,000,000; clerical workers, $25,000,000; 
farmers, among whom there was a prosperous upper layer, $45,000,000; lower bour- 
geoisie, $160,000,000. Of the dividends received by incomes of $3,000 up, $788 million 
went to stockholders with incomes of $3,000 to $10,000, and $3,571 million to 
stockholders with incomes of $10,000 up, the upper bourgeoisie. The total of the 
upper bourgeoisie is underestimated, because of underreporting and the tax-dodging 
devices of trusts, partnerships, and personal investment companies. Stock owned is 
secured by applying percentage of dividends to total stock owned by individuals. 

330 The Decline of American Capitalism 

and, particularly, the intermediate bourgeoisie was substantial. It 
was the middle class which scored real gains, not the workers; and 
this was admitted by one bourgeois writer in an unguarded moment: 
"Labor makes an absolute, not a relative gain in corporate ownership. 
What we really have is a vast middle class rather than a proletarian 
movement." ^ 

Employee stock ownership was also essentially a middle class move- 
ment, in spite of some of its specific labor aspects. Two claims were 
made: that employee stock ownership is peculiarly American, and 
that it favors the workers. Both claims were false. Employee stock 
ownership exists in all highly industrial nations. In England, where 
the movement started and employee stockholdings were relatively as 
large, if not larger, than in the United States, 503,400 stockholders, 
many of them employees, owned stock in eighteen corporations; in 
one chemical concern, employees owned 643,000 shares, 5% of the 
total." Owen D. Young, chairman of the Board of the General Elec- 
tric Company, an affiliate of the House of Morgan, said this of em- 
ployee stock ownership: "Labor will be the employer and capital will 
be the commodity." ^^ But not only were employee stockholdings very 
limited, they were concentrated in managerial and supervisory em- 
ployees and a small upper layer of highly s\illed workers. 

Employee stock ownership was limited, both in value and in scope. 
In 1928, 1,000,000 employees owned not much more than fi,ooo mil- 
lion in stock, or 1.6% of all stock owned by individuals. Not more than 
400 out of 450,000 active corporations promoted employee ownership, 
which was most general in the larger, monopolist combinations. 
Nearly one-half of all employee stockholdings were in twenty-four 
corporations; the amount was $426 milUon, or 5% of the total stock. 
In thirteen of the largest corporations, employee ownership averaged 
only 4%. While in some companies fairly large numbers of employees 
owned stock, that was exceptional; the average of participants was 
below 15% of the total number of employees.Not only was participation 
concentrated in a small group of employees; concentration of owner- 
ship existed within the employee stockholders, one-third of whom 
owned one-half of all employee stock.^^ Nor was there any develop- 
ment toward employee control. Employee stock ownership plans usu- 
ally make no provision for employee stockholder representation; in a 
few corporations, meetings of employee stockholders were held and 
they elected a member of the board of directors, but this was extremely 
rare. And employee stockholders, a small minority, have even less say 

»ii ii i i | ii i| J>£RC£ArrAGE OF GAINFULLY OCCUP/FD 


332 The Decline of American Capitalism 

in corporate affairs than the majority absentee stockholders; control is 
vested in the officers and their masters, the financial oligarchy. 

Small as employee stock ownership was, it was still smaller in terms 
of working class participation. Employees comprise all individuals 
working for a corporation other than officers and directors. Stock 
ownership was concentrated among the non-worker employees — the 
managerial, supervisory, and selling staffs. This is confirmed by the 
National Industrial Conference Board: "It is clear that corporate stock 
ownership by employees up to the present has been, for the most part, 
an ownership by the superior employees." ^^ General Motors, with 
few stockholders among the mass of its employees, organized in 1923 
a Managers Securities Company, whose shareholders were exclusively 
the higher employees; the company's ownership of stock,, on which 
General Motors paid "bonus" dividends, created 100 millionaires.^* 
Such plans, according to the Journal of Commerce, "hold out the pos- 
sibility of arousing cooperative efforts in a way that may, under favor- 
able conditions, be superior to any other." ^^ Thus, from its most 
important angle, employee stock ownership is a means of making 
management "more loyal" by enlarging its stake in a particular corpora- 
tion; it is also, by the same token, a means of domination over labor. 

Where employee stock ownership includes workers, it is an aspect of 
the struggle against labor, waged by management and its financial 
overlords. In general, the corporations with employee ownership plans 
are the ones most bitterly opposed to trade unions (United States 
Steel, Standard Oil, General Motors, Goodyear Tire and Rubber); 
where unions do exist, as in the case of the Pennsylvania Railroad, 
management wages an open or surreptitious war against unionism. 
Employee stock ownership is interlocked with company unions, spy 
systems, and "welfare" schemes, all aimed to prevent unionism and 
independent action by the workers. This purpose was clearly evident 
in the earliest exponents of the movement. An American economist, 
Nicholas Paine Gilman, said in j88g: "When this privilege [stock 
ownership] is accorded by a prosperous firm, the workmen generally 
show themselves eager to become capitalists on a small scale, and they 
indulge thereafter in very little denunciation of the class which they 
have entered." (Gilman claimed that employee ownership "tends to 
make the establishment a purely cooperative one in time." ^® Where, 
forty-five years later, are these "cooperative establishments"?) And the 
same idea of "moderating" labor discontent was expressed, in 1926, in 
the theory that employee stock ownership develops, against the inde- 
pendence and insurgency of unionism, a group of workers who arc 

The Multiplication of Stockholders 333 

"better satisfied, more efficient and dependable; are not primarily 
reformers, belong to the non-insurgent type, have no essential quarrel 
with corporations and employers as such, nor with the industrial system 
as such." '' 

The upsurge of labor militancy in the strikes of 1877 led the employ- 
ers to consider the problem of "harmony" between labor and capital. 
It aroused new interest in profit-sharing, and it gave birth to the idea 
of employee stock ownership. The idea was thus formulated, in 1878, 
by Abram S. Hewitt,* millionaire iron and steel capitalist, who became 
a director of the United States Steel Corporation upon its formation 
in 1901: 

"The harmony of capital and labor will be brought about by joint 
ownership in the instruments of production, and what are called 
'trusts' merely afford the machinery by which such ownership can be 
distributed among the workmen. ... By abstinence, which is the 
parent of capital, the workmen can acquire sufficient wealth so that 
in a generation the whole capital invested in industrial undertakings 
might be transferred to the wage-earning class." ^® 

In a generation! . . . 

Harmony between labor and capital was also the purpose of profit- 
sharing. But it was an expression of small-scale industry, where larger 
output could be secured by stimulating the interest of the individual 
worker: the "father" of profit-sharing was a French employer of 
painters, of craftsmen. Where larger output depends primarily upon 
the machine and not the worker, the scope of profit-sharing is Hmited. 
This was recognized, in 1889, by Gilman, himself an advocate of 

"A matter of first importance, however, is the nature of the occupa- 
tion in which the system of profit-sharing is applied. Theory and experi- 
ence harmonize here in declaring that if the employee is to create an 
extra fund of profits, which shall at least provide his bonus, the busi- 
ness must be such that increased industry, skill, care, or economy will 
tell upon the result. . . . The manufacture of cotton and woollen 
goods will occur as being a comparatively unpromising field for this 

• Hewitt, who might be called the "father" of employee stock ownership, and 
who influenced its adoption (along with other "welfare" practices) by the United 
States Steel Corporation, encouraged the crushing of the steel Workers' strike in 1901, 
and urged "stern repression" of the coal miners' strike in 1902. He was an enthusiastic 
exponent of philanthropy, to which he gave a conscious class purpose. "The rich," said 
Hewitt, "in contributing are but building for their own protection. If they neglect 
so to build, barbarism, anarchy, and plunder will be the inevitable result." See New 
York Times, November 26, 1900; August 26, 1902. 

334 The Decline of American Capitalism 

new system. The value of the plant is great, the working capital is 
large, machinery plays the chief part, and much of the labor employed 
is unskilled, save in a very narrow line. The market is variable, and the 
balance sheet is determined more by the skill of the management than 
by the quality of the manual labor employed." ^® 

Hence many employers in England and the United States adopted 
the plan of paying "shared" profits in company stock. Eventually 
profit-sharing was abandoned in favor of selling stock to employees. 
It was both more effective and cost little. Employee ownership is in- 
tended primarily for the managerial and supervisory personnel, where 
profit-sharing was primarily for workers. But there is still the problem 
of making workers more "efficient," "dependable," and "loyal." While 
the tempo of efficiency for the mass of workers is set by the machinery 
and apparatus in use, the "key" workers must be considered. More- 
over, excessive labor turnover is bad for efficiency, while strikes are 
fatal to the yield of profits on the masses of capital in modern indus- 
try. Capitalist industry resorts to employee stock ownership for the 
"key" workers and "welfare" for the mass of workers. 

Stock ownership for "key" workers is involved with a neglected 
aspect of scientific management: the insistence of Taylorism, not 
wholly a matter of "time and motion," that a definite proportion of 
workers must be put "on the side of management." In Taylor's own 
words: "The work which under the old type of management practi- 
cally all was done by the workmen, under the new is divided into two 
great divisions, and one of these divisions is deliberately handed over 
to those on management's side. ... A machine shop, which, for 
instance, is doing an intricate business, will have one man on manage- 
ment's side to every three workmen." ^° From a slightly different 
angle, the same idea was urged by another efficiency engineer, H. L. 
Gantt: "The [theory] is coming to be discredited that in order to get 
low costs the expense of the supervising force must be small com- 
pared to that of those who are actually performing the physical labor. 
. . . The increasing productivity of our automatic machinery requires 
Httle direct labor, but quite a good deal of supervision." ^^ Industry's 
supervisory employees were greatly augmented. While wage-workers 
in manufactures, transportation, and mining rose from 9,982,000 in 
1910 to 12,757,000 in 1920, supervisory employees rose much more, 
from 495,169 to 823,513.^^ This change in the organization of labor 
was accelerated, after 1920, by more intensive automatization and 
rationalization. Supervisory employees, including "key" workers, are 

The Multiplication of Stockholders 335 

represented among employee stockholders. So, also, is a small group 
of the older and better-paid workers. 

For the mass of workers there is the cruder "welfare" work, com- 
pany unions, and other measures, which involve a brutal mixture of 
calculated benevolence, espionage, and terrorism to prevent unionism 
and strikes, to maintain "loyalty." (According to one estimate, the 
costs, in 1927, of the welfare work of 514 corporations was only 1% 
of the payrolls.^^ The costs of strikes are infinitely greater.) Thus 
capitalism attempts to strengthen its dictatorship over labor. For wel- 
fare work is itself a form of struggle against the workers. . . . 

The functional distribution of stock ownership is in line, of course, 
with the exploiting relations of capitahst production. It was roughly 
as follows in 1929: 

Absentee stockholders, 87%. 

Officers and directors, 11.5%.* 

Managerial and merchandising employees and employees "on the 
side of management" (supervisory employees, "key" workers), i%.t 

Mass of workers, 0.5%. 

The "new" Hberals, Hke the old, insist on stressing the "constructive" 
aspects of capitalist development, not their class significance, contradic- 
tions, and antagonisms. Clearly large-scale industry, the multiplication 
of stockholders, and the separation of ownership and management 
arise out *of the constructive, objective socialization of production. 
This, the historical function of capitaHsm, is the basis of socialism. 
But the socialization of production, itself a negation of private prop- 
erty and the capitalist relations of production, means both the possi- 
bility of new progress and a reaction against progress. For, while the 
older social-economic relations persist, it means more exploitation of 
labor (and the farmers), monopoly capitalism, imperiaUsm, economic 
decline, mass disemployment, and war. But these conditions the "new" 
liberals overlook, or else consider them "independent" categories, not 
understanding the dialectical unity of capitalist development. So 
they stress the "constructive" aspect of the separation of ownership and 
management: the appearance of an "independent" class of manage- 
ment. This class is to introduce a "new spirit" in industry, compact 
of devotion to the interests of employees and consumers, disregarding 

* The Federal Trade Commission estimated in 1922 that officers and directors owned 
10.7% of the common stock and 5.8% of the preferred in the corporations employing 
them. Federal Trade Commission, National Wealth and Income, p. 159. 

fThe total ownership of stock by higher employees, officers, and directors is, of 
course, much greater, for they may own stock in other corporations. But that is an 
absentee, not an employee ownership. 

33^ The Decline of American Capitalism 

the rights of property and stockholders. The idea has thus been formu- 
lated by Prof. Sumner H. Slichter, a "new" liberal and an institutional 
economist, who is entangled in all the contradictions of the "older" 
and the "newer" economics: 

"The voice of property owners in the control of industry seems to 
be diminishing . . . through the growth of state intervention, of 
trade unionism, and, probably most important of all, of professional 
management which is more or less independent of control by inves- 
tors. . . . Mere private ownership of capital ... is not capitalism. 
Capitalism is the control of policies by private property owners. . . . 
To the tendency of management to become independent of ownership 
there is no check in sight. It may be objected that the shift in power 
from owners to managers represents no real change in the control of 
industry, that professional managers are guided essentially by the same 
pecuniary standards which business owners accept. This, however, is 
true in part only, because professional management develops standards 
of its own to which it tends to adhere even in violation of investors. 
By influencing these professional standards, the public has an excellent 
opportunity to affect the conduct of industry." ^* 

This is simple, all too simple. 

State intervention is in the interest of the capitalist class. It ends in 
fascism, a reaction against all progressive forces. 

Trade unionism, unless it moves toward larger revolutionary objec- 
tives, is increasingly subordinated by state capitalism and finally sup- 
pressed by fascism. 

These two forces do not move "smoothly" toward a "new" social 
order. They move, in the epoch of capitalist decline, toward an explo- 
sion of class-economic contradictions and antagonisms: revolution or 

The merely functional, not class, analysis of management is insuffi- 
cient. From the functional angle, "professional management" is a 
progressive development, an expression of the socialization of produc- 
tion, one of the elements of socialism. From the class angle, profes- 
sional management is thwarted to serve property interests; it is a 
hireling of the financial oligarchy. Slichter himself says: "They [profes- 
sional managers] are not free men. They are not neutral, hired to 
serve all interests alike. They are employed by stockholders to promote 
the interests of stockholders." But still: "They must be neutrals — 
equally the servants of the owners of capital, wage-earners, and con- 
sumers."^^ The eternal simplicity of the "new" liberals! Always they 
indulge in wish-fulfillments, to evade the need of struggle. Higher 

The Multiplication of Stockholders 337 

wages, social legislation, protection of the consumer, employee stock 
ownership, all the older reforms, and the newer: they are still urged, 
while capitalist decline and reaction prepare to annihilate all reform. 

For the separation of ownership and management does not mean 
that capitalism is "not capitalism" any more, in the sense of any basic 
change in class relations. It simply separates the functions of exploi- 
tation and management, formerly combined in the lordly person of 
the capitalist himself, now become an absentee or financial capitalist. 
Feudalism was still feudalism when the nobility became a class of 
absentee landlords and courtiers, while management was made a func- 
tion of underlings. Feudalism was not transformed by the "professional 
spirit" and "independent standards" of the nobility's managerial em- 
ployees; it was undermined by social-economic development and over- 
thrown by the revolutionary class struggle of the bourgeoisie. 

A ruling class, when it comes to power, combines constructive and 
exploiting functions. The bourgeoisie was not merely an exploiter of 
the workers. It performed the historical task of overthrowing feudal- 
ism, and it organized a new, more progressive mode of production. 
The early industrial capitalist combined the functions of ownership 
and management, of exploitation and labor. Now, however, the indus- 
trial capitalist is an anachronism, and nowhere more so than in the 
United States, where large-scale industry and the multiplication of 
stockholders are most highly developed. Stockholders own,, but they 
do not manage. Management does not own, but it manages as 
employees. The financial capitalists are merely exploiters; they con- 
trol, and have a monopoly share in ownership, but they perform no 
useful social function. Thus ownership becomes more wholly para- 
sitic, control more wholly predatory. A new social order thunders at 
the gates of history. 

Neither management nor stockholders control industry; control is 
usurped by the financial oligarchy and its institutional mechanism, the 
great banks. Of whom is management composed? It is under control 
of the higher administrative officers and directors, many of them 
major or minor financial capitalists, most of them plundering their 
corporations, and all of them dependent upon the financial oligarchy. 
Upon them the real management, the lower officers and managerial 
and supervisory employees, is dependent. This dependence, moreover, 
is not only objective; for the ideology and practices of management 
are still dominated by the social relations of capitalist production. 
Nor is management independent of the stockholders; its most impor- 
tant elements are themselves stockholders. From a functional angle. 

338 The Decline of American Capitalism 

except in so far as its work is simply to increase profits by exploita- 
tion both of the workers and of commercial opportunities, professional 
management is a step toward socialism; it develops the arts and some 
of the relations of the sociaUst economic order. From a class angle, 
management is to-day partly a privileged caste, beneficiaries in varying 
measure of the subjection and exploitation of the workers. (The lower 
layers are, however, increasingly exploited, particularly under the con- 
ditions of capitalist decline; they are possible allies of the workers.) 
It is management which uses all means in its power — company unions, 
espionage, blacklists, "yellow dog" contracts, violence — to suppress the 
workers; management, not its financial masters, is on the firing line 
in the minor civil wars of strikes. 

The significance of hired managers is not a discovery of the "new" 
liberals. It was observed by the bourgeois economist, Ure, in the 1830's. 
On this subject, Marx wrote: 

"The labor of superintendence and management will naturally be 
required whenever the direct process of production assumes the form 
of a combined social process, and does not rest on the isolated labor 
of independent producers. It has, however, a double nature. On the 
one side, all labors, in which many individuals cooperate, necessarily 
require for the connection and unity of the process one commanding 
will, and this performs a function, which does not refer to fragmentary 
operations, but to the combined labor of the workshop, in the same 
way as does that of a director of an orchestra. This is a kind of pro- 
ductive labor, which must be performed in every mode of production 
requiring a combination of labors. On the other side, quite apart from 
any commercial department, this labor of superintendence necessarily 
arises in all modes of production which are based on the antagonism 
between the worker as a direct producer and the owner of the means 
of production. To the extent that this antagonism becomes pronounced, 
the role played by superintendence increases in importance. Hence it 
reaches its maximum in the slave system. But it is indispensable also 
under the capitalist mode of production, since the process of production 
is at the same time the process by which the capitalist consumes the 
labor power of the laborer. In like manner, the labor of superintend- 
ence and universal interference by the government in despotic states 
comprises both the performance of the common operations arising 
from the nature of all communities, and the specific function arising 
from the antagonism between the government and the mass of the 
people. . . . The labor of superintendence and management arising 
out of the antagonistic character and rule of capital over labor, which 

The Multiplication of Stockholders 339 

all modes of production based on class antagonisms have in common 
with the capitalist mode, is directly and inseparably connected, also 
under the capitalist system, with those productive functions which all 
combined social labor assigns to individuals as their special tasks. The 
wages of an epitropos, or regisseur, as he used to be called in feudal 
France, are entirely differentiated from the profit and assume the 
form of wages for skilled labor. . . . That not the industrial capitalist 
but the industrial managers are 'the soul of our industrial system/ 
has already been remarked by Ure. ... To the extent that the labor 
of the capitalist is not the purely capitalist one arising from the process 
of production and ceasing with capital itself, that it is not limited to 
the function of exploiting the labor of others, that it rather arises from 
the social form of the labor process as a combination and cooperation 
of many for the purpose of bringing about a common result, to that 
extent it is just as independent of capital as that form itself, as soon 
as it has burst its capitalist shell. . . . Compared to the money [finan- 
cial] capitalist the industrial capitalist is a worker, but a working 
capitalist, an exploiter of the labor of others. . . . The wages of super- 
intendence appear completely separated from the profits of enterprise 
in the cooperative workshops as well as in capitalist stock companies. 
. . . Stock companies in general have a tendency to separate this labor 
of management as a function more and more from the ownership of 
capital. Only the functionary remains and the capitalist disappears from 
the process of production as a superfluous person." ^^ 

Once the capitaHst combined the functions of exploitation and 
management; in his typical modern form, he merely exploits. But 
management still performs both the function of managing and exploit- 
ing. They can be separated, however, as they were separated in the 
person of the capitalist. Where, however, economic development was 
enough in the one case, in the other a revolutionary social transforma- 
tion is necessary. In the Soviet Union the capitalist was annihilated 
and management was deprived of its exploiting aspects. Management 
is now wholly a junctional task, merely a form of productive social 
labor. . . . 

The multiplication of stockholders, and the separation of ownership, 
management, and control, are identified with increasing economic 
instability and the decline of capitalism. Concentration of the owner- 
ship of stock, of wealth and income, provides the sinews of specula- 
tion. Because of control by the financial oligarchy, corporate industry 
becomes increasingly irresponsible, adventurous, speculative, and 
unstable. Capitalism is no longer capitalism in the old sense, it is 

340 The Decline of American Capitalism 

rotten-ripe for change; but capitalist relations persist, thwart and resist 
social change, react against progress, and produce economic decline, 
new maladjustments and disturbances.* Yet these sinister conditions 
arise out of essentially progressive developments capable of becoming 
the basis of a new social order, in which man, the worker, masters 
society, nature, and himself. 

•Depression wipes out most of the holdings of small stockholders. Where they 
arc trying to get a job or slightly raise their wages, with the lower living standards and 
mass disemployment of capitalist decline, workers are not likely to aspire to become 
stockholders. Hence the ballyhoo of state capitalism does not include the idea of 
realizing "industrial democracy" by making the workers stockholders and capitalists! 


Class Distribution of Wealth 

In! iraism claims that its program means the redistribution and "more 
democratic" ownership of wealth. That is also the claim of state capi- 
talism in Europe, and of fascism. Meanwhile the concentration of 
wealth is being augmented; only poverty and misery become "more 
democratic," more universal and inescapable. 

Similar claims were made, before the World War, by American 
liberals, who for forty years fought for the taxation of incomes and 
inheritances to break up the concentration of wealth. They were 
damned by the embattled owners of great fortunes and their apologists 
as immoral wretches, anarchist enemies of God and country, a menace 
to democracy and the republic. For the simple proposal to tax incomes 
and inheritances! Finally, in 1913 and 1916, the proposals were enacted 
into Federal law. But the concentration of wealth, and of income, was 
not broken; it was strengthened. 

That the concentration of wealth was at least unshaken during the 
war and the early post-war years, was proved by the Federal Trade 
Commission's study of the distribution of comparable samples of 
estates in 1912 and 1923. Curiously, however, the Commission, and 
the ballyhoo men who seized upon its conclusion, used its figures to 
"prove" the existence of a tendency toward more equal ownership of 
wealth. Yet even the Commission did not claim much of a change, 
merely "an apparent trend toward a somewhat wider distribution." 
Merely that, in spite of income and inheritance taxes, of heavy war 
taxation of corporate profits and the higher incomes, of many economic 
and political changes. But the conclusion itself was unjustified. "In 
1912," according to the Commission's report, "about 29% of all the 
probated estates amounted to less than $1,000 each, while in 1923 only 
20.8% were less than $1,000. Furthermore, in 1912, the estates of over 
$100,000 each amounted to 52.6% of the total value of all estates, while 
in 1923, they amounted to only 45.9% of the total." ^ These figures 
prove the opposite of the Commission's conclusion. In 1923, the pur- 
chasing power of money was 45% lower than in 1912; this would 
nominally raise the value of estates, and the number of small estates 
would tend to decrease. That is no indication of a more widespread 

342 The Decline of American Capitalism 

distribution of wealth. And the fall in the value of larger estates 
merely meant that, to evade inheritance taxes, many fortunes were 
partly distributed before the death of their owners. 

What the Commission did prove, and prove fully, was the existing 
great inequality of wealth. By including decedents, the overwhelming 
majority of workers and poorer farmers, who left estates so small that 
they were not probated (76.5% of all decedents), and assigning these 
"estates" an estimated average value of $258, just enough to bury the 
owners, the Commission found that: 

Estates below $500, 79.8% of the total, owned 5.6% of the wealth. 

Estates of $500 to $10,000, 14.9% of the total, owned 12.7% of the 

Estates of $10,000 to $50,000, 4.2% of the total, owned 23% of the 

Estates of $50,000 up, 1.1% of the total, owned 58.9% of the wealth.^ 

The "new capitalism" flourishing in 1923-29 also claimed that 
wealth was being redistributed in favor of the masses. It made no 
mention of income and inheritance taxes as a means of breaking up 
the concentration of wealth. It insisted that this was being done by 
increasingly higher wages and the more equal distribution of income. 
The claim was refuted by the facts of stationary wages and increasing 
income inequality. It was also refuted by the upward movement in 
the value of the larger estates.* Although the number of probated 
estates fell from 13,011 in 1923 to 8,798 in 1929, their value rose from 
$2,540 million to $4,108 million, a much greater rise than in produc- 
tion, the national income, and national wealth. Estates of $50,000 up 
rose from 6,344 ^^^ ^^^i^ value from $1,857 ^^ S3j749 million, an in- 
crease of 100% compared with 60% in the value of all probated 
estates.^ This substantial upward movement in the concentration of 
wealth was the natural result of an accelerated accumulation of capi- 
tal, the amassing of industrial and speculative profits, and the multi- 
plication of capital claims. New fortunes were piled up, and the older 
fortunes grew tremendously. 

One aspect of the "new capitalism" was the theory of "trade union 
capitalism." t Its assumption was this: if the workers mobilize their 
"enormous" savings, and invest them in corporate stocks and labor 

•According to Robert R. Doane, The Measurement of American Wealth (1933), 
p. 33, the share of the national wealth owned by incomes of $10,000 up rose from 
38.7% in 1 92 1 to 42.6% in 1929; the share of all incomes below $3,000 fell from 
31.9% to 29%, and of incomes of $3,000 to $10,0000 from 29.4% to 28.4%. 

t This subject is discussed more fully in Chapter XXVI, "The American Revolution." 

Class Distribution of Wealth 343 

banks, the working class will eventually get control of industry. 
Workers will become capitalists, and the antagonism between labor 
and capital will be ended. "Even a barber, if he owns his razor," said 
Warren S. Stone, Chief of the Brotherhood of Locomotive Engineers, 
an enthusiastic advocate of "trade union capitalism" and one o£ the 
original labor bankers, "is a capitalist; most workingmen own stocks 
and bonds." * But only a small group of workers were able to buy 
stocks. Depression has now expropriated most of them. The labor 
banks are now a mass of ruins. And the "enormous" savings existed 
only in the imagination of the apologists. "Each year," said one labor 
banker, "our industrial workers save from $6,000 million to $7,000 
million in various ways." ^ This conclusion was reached in a simple 
(very simple) fashion: one estimate of the national savings was $12,- 
000 million; the workers are more than half the gainfully occupied, so 
they save that proportion of the national savings! 

Workers slightly augmented their absolute share of savings, but not 
their relative share. Total savings deposits rose from $6,835 million in 
1910 to $28,218 million in 1929. Over half the increase, however, was 
an accumulation of interest, totaling $11,588 million.^ Another part was 
a nominal increase, because of the fall in the purchasing power of 
money. Yet the rise was substantial.* But the savings were primarily 
those of the bourgeoisie, not the workers. While deposits in mutual 
savings banks, where workers are most likely to have accounts, rose 
165% from 1910 to 1929, they rose 328% for all banks.^ In the non- 
mutual banks savings are not really savings, they are mainly the 
"time" deposits of businessmen; where they are savings, they are 
overwhelmingly those of the middle class, especially the upper layers. 
Nor are wage- workers the majority of depositors in mutual savings 
banks; less than a third in one Philadelphia bank were workers. An- 
other investigation revealed that, among a group of women workers, 
only one-half had savings accounts; half of them were under $100 and 
only seven over $500.® The ownership of deposits is highly concen- 
trated. In the savings banks and the savings departments of state 
banks and trust companies of Connecticut, in 1929, the distribution 
of deposits was as follows: 

♦ New savings, interest, and insurance, in line with the tendency of capital and 
capital claims, increased much more than production and the national income, and 
more in 1919-29 than in preceding periods. Thus savings do their bit to intensify 
maladjustments and disproportions. And this is true also of those savings which are 
"rainy-day" funds. Only when the provision for illness, old age, and disability is 
sociaUzed, in a socialist society, will it stop being a disturbing factor, for then it is 
done according to plan and the balanced needs of industry. 

344 The Decline of American Capitalism 

The smaller accounts, 1,152,311 or 84.3% of the total, had deposits 
of I167 million, an average of $145. 

The intermediate accounts, 209,608 or 15.3% of the total, had deposits 
of $534 million, an average of $2,550. 

The larger accounts, 5,555 or 0.4% of the total, had deposits of $79,- 
000,000, an average of $14,315.® 

Most workers with savings were included in the smaller accounts, 
with an average deposit of $145! And in 1933, of 30,556,105 accounts 
in Federal Reserve banks, with total deposits of $23,542 million, 96.5% 
of the accounts had 23.7% of the deposits, with an average of $189, 
while 0.1% of the accounts had 44.6% of the deposits, with an average 
of $224,000.^'' Use one or the other set of statistics, and the conclusion 
is the same: the share in savings of the working class was miserably 
small. It is smaller now, much smaller, because of losses during 
the depression and mass unemployment. 

The share of the workers was larger, in 1929, in the $8,695 million 
assets of building and loan associations, with their 12,111,209 members.^^ 
But it was far from a majority share, for most of the members are of 
the lower middle class. (Never, in any previous depression, were there 
as many foreclosures of small home-owners as in 1930-34, including 
workers and professionals.) 

Nor did the workers have any "enormous" share in life insurance. 
That is also highly concentrated. In 1932, 402 individuals (thirty-five 
more than in 1930) owned policies of over $1,000,000, totaling $640 
million.^^ Average insurance for all policyholders was $3,000. For 
policyholders with incomes from $1,000 to $2,000 the average was only 
$1,023, ^^^ $2,798 for those with incomes from $2,000 to $3,000.^^ But 
the average policy of the workers was even smaller. According to one 
estimate, a working class family in 1924 was able to spend an average 
of only $43 on insurance.^* The workers' real stake is in industrial 
insurance, although a part of it is carried by non- workers. In 1929, 
industrial policyholders held insurance of $17,902 million, or 17.4% 
of total life insurance; the value of the average holding was only 
$360.^^ Workers lose more than they gain, moreover, from industrial 
insurance. Costs are great. Lapses still greater: they rose from 6% in 
1921 to 23% in 1932. In 1929, for every dollar of insurance sold, 67.1% 
had vanished. For 1928-32 alone, the losses on lapsed policies were 
$200 million. There is much more profit for the insurance company 
in 1,000 industrial policies, of which 500 lapse, than in 500 policies, 
of which only 200 lapse.^® Life insurance is identified, not only with 
the unequal distribution of wealth and income, but with all the preda- 

Class Distribution of Wealth 345 

tory aspects of capitalism. The companies are plundered by manage- 
ment, whose upper layers get fabulous salaries; they spent $921 mil- 
lion in 1929, while the policyholders received $1,961 million: 32^ costs 
for every 68^ distributed! ^^ And, in spite of their mutual character, 
they are under the control of the financial oligarchy, which manipu- 
lates their resources for investment, speculative, and other profitable 
purposes. . . . 

The average workers' family, according to one estimate for 1924, 
saved $122 yearly; 24% of the families had an average deficit of $127.^^ 


n in National Savings, 1^28 








$ 500 


















Savings Deposits 

Life Insurance Premiums 

Building and Loan 

Corporate Issues 

Government Issues 

Foreign Issues 



Business Savings 

Total (Net) $18,000 $1,800 

* None. 

Source and methods of computation: All of the labor shares are wholly estimated, 
except insurance premiums; to $700 million paid in industrial premiums (Maurice 
Taylor, The Social Cost of Industrial Insurance, p. 193) is added a probable $150 
million for ordinary life premiums. Business savings are additions to corporate sur- 
plus and undivided profits of $6,600 million (Bureau of Internal Revenue, Statistics 
of Income, 1931, p. 48), and an estimate of $1,400 million as the savings of non- 
corporate enterprises. The amounts of the different savings are from Department of 
Commerce, Statistical Abstract of the United States, 1931, pp. 280, 318, 876. 

Small as the workers' share of the national income is, their share of 
the national savings is still smaller. This share, in 1928, was only 10% 
(Table V). It is necessarily small, because all the class-economic rela- 
tions of capitalism make "saving" a monopoly of the owning and 
possessing class.* 

* The workers' small share in savings and insurance disposes of the argument that 
they have a large indirect interest in corporate ownership. Moreover, the banks and insur- 
ance companies own not much over 5% of total corporate stock. 

346 The Decline of American Capitalism 

Wealth changes its forms, as social-economic relations change, but 
not its main characteristic: it is a claim upon production and income. 
Concentration in a class of the ownership of the means of production, 
upon which depends the livelihood of society, means a class monopoly 
of wealth. In one aspect, as tangible things, wealth represents the 
product of social labor, the means of satisfying society's needs; in 
another aspect, as ownership, it represents an appropriation of the 
means of labor and of the product of labor, the power of exploiting 
the producers. New increments of wealth result from the combined 
labor of society; under the relations of private property the increments 
become the possession of a class. 

Where wealth is capital it is, as a social relation of exploitation, the 
"right" to appropriate surplus value, the unpaid labor of workers, and 
convert it into capital as new means for appropriating more surplus 
value. That is why capitalist production depends upon continual 
expansion, upon an increasing output and absorption of capital goods. 
Great fortunes are typical of capitalist wealth. They are not, however, 
the result of mere direct appropriation of surplus value; fortunes may 
be acquired and enlarged by theft of natural resources, by speculation 
and political corruption, by plunder of the wealth, or realized surplus 
value, of other owners of property, by mere flukes of chance. But 
all great fortunes are claims upon production and income, upon the 
unpaid labor of the workers. 

Not the "abstinence" or savings of the individual, but the "savings" 
of society are the source of new capital. Even where savings are the 
result of abstinence or thrift, they become capital only by commanding 
and exploiting labor. Individual abstinence plays a very small role in 
capital accumulation; an impersonal, institutional abstinence, imposed 
upon the masses by the social relations of capitalist production, is the 
source of capital. This appears clearly in the three forms of savings: 

1. Where savings represent individual abstinence from consumption, 
they are the least important source of investment capital. It is limited 
to the savings of the workers, the mass of farmers, and the lower 
bourgeoisie (who, however, may also appropriate surplus value). 
This real abstinence produces not more than 15% of the national 
savings. The savings, moreover, become capital only when they are 
invested, mainly in the form, of the institutional investments of banks 
and insurance companies, and yield realized surplus value in the 
form of interest or profit. 

2. The major source of "savings" is the surplus income of the inter- 
mediate and upper bourgeoisie. It is this surplus the apologetic econo- 

Class Distribution of Wealth 347 

mists justify with the theory that "abstinence is the source of capital." 
But the capitalists are not abstemious. They enjoy all the good things 
of life. Their great expenditures, especially on conspicuous competitive 
consumption, are the direct opposite of abstinence. The surplus, and 
the consumed part of capitalist income, was originally unpaid labor 
or product of the workers; it becomes income-yielding and wealth- 
yielding capital by extorting more unpaid labor. (Speculative profits 
are either realized surplus value or claims upon prospective surplus 
value.) In one sense, the surplus income of the bourgeoisie is the 
product of abstinence, of the abstinence from fuller participation in the 
fruits of their labor, and from consumption, of the masses of workers 
and poorer farmers,* 

3. On the average, from 40% to 50% of the national savings are the 
result of business savings, of undistributed profits. Personal abstinence 
does not contribute to these enormous savings, neither the self-imposed 
abstinence of the worker, who saves a little for the rainy day, nor the 
imaginary abstinence of the capitalist. The small businessman who 
saves a part of his profits performs, it is true, a personal act. But this 
is of diminishing importance in capitalist production, which becomes 
increasingly large-scale and corporate; non-corporate enterprises in 
1928 contributed not much more than 15% of total business savings. 
Corporate surplus and undivided profits, in 1927-29, rose $21,300 mil- 
lion, an average of $7,000 million yearly.^^ These are impersonal, 
institutional savings, independent of individual initiative, a social form 
of accumulation within the relations of personal property ownership. 
In the measure that corporate savings are reinvested and yield profits, 
they augment the income and wealth of stockholders who, in this 
particular case, have done absolutely nothing, not even to invest. 

This impersonal and institutional, or social, character of capital 
accumulation appears most strikingly in credit. When the management 
of a corporation gets a bank loan, or when its securities are under- 
written and, while still unsold, are used by the investment banker to 
get credit from a commercial bank, the credit represents only in very 

* "The capitalist does not become enriched as does the miser in proportion to 
his personal labor and his personal abstinence from consumption, but to the extent to 
which he can put the screw on other's labor power, and to which he can enforce 
upon the worker the renunciation of all the pleasures of life. Although, therefore, 
the capitalist's extravagance never has the genuine character of unbridled prodigality 
which was typical of certain feudal magnates, and although behind it there lurk sordid 
avarice and anxious calculation, none the less his prodigality grows proportionately with 
his accumulation, without the one necessarily putting an end to the other." Karl 
Marx, Capital, v. I, p. 635. 

348 The Decline of American Capitalism 

small part money saved and deposited in the bank. For banks issue 
credit beyond their actual resources. Loans become deposits, and these 
deposits become the basis of more loans. Where formerly bank credit 
was used largely for commercial and working capital purposes, it is 
now used largely for fixed capital purposes. According to the estimate 
of one economist, over 50% of commercial bank credit is used for fixed 
capital.^^ And the greater part of credit is merely an institutional crea- 
tion, repayable because of the profits it makes by command over labor, 
capital equipment, and raw materials. Capital created by credit is 
obviously the product of social labor. There is neither real nor imagi- 
nary abstinence, except the abstinence imposed upon the workers pro- 
ducing surplus value. But so is all capital the product of social labor, 
although it all becomes private property. In final analysis, the creation 
of capital is determined by assigning so much social labor to the pro- 
duction of capital goods, an elementary fact disguised and distorted by 
the ownership, financial, and predatory relations of capitalist produc- 

Another source of wealth, independent of personal saving or invest- 
ment, is the multiplication of capital claims. (Some claims are the 
result of non-productive investment.) One form of this is the upward 
movement in land values, capitalizing the growth of population, 
production, and the national income. Another form is the recapitaliza- 
tion of industry and the inflation of stock values. This may result from 
speculation, or from capitalizing the general upward movement of 
production, technological changes, seizure of natural resources, un- 
usually profitable market conditions, formation of monopolist com- 
binations, and monopoly advantages.* This, in certain stages, may be 
an unusually important source of capitalist wealth; as in 1 898-1 91 4, 
when monopoly recapitalized American industry. It was important in 
the pre-1929 prosperity: mergers and combinations yielded great profits 
to promoters and bankers, and inflated capitalization. Monopolist com- 
binations all capitalized increasing production, the rising productivity 
of labor, and anticipations of higher profits. An investment, in 1922, of 
$10,000 in the common stocks of a group of corporations rose in eight 

• "Those millions of new capital resources were not a result of savings and abstinence, 
but only capitalization. . . . Technical progress made production cheaper, and this 
cheapening of processes did not reduce prices — as was the case in the last thirty 
years of the nineteenth century; the gain in the present century has been absorbed in 
the process of capitalization. Thus the private capital, which is really only a right to 
income without effort, a multiple of a free income, has been increased without the 
real and social capital being proportionally augmented by saving." L. V. Birck, 
"Theories of Overproduction," Economic Journal, March, 1927, p. 26. 







fj<HMetKs /^.V% 

■■■■I P£:/K£/VrA&£ OF W£ALTH 0WN£O 

imiminii PiRdAjrAoeof gajnfullv occup/sd 


350 The Decline of American Capitalism 

years to $23,500, an increase of 235%, in addition to yielding cash 
income of $8,535, ^^ average yearly increase of 16.5%.^^ Independent of 
new investment, capital and capital claims were augmented, rising 
faster than production and the national income, engendering malad- 


Class Distribution of Income-Yielding Wealth, ig28 












Working Class* 












Bourgeoisie :t 





















loo.o $285,000 lOO.O 


• Wage and clerical. 

+ Lower bourgeoisie, incomes below $3,000; intermediate, incomes of $3,000 to 
$10,000; upper, incomes of $10,000 up. 

X Robert R. Doane, The Measurement of American Wealth, p. 25, estimates the 
1929 distribution of all wealth, including non-income yielding, as follows: Incomes 
of $10,000 up, $150,691 million or 42.6%; incomes of $3,000 to $10,000, 
$100,161 million or 28.4%; all incomes below $3,000, $102,239 million or 29%. 
Incomes of $100,000, a handful of 14,816 individuals {Statistics of Income, 1931, 
p. 39), owned $46,482 million or 13.2%. 

Source and methods of computation: Basic sources are the same as in Table V, 
and Department of Agriculture, Crops and Markets, July, 1929, p. 254. Income- 
yielding property includes (less duplications) all individually owned corporate stocks 
and bonds, mortgages, government bonds, foreign securities, real estate, capital value 
of unincorporated business enterprises, farms, savings deposits, and assets of insurance 
companies and building and loan associations. Private homes and personal property 
are excluded. Estimates of class distribution are as follows: Working class — stocks 
$750 million, corporate bonds $250 million, savings deposits $7,000 million, govern- 
ment bonds $500 million, share in building and loan assets $2,500 million, share in 
life insurance assets $2,500 million. Farmers — stocks $625 million, corporate bonds 
$1,750 million, savings deposits $2,000 million, government bonds $2,000 million, 
insurance $1,500 million, farms ($58,645 million less $32,530 million value of 
rented land and debts to non-operators plus probably $10,000 million for value 
of rented land and mortgages owned by farmers) $36,115 million. Upper bour- 
geoisie — stocks $48,300 million, corporate bonds $10,000 million, government bonds 
$9,940 million, foreign securities $5,000 million, unincorporated business $17,000 
million, real estate $26,000 million, savings deposits $10,000 million, insurance $5,000 
million. Intermediate and lower bourgeoisie — balance of income-yielding property, 
apportioned roughly in accordance with income and stock ownership. 

Class Distribution of Wealth 351 

justments and disturbances. Many of the gains of recapitalization are 
wiped out {not the part represented by the profits of bankers and 
promoters). But the losses are a necessary condition of capitalist accu- 
mulation, and they help to concentrate wealth in the ownership of 
financial capitalists. In the epoch of the upswing of capitaUsm, more- 
over, the gains were greater than the losses, enlarging capital claims 
like a snowball going downhill. It is different in the epoch of decline, 
when losses tend to outstrip gains; this inflames capitalist passions, 
makes their fight for profits more ferocious, creates new antagonisms 
and social explosions. . . . 

As the accumulation of wealth is essentially an impersonal, insti- 
tutional function of ownership and class exploitation, the share of the 
working class must be small. It is even smaller than the 10% partici- 
pation in national savings, because these savings are rainy-day funds, 
cut into by illness, unemployment, and depression. (If, in depression, 
a worker uses up his savings, the loss is final. But the losses of the 
owning class are not necessarily final. If the values of stocks go down, 
they rise again; if the stocks are sold, what the former owner loses the 
new owner may gain.) Hence, in 1928, the workers' share in the 
income-yielding wealth of the nation was only 4.7% (Table VI), half 
their share of the national savings. Not only is concentration of wealth 
greater than of income, it is greater than the statistics indicate. For 
the workers' "wealth" is merely a pitifully small reserve against illness, 
unemployment, and death. The farmers' share is probably overesti- 
mated, and ownership is concentrated in the upper layers; the tenants, 
share croppers, and poorer farmers, the majority, do not even make 
a fair living. The share of the lower bourgeoisie is largely bound up 
with their occupations, their petty business enterprises. Ownership of 
income-yielding wealth, of capital resources, is a monopoly of the 
intermediate and upper bourgeoisie, with their 67.7% share massed 
in corporate ownership and control of industry. Combined they are 
only 6.9% of the gainfully occupied, the upper bourgeoisie only 0.8%.* 

* The depression wiped out much wealth and increased the concentration of owner- 
ship of the remainder. In 1929, 99% of the people owned only 17% of the nation's 
liquid wealth (cash, savings deposits, insurance, stocks and bonds); by 1932 their share 
had dwindled to less than 6%. "This is the most rapid, drastic, and gigantic dissipa- 
tion, redistribution, and transformation of capital that has, in all probability, ever taken 
place in so short a period in any individual economy in the history of modern times. 
. . . That it represents nothing more than a picturesque incident in another of our 
great 'shifts' of capital is gravely doubtful. It has been far too broad and deep and 
penetrating this time to allow of easy escape." Robert R. Doane, The Measurement of 
American Wealth (1933), pp. 28-32. 

352 The Decline of American Capitalism 

In any class society the ownership of wealth is a monopoly of the 
ruling class. Its forms change as the mode of production and resulting 
class-economic relations change. Landholding, the direct exploitation 
of the producer, was the essential form of pre-capitalist wealth. The 
commercial revolution in Europe, from the fifteenth to the seventeenth 
centuries, thrust forth a new type of wealth, derived from trading, 
mining, speculation, and promotion, while landholding became a new 
source of wealth by levying tribute upon economic development. Capi- 
talist wealth is based upon the production of surplus value by the 
workers. Hence it depends upon an increasing output and absorption of 
capital goods, of new means for the exploitation of labor. But capitalist 
wealth is also a mass of claims upon production. Great fortunes {cf. 
ownership of natural resources) may represent simply the "right" to a 
share in the social wealth, in the surplus value appropriated by others. 
While all capitalist wealth is derived from the exploitation of labor, 
fortunes may be amassed by plundering other capitalists of their wealth. 
These conditions become the more typical as industrial capitalism is 
transformed into monopoly capitalism. The wealth of the financial 
oligarchy is merely a mass of paper claims upon production and labor, 
upon the surplus value appropriated by active capitalists, or, increas- 
ingly, by hired management as agents of ownership. 

Changes in the form of capitalist wealth parallel class-economic 
changes which express not only the development of capitalist produc- 
tion and exploitation, but also the historical drive toward a new social 

While in sixteenth-century Europe and after fortunes were piled up 
out of trade, promotion, and speculation (including the "primitive 
accumulation" of the expropriation of peasants from the soil), accumu- 
lation in the North American colonies assumed at first the older form 
of large landholdings. Spaniards acquired fortunes by plundering the 
Aztec and Inca civilizations, another form of primitive accumulation, 
and by forcing the Indians to dig gold and silver. But farther north 
there was only land to wrest from the aborigines. The English kings 
gave title to vast domains to their favorites, often pauperized aristocrats, 
who combined with merchant capitalists to exploit the grants. Along- 
side and within the proprietary grants, great landed estates were cre- 
ated. In the New Netherlands, the Dutch also built up large landhold- 
ings; the 700,000-acre estate of KiUiaen van Rensselaer was not unusual. 
These manorial estates were worked with tenants and indentured 
laborers, and the owners were for years dominant political powers. 
Farther south, the plantation system was based on Negro slavery; the 

Class Distribution of Wealth 353 

cultivation of tobacco with slave labor in Virginia produced some of the 
earliest colonial fortunes. Even after the colonies reverted to the British 
crown, the accumulation of large landholdings continued, although 
some of the older ones were broken up. Entailing o£ land was exten- 
sively practiced. The colonial manorial estates represented the trans- 
plantation of an essentially feudal type o£ wealth, but they functioned 
in an environment which the commercial revolution was rapidly trans- 
forming into a capitalist economy; in fact, the estates depended upon 
trade with England for the profitable disposal of their products. 

Another source of wealth was overseas trade, an expression of the 
world market and developing capitalism. Colonial plunder enriched 
European merchants and aristocrats, and provided new means for the 
exploitation of labor. Gold from the New World, while it helped to 
ruin Spain economically, invigorated the general development of capi- 
talism. (The gold was red with the blood of labor; for, in Mexico and 
Peru, the working conditions were so terrible that 80% of the Indian 
miners died every year.^^) The North American colonies were drawn 
into the whirlpool of the world market. By 1680, there were thirty 
merchants in Massachusetts each worth between $50,000 and $100,000.^^ 
The fur trade, supplying the growing luxury demands of the European 
aristocracy of blood and money, yielded great wealth, mainly for the 
absentee masters of the Hudson's Bay Company in England. The 
slave trade, never before organized on such a vast scale, was a fertile 
source of colonial fortunes. Money lending and a crude form of bank- 
ing developed to meet the needs of commerce, constituting another 
source of wealth. By the time of the American Revolution, mercantile 
fortunes were disputing supremacy with landholding fortunes, although 
land still enjoyed social recognition as a dominant form of wealth. 
The father of James Fenimore Cooper owned a manorial estate of 
huge proportions; his boast was that there were "some 40,000 souls 
holding land directly or indirectly under me." ^* 

The Revolution dispersed some fortunes, particularly among the 
loyalists whose estates were confiscated as a revolutionary measure; 
but others became larger and new ones were created, mainly by finan- 
ciering, speculation, and privateering. One revolutionary privateer later 
increased his wealth from mercantile and manufacturing enterprises, 
accumulating Ji, 800,000.^^ Speculative wealth was' greatly augmented 
when the new Federal government assumed $70,000,000 of national 
and state debts; most of the bonds were in the hands of a few specu- 
lators, who had bought them at 10% to 15% of their face value.^' 
Mercantile fortunes, based upon the expansion of trade, agriculture, 

354 The Decline of American Capitalism 

and industry, grew swiftly after the Revolution, with manufacturing 
fortunes becoming increasingly more important. Stephen Girard 
amassed a typically capitalist fortune, derived largely from speculative 
manipulations in banking, trading, manufacturing, and shipping. 

With the onsweep of capitalist enterprise, wealth represented by large 
agricultural landholdings definitely receded in importance. The pro- 
tests of tenants forced the adoption of legislation to break up the 
manorial domains, and the earlier abolition of entail and primogeniture 
had a similar effect. As large agricultural landholdings dwindled in the 
East, great landed wealth came to consist of urban realty holdings, 
whose value was increased enormously with the rapid growth of cities. 
Similar fortunes arose in the West — in Chicago, Cincinnati, and St. 
Louis. Speculation in the new lands of the frontier began to assume 
more importance as a source of great wealth. Land ownership levied its 
tribute upon economic development and population growth. Accord- 
ing to one estimate, in 1846, of the nineteen New York millionaires 
who owned a total of 165,000,000, eight, including John Jacob Astor 
and E. van Rensselaer, were landowners and seven were merchants. 
But the original wealth of Astor, whose fortune was the largest in its 
time, came from the fur trade and the oriental trade, and it was mul- 
tiplied by speculation in urban real estate. Of the seventy-eight fortunes 
of $500,000 and over, twenty-six were owned by merchants, seventeen 
by landowners, five by manufacturers, and seven by bankers and 

The merchant capitalist was now the dominant type. Great wealth 
based directly on manufactures was still rare; a contemporary chronicle 
said of one rich man that he had "managed, strange to say, to obtain 
large profits and wealth" from manufactures. Of nine Boston million- 
aires, in 1845, only two were engaged in the manufacture of goods. 
But the designation merchant now covered a multitude of interests. 
While merchants seldom pioneered manufacturing enterprises, which 
were considered risky, they financed the distribution of the products 
and secured thereby a large share of the profits. Thus, in 1834, 85% of 
the Boston merchants were closely connected with manufactures.^® 
Differentiation proceeded steadily, however; many merchants became 
industrial capitalists and others abandoned trade for finance. The great 
American investment banking houses were originally mercantile firms. 
George Peabody gave up trade for international banking and acquired 
a fortune of nearly $10,000,000 out of the American need for foreign 
capital.^^ The founder of the House of Morgan was a merchant. Bank- 
ing was transformed by developing industry's greater need for fixed 

Class Distribution of Wealth 355 

capital. Merchants and bankers promoted railroads, whose rapid devel- 
opment was an important source of economic change and capital 
accumulation. The railroads offered an unexcelled opportunity for 
piling up profits, both "legitimate" and illegitimate; and Jacob Little, 
reputed inventor of short sales, was already demonstrating how a for- 
tune might be made by railroad manipulation and speculation. The 
characteristic forms of modern wealth began to emerge, based upon the 
development of industrial and financial capitalism. 

Modern capitalist fortunes appeared much earlier in England, be- 
cause of the more rapid tempo of industrial development. Immense 
wealth had poured into England from overseas trade and chartered 
companies, such as the Africa Company and the East India Company, 
most of which combined trade, slaving, and colonial plunder. The 
great wealth stolen by English adventurers in India led to the use of 
the Indian term nabobs to designate the newly rich. Security specu- 
lation, made possible by the rise of joint-stock companies, culminated 
in the organization in 171 1 of the South Sea Company, whose pro- 
moters were mainly wealthy merchants. When the South Sea bubble 
burst, as its predecessor the Mississippi bubble had burst in France, 
thousands of people were ruined, but some insiders reaped large 
profits. Meanwhile, in the nooks and crannies of the English economy, 
forces were accumulating which were to create new riches, to change 
the form and increase the size of great fortunes. The industrial revo- 
lution not only multiplied wealth but also accentuated its concentra- 
tion. Wealth direcdy connected with the industrial revolution, in its 
earlier stages, was made by new men; only after the new industries 
were successfully established did they prove attractive to the conser- 
vative, play-safe owners of older fortunes. But the industrial revolution 
also enriched aristocratic landowners whose lands contained coal, iron, 
and other minerals, and whose ancestral privileges enabled them to 
levy tribute upon economic progress. The earliest of the new capitalist 
fortunes arose in the coal and iron industries. Although Henry Cort, 
whose processes transformed iron making, died a poor man, the iron- 
masters who violated his patents secured great wealth. In the districts 
of South Wales, where the new industrialism flourished most vigor- 
ously, and where labor and social conditions, according to one au- 
thority, combined "the worst features of the industrial revolution," ^° 
capitalists in a few years amassed huge wealth from the most merciless 
exploitation of labor and the needs of industry. Another crop of rich 
men was produced by the textile industry, which ruthlessly expropri- 
ated craftsmen and sweated women and children, and also disrupted 

356 The Decline of American Capitalism 

the village economy of India based on handicraft weaving. Great 
w^ealth w^as also acquired by exploiting railroads, especially in the 
form of speculation. Investment bankers (Rothschilds, Barings) gar- 
nered great profits from promotion, and from the export of capital 
for government loans and the financing of railroad construction on 
the continent, in the United States, and in Latin America. Never 
before had wealth poured forth in such a torrent as in capitalist Eng- 
land between 18 15 and 1850, and never were the conditions of the 
working class more miserable. At the same time, land fortunes were 
still powerful; even after the Reform Bill of 1832, land represented 
political power and social prestige. While aristocratic landowners had 
their wealth increased beyond the dreams of their ancestors by indus- 
trial and urban growth and by corporate investments, industrial and 
commercial capitalists bought landed estates in order to quaUfy for 
titles and social position: the parvenu spirit of the bourgeois! 

Capitalist development on the European continent paralleled Eng- 
lish development on a smaller scale. As the financial manipulations of 
the Rothschilds spread beyond Germany, they became the most power- 
ful factor in the realms of international finance. Their function was 
essentially the mobilization for capitalist investment and exploitation 
of the wealth of the feudal aristocracy based on pre-capitalist forms of 
exploitation. IndustriaUsm and corporate enterprise encouraged pro- 
motion and speculation, all forms of the financial plundering of eco- 
nomic progress. The Credit Mobilier, which offered competition to 
the Rothschilds, paid fabulous dividends in the 1850's, and then 
crashed. France under the tragic mountebank, Louis Napoleon, was 
the paradise of corrupt and predatory speculators and adventurers 
(including the emperor); other fortunes were made by industrial 
capitalists in coal, iron, and textiles. All over the continent railroads 
were built, enriching their promoters, not the builders. Railroad con- 
struction was often beyond immediate economic needs, imposing 
new burdens upon the workers and peasants; but promoters raked in 
the profits. Holland was no longer the important power it had been 
in the sixteenth and seventeenth centuries, but the Dutch merchant 
capitalists continued to draw wealth from the exploitation of their 
colonial possessions. The rapid industrialization of Germany was the 
basis of many great fortunes. Aristocracy in Germany, almost as much 
as in England, allied itself with capitalism and enormously increased 
its wealth. Thus the feudal landowners of Upper Silesia piled up 
great fortunes by the capitalist exploitation of coal, iron, and other 
minerals on their estates. In 1913, of the five greatest fortunes in Ger- 

Class Distribution of Wealth 357 

many, three were owned by landholding aristocrats; in England, the 
Duke of Westminster had an income of £200,000, mainly from rents.^^ 
By 1890, the more industrial nations of Europe — England, Germany, 
France, Belgium — were actively engaged in the struggle for imperial- 
ist supremacy, which led inexorably to the catastrophe of the World 
War. Imperialism, the predatory aspect of the industrialization of the 
world's economy, the expression of the developing forces of capitalist 
decline, became a most important factor in the accumulation of wealth. 
Capitalist industry came increasingly to depend upon the export of 
capital and the exploitation of economically backward countries as the 
source of cheap raw materials and even cheaper labor. Immense profits 
were made in China by financiers, promoters, speculators, and ordi- 
nary adventurers. Construction of railroads in Asia, Africa, and Latin 
America yielded profits which in many ways suggested tribute levied 
upon the conquered.* Loans were knowingly made to the corrupt 
governments of economically backward peoples, and wasted; interest 
and principal were repaid by the blood and agony of the workers and 
peasants. A cabal of Belgian aristocrats, financiers, and speculators, 
led by King Leopold, drew immeasurable wealth from the horrible 
exploitation of men, women, and children in the Congo, including 
"disciplinary" massacres and mutilations. French and Belgian finan- 
ciers drew wealth from the construction of the Trans-Siberian and the 
Chinese Eastern railroads. (The Soviet Union expropriated these prop- 
erties, but the financiers had unloaded the losses onto small investors.) 
In Africa the British South Africa Company of Cecil Rhodes ex- 
torted profitable concessions from the natives, and inextricably merged 
his wealth and business interests with the politics of imperialism. The 
basis of empire, said Rhodes, is "philanthropy plus 50%"^^ His im- 
perialist schemes led directly to Britain's war with the Boers. An 
aspect of imperialism was the augmenting of competitive armaments; 
the most brutal, unscrupulous, and predatory capitalists flocked to the 
munitions industries, creating and exploiting war scares, some amass- 
ing incredibly large fortunes. (American capitalists, on a smaller scale, 
did the same thing in Latin America.) Munitions capitaUsts during the 

• Conditions were typical in Mexico, where British, French, and American financial 
adventurers plundered the Mexican people. Thus the Vera Cruz Railroad, capitalized 
at $40,000,000, could have been built for $10,000,000, yet paid dividends of 5% to 
12%. Corruption and construction frauds were widespread. One source of extra 
profits was unnecessary mileage, using the longest, most crooked routes, to get the 
government subsidy. Matias Romero, Railways in Mexico (1882) p. 8. Mexico was 
one of the earliest stamping grounds of American imperialism. 

358 The Decline of American Capitalism 

World War traded with the enemy and provided means to kill "their 
own" soldiers — for a profit. 

The mounting needs of European industry for overseas raw materials 
produced some native fortunes. A landholding family in Chile in- 
creased its wealth to $70,000,000 by capitalist exploitation of minerals, 
and a Bolivian family amassed over $200,000,000 from ownership of 
tin mines.^^ But, by and large, the natural resources of economically 
backward countries, and their profits, were seized by foreign capital- 
ists. In these countries the older type of landholding fortunes persisted, 
although modified by capitalist influence. Personal exploitation of 
political power yielded immense wealth to the inner clique of Porfirio 
Diaz in Mexico and to Juan Vicente Gomez of Venezuela. The Vene- 
zuelan, when he became president in 1908, was a poor man; twenty 
years later his private fortune was enormous. The native exploiters of 
both countries "made" their money by an alliance with foreign capital- 
ists, involving robbery of natural resources and the most brutal sup- 
pression of workers and peasants. All this involved some of the most 
brutal forms of primitive accumulation. 

Great as were the European fortunes created by capitalist develop- 
ment, they were smaller than those piled up in the United States after 
the Civil War, which strengthened capitalism economically and lib- 
erated it politically. Relatively unhampered by older vested interests 
and the culture of an older civilization, with an almost "pure" acquisi- 
tive ideology justifying unrestricted money-making, American capital- 
ism drew upon the apparently inexhaustible natural resources of an 
undeveloped continent, exploiting them with the aid of large and 
poorly-paid masses of immigrant labor provided by Europe. 

The seizure and exploitation of vast natural resources, a form of 
primitive accumulation, was of fundamental importance in the forma- 
tion of many American fortunes. Most of the natural resources were 
originally part of the public domain, which in i860 still consisted of 
1,048 million acres. But they came into private capitalist ownership by 
"the benevolent paternalism" of a government, according to one bour- 
geois historian, which "sold its natural resources for a song, gave them 
away, or permitted them to be stolen without a wink or nod. . . . The 
public land office of the United States was little more than a center for 
the distribution of plunder."^* Not only capitalists became rich by 
exploiting natural resources; somnolent farmers acquired wealth over- 
night by the discovery of minerals or oils in their lands. 

Speculation was a mighty source of wealth in the Civil War, ex- 
ploiting the war needs of the government, and connected with polit- 

Class Distribution of Wealth 359 

ical corruption. The founder of the Armour dynasty made a kiUing 
speculating in pork. Jay Cooke built up his fortune financiering in 
government bonds. In the period immediately after the Civil War 
many fortunes w^ere w^rested from the railroads. Yet the legitimate 
construction costs of the great American railroads were more than 
paid for by Federal, state, and municipal contributions of $700 million 
and grants of 155 million acres of public lands.^^ Cornelius Vanderbilt's 
great wealth came almost exclusively from speculating in railroads 
and watering their stock as an accompaniment of consolidation; he left 
$100 million and one of his sons left $200 million. More than $40,000,000 
were extorted from the Union Pacific Railroad in excess construction 
costs; the profits were distributed among promoters and politicians.^^ 
Jay Gould's fortune of $72,000,000 came mainly from railroad manipu- 
lation and speculation; it was identified with no constructive achieve- 
ment. Many others exploited the railroads in similar fashion. When 
speculation, mismanagement, thievery, and unbridled competition 
drove the railroads into bankruptcy, wages were cut and workers on 
strike brutally suppressed, while thousands of small investors were 
ruined; but reorganizations yielded large profits to financiers and pro- 
moters. Part of the Morgan money and power came from this source. 
Other great fortunes (Hill, Harriman) were piled up by speculation 
in railroads and their consolidation into overcapitalized systems from 
1895 to 1905. Underlying it all was a mounting production and realiza- 
tion of surplus value. 

While the older fortunes did as a rule no economic pioneering, para- 
sitically satisfied with safe investment and income, the onward sweep 
of technology and general economic progress revolutionized one in- 
dustry after another; men of small means, who entered the new 
industries at an early stage, amassed large fortunes by shrewdly 
capitahzing new developments and inventions. (Inventors seldom be- 
came wealthy. In Wall Street they said: "It's the third or fourth man 
who cleans up on inventions.") The Armours in meat-packing, Cyrus 
McCormick in agricultural implements, George Westinghouse in 
electrical manufacturing, Andrew Carnegie and Henry Clay Frick 
in iron and steel — all levied tribute on technical-economic changes and 
tribute on labor. Conditions in the iron and steel and coal regions 
of Pennsylvania were typical; workers were held in a sort of feudal 
bondage, shackled by the law of the masters, and killed, if they went 
on strikes, by the masters' police. 

The i86o's-9o's was the epoch of the industrial capitalist, who par- 
ticipated directly in industry. But only within limits; for the specula- 

360 The Decline of American Capitalism 

tor was everywhere and the financial capitalist made his appearance 
with the development of monopolist combinations. Technological 
changes, large-scale production, and competition drove inexorably to 
industrial concentration and corporate combination. The profits of 
monopoly were tremendous; the Standard Oil Company, with an 
original capitalization of $1,000,000, between 1(882 and 1906 paid out 
$548 million in dividends, while other millions were represented by 
reinvested profits and cash resources.^'^ Equally tremendous were the 
profits of trustification; the series of combinations in the steel industry, 
which culminated in the United States Steel Corporation, yielded the 
promoters profits of at least $150 million.^^ Profits of this type were 
often fortuitous; in order to prevent the revival of ruinous competi- 
tion and to form the steel trust, Carnegie was paid $447 million for 
his interests, twice what he would have accepted two years previously. 
By 1900, the industrial capitalist was swiftly receding into the limbo of 
small-scale industry or was becoming a financial capitaUst, with inter- 
ests in a multitude of enterprises, promoting, speculating, financing, 
not engaged directly in production. The Standard Oil multi-mil- 
lionaires, an oligarchy dominated by John D. Rockefeller, were now 
promoters, speculators, and bankers on a large scale; "their resources 
are so vast," said one financier, "there is an utter absence of chance" 
in their manipulations.^^ Another source of great fortunes (Morgan, 
Stillman) was investment banking, growing with the expansion 
of corporate enterprise and trustification and allied with promotion 
and speculation. For the separation of ownership and management 
vested control increasingly in the financial capitalists and the great 
banks. Industrial concentration was paralleled by centraHzation of 
financial control, of which the dominant institutional expression was. 
the House of Morgan. 

The swifdy rising stream of national wealth was deflected into 
other, if minor, channels — politics, patent medicines, journalism, the 
law. Politics favored predatory capitalists more than corrupt politi- 
cians; it served the capitalist class in general and special capitalist 
groups in particular. But there were many chances for the politician; 
they expected, and got, something: in return for handing over the 
nation's natural resources to capitalists or for giving them tariff bene- 
fits. "If I had my way," said one politician, "I would put the manu- 
facturers over the fire and fry all the fat out of them." *° Millionaires 
who looted traction systems (Yerkes, Ryan) worked hand in hand 
with municipal political machines, stealing franchises and plunder- 
ing the public. The clash of predatory interests gave lawyers their 

Class Distribution of Wealth 361 

opportunity, especially the corporation lawyer, who twisted the law 
(e.g., the "due process" clause enacted in the interest of the Negro, 
but distorted to protect the "rights" of capital) and swayed courtrooms 
on behalf of his corporate clients. Journalism cashed in on advertising, 
capitahzed public prejudices, and protected capitalist interests; the 
mercenary struggle for circulation between Hearst and Pulitzer con- 
tributed to the making of the Spanish-American War. Under the 
forms of bourgeois democracy, class rule needs the services of journal- 
ism and the law, and they get their share of the spoils. The beginnings 
of American imperialism, from 1880 to 1900, swelled the stream of 
capitalist wealth. In Chile and Peru, Henry Meiggs and William R. 
Grace (the "Pirate of Peru") made substantial fortunes exploiting 
natural resources, promoting railroads, organizing banks, mixing in 
dirty, murderous poUtics. Minor C. Keith, the "American Cecil 
Rhodes," piled up immense wealth as the spearhead of American eco- 
nomic, financial, and political penetration of the Caribbeans, creating 
an empire fertilized with the blood of peons, ruled over by the monop- 
olist combination, the United Fruit Company, with its banana and 
other plantations, its railroads, ships, and banks, protected by the might 
of the American government.*^ . . . 

In 1892, the New York Tribune published a list of 4,047 American 
fortunes of $1,000,000 and over, which shows quite clearly the change 
in the dominant form of wealth since 1845.*^ Of the 4,047 millionaires, 
1,140 or 28% secured their wealth from manufactures. The next 
largest group, merchandising, numbering 986 millionaires, included, 
however, great merchants engaged in other enterprises as well; thus 
of Marshall Field's $120 million estate, his interest in Marshall Field 
and Company was valued at $3,400,000, the balance including in- 
vestments in (besides real estate) 150 industrial, public utility, and 
financial corporations. There were 468 fortunes connected with real 
estate; 410 with transportation and communication, including 186 rail- 
road magnates; 356 with banking, brokerage, and insurance; 286 with 
mining, of which seventy-two were based on the production, refin- 
ing, and transportation of oil; and 168 with forest ownership and 
lumber manufacture. Of the eighty-four millionaires who derived their 
fortunes from "agriculture," forty-seven were Western cattle ranchers, 
a group of whom President Theodore Roosevelt's land commission 
said that "hardly a single title is untainted by fraud;" fifteen were 
owners of plantations in the South, and six owned plantations in Latin 
America. The professions contributed seventy-three fortunes of $1,000,- 
000 and over; sixty-five of them belonged to lawyers, mostly corpora- 

362 The Decline of American Capitalism 

tion lawyers, and only three were based on accumulations of patent 

What manner of men were these millionaires, who got into their 
hands the greater part of the wealth produced by the labor of a na- 
tion? Their attitude toward labor was expressed by the management 
of the Carnegie Steel Company, who provoked the bloodshed at 
Homestead in order to crush unionism, and one o£ whom said: "If 
a workman sticks up his head, hit it." *^ Their general attitude was ex- 
pressed by CorneUus Vanderbilt: "Law? What do I care for the law? 
Haint I got the power?" And by J. Pierpont Morgan: "I owe the 
public nothing. Men owning property should do what they like 
with it." **...* 

From 1900 to 1914, the accumulation of great wealth, because of the 
slowing down of the rate of economic development and the growth 
of monopoly capitalism, became increasingly dependent upon the re- 
capitalization of industry, upon promotion and speculation. As con- 
centration of income was augmented, and fortunes became still more 
swollen, financial capitalists tightened their grip upon corporate in- 
dustry. The combination movement swept onward, piling up paper 
claims upon production and income. The "water" in the United States 
Steel Corporation, whose capitalization of $1,400 million was based 
upon tangible assets of only $682 million, was a typical case of capitaliz- 
ing monopoly advantages and profits. Imperialism, moreover, became 
more important as a source of wealth. 

The early years of the World War were a godsend to the American 
accumulators of great wealth, exploiting the agony of Europe. Scores 
of new millionaires were created after the United States marched forth 
"to make the world safe for democracy." European developments were 
similar. Then revolution and inflation changed the distribution of 
wealth. The communist revolution in Russia confiscated and socialized 
wealth, along with the expropriation of the bourgeois and feudal 
classes. The Succession States broke up many of the large estates of 
the old aristocracy. Inflation wiped out much of the wealth of the 
middle class, but financial and speculative capitalists were enriched. 

* "Man is a beast of prey. The tactics of his living are those of a splendid beast 
of prey, brave, crafty, and cruel. ... A beast of prey is everyone's foe. Never does 
he tolerate an equal in his den. Here we are at the root of the truly royal 
idea of property. Property is the domain in which one exercises unlimited power, 
the power that one has gained in battling, defended against one's peers, victoriously 
upheld. It is not a right to mere having, but the sovereign right to do as one wills 
with one's own." Oswald Spengler, Man and Technics (1932), pp. 26, 28. The 
Prussian Junker and the capitalist are geistige brothers under the skin. 

Class Distribution of Wealth 363 

The devastating inflation in Germany liquidated many fortunes, and 
few escaped intact, particularly those based on "fixed" investments; 
but out of the general ruin a few monstrously large fortunes arose. 
Inflation and deflation produced similar results in other European 
countries on a smaller scale. Post-war France illustrated beautifully how 
abstinence is the source of great wealth. In the "recovered" provinces 
of Alsace-Lorraine, industrial enterprises expropriated from the Ger- 
mans, worth 8,000 gold francs were sold secretly to a score or two of 
Frenchmen for 180 milHon paper francs. One of the beneficiaries was 
the Comite des Forges, the steel trust, which received tremendously 
valuable iron mines and works.*' In general, because of economic 
crisis and decline, the accumulation of wealth in post-war Europe con- 
sisted mainly of the redistribution and concentration of existing wealth; 
new fortunes usually arose out of speculation, financiering, and the 
recapitalization of industry by means of monopolist combinations, 
national and international. 

In the United States the post-war period was characterized by an 
increasing concentration of wealth and the augmenting of great for- 
tunes. Mergers, combinations, and speculation yielded enormous prof- 
its. Foreign investments became an increasingly important source of 
capitalist wealth. On the basis of income-tax statistics there were, in 
1929, probably 30,000 American millionaires, compared with 7,000 in 
Great Britain. In this same year, 504 multi-millionaires with incomes 
of $1,000,000 up"*® held claims to wealth amounting to over $30,000 
million, or nearly one-third more than the national wealth of Italy. 
This immense wealth was in the form of paper claims upon produc- 
tion and income. Marx said that wealth in the capitaHst mode of pro- 
duction takes the form of an immense accumulation of commodities; 
from another angle, it may be said to-day that capitalist wealth takes 
the form of an immense accumulation of paper. In the great Amer- 
ican fortunes, landownership is relatively unimportant except in the 
case of some fortunes based on urban realty (ownership of natural 
resources by corporations is, of course, extremely important). The 
wealth is represented by investments in a broadly diversified group of 
corporate enterprises, with a backlog of government bonds. In 1929, 
incomes of $5,000 up reported ownership of $5,373 million of tax- 
exempts,*^ in addition to other government bonds. In the case of 
fortunes with yearly incomes of $100,000 to $150,000, their wealth con- 
sisted 58.3% of stocks and bonds, including foreign securities, and 
91.9% in the case of fortunes with incomes of $1,000,000 up.*^ 

The characteristic form of modern capitalist wealth— paper claims 

3^4 The Decline of American Capitalism 

upon production and income — contrasts sharply with older types o£ 
fortunes. The wealth of the feudal aristocracy was associated with 
land, that of industrial capitalists with particular enterprises; both 
had a tangible form and definite habitation. Contemporary capitalist 
fortunes, on the contrary, are Hquid, mobile, intangible, a mass of 
paper rights to ownership. At the basis of this development are the 
concentration of industry, the separation of ownership, management, 
and control, and the transformation of the industrial capitalist into the 
financial capitalist. One aspect of these developments is the increasing 
importance of the passive, wholly parasitic rentier, the mere clipper of 
coupons. It has been estimated that individual trusts managed by 
banks for their owners, whose only function is to receive and spend 
the income, are worth over $25,000 million. The value of such trusts, 
for national banks alone, rose from $922 million in 1926 to $4,319 
million in 1930.'^^ Ownership here is separated even from administra- 
tion; private income is drawn from collectively produced and collec- 
tively managed wealth. 

Modern wealth is separated from direct participation in industry; 
its owners are absentee capitalists, with management and control 
assuming institutional forms. Because of this the possession of wealth 
does not carry responsibilities with regard to the sources from which 
it is derived. The lord of the manor had definite obligations, either 
legal or customary, to the tenants on his land, the serfs who cultivated 
his domains, and his household servants. Where the industrial capital- 
ist recognized obligations to the workers in his factory or the consum- 
ers of his product, they were forced upon him by his identification 
with a particular enterprise. The modern financial capitalist, whose 
fortune is scattered in scores of corporate enterprises and perhaps in 
almost as many countries, effectively escapes such responsibilities. 
Even if he owns a large block of securities in a particular enterprise, 
he may plead that the responsibility is not his but that of management. 
Thus, in 1926, when John D. Rockefeller, Jr. was asked to influence 
the management of a railroad, which was waging ruthless war upon 
its striking workers, the unctuous son of an unctuous father replied: 

"The facts are that the combined holdings of our family, together 
with those of the funds to which this stock may have been given, 
represent considerably less than 25% of the stock of this company. 
[He was, however, the largest single stockholder.] Only two of the 
twelve directors can be regarded in any sense as representatives of our 
interests. The management of this company is entirely in the hands 

Class Distribution of Wealth 365 

o£ the board of directors and, no matter what my personal views may 
be, I don't control the situation." ^^ 

This is a clear example of relations of private claims to ownership 
persisting within what are essentially collective or social forms of 
production and management. Wealth has assumed a form which makes 
it ripe for expropriation and socialization: the wealth expropriated 
from the producers reverts to them in the form of social property, 
serving the whole of society. For the antagonism between the two 
opposites, proletariat and wealth, is, in the words of Marx, resolved 
by the synthesis of socialism, in which both private property and the 
proletariat disappear. . . . 

An expression of private property and class rule, the unequal dis- 
tribution of wealth results in great fortunes at one extreme and pov- 
erty at the other. All legislative efforts to break down the concentra- 
tion of wealth have failed; it increased tremendously in the United 
States following the introduction of income and inheritance taxes. 
The revolutionary bourgeoisie, which objected to great feudal fortunes 
and in many cases confiscated them, considered the "free ownership" 
of property equivalent to social equality; but bourgeois private prop- 
erty constituted the starting point of accumulations greatly exceeding 
the feudal fortunes. In the United States the middle class from 1880 
to 1914 waged bitter war upon "tainted wealth" and "unearned in- 
crement," but this class defended the system of private property out 
of which great fortunes arose. 

The augmenting of capitalist wealth depends upon an increasing 
output and absorption of capital goods, the means for the exploitation 
of labor and the production and realization of surplus value and profit. 
Under the conditions of decline, with the output of capital goods and 
capital accumulation moving downward, wealth decreases relatively, 
if not absolutely. Unemployment and lower wages make still smaller 
the workers' share of the national wealth. Concentration moves up- 
ward, on a lower level. More than ever capital claims and speculation 
become the source of capitalist wealth. But in the measure that wealth 
tends to decrease, the struggle for a larger share among the capitalists 
becomes more intense, aggravating the maladjustments and instability 
of capitalist production. Wealth takes more and more the form of debt, 
particularly of public debts. This is an old trend acquiring new vigor. 
The government debts of the world rose from $7,500 million in 181 5 
to $30,000 million in 1900 and $250,000 million in 1933, a stupendous 
increase even after making allowances for the changes in the purchas- 
ing power of money. The total public debts of the United States, 

366 The Decline of American Capitalism 

which rose from $4,850 million in 1912 to $36,822 million in 1932, 
yielded an interest of $1,500 million; a similar amount was yielded by 
the national debt of England.^^ Since ownership of government bonds 
is "bunched" in small groups, and taxation covers the whole of society, 
the burden of public debts is enormous.* They tend to increase, more- 
over, as the capitalist state makes larger and larger expenditures to 
overcome crisis and economic decline, and to prepare for war under 
the conditions of intensified imperialist rivalry. Not only does the 
distribution of wealth become more unequal, it also becomes more 
parasitic, for in the form of debt it is a first claim upon the diminishing 
fruits of labor. Wealth now tends to increase in the hands of the few 
only by an absolute lowering of standards of living among the many. 
Both the forms of capitalist wealth and its unequal distribution are 
underlying forces in the creation of cyclical crisis and breakdown, and 
the decline of capitalism. But those very forces are simultaneously an 
expression of developments which make possible a new social order. 
Capitalist wealth as a mere mass of paper claims upon production 
and income grows out of the socialization of production, the possi- 
bihty of its transformation into social property, or socialism. And the 
very conditions of large-scale industry, resulting in the separation of 
ownership and management, make the industrial proletariat increas- 
ingly the carrier of a new social order. In this new order, the work of 
production does not pile up great fortunes whose only function is to 
own and exploit. 

* Most public expenditures, out of which public debts arise, are non-constructive. 
Only 1.3% of the expenditures of the national government in the United States 
(1927) was for social services, including education, 9.6% in France, and 15.6% in 
Britain (1929). On the other hand, the American expenditures on war (including 
pensions and debt interest and retirement, most of the debt being incurred for war 
purposes) were over 70%, the French 69%, and the British 70%. Paul Studenski, 
"Public Expenditures," Economic Foundations of Business (1932), p. 450. The per- 
centages are not wholly comparable because of differences in government functions; 
thus the national government in the United States, unlike the French and the British, 
has little to do with education. But they are indicative of the general situation. 



lONTRARY to the claims of the myth-makers of the "new capitaUsm," 
and wholly in line with the nature of capitalist production, there was 
an upward movement in the concentration of income and wealth dur- 
ing the prosperity of 1923-29. 

The solid foundation of the concentration of wealth and income is 
private ownership of the means of production, upon which depends 
the livelihood of society, and which permits the owners to exploit the 
workers. But forms of ownership and exploitation change. The capital- 
ist originally combined the functions of exploitation and management; 
he was at one and the same time the organizer of industry and its 
plunderer. With the development of large-scale, corporate industry, 
however, the separation of ownership and management has deprived 
the capitalist of his managerial functions. The multiplication of stock- 
holders — with ownership a monopoly of the bourgeoisie, the working 
class having an insignificant stake in corporate ownership — has vested 
management in a class of hired professional managers, while control 
is usurped by the financial capitalists, who merely rule and exploit. 
The basis of this development, the socialization of production, is also 
the objective basis of socialism. For modern corporate industry retains 
private property relations within the relations of social production and 
social property. 

Unequal distribution of income and wealth is identified with all 
the exploiting relations of capitalist production, with all the forces of 
cyclical crisis and breakdown. They are also identified with the decline 
of capitalism, for it is the socialization of production which has so in- 
creased the productive powers of society that they choke capitalism 
with the abundance they are capable of yielding. These conditions de- 
mand new social relations of production, a new social order. Resistance 
to this demand by the capitalist class is responsible for increasing in- 
stability, for economic decline, for the social convulsions now afflicting 
the world. 

The capitalist expression of the socialization of production is monop- 
oly capitalism, dominated by the financial oligarchy. Since monopoly 
retains all the old relations of private property, it is identified with 


368 The Decline of American Capitalism 

restriction of production, with economic decline, with the export of 
capital and imperialism as the means of broadening the economic 
basis of national capitaUsm, of securing markets for surplus capital 
and surplus goods. Thus the progressive possibilities of modern in- 
dustry are turned into their negation, into a source of want, unemploy- 
ment, and war. 

As capitalist decline becomes worse, mass disemployment limits the 
production and realization of surplus value, the accumulation of capital. 
All the stronger is the drive of capitalism toward imperialist aggression 
and war. For in foreign markets and the overseas investment of capital 
the capitalist class, especially the financial oligarchs who dominate 
monopoly capitalism, see a way out of the crisis. As the inner sources 
of wealth tend to dry up because of economic decline, as surplus capital, 
unable to find profitable investment at home, becomes more threaten- 
ing, all the highly industrial nations of the world concentrate on the 
task of conquering foreign markets. Monopoly capitaUsm and im- 
perialism, arising out of capitalist production and its concentration of 
income and wealth, are interlocked with the decline of capitalism, and 
inevitably bring on the threat of more devastating wars. 

Monopoly Capitalism and Imperialism 


vU NDERLYiNG the resplendent mythology of the pre- 1929 prosperity was 
the real and contradictory movement of economic forces. Instead of 
realizing prosperity everlasting, and precisely because of the economic 
upswing which created the illusion, it marked the final transformation 
of competitive capitalism into monopoly capitalism, and of monopoly 
capitalism into imperialism. This transformation was the feature of 
post-war developments in the United States, conditioning prosperity, 
the character and prolongation of the depression, and the decline of 
American capitalism. These are the major aspects of the transfor- 

The increasing concentration of industry and centralization of cor- 
porate control under the domination of monopolist combinations of 

The increasing concentration of financial institutions under control 
of a financial oligarchy, which dominates economic life by the com- 
bined mastery of monopolist combinations, investment resources, and 

The final realization of the rule of finance capital, /. e., the fusion 
of industrial and banking capital; tighter centralization of the financial 
control of industry. 

The export of capital on a constantly greater scale and the consoli- 
dation of imperialism as the definite expression of American capital- 
ism; an intensified struggle for foreign markets to absorb surplus 
capital and goods, an aggressive foreign policy, larger armaments, 
reaction, and the threat of war. 

Two important changes in class relations: final suppression of the 
farmers as a class capable of independent action on a capitalist basis; 
final transformation of the middle class from an enemy into a depend- 
ent of monopoly capitalism, and the consequent collapse of the 
struggle against the trusts. 

The growth of monopoly and imperiaHsm, inescapably determining 
the future of American (and world) capitalism, comprises the real 
significance and historical character of the pre-1929 economic changes 
— not the temporary prosperity and its vulgar mythology. While the 

372 The Decline of American Capitalism 

apologists were crowing that hard times could only prevail among 
lesser peoples outside the law of American prosperity everlasting, the 
contradictory nature of prosperity's development produced a depression 
worse than in any other country. While the apologists were crowing 
about national self-sufficiency, the export of capital and imperialism 
were binding the American economy with new chains of steel to the 
economy of the world market. Monopoly and imperialism contributed 
to the coming of depression and its prolongation, for they express all 
the underlying contradictions and antagonisms of capitalist production. 
Yet the efforts of the NRA, of state capitalism, to "assure" a new 
permanent prosperity tend to strengthen monopoly and imperialism, 
a fundamental contradiction which dooms the program to disaster. 
Monopoly and imperialism are not new; they have been developing 
in the United States since the i88o's. What is new is their maturity 
and suprenmcy, and their significance as elements in the decline of 


Trusts: Concentration and Combination 

Jl RUSTS began to assume definite shape in the i88o's, and have since 
increasingly dominated the American economy.* The first social- 
poUtical reaction was: "Smash the trusts!" But they grew inexorably. 
The second reaction was: "Regulate the trusts!" But they bent regu- 
lation to their own purposes: trusts became more and more ascendant. 
Regulation, at least in theory, was still suspicious: some limits ought 
to be imposed upon the trusts. Now apologists of the NRA, of state 
capitalism, urge another policy: complete acceptance, even the 
strengthening, of the trusts, with, however, "social control." The 
poHcy has thus been formulated by Rexford Guy Tugwell: 

"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." ^ 

This policy is not altogether new. For in the past it was argued 
that regulation should destroy the evil but retain the good in trusts, 
as they "organize" production and "implement" prosperity. The suffi- 
cient answer is the disorganization of industry which led to the 
economic catastrophe of 1929-34. Why should the "new" policy be 
more successful? . . . 

Trusts, the monopolist combinations of capital, arise out of free 
competition and accumulation, out of the struggle for profits and 
survival in which the stronger garner victory. Underlying this de- 
velopment was the technical-economic transformation of industry, 
augmenting fixed capital and the scale of production. Concentration 
is the basis of combination. While both are a reaction against competi- 
tion and the result of accumulation, the emphasis is different. Indus- 
trial concentration is essentially technical-economic, originating in the 
efficiency of larger producing units. Combination is essentially financial, 

* And, of course, the economy of other industrial countries. In addition the trusts, by 
means of the export of capital and imperialism, have increasingly dominated the economy 
of non-industrial and economically backward countries. 


374 The Decline of American Capitalism 

the centralization of control, exploiting but not limited by industrial 
concentration and technical-economic efficiency. Both concentration 
and combination yield greater control over competition, markets, 
prices, and labor. 

The distinction between concentration and combination is not 
merely theoretical; it involves a difference in historical stages and in 
forms of class control. In the United States, before 1898, trustification 
was primarily industrial concentration, under control of industrial 
capitalists; * after 1898, trustification was primarily financial combina- 
tion, under control of financial capitalists, promoters, and bankers. 

Concentration after the Civil War developed almost as rapidly as in- 
dustrialization itself. This was particularly marked in the 1870's. 
While the number of manufacturing establishments was virtually 
stationary, rising from 252,148 in 1869 to 253,852 in 1879 (including 
a multitude of hand and neighborhood enterprises, which minimize 
the trend toward concentration), capital investment rose from $1,694 
million to $2,790 million, wage-workers from 2,054,000 to 2,733,000, 
and output from $3,386 million to $5,369 million.^ This process of 
industrial concentration was the basis of trustification. 

The primarily industrial character of concentration appears clearly 
in the development of three typical concentrated enterprises: the 
Standard Oil Company, the Carnegie Steel Company, and the meat 

* Concentration and combination proceeded almost simultaneously on the railroads, 
because of greater capital requirements and more ruinous competition. While manufac- 
turers were dominated by the industrial capitalist operating with his own money, rail- 
roads were dominated by the financial capitalist operating with the money of others, 
including the government. Separation of ownership, management, and control, by the 
multiplication of stockholders, appeared on a large scale first on the railroads. Buccaneers 
of the type of Vanderbilt, Daniel Drew, Gould, Jay Cooke, Collis Huntington, and Lcland 
Stanford plundered the railroads at a time when similar plundering was almost unknown 
in other fields of industry (except municipal traction, where financial plundering, mis- 
management, and political corruption were at least as great as on the railroads). Bucca- 
neering, mismanagement, and ruinous competition threw most of the railroads into bank- 
ruptcy from 1879 to 1899. This gave bankers and other financial capitalists another 
opportunity. Railroad reorganizations, mainly by J. P. Morgan and Company, not only 
yielded great profits but promoted combination and the tightening of financial 
control. By 1900 more than half the railroad mileage was included in six systems: 
Morgan, 19,073 miles; Morgan-Hill, 10,373 miles; Vanderbilt, 19,517 miles; Pennsylvania 
Railroad, 18,220 miles; Harriman, 20,245 miles; Gould, 16,074 miles. As their bankers 
and members of the directorates, the Morgans had considerable influence over the Vander- 
bilt and Pennsylvania systems. Harriman and Gould were allies, and owned stock in 
banks and insurance companies. Harriman, in particular, was associated with the National 
City Bank of New York, dominated by Rockefeller interests. Sec Lewis Corey, The House 
of Morgan (1930), Chapters XV-XVII and XIX. 

Trusts: Concentration and Combination 375 

packers, Armour and Company. Increasing efficiency, use of the most 
improved technology, and enlargement of the scale of production were 
the basic factors. Standard adopted the most economical methods of 
refining and marketing and promoted the more efficient pipeline 
transportation. Carnegie Steel was always introducing new processes, 
including coke, making plant improvements and extensions. The 
Armours led in the elimination of waste, the introduction of chemical 
control for better quality and more utilization of by-products, and the 
use of refrigerator cars. Enlargement of the scale of production pro- 
duced integration, stimulated by competitive purposes of control over 
sources of raw materials and transportation and by efforts to secure 
the profits of related fields of production to offset the fall in the rate 
of profit. Carnegie Steel acquired iron and coal mines, coking plants, 
and means of transportation. The Armours owned stockyards, their 
own refrigerator cars, and distribution systems. While Standard adopted 
the plan of separate companies, under common ownership, specializing 
in production, transportation, refining, and marketing, the whole con- 
stituted one giant integrated concern. Efficiency, with its lower costs 
and prices, was used to wage ruthlessly the battle of competition. 
Except in the case of Standard Oil, and even with them only to a 
minor degree, competitors were not absorbed, they were destroyed. 
(The existence of many small producers made it unprofitable to absorb 
them.) Carnegie was against combination because it meant including 
inefficient plants; his emphasis on competition was typical of concen- 
tration and the industrial capitalist. Although efficiency was primary, 
it was not the only factor; competition was also waged by means of 
price wars, by terrorism, especially in the case of Standard Oil, against 
competitors, by extorting discriminatory rates and rebates from the rail- 
roads. Monopoly elements yielded particular advantages. Carnegie 
Steel became dominant only after acquiring the Frick coking interests, 
coke being indispensable in the newer and more efficient metallurgical 
processes; the dominance became almost impregnable with the achieve- 
ment of monopoly in unfinished steel. Standard Oil had a monopoly of 
pipeline transportation and the Armours of refrigerator cars, placing 
competitors at an enormous disadvantage. The monopoly elements 
were strengthened by discriminatory agreements ^yith the railroads; 
Standard Oil systematically used this method, acquiring large stock 
interests in railroads to invigorate its influence. Both "unfair" com- 
petition and the monopoly elements were an abandonment of efficiency 
as the means of waging the competitive struggle. All three concerns 
were built up by reinvestment of profits, not with the money of out- 

37^ The Decline of American Capitalism 

side investors. This is as significant of concentration as technical- 
economic efficiency, which itself yielded the great profits (involving 
exclusive exploitation of new inventions and processes) whose rein- 
vestment enlarged the scale of production. Although Carnegie and 
Armour started with money made in other ventures, their enterprises 
were built up with reinvested profits, the direct capitalization of surplus 
value. The original capital of Standard Oil was $1,000,000 (much of it 
earlier oil profits), and not one penny of new capital was thereafter 
invested. The masters of concentrated concerns were essentially in- 
dustrial capitalists, whatever their origins; they were identified with 
one enterprise, responsible for it and active in its affairs, although 
management was increasingly functionalized and performed by em- 
ployees. And all of the masters sweated labor, drove after more and 
more surplus value, crushed unionism. Concentration gave terrific 
control over labor. The Knights of Labor declared a boycott against 
Armour products in 1886, and Carnegie Steel is inseparably associated 
with the ferocious breaking of the Homestead Strike in 1892. 

While industrial concentration usually results in greater efficiency, 
it has definite limits as a means of overcoming competition and rais- 
ing profits. More efficient productive equipment costs money, as do 
price wars; the new equipment, moreover, comes into general use, 
competitors adopt still more efficient methods of production, and the 
rate of profit moves downward. Where competitors are small and 
numerous, they may be killed off; but the survivors, who become 
stronger, cannot be as easily exterminated. Concentration makes com- 
petition more destructive and unprofitable. While Carnegie Steel was 
the dominant factor in the industry, other enterprises, partly by con- 
centration and partly by combination, had become almost as powerful. 
By 1900, the iron and steel industry was on the verge of a most 
destructive competitive war; all the more so as Carnegie's rivals were 
identified with great financial interests, particularly the Morgans. The 
threat was overcome by combination, by merging the rivals into the 
United States Steel Corporation. The combination was not, however, 
formed by industrial capitalists but by financial capitalists, by promoters 
and bankers. It marked the retirement of Carnegie, the most powerful 
industrial capitalist; United States Steel was dominated by the financial 
overlords of the House of Morgan. 

There had been combinations before 1898; but their number was 
limited and they had been formed primarily by industrial capitaHsts. 
In some cases, however, there was active participation by promoters 
and bankers, whose profits were large. Formation of the Standard Dis- 

Trusts: Concentration and Combination 377 

tilling and Distributing Company, the Whisky Trust, yielded $250,000 
in stock to the underwriters for every $100,000 cash advanced to buy 
plants, and another $150,000 to the promoters.^ After 1898 promoters' 
profits became a decisive factor. A series of combinations in the iron 
and steel industry, in 1 898-1900, netted the promoters nearly $100 mil- 
lion in profits. United States Steel paid the Morgan syndicate a 
"commission" of $62,500,000, in addition to large amounts of common 
stock issued as bonus with preferred for property or cash.'* From now 
on the profits of promotion (a charge upon prospective surplus value) 
were a major source of income for the rapidly developing financial 

Considerations of increasing efficiency were not dominant in com- 
bination. On the contrary, efficiency was usually sacrificed by the inclu- 
sion in combinations of obsolete, inefficient, or unnecessary plants. 
Where, in general, industrial concentration destroyed competitors by 
increasing efficiency, combination absorbed competitors, who usually 
were willingly absorbed because they received huge profits from the 
overcapitaUzation of the new enterprises. Combination aimed to con- 
trol competition and prices, to check the fall in the rate of profit by 
limiting competition and so "earn" monopoly profits. According to one 
bourgeois economist: "Least influential of all was the expectation of 
reducing costs. The large proportion of trusts formed which accepted a 
loose form of organization indicates that reduction of costs was not the 
dominant objective. Many consolidations acquired inefficient plants 
and clearly relied more on buying out competitors or killing them off 
by resort to unfair methods of competition than on driving them out 
by lower prices based on lower costs." ^ MonopoHst combinations were 
made possible by previous industrial concentration, and they promoted 
concentration; but their emphasis was financial, not industrial, recapi- 
talizing combinations on the basis of prospective monopoly profits. 
Their tendency, one of the elements of capitalist decline, was to retard 
the development of efficiency, although (another contradiction of capi- 
talist production), combinations developed new forms of competition; 
this forced efforts to increase efficiency because of the downward tend- 
ency of the rate of profit and resulted in more and larger combinations. 

By 1904, there were 440 great American trusts, with a capitalization 
of $20,379 million; one-third of the capitalization was in seven com- 
binations, over which towered the United States Steel Corporation.^ 
Trustification grew in manufactures and in mining, on the railroads 
and in municipal traction. 

Two important developments accompanied the combination move- 

37^ The Decline of American Capitalism 

ment: the multiplication of stockholders and the centralization of 
financial control over corporate industry. Combinations, mainly to pay 
the huge profits of promoters and former owners, needed large amounts 
of new capital, which could be raised only by selling masses of stock 
to the general public. Ownership was no longer vested in the active 
industrial capitalist, but in a mass of investors; ownership and manage- 
ment were separated, while control was usurped by financial capitalists. 
Many of the older industrial capitalists became financial capitalists. 
Armour acquired large interests in railroads, banks, and insurance 
companies. In the 1890's the Rockefeller oligarchy became a group of 
financial capitalists, with far-flung interests in all sorts of enterprises, 
active speculators and promoters on a large scale. They typified the 
fusion of industrial and banking capital: with the huge cash resources 
of Standard Oil the Rockefellers went into banking; in cooperation 
with James Stillman they built up the National City Bank of New 
York, which engaged actively in promotion, speculation, and invest- 
ment banking. At the same time banking, particularly investment 
banking, moved toward more direct participation in industry. For the 
banks were no longer mere intermediaries who mobolized the nation's 
savings for the use of industry, they were rapidly becoming the masters 
of industry. The separation of ownership and management did not 
vest control in management but in financial capitalists and the banks 
which they controlled or with which they were in "community of 
interest." Commercial banks became increasingly investment institu- 
tions; when this was prohibited by law, the banks organized invest- 
ment affiliates. And financial control of industry was increasingly insti- 
tutionalized in the banks, including private investment banking houses. 
They acquired control of the resources of insurance companies and 
used them for investment and promotion purposes. Investment banking 
houses in turn acquired control of banks (and insurance companies) 
to facilitate their operations. The "money power," with its control of 
investment resources and credit, imposed its dominion over trustified 
industry. By 1912, 180 individuals representing eighteen investment 
banking houses, commercial banks, and trust companies held 746 inter- 
locking directorships in 134 corporations with total capitalization or 
resources of $25,325 million. The most powerful group, the House of 
Morgan, its affiliate, the First National Bank, and its ally, the Standard 
Oil National City Bank, held 341 directorships in 112 dominant cor- 
porations with total capitalization or resources of $22,245 million, 
distributed as follows; 

Trusts: Concentration and Combination 379 

Thirty-four banks and trust companies: resources, $2,679 i^iHioi^y 
13% of all banking resources. 

Ten insurance companies: resources, $2,293 million, 57% of all 
insurance resources. 

Thirty-two railroads: capitaHzation, $11,784 million; mileage, 150,000. 

Twenty-four industrial and commercial combinations: capitalization, 
$3,339 million. 

Twelve public utility companies: capitalization, $2,150 million.^ 

This fusion of industrial and banking capital, which thrust power 
into the hands of a financial oligarchy operating mainly with the 
money of others, increasingly dominated capitalist production. The 
oligarchy did not merely participate in combinations, it ruled ruthlessly. 
The system was one of private property without direct ownership and 
responsibility, without the control of ownership; financial capitalists 
garnered their largest profits by plundering stockholders, by violating 
the "rights" of private property. And the combinations and their finan- 
cial overlords were ruthless in their exploitation of labor; only on the 
railroads was unionism able to establish itself successfully. . . . 

Combination and the centralization of financial control proceeded 
steadily, in spite of the opposition of agrarian and middle class radicals, 
in the midst of clamor against the trusts and regulation by the govern- 
ment. Legislation against the trusts merely forced them to adopt new 
and, ironically, more impregnable forms.* When courts declared illegal 
the original trustee device (whence the term "trust"), which combined 
corporations by assignment of stock and control to a board of trustees, 
it resulted in the development of the most successful method of com- 
bination, the holding company. For the holding company merely owns 
stock, and may combine and control corporations by ownership of a 
bare majority of their stock. The government's efforts to "smash" or 
"regulate" the trusts led them to adopt more clever means of evading 
the law (making the corporation lawyers indispensable and million- 
aires) ; public clamor was stilled with minor reforms, in the interest of 
trustified industry itself, and regulation ended in regularization, the 
consolidation of the power of the trusts. In the midst of the struggle 

* As in the case of the "due process" clause in the constitutional amendment intended 
to protect the Negro's rights, which was instead transformed into a bulwark of the 
"rights" of corporate property, the anti-trust acts were used against the workers, who 
supported the middle class and agrarian radicals in the demand for legislation against 
the trusts. Labor unions were increasingly considered by the judiciary as "combinations 
in restraint of trade." Because of its economic and political weight, the capitalist class 
transforms concessions, wrung from it by other classes, into new means of domination 
and oppression. 

380 The Decline of American Capitalism 

against the trusts, in 1907, the Aluminum Company of America was 
organized: the one perfect monopoly, with almost unlimited control 
over sources of raw materials, manufactures, and distribution. In 191 1, 
the United States Supreme Court "dissolved" the holding company 
trust. Standard Oil, and the operating company trust, American To- 
bacco; but simultaneously, with its "rule of reason," the Court accepted 
and justified trustification. After dissolution, Standard Oil was still 
under common control; the separate companies, instead of specialized 
concerns, became more fully integrated, combining production, refin- 
ing, and distribution. If Standard's monopoly control was lessened, it 
was not a result of the Court's decision but of the enormous growth 
of the oil industry due to the automobile. The needs and patriotic 
hysteria of the World War were exploited by the trusts to consolidate 
their control over industry. Trust magnates, formerly denounced as 
criminals and "undesirable citizens," blossomed forth as $i-a-year heroes 
to "make the world safe for democracy" (meanwhile protecting their 
own interests and the interests of their class). And in 1920 came the 
final legal victory of the trusts: the Supreme Court decision denying 
the government's petition to dissolve the United States Steel Corpora- 
tion. The Steel Trust, said the Court, six to three, was "not monopoly, 
but concentration of efforts with resultant economies and benefits." ^ 
Concentration and combination now proceeded on an unprecedented 
scale. Trusts again strengthened their control in the depression of 
1921-22 (one of the sweet uses of capitalist adversity), and made new 
conquests in the ensuing period of prosperity. Never were there as 
many mergers; the number of firms which disappeared through merg- 
ers rose from 760 in 1920 to 1,245 in 1929; disappearances were 140% 
higher in 1930 than in 1922.* Industrial concentration was unusually 
active, stimulated by the upswing in the output of capital goods because 
of the growth of old and new industries and of mass production for 
mass markets, on the basis of increasingly larger masses of fixed capital 
required in modern industry. Concentration was especially marked in 
the newer industries, which do not usually repeat the small-scale phases 
of the older industries: they adopt the newer technology and large- 
scale production at the start (and are usually promoted by financial 
capitalists). Profits were high, and a large part of them was reinvested 
in more efficient equipment and plant extensions. But the higher com- 
position of capital, excess capacity, and intensified competition forced 
down the rate of profit. This led to the introduction of more efficient 
equipment to raise the productivity of labor and to more industrial 
concentration, either by enlarging the plants of a particular enterprise 

Trusts: Concentration and Combination 381 

or by consolidating formerly independent plants. But because of the 
restriction of markets, the greater the concentration and efficiency, the 
greater and more menacing was competition. For concentration, as in 
the earlier stages, was still determined primarily by technical-economic 
efficiency, the production of more goods at lower cost and their sale at 
lower prices; this meant a fall in the rate of profit because of intensified 
excess capacity and competition. Hence a strengthening of the move- 
ment toward monopolist combination, to control production, markets, 
and prices.* Combinations, however, went beyond this purpose, and 
became involved with the purely financial and speculative manipula- 
tions of the financial oligarchy. As, under the conditions of monopoly 
capitalism, the production of financial and speculative profits is in- 
creasingly more important than the production of goods, combination 
increasingly outstrips its technical-economic basis in industrial con- 
centration and efficiency: becomes more and more subordinate to the 
predatory purposes of the financial oligarchy. Innumerable mergers, 
reorganizations, and combinations had no other aim than the profits 
of promotion and speculation. In the case of an automobile company, 
whose private family ownership was transformed into "public" owner- 
ship, recapitalization yielded the bankers profits of $15,000,000; the 
Van Sweringen mergers and reorganizations, an evasion of government 
regulation, yielded profits of over fioo milHon, $23,933,000 from one 
transaction in 1929; one small airplane merger promoted by the 
National City Company, investment affiUate of the National City 
Bank, in addition to the bank's profit of $2,499,000, netted large profits 
for "close friends, officers, and key men" who sold their stock on a 
rising market.^^ Economic efficiency and corporate safety were sacri- 
ficed by combination, especially where the main purpose was to inflate 
values on the stock exchange or to consolidate the control of financial 
oligarchs. One of the most striking examples was the stupendous and 
fraudulent InsuU combination in the public utility field: it yielded 
enormous profits to its promoters and favored "insiders" (including 
politicians); and it crumbled easily under the impact of depression. 
The "abuses" of combination were condemned by "liberal" econo- 
mists, who consider the abuses as independent categories and not as 

• Of the British amalgamation movement in the early post-war years, G. C. Allen, 
British Industries and Their Organization (1932), p. 296, writes: "The main impulses 
behind the movement were the wish to ensure markets and supplies and the hope of con- 
trolling prices." In later years the rationalization movement, both in Britain and Germany, 
stressed industrial concentration and efficiency; but it included "financial rationalization,** 
i.e., combination and the centralization of financial control. 

382 The Decline of American Capitalism 

inseparable accompaniments of monopoly capitalism. One of them said 
early in 1929: 

"Mergers have not proved, and are not likely to be, a cure-all for 
excess capacity, overproduction, or cut-throat competition, or a royal 
road to exceptionally large profits in any field. . . . They have to depend 
to-day mainly upon their potential superiority in efficiency to control or 
dominate the market. While such superior efficiency has been achieved 
in some fields, it has not been demonstrated in every instance. . . . 
Many mergers that have been promoted by financial interests in recent 
years have been based upon exaggerated hopes or uninformed calcu- 
lations of cost reduction and market control, and have dissappointed 
investors. ... If the merger movement is going on so strongly to-day, 
it is chiefly because the widespread ignorance of fundamental business 
conditions and the fantastic security markets based upon this ignorance 
have offered an exceptional opportunity to unload contingent securities 
upon the general public." ^^ 

Thus the "liberal" economist persists in separating economic cate- 
gories from their capitalist social relations. Combinations sacrifice 
efficiency? Of course, for efficiency contributes to excess capacity and 
competition, forcing down the rate of profit; monopolist combinations 
aim to overcome them. They are not overcome? That is more proof 
of how hopelessly capitalist production is entangled in its contradictions 
and antagonisms. Investors are disappointed? Naturally; their losses 
are one condition of the profits of the financial oligarchs. Monopolist 
combinations may violate economic efficiency, cheat investors, and 
aggravate contradictions; but they promote, and this is the decisive 
factor, the profits and control of the financial oligarchy, which dom- 
inates monopoly capitaHsm: an indication of constantly greater para- 
sitism and decay. 

The increasing concentration of industry and centralization of finan- 
cial control more than justify the analysis and prediction made by 
Marx.* One aspect of industrial concentration and combination is the 

• "The continual retransformation of surplus value into capital displays itself as a 
steady growth of the capital engaged in the process of production. This, in turn, becomes 
the foundation of an increase in the scale of production and of the accompanying methods 
of increasing the productivity of labor and of bringing about an accelerated producton of 
surplus value. ... As the mass of u^ealth which functions as capital increases, there 
goes on an increasing concentration of that wealth in the hands of individual capitalists, 
with a resultant widening of the basis of large-scale production. . . . Accumulation pre- 
sents itself, on the one hand, as increasing concentration of the means of production and 
of command over labor; and, on the other, as the mutual repulsion of many individual 
capitals. This splitting-up of social capital into a number of individual capitals is coun- 

Trusts: Concentration and Combination 383 

growth of corporations. In 1929, while only 101,815 manufacuring 
plants out of 210,945 were under corporate ownership or control, they 
employed 89.9% of the workers and produced 92.1% of all manu- 
factures. Plants with an output of $1,000,000 up, less than 6% of the 
total, employed 58.2% of the workers and had 69.2% of the output.^^ 
Industrial concentration, in terms of single plants, was as follows: 

Plants with 501 or more workers, numbering 2,718, employed 3,336,- 
980 or 37.8% of the workers. 

Plants with loi to 500 workers, numbering 14,035, employed 2,920,- 
185 or 33% of the workers. 

Plants with 51 to 100 workers, numbering 12,467, employed 891,671 
or 10.1% of the workers. 

All other plants, numbering 181,739, employed 689,897 or 19.1% of 
the workers; of these smaller plants, 95,767 employed only one to five 

In the first category are the plants of such industrial giants as the 
United States Steel Corporation, employing (in prosperity!) over 
250,000 workers. In the fourth category are petty producers, mainly 
non-corporate, 125,559 ^^ whom reported, in 1924, profits of $380 mil- 
Hon, an average of only $3,000.^* 

The single plant statistics do not, however, give a complete picture 
of industrial concentration, as many of the plants are units of larger 
corporate enterprises. Concentration is not measured alone by the 
size of single plants; it may, and this was particularly marked in 
1923-29, concentrate and integrate plants by means of common owner- 
ship, management, and control. Thus, in 1929, 8,246 multiplant groups 
employed 48.4% of the workers and produced 54.3% of the total 
output of manufactures.^^ But multiplant groups, while measuring 

teracted by their attraction. The latter is not simply a concentration of means of produc- 
tion and command over labor, a concentration identical with accumulation. It is the con- 
centration of already formed capitals, the destruction of their individual independence, 
the expropriation of capitalist by capitalist, the transformation of many small capitals 
into a few large ones. The process is distinguished from simple accumulation by this, 
that it involves nothing more than a change in the distribution of the capitals that 
already exist and are already at work. . , . Here we have centralization in contradistinc- 
tion to accumulation and concentration. ... It is possible for vast amounts of capital 
to be concentrated into one hand because comparatively small amounts of capital are 
withdrawn from a number of individual hands. In any given branch of industry cen- 
tralization would have reached its extreme limit if all the capitals in this industry were 
fused into one. ... A growing concentration of capitals (accompanied by a growing 
number of capitalists, though not to the same extent) is one of the material requirements 
of capitalist production as well as one of the results produced by it." Karl Marx, Capital, 
V. I, pp. 689-92; V. Ill, p. 257. 

384 The Decline of American Capitalism 

industrial concentration and integration, the basis of combination, do 
not measure the centralization of corporate control. This appears more 
fully in the distribution of net income. In 1929, 1,299 manufacturing 
corporations, mainly large combinations, 1.3% of the corporations 
engaged in manufactures, received 75.8% of the net income :^^ a 
centralization of control much greater than industrial concentration. 


Concentration of Corporate Income, igig-2g 








































•Corporations with net income of $1,000,000 up. 

Source: Computed from corporation reports in Bureau of Internal Revenue, Statistics 
of Income for the respective years. 

Nor is this centralization of control limited to manufactures. In 1929, 
1,314 corporations, 0.27% of all corporations, had assets of $147,697 
million, 44% of all corporate assets; capital stock of $48,522 million, 
44.2% of all capital stock; and surplus of $29,188 million, 57.5% of all 
corporate surplus.^^ Still larger was the share in corporate net income 
of these giant combinations of capital, because of their monopoly 
advantages; in 1929, 1,349 of them, only 0.26% of all corporations, 
received 60.1% of total net income (Table I). Centralization of control 
is underestimated by the statistics: net income of the larger combina- 
tions does not include all the income of their subsidiaries, many of 
which must file separate income-tax reports; combinations, moreover, 
tend to have larger bonded indebtedness than small corporations, and 
the high interest payments are not included in net income. In 1929, 
238 corporations making consolidated reports covering from six to 286 
subsidiaries for each corporation, reported net income of $4,148 million, 
or 35.6% of all net income. Concentration of profits and centralization 
of corporate control increased steadily in 1923-29: the number of cor- 
porate giants rose from 1,026 to 1,349, although they remained con- 
stant as a proportion of all corporations, and their share of net income 

AND OVER- l<»Z<^ 

i^S _ 














386 The Decline of American Capitalism 

rose from 47.9% to 60.1%. Concentration and centralization are 

Under these conditions of centralization of control in monopolist 
combinations, the small producer and other petty enterprisers are a 
negligible economic factor. In 1929, 228,475 small non-corporate enter- 
prises of all types reported profits of $1,836 million, an average of only 
$8,000; roughly three-quarters of the total profits were derived from 
trade and services.^^ The essential element in the old middle class, 
the small producer, is no more a factor in capitalist production, while 
the "new" middle class is dominated by the managerial employees of 
corporate enterprise.* This is why the struggle against the trusts ended 
in 1923-29. 

Combination centralizes control of economic life beyond the limits 
of industrial concentration. Monopolist combinations may unite a series 
of independent producing plants; engage in all stages of production 
from raw materials to final manufacturing and marketing; manufac- 
ture a series of different products; or combine totally unrelated enter- 
prises merely for the profits of financial exploitation and control. An 
indication of the rapid growth of giant combinations in the post-war 
period is the fact that where in 191 9 there were only seven corpora- 
tions with assets of $1,000 million up, combined assets $18,847 million, 
in 1931 there were twenty-three, combined assets $43,126 million,^* 
one-seventh of all corporate assets. Acceleration was marked. The assets 
of the 200 largest non-banking corporations grew from $26,000 million 

* Marx, in blasting the "philosophy" of Malthus, who held out to the workers the 
inducement that they might rise in the world, said in Theorien ilber den Mehrwert, 
V. Ill, pp. 59-60: "The highest hope of the profound thinker, Malthus, which he himself 
regards as more or less Utopian, is that the middle class should grow and the proletariat 
(which is employed) become a relatively smaller part (even if it grows absolutely) of 
the whole population. That is in fact the course of bourgeois society." Part of this is 
quoted by Hans Speier, "The Salaried Employee," Social Research, February, 1934, 
p. 124, to prove that Marx made "contradictory statements" about the disappearance of 
the middle class. There is no contradiction. Marx prophesied the doom of the middle 
class of small producers. The doom is fulfilled. Economically, the "class" of small pro- 
ducers is now helpless, unimportant in the shadow of the massive power of concentrated 
corporate capital; numerically, although they have grown, the small producers have 
shrunk to insignificance relatively to the working class. Marx never prophesied the doom 
of the elements which make up the "new" middle class; on the contrary, although he 
never analyzed the subject fully, because he died after writing only a few pages of his 
analysis of classes in Capital, Marx clearly indicates that he foresaw the growth of the 
"new" middle class. This is not really a class in the full economic sense, but 
an aggregation of diverse groups standing between the workers and the capitalists. Once 
the term middle class included the whole bourgeoisie, a class standing between the 
masses and the ruling aristocracy; now it includes only the lower bourgeois groups. 

Trusts: Concentration and Combination 387 

in 1909 to $81,000 million in 1929, an average yearly rate of growth of 
5.4%, compared with 3.6% for all other corporations; but from 1924 
to 1928 the average yearly rate of growth in the assets of the largest 
corporations was 7.7%, compared with only 2.6% for all other corpo- 
rations.^" The economic power of monopolist combinations grows faster 
than production or corporate wealth in general. 

Concentration and combination develop unevenly in the different 
fields of industry, but everywhere they tend to be dominant (Table 
II), with the tendency for them to become still more dominant. 


Centralization of Corporate Control, jg2g 
















Public Utilities 
















Total 1,329 $6,893 60.5 

•Corporations with net income of $1,000,000 up. 

Source: Computed from corporation reports in Bureau of Internal Revenue, Statistics 
of Income, 1929. Mining includes quarrying, natural gas, and oil; public utilities in- 
cludes transportation and electric power; service includes amusements, hotels, and pro- 
fessional services; finance includes banks, insurance companies, brokers, and real estate. 

The unevenness reflects the general unevenness of capitalist develop- 
ment, a fruitful source of contradictions and antagonisms, expressing 
the planless and exploiting character of capitalist production. But 
everywhere monopolist combinations, alone or in agreement with 
others, wield measurable control over production, markets, and prices. 
While this appears clearly enough in the general statistics, it appears 
still more clearly in particular fields of industry. 

In manufactures 627 giant corporations received 64% of the net 
income. In addition, these monopoHst combinations control many other 
subsidiary plants directly and indirectly: many "independent" plants 
are dependent upon the giants for their markets. Concentration and 
combination are most marked in heavy industry, the basis of modern 
economic life. Six companies in 1930 controlled 75% of the steel 
making capacity, compared with only 58.9% in 1920. United States 

388 The Decline of American Capitalism 

Steel and Bethlehem Steel alone had assets of over $3,000 million. 
What coke plants are not owned or controlled by the iron and steel 
companies are in the power o£ the gas utilities, whose control is 
centralized in a few monopolist gas and electric holding companies. 
Electrical manufacturing is practically a monopoly of three corpora- 
tions working in harmony and bound together by the financial power 
of the House of Morgan — General Electric, Westinghouse, and Western 
Electric, with combined capital stock in 1929 of $506 million, in addition 
to stockholdings of I243 million in other electrical manufacturing enter- 
prises and power and light companies. Two giants, with assets of over 
$2,000 milhon, dominate the automobile industry. In 1930, four com- 
panies produced 70% of all rubber tires and a large proportion of other 
rubber goods. The Allied Chemical and Dye Corporation, which, 
through political manipulations and for a song, acquired the German 
patents expropriated during the World War, is the dominant combina- 
tion in the chemical industry. The E. I. du Pont de Nemours Company, 
with assets of $986 miUion in 1929, produces an extraordinary variety 
of chemical products, and has in addition large interests in munitions 
and automobiles. Concentration is high in pulp paper manufacture, 
with its great masses of fixed capital, and so is combination, the com- 
panies owning forests, power plants, and newspapers (to control or- 
ders) ; one company in 1929 had assets of $767 million. The Aluminum 
Company of America has an almost air-tight international monopoly, 
owning bauxite mines and aluminum plants in many countries. Al- 
though the monopoly of Standard Oil was lessened, primarily by the 
enormous expansion of the industry, renewed concentration and com- 
bination has been going on actively. In 1930, seventeen companies had 
80% of the operating refinery capacity, 61% being held by seven 
companies. The Standard Oil group is still dominant, for it controlled, 
in 1926, 73% of the pipeHne transportation facilities and marketed 
45% of motor oil. Although the Radio Corporation of America was 
"dissolved" in 1932, it still masters the industry; Westinghouse and 
General Electric disposed of their Radio stock, to their own stock- 
holders, but community of interest is maintained by the Morgans, the 
financial overlords of the three corporations. Eight companies, includ- 
ing du Pont Rayon and the Viscose Company, control rayon produc- 
tion. One company controls agricultural machinery, one company 
boot and shoe machinery, three companies aviation products, five 
companies over one-fourth of the flour milling output.^^ In every 
field of manufactures, heavy and light, a similar condition of monop- 
olist domination prevails. 

Trusts: Concentration and Combination 389 

In mining, 65 great corporations received 84.6% of the net income. 
This does not, however, tell the whole story, for the control of strategic 
natural resources is a decisive aspect of monopoly capitalism. In 1922, 
two companies controlled over half of the iron ore reserves, four com- 
panies nearly half the copper reserves, six companies about a third of 
the developed water power, eight companies over three-quarters of the 
anthracite coal reserves, thirty companies over a third of the immediate 
bituminous coal reserves, and thirty companies one-eighth of the petro- 
leum reserves. Almost as great was the concentration of production. 
In 1929, fourteen iron mining enterprises produced 46% of the output; 
fourteen copper companies employed 72.5% of the workers; 118 bitu- 
minous coal companies produced 59.8% of the output. This concentra- 
tion of power over natural resources was much greater because many 
of the separate companies are merely dependents in the system of 
centralization of financial control. Concentration has since increased, 
moreover; thus, in 1931, a merger of the Phelps Dodge Corporation 
and the Arizona Mining Company resulted in the new combination, 
with assets of $370 million, becoming the second largest producer of 
copper in the United States.^^ 

The greatest concentration and centraHzation prevail in public utili- 
ties, because of three factors: the element of "natural monopoly," the 
great masses of fixed capital required, and the tremendous development 
of the holding company as a means of centralizing financial control. 
In 1929, the telephone trust, the American Telephone and Telegraph 
Company, had assets of $2,477 rnillion. Six railroad combinations had 
combined assets of $9,546 million. The Van Sweringen system, by 
means of a series of holding companies with combined investments 
of $519 million, controlled 28,631 miles of railroads, in complete defi- 
ance of regulation by the Interstate Commerce Commission and its 
plans for unification. In the six years 1923-28, 3,933 electric power 
companies merged or were acquired by other companies; the number 
of "independent" systems decreased from 125 to twenty-two. The 
United Corporation, formed in 1929 by the House of Morgan and 
affiliated interests, augmented an already great centralization of finan- 
cial control, a combine of combinations; in 1931, with assets in excess 
of $600 million. United dominated, by means of stock ownership in 
subsidiary holding companies, underlying power properties with assets 
of $5,459 million. Before this, in 1925, five combinations controlled 
46.9% of the output of electricity, 10.7% by the giant Electric Bond 
and Share Company, an affiliate of the General Electric Company.^^ 
The formation of United Corporation, the subsequent breakdown of 

390 The Decline of American Capitalism 

the Insull empire, and other developments resulted in a redistribution 

and greater centralization of control. 

Concentration and centralization appear comparatively small in trade 
and service. This is particularly so in service, which is largely personal; 
yet even here the trend is av^ay from petty individual enterprise. Hotels 
are dominated by chain systems. In 1926, 5,000 out of 20,000 moving 
picture theatres w^ere owned or operated by a few large producers and 
distributors, and the proportion has since grown. The "free" profes- 
sions are increasingly dependent upon corporate enterprise. In 1929, 
chain-store systems in retail trade did a combined business of $10,771 
million, or 21.5% of the total (compared with probably 5% in 1920); 
nearly one-half of the chain business was in the hands of 321 national 
chains. The Great Atlantic and Pacific Tea Company, with 15,737 
stores, increased its sales from $200 million in 1922 to over fi,ooo 
million in 1929. Chain stores have invaded all retail fields; they made 
31% of all grocery sales, 27.7% of apparel sales, 30.8% of general 
merchandise sales, 19.5% of furniture sales, and 33% of gasoline 
station sales. (Gasoline chains are owned mainly by the great oil 
companies.) Growth of the chain stores forced independent store- 
keepers to fight fire with fire; in 1929, 60,000 independents were or- 
ganized in "voluntary chains," with one-third of the independents 
doing 65% of the business.^* Even the surviving petty enterprises of 
the middle class are becoming "collective"! This concentration and 
centralization in trade and service, which were once considered the 
final bulwark of petty individual capitaHst enterprise, is of enormous 
significance. Developments in management, accounting, and statistical 
control have made all types of enterprise capable of large-scale corpo- 
rate organization, breaking down former limitations. It is another 
objective element of sociaHsm. . . . 

Concentration and centralization in finance is even greater than 
appears in the fact that 283 financial corporations, only 0.21% of the 
total, received 47.7% of the net income. The picture is obscured by 
the existence of thousands of petty brokers and "independent" banks, 
all, however, dominated by the great financial institutions. In 1932, 
six life insurance companies owned 69% of total insurance assets, and 
ten more owned another 13%;^^ these giants wield an enormous 
financial influence. The large number of small banks (steadily de- 
creasing since 1920) seems to indicate the existence of a "democratic" 
banking system in comparison with the oligarchic system in other 

Trusts: Concentration and Combination 391 

highly capitalist countries; but, in fact, American banking is dominated 
by the financial oligarchy.* 

The control of industry by monopolist combinations is augmented 
by the community of interests of intercorporate stockholdings and in- 
terlocking directorates. Intercorporate dividends rose from J870 million 
in 1923 to $2,593 million in 1929,^^ representing mainly an increase in 
stock ownership and influence over corporations by monopolist com- 
binations, holding companies, and financial institutions. In some cases 
a combination is specifically organized to unify particular interests: 
United Corporation was a concentration of the interests of other com- 
binations; the Radio Corporation of America, which dominates radio 
manufacturing and transmission, represented (until the dissolution) the 
patent monopoly and other interests of the General Electric Company, 
the Westinghouse Electric and Manufacturing Company, and the 
American Telephone and Telegraph Company. And every monopolist 
combination is represented on the directorates of other corporations; 
this appears from the number of directorships held by the directors 
of the following combinations: 

United States Steel 174, General Motors 167, Radio Corporation of 
America 232, United Corporation 77, General Electric 218, International 
Harvester 77, Anaconda Copper 164, American Telephone and Tele- 
graph 226, E. I. du Pont de Nemours 96, International Paper and 
Power 174, Bethlehem Steel 198, United Fruit 197, Goodrich Rubber 
85, Aluminum Company of America 149, Armour and Company 173, 
American Smelting and Refining 179, Pennsylvania Railroad 241, 
Consolidated Gas 195, Standard Oil Company of New Jersey 41, New 
York Central Railroad 306.^'' 

Some of these interlocking directorships are personal business affilia- 
tions, others are directorships in subsidiaries, still others are manifesta- 
tions of community of interest; all of them represent centralization of 
corporate power. It is partly an expression of economic interdepend- 
ence, an objective sociahzation of production; but this progressive 
development becomes the basis for the erection of a predatory empire 
ruled over by the financial oligarchy. 

While the apologists speak of "control" over monopolist combina- 
tions, their power is augmented by the NRA, whose program is an 
immense cartellization of industry. Where in Europe before the 
World War, especially in Germany, government encouraged the 

*This subject is discussed more fully in Chapter XXI, "Monopoly and Finance 

392 The Decline of American Capitalism 

formation of cartels but did not participate,* the American govern- 
ment under the NRA both encourages and participates actively {e.g., 
RFC loans to industry, government representation on the cartel gov- 
erning boards, the code authorities). There are four essential elements 
of the cartel: Elimination or modification of competition, the fixing 
of prices, restriction of production, and allotment of sales quotas or 
trading areas. All these elements appear directly or indirectly, openly or 
in disguised form, in most of the codes. The element of restriction of 
production is accepted with particular enthusiasm. Listen to a "liberal" 
member of the NRA: 

"IndustriaHsts will tell you frankly that their aim is to set up codes 
under which they can break even when operating plants at 35% of 
capacity and make a good profit at 50%. The combination of fixed 
prices, controlled production, and the licensing of new machinery 
and plants, they feel will bring this about. One industry, which had 
been losing money since 1923, was able, through advancing prices, to 
make huge profits in 1933. Now this same industry is asking for the 
right to license new equipment and otherwise control production. 
Another industry, with an amazing profit record in 1933, asks to be 
allowed to buy up and scrap the excess plant capacity of the in- 
dustry." ^« 

The monopoly policy of the NRA is a continuation of previous 
developments: of "trust busting" giving place to regulation and of 
the relaxation of all anti-trust laws in 1923-29. Both the policy and 
the developments express the dominant economic power of trustified 
industry, the inevitability of monopoly capitalism. Price-fixing and the 
restriction of production must favor the great corporations,! which, 
moreover, dominate the codes and the NRA itself. Small businessmen 

* European governments now participate. The pre-fascist governments in Germany 
took part in the trustification movement, particularly in the formation of the steel trust. 
France encourages trustification with legislation and public money. According to the 
New York Times, February 9, 1934, the British government is promoting a merger of 
North Atlantic shipping interests, the Treasury to provide the new trust up to ;Ci»500,- 
000 for working capital and £ 8,000,000 for the construction of giant Uners. The 
"organization" of industry by fascist governments is nothing but cartellization or trusti- 
fication on an enormous scale, with brutal emphasis on one of the major aspects of 
monopolist combination: suppression of the workers. 

t Restriction of production in agriculture also favors concentration. "Smaller crops 
and fewer farms is the government program in all its ramifications. This will certainly 
relieve the small farmer — of his livelihood. To the large plantation owner this program 
is more than welcome. He has everything to gain and nothing to lose from a program 
which protects the price of his cotton by removing the small farmer from produc- 
tion. . . . We find 800,000 families, involving about 5,000,000 men, women, and 

Trusts: Concentration and Combination 393 

moan and protest, the government speaks o£ "helping" them with 
loans, and General Hugh Johnson makes the pledge: "Certainty of 
protection against monopoly control and oppression of small enter- 
prise."^^ But the philosophy and practice of Niraism, an expression 
of monopoly capitalism and its decline, must strengthen the great 
combinations. Still the small businessmen moan and protest. They 
object most strenuously to minimum wages, for wages are a larger 
item of costs among them than among the great enterprises. Accord- 
ing to the report of the Advisory Review Board on NRA Codes (the 
Darrow board), "codes are developing a monopolist trend and are 
doing injury to small industrialists and businessmen." The report was 
denounced by the embattled chiefs of the NRA. According to the 
Federal Trade Commission, several provisions in the electrical indus- 
try code "tend to eliminate and oppress small enterprises, discriminate 
against them, and thus promote monopolies." The Commission also 
sharply criticized the code for the iron and steel industry: the code 
strengthens the monopoHst combinations, it is used to justify prac- 
tices prohibited by the Commission as opposed to fair competition, 
and it oppresses small enterprises. The code authority, which is com- 
posed of the directors of the Iron and Steel Institute, is governed by 
plural voting based upon the amount of sales, and is consequently 
dominated by two or three large enterprises.^^ Of the oil code, one 
observer writes: 

"The industry, or so it is contended, will discipline itself. The new 
arrangement provides for price-fixing by the industry, or rather by 
the dominant major companies, instead of by a public agency. It 
encourages centralization of control of the industry in the hands of 
relatively few companies. It slights the interests of the consuming pub- 
lic and affords no protection to small enterprises. The major companies 
can in effect dictate the terms upon which independent gasoline dis- 
tributors and others may do business. . . . Nine of the financially 
strongest companies have the power of Hfe and death over the pool 
which is to 'maintain and support proper relationships of gasoline 
prices.' " The code fosters monopoly, declared the small operators and 
refiners in a memorial to Congress: "The proration and fixed price 
ruling of the code administration makes it possible for the larger 
companies to obtain more than their fair share of available petroleum 

children, who are in danger of losing their means of existence. It is probable that not 
all of these will be actually released. It is certain that a large number of them will be." 
Webster Powell and Addison T. Cutler, "Tightening the Cotton Belt," Harpers, Febru- 
ary, I934> pp. 315-17. 

394 The Decline of American Capitalism 

trade." These are also the sentiments o£ small operators in bituminous 
coal, in shipping, of small enterprisers in general.^^ 

The apologists of the NRA, who speak of "social control" over 
monopolist combinations, admit in so many words that the forms of 
a new social order are clashing with the older social relations of pro- 
duction. They say "control" is for purposes of "social justice," of "re- 
distributing" wealth, of "increasing" mass purchasing power. That is 
mere pretense; the program of state capitalism is to bolster up the old 
order, make it more workable; to manipulate the forms of the new 
social order to prevent that order from definitely emerging. For, in a 
decisive historical sense, monopoly capitalism is no longer capitalism. 
It is no longer capitalism where "collective" combinations of capital 
dominate industry, where ownership, management, and control are 
separated, where the personal rights of property persist in an imper- 
sonal system of collective industrial property, where the state, presum- 
ably representing society, does not merely use political power to insure 
the domination of the ruling class, but intervenes economically to aid 
industry, using collective economic resources and action to insure the 
rights and income of individual ownership. 

Within the objective socialization of production and institutionali- 
zation of management there is still private ownership and appropria- 
tion, competition and the clash of personal property interests, making 
impossible the planful management and regulation of industry. These 
contradictory elements are strengthened by the NRA and state capital- 
ism, which cling to the older social relations of production. The whole 
social-economic situation is one of transition, whose only progressive 
outcome is socialism, a revolutionary act liberating production from its 
capitalist fetters and making possible a new social order. But state 
capitalism tries to "freeze" the transition: it restores neither the older 
competitive capitalism, with its free play of economic forces, nor does 
it complete the transition toward the new social order. Hence, neither 
one thing nor the other, Niraism and state capitalism aggravate all the 
contradictions and antagonisms of capitalist production. This means 
more instability, transition converted into disintegration. The attempt 
to "stabilize" disintegration: that is state capitalism (and, still more, 
fascism). And it necessarily is monopoly state capitalism, dominated 
by the economic and social weight of monopolist combinations and the 
social relations of production out of which their pou/er arises. It is the 
strengthening of monopoly and finance capital and their predatory 
domination of society. 


Monopoly and Finance Capital 

ivJloNOPOLY capitalism has two interlocking aspects: separation of 
ownership, management, and control; usurpation of control by the 
financial oligarchy. Industrial concentration and the centralization of 
financial control increasingly transform the social capital into finance 
capital, liquid, intangible, mobile. This capital is mobilized and manip- 
ulated by the oligarchy and the financial institutions with which it is 
identified, and makes them the masters of industry and society. 

Bourgeois economists, particularly those of the "institutional" variety, 
recognize the separation of ownership and management. But this 
separation is only one aspect of monopoly capitalism; it is, moreover, 
involved with profound changes in class structure and class relations. 
The class aspect is decisive. The animus of the "institutional" approach 
is clear : // "professional" management is an independent category, then 
there may be a smooth, gradual, peaceful development toward a "new" 
society, meanwhile retaining the fundamental exploiting relations of 
capitalism. But management is not an independent category. It is 
separated neither from the underlying relations of capitalist produc- 
tion nor from the superstructural control of the financial oligarchy. 

The good and the bad in the "institutional" approach is evident in 
the analysis of the subject by Gardiner C. Means, in The Modern 
Corporation and Private Property. After a comprehensive and convinc- 
ing demonstration of how monopolist combinations have separated 
ownership and management. Means concludes: 

"Under the corporate system, control over industrial wealth can be 
and is being exercised with a minimum of ownership interest. Con- 
ceivably it can be exercised without any such interest. Ownership of 
wealth without appreciable control and control of wealth without 
appreciable ownership appear to be the logical outcome of corporate 
development. This separation of functions forces us to recognize *con- 
trol' as something apart from ownership on the one hand and man- 
agement on the other." ^ 

This clear appreciation of control as independent of ownership and 
management is offset, however, by an unclear conception of how con- 
trol is secured and exercised and by whom. Of the 200 largest non- 

39^ The Decline of American Capitalism 

financial corporations, according to Means, 44% are controlled by 
management, 21% by legal devices, 23% by minority ownership, 5% 
by majority ownership, and 6% by complete private ownership (1% 
were in receivership).^ Here, in a fundamental sense, ownership, either 
in its positive or negative aspects, is still made the deciding factor in 
control; the problem is considered wholly in corporate terms, not in 
terms of larger social and class relations. Who are the private owners } 
Only one, Henry Ford, is an active industrial capitalist. One group of 
owners are the estates of financial capitalists, with interests in other 
corporations. Another group is the Mellon oligarchy, with its owner- 
ship of the Aluminum Company of America, the Gulf Oil Corpora- 
tion, and the Koppers Company; the Mellons are typical financial 
capitalists, whose far-flung interests include the domination of great 
banks. Who are the majority owners? One investment banking house; 
the estate of the Duke (tobacco) family, with typical widespread 
financial interests; one corporation controlled by financial capitalists; 
family owners, many of them identified with the financial oligarchy. 
Who are the minority owners? Estates of financial capitalists; other 
corporations controlling subsidiaries or affiliates; holding companies, 
such as the Van Sweringen Allegheny Corporation in railroads and the 
Electric Bond and Share Company in public utilities; financial oli- 
garchs, the du Fonts and the Rockefellers. What are the legal devices ? 
Voting trusts, non-voting stock, and holding companies, typical 
methods {particularly the holding company) used by financial capital- 
ists to get control of corporations without any substantial investment 
of their own; among the combinations thus controlled are the Cities 
Service Company and the Morgan United Corporation. Management, 
according to Means, controls corporations with "no single important 
stock interest." But it is precisely these corporations, where ownership 
is most scattered, which come most easily under control of the finan- 
cial oligarchs and their banking institutions. Who, in this case, make 
up management? Not the mass of managerial employees, but the 
officers and directors; most of them are financial capitalists, all of 
them are identified, by interlocking interests and directorates, with the 
institutional arrangements of financial control dominated by the oli- 
garchy. The United States Steel Corporation, since its inception ruled 
by the House of Morgan, is considered to be under "management" 

Some of the "management" corporations are ruled by particular 
oligarchs, others by community of interest among the oligarchs. And 
the dominant financial power dominates. For years the elder Morgan 

Monopoly and Finance Capital 397 

ruled the New York, New Haven and Hartford Railroad (his policy 
of combination ruined the property). At an investigation, by the Inter- 
state Commerce Commission, of the New Haven's affairs, Joseph Folk 
questioned the railroad's president, Charles S. Mellen, about a par- 
ticular transaction: 

Folk: Why didn't you tell Mr. Morgan: "By what right did you 
buy that stock?" 

[Outburst of uproarious laughter from the lawyers present, con- 
vulsed by the idea of putting such a question to Morgan,^ 

Mellen [^smilinglyl : Well, it did not seem that that was just 
exactly the right way to approach Mr. Morgan. 

To cut short discussion and opposition at New Haven board meet- 
ings, Morgan would fling his box of matches from him, smash his fist 
on the table, and say: 

"Call a vote! Let's see where these gentlemen stand." They always 
stood where Morgan wanted them to stand. "I do not recall anything," 
said Mellen, "where Mr. Morgan was determined, emphatic, insistent 
— I recall no case in which he did not have his way." ^ The only dif- 
ference to-day is that the financial dictatorship is not so personal, it 
is more oligarchic. . . . 

Another aspect, which the "institutional" economists neglect, is that 
monopoly and finance capital mark a new stage of capitaUsm. Three 
stages may be distinguished in the development of capitalism (its basis 
remains unchanged: antagonism between wage labor and capital, 
production of surplus value and its conversion into capital) : 

1. Commercial capitalism, dominated by merchant or commercial 
capitalists, who were interested primarily in buying and selling and 
the necessary financial operations. Petty industry was carried on by 
craftsmen or small manufacturers, whose output was disposed of by 
the merchant capitalists. (Some of the great merchant capitalists, e.g., 
the Fuggers, were identified with mining, the first form of large-scale 
capitalist enterprise, which contributed enormously to the technical- 
economic development of capitalism.) Unlike its ancestors in the 
medieval and ancient world, merchant capital was now bound up 
with the growth of a new, the capitalist, mode of production. "The 
merchant becomes an industrial capitaHst, or rather, he lets the crafts- 
men, particularly the small rural producers, work for him, while the 
producer becomes a merchant and produces immediately on a large 
scale for commerce." * This was the stage of the commercial revolution. 

2. Industrial capitaHsm, dominated by industrial capitalists, who 
participated personally in production and whose wealth was augmented 

398 The Decline of American Capitalism 

by the direct capitalization of surplus value, the reinvestment of profits. 
The commercial capitalist, who stimulated the development of the 
new mode of production, is thrust aside by the industrial capitalist. 
Expansion of the market makes necessary larger output, an enlarged 
scale of production, larger masses of fixed capital: production becomes 
greater, more organized, and dominant. Commercial capital and com- 
merce itself are subordinated to industrial capital. The capitalist is 
both exploiter and constructive organizer of industry. Free competition 
measurably prevails. This was the stage of the technical-economic 
changes of the industrial revolution and their consolidation in the 
ensuing years. 

3. Monopoly or finance capitalism, dominated by financial capital- 
ists. Industry becomes increasingly large scale, requiring constantly 
greater masses of capital. Free competition is replaced by monopoly 
competition. Capital more and more assumes the money form, serving 
as capital only when put to use by other persons (or institutions) than 
its owners. Industrial concentration and combination separate owner- 
ship, management, and control. Management becomes an institutional 
function of employees. There is an immense socialization of industry, 
the objective basis of a new social order; but control is usurped by 
financial capitaHsts and the banks under their mastery. Owners be- 
come absentees, rentiers in one form or another, who merely receive 
the income of ownership. The capitalist is now a mere exploiter, as 
the organization and management of industry is an employee function. 
Except for the unimportant small producers who still survive, the 
industrial capitalist is no more. In the United States, where monopoly 
capitalism is most highly developed, the only important industrial 
capitaUst is Henry Ford, who, however, has acquired considerable 
financial interests and in 1930 "bought into" the National City Bank.^ 
(The Fords will either become financial capitalists or eventually lose 
control of their enterprise.) * Both the commercial and industrial 
capitalists operated primarily with their own money; financial capital- 
ists operate and secure control primarily with other people's money. 
The financial oligarchy, speculative, adventurous, wholly parasitic, 
dominates the capitalist class. This is the stage of the decline of 

* Andre Citroen, the Henry Ford of France (with, however, more general interests), 
was overwhelmed by financial troubles engendered by the depression. After slashing 
wages and juggling with the social insurance funds of his employees, Citroen was forced 
to beg aid of the banks, whose reorganization of the automobile company took control 
away from him. New York Times, March 4, 1934. 

Monopoly and Finance Capital 399 

The three stages overlap, elements of one appear or persist in the 
other, yet they are distinct, and the differences are of immense histor- 
ical importance. Commercial and industrial capitalism were identified 
with the emergence and upswing of capitalist production, the progres- 
sive transformation of industry, performing the historical task of 
developing the objective forms of a new, the socialist, order. Monopoly 
capitalism is identified with decline, and with capitalist manipulation 
of the forms of a new social order to maintain the old — a manipulation 
whose only result, until the revolutionary intervention of the working 
class, must be social-economic decline and decay. . . . 

The growth of industrial capitalism and its transformadon into 
monopoly capitalism were accompanied by the growing magnitude 
and importance of money capital, which is separated from the function 
of capital itself. There is both an increase in the capital needs of large- 
scale industry and in the social wealth, which increasingly assumes the 
form of money capital. This capital is concentrated in the banks. Its 
sources are the funds of money capitalists and of industrial or com- 
mercial enterprises and the scattered savings of all classes of society. 
The bank's money capital is enormously augmented by credit, which 
is of constandy greater importance in capitalist production. (Credit, 
whether based on savings or not, is a command over social labor; it 
reveals clearly that appropriation of surplus value, of unpaid labor, is 
the source of profit, for credit represents neither the "saved" capital 
of the capitalist nor, much of it, the savings of anybody, but merely 
command over labor. At the same time, credit becomes the basis of 
speculation, fraud, intensified competition, and overproduction, creat- 
ing disturbances and maladjustments.* The social nature of credit is, 
however, one form of the objective transition toward a new mode of 
production, toward socialism.) Industry becomes constantly more 
dependent upon the money capital under control of the banks. 

Industrial capital itself increasingly assumes the form of money 
capital. Industrial capital is bound up with the person of the industrial 

* Credit outstrips savings; this is necessarily a disturbing factor, as it encourages an 
unbalanced output of capital goods. But limiting credit to savings would solve no prob- 
lems. For then the output of capital goods would be smaller, restricting employment and 
prosperity. And if new capital were based only on savings, there would still be malad- 
justments and disturbances, because the capital must yield profit, a deficiency in con- 
sumption would be created, and planlessness, competition, and speculation would still 
prevail: inevitably, for the final source of all maladjustments and disturbances is the capi- 
talist drive for surplus value and its realization as profit and capital. Hence government 
"control" of banking and credit merely alters the forms and combinations of maladjust- 
ments and disturbances. 

400 The Decline of American Capitalism 

capitalist. But he is now replaced by stockholders, non-participating 
absentees, whose dividends are not essentially different from interest, 
except that they are more subject to fluctuations. (Even these fluctua- 
tions are considerably "smoothed" by the policy of corporations to pile 
up surplus and pay dividends when there are small or no profits.) In- 
dustrial capital in the form of stockholdings is almost as mobile as 
money capital: it moves from industry to industry and enterprise to 
enterprise; this is particularly true of the stockholdings of great finan- 
cial capitalists, whose inside information tells them where the profits 
— and losses — are. There is a fusion of industrial and money capital; 
the forms merge into one form, finance capital, which is mobilized 
by the banks and the financial oligarchy.''^ 

Banking is transformed. Originally the primary function of banks 
was to make payments, to supply industry with the "commercial" 
capital to finance the distribution of goods (whence the name com- 
mercial banks). This type of bank was dominant when industry was 
small-scale and the merchant capitalist was the chief entrepreneurial 
factor. But even the earliest commercial banks carried on some invest- 
ment operations, and during the nineteenth century these operations 
grew with the growth of large-scale industry and its fixed-capital needs. 
In England, direct investment banking tended to become a specialized 
function; on the Continent, however, commercial and investment 
banking was combined in the same institution. American investment 
banking arose in the i83o's-5o's out of the import of capital, mainly to 
finance the construction of canals and railroads. As industrialism de- 
veloped, the commercial banks, at first exclusively limited to mercantile 
operations, began to supply industry's growing needs for fixed capital. 
In the i88o's arose the trust company, whose phenomenal expansion 
paralleled that of corporate enterprise. The trust company combined 
commercial and investment banking with ordinary trust functions; it 

* "With the development of large-scale industry money [financial] capital, so far as 
it appears on the market, is not represented by some individual capitalist, not by the 
owner of this or that fraction of the capital on the market, but assumes more and more 
the character of an organized mass, which is far more subject to the control of the 
representatives of social capital, the bankers, than actual production is." Karl Marx, 
Capital, v. Ill, p, 433. "In proportion as banking develops and becomes concentrated in 
a small number of institutions, the banks grow from modest intermediaries into all- 
powerful monopolists having at their command almost all the money capital of all the 
capitalists and small businessmen, as well as the greater part of the means of production 
of a given country or in a number of countries. ... A handful of monopolists controls 
all the operations, both commercial and financial, of capitalist society, . . . This trans- 
formation is one of the fundamental processes of the growing of capitalism into capitalist 
imperialism." V. I. Lenin, Imperialism, the Highest Stage of Capitalism, pp. 30, 34. 

Monopoly and Finance Capital 401 

acted as fiscal agents for corporations and performed other services for 
them. (By acting as investment expert for non-active investors in 
corporations the trust company emphasized the separation of owner- 
ship and management and the growth of parasitism.) After the 1890's, 
the commercial banks engaged more and more extensively in invest- 
ment operations, led by the National City Bank, under control of the 
Rockefellers. Private investment bankers, particularly the Morgans, 
did some commercial banking business and acquired control of com- 
mercial banks on a large scale to facilitate their underwriting opera- 
tions. And all the great banks, commercial, investment, or trust, ac- 
quired control of insurance companies in order to manipulate their 
vast resources, which were mercilessly exploited and plundered. This 
process was accelerated after the World War. Whatever the theoretical 
or primary function of the commercial bank or trust company may be, 
their major operations are in fact of an investment banking character: 
indirectly, by investment in corporate securities, loans for fixed-capital 
purposes, and loans on new issues not yet absorbed by the investment 
market; directly, by the operations of security affiliates which engage 
in all sorts of investment banking. While the Banking Act of 1933 
compels commercial banks to separate from their security affiliates, 
the stock of affiliates is sold to the banks' stockholders; interlocking 
directorates are prohibited, but community of interest is maintained. 
Moreover, the separation does not affect the indirect investment opera- 
tions of commercial banks. 

This integration of function is paralleled by concentration and 
combination. Banks have grown in size by concentration, by reinvest- 
ment of profits, and inner expansion of business. They have also grown 
by combination, by absorbing other banks or merging with them. 
Industrial monopoly is accompanied by banking monopoly. By 1912, 
thirty-four banks had one-eighth of total banking resources under their 
control. Concentration and combination were enormously augmented 
in the post-war period. An unprecedented number of failures and 
mergers reduced the number of banks from 30,812 in 1921 to 24,079 
in 1930; in the following year another 2,000 disappeared. The large 
number of banks still seems to indicate existence of a "democratic" 
banking system in comparison with other highly developed capitalist 
countries, in Canada, Britain, Germany, Italy, and France, where a 
handful of monopolist banks control banking and industry itself (in 
Europe, the banks, by command of credit, participation in com- 
binations, and interlocking directorates, institutionalize the centraliza- 
tion of financial control over industry). But of the 24,079 banks. 

402 The Decline of American Capitalism 

20,000 were in small towns and had an average capital of only $40,000. 
In 1930, sixty-nine banks had resources of $25,900 million, and another 
seventy-one banks had resources o£ $5,100 million; these 140 banks, 
only 0.58% of the total, had 48.9% of total banking resources (exclud- 
ing savings banks). Five of the giants — including Chase National, 
Guaranty Trust, and National City — had resources o£ $9,073 million, 
14.3% of commercial banking resources: a concentration probably six 
times as great as in 1912. Many "independent" banks, moreover, are 
members of chain systems; in 1929, 273 chains, organized by means of 
the holding company device (requiring a minimum of investment) 
controlled 1,858 banks with resources of $13,000 million. There was 
concentration within the chains: twenty-eight of them were in control 
of $5,538 million in resources, nearly one-half of the chain total. Final 
centralization of control was still greater. Chains are interlocked with 
the financial oligarchy. So are the giant banks. In 1929, three Morgan 
banks, Bankers Trust, Guaranty Trust, and First National, and the 
National City and Chase National had control or influence, by means 
of stock ownership and interlocking directorates,* over other banks 
with resources of nearly $20,000 million, almost one-third of total com- 
mercial banking resources. In addition, the five monopolist banks were 
interlocked with insurance companies with assets of $12,500 million, 
three-fifths of the assets of all life and fire insurance companies.* 

These monopolist combinations of banking capital, with enormous 
control over the money capital of society, are no longer mere inter- 
mediaries serving industry, they are the masters of industry. The mas- 
tery is strengthened by industrial combination, with its separation of 
ownership, management, and control. Monopolist banks become the 
dominant force in the centralization of financial control over industry, 
by the command of credit, the operations of security affiliates, and the 
interlocking of directorates. This appears clearly from the number of 
interlocking directorships held by banks in other financial, industrial, 
and utility corporations. Fifteen New York City banks held 1,762 such 
directorships in 1899, and 5,324 in 1931. In 1929, the three Morgan 
banks. Bankers Trust, Guaranty Trust, and First National held direc- 
torships in public utility companies with assets of $8,000 million. (In 
addition, J. P. Morgan and Company were in direct control of United 

* The "money trust" investigation of 191 2 led to the Clayton Act's prohibition of 
interlocking directorates among banks, and particularly forbade private investment 
bankers to hold directorships in commercial banks. These prohibitions were generally 
disregarded, and later officially became a dead letter. A similar fate awaits the 1933 
prohibition of commercial banks owning security affiliates. 

Monopoly and Finance Capital 403 

Corporation, dominant holding company of underlying power com- 
panies with $5,000 million in assets.) After its merger with the Harris 
Forbes Corporation in 1930, the Chase Security Corporation, affiliate 
of the Chase National Bank, held directorships (as well as owned stock) 
in utility companies with assets of $5,105 million. Some or all of the five 
banking institutions held directorships in General Electric, Westing- 
house, Radio Corporation, and American Telephone and Telegraph, 
which in turn had their own directors in most of the power companies. 
This is a tremendous unification of control over electrical manufactur- 
ing, the power and light industry, and electrical communications. 
The system is widespread. Thus, in 1930, the Irving Trust Company of 
New York held 346 interlocking directorships in other corporations, 
the First National Bank of Boston 754, the Mellon National Bank of 
Pittsburgh 179, the Philadelphia National Bank 348, the Continental 
Illinois Bank and Trust Company of Chicago 368, and the Union Trust 
Company of Cleveland 278.'^ The Morgan oligarchy and its allies 
represent the greatest centralization of financial control, as appears 
from their 1929 interlocking directorships: 

J. P. Morgan and Company held directorships in industrial, utility, 
and financial corporations with assets of $20,000 million. 

The Morgan banks. Bankers Trust, Guaranty Trust, and First Na- 
tional held directorships in corporations with assets (less duplication) 
of $52,000 million. 

The Morgan allies. Chase National and National City, held direc- 
torships in corporations with assets (less duplication) of $45,000 million. 

The Morgan-Chase-City oligarchy, composed of 167 individuals, held 
over 2,450 interlocking directorships in corporations with assets (less 
duplication) of $74,000 million, 22% of total corporate assets.® 

This enormous centralization of financial control, infinitely greater 
than that revealed in 1912 by the "money trust" investigation, is an 
institutional mechanism; it operates through the banks, which are the 
fly-wheel of capitalist enterprise. Control of the mechanism is usurped 
by the financial oligarchy. There are the Morgans. And the du Ponts, 
who have far-flung industrial interests, and control, among other banks, 
the Irving Trust and Chemical National of New York. The Rockefel- 
lers, with personal wealth estimated in 1929 at from $500 million to 
$1,000 million, merge industrial and financial control; long dominant 
in the National City Bank, they shifted in 1929-30 to the enlarged 
Chase National Bank. The Mellons own two banks with resources 
of $488 million, direct interests in corporations with assets of $9,718 
million, and interlocking directorships in scores of other corporatons.® 

404 The Decline of American Capitalism 

A handful of financial oligarchs control the monopolist combinations 
of industrial and banking capital, the most decisive portions of social 
capital; they control, in one concentrated institutional mass, the use 
of savings and credit, the mobilization of investment capital, and the 
great corporations in v^hich most of the capital is invested. It is the 
dictatorship of finance capital. 

The basis of the dictatorship of finance capital is the constructive 
socialization of production and the "social bookkeeping" performed by 
banks, the "organization" of capitaHsm. But this "organization" is 
entangled with all the social relations of capitalist production; it 
necessarily develops into contradictory and antagonistic forms. The 
financial oligarchy exploits the socialization of production and the 
"bookkeeping" of the banks for its own purposes. The constructive 
developments of capitalism are converted into their predatory opposites, 
provide new means for exploiting the producers, the workers and 
farmers. Monopolist combinations intensify the exploitation of labor, 
maintain high prices, and crush the farmers by subordinating agricul- 
ture to industry (instead of merging them in a new social-economic 
synthesis). Banks encourage overexpansion, speculation, and risky 
enterprises, convert their constructive "bookkeeping" function into a 
source of maladjustments. Financial capitalists move from enterprise 
to enterprise, industry to industry, and country to country, seeking 
and extorting higher profits. All this is both result and negation of the 
constructive achievements out of which arises the predatory dictator- 
ship of finance capital. Marx clearly foresaw the development, although 
it was merely emergent in his day : 

"This is the abolition of the capitalist mode of production within 
capitalist production itself, a self-destructive contradiction, which 
represents on its face a mere phase of transition to a new form of pro- 
duction. It manifests its contradictory nature by its efifects. It establishes 
a monopoly in certain spheres and thereby challenges the interference 
of the state. It reproduces a new aristocracy of finance, a new sort of 
parasites in the shape of promoters, speculators, and merely nominal 
directors; a whole system of swindling and cheating by means of 
corporation juggling, stock jobbing, and stock speculation. It is private 
production without the control of private property." ^^ 

Monopoly and finance capital multiply the contradictions and antag- 
onisms of capitalist production. More thorough organization of in- 
dustry is accompanied by more competition and disturbances. The 
primary purpose of monopoly is to suppress competition, to control 
prices and markets. Competition is suppressed, but only partly, tem- 

Monopoly and Finance Capital 405 

porarily. It does not disappear, but assumes higher and aggravated 

The most effective form of price control, short of complete monopoly, 
is the cartel. "But such control," one bourgeois economist admits, "is 
scarcely ever fully achieved. Even the most closely organized syndicate 
must leave a marginal field where competition prevails; this marginal 
competition delimits the area dominated by the syndicate and aflFects 
its policy. In the majority of cases the cartels cannot go beyond a rather 
slight mitigation of the competitive struggle. And yet a price war 
and the grievous losses which it entails in industries with large fixed 
capital investments can be avoided only by combination. Karl Marx 
was right beyond doubt in insisting that a tendency toward monopoly 
is inherent in modern technology. All loosely organized cartels are the 
forerunners of more rigid forms of combination." ^^ 

Monopolist combinations seldom exercise complete monopoly. The 
gigantic United States Steel Corporation controls only 40% of the 
industry; competition flares up periodically, although four monopolist 
combinations are dominant. Competition is particularly effective in 
the case of smaller concerns using the newest and most efficient equip- 
ment: a higher rate of profit is "earned." General Motors and the Ford 
Motor Company dominate the automobile industry, yet they wage 
ruthless war upon each other, and competition is aggravated by the 
sniping of independents. Ford once had a monopoly of the low-price 
field, but competition forced his 50% share of the total market down to 
20% in 1932; some of the business went to independents, General 
Motors got most of it.^^ In addition to waging war on Ford, General 
Motors organized an aviation subsidiary and "cashed in" on the profits 
of newer enterprises and competition. In spite of its dominant monop- 

* "As capitalist production develops, the minimal size of the individual capital growls; 
the size that is requisite to carry on business under normal conditions. The lesser 
capitalists, therefore, crowd into spheres of production w^hich large-scale industry has 
not yet fully annexed. In these fields competition rages in direct proportion to the 
magnitude of the competing capitals." Marx, Capital, v. I, p. 691. "When monopoly 
appears in certain branches of production it increases and intensifies the chaos proper to 
capitalist production as a whole. . . . Monopolies, which have sprung from free com- 
petition, do not eliminate it, but exist alongside of it and over it, thereby giving rise to 
a number of very acute and bitter antagonisms, points of friction, and conflicts. Monop- 
oly is the transition from capitalism to a higher order." Leniji, Imperialism, p. 80. 
"When a certain branch of industry is monopolized, competition with outsiders and 
rival cartels and trusts at home does not cease, and a struggle for shares in production 
and sales goes on within the cartel. It is safe to say that as there is no competition with- 
out monopolies, so there is no monopoly without competition." R. Piotrowski, Cartels 
and Trusts (1933). P- 365* 

4o6 The Decline of American Capitalism 

olist position, the Radio Corporation of America must share part of the 
market with independents, and competition is intense. The Standard 
Oil monopoly did not endure; in spite of renewed concentration and 
combination, many savage competitive battles have been waged in 
recent years. Not even a complete monopoly like the Aluminum 
Company of America is immune. When Andrew Mellon was secretary 
of the Treasury, efforts were made to produce alunite aluminum, 
which might have broken the Aluminum Company's monopoly of 
bauxite. While "Mellon succeeded, by devious means, in completely 
throtthng alunite competition," the threat may revive.^^ It is rarely 
possible to monopolize a whole industry; all the combinations can 
do is dominate by strategic strength and agreements. The resulting 
control of competition, markets, and prices is unstable. For it depends 
upon conditions which are frequently upset by inner contradictions 
and antagonisms, by the tendency of the rate of profit to fall. Then 
competition breaks out savagely and agreements become scraps of 
paper. Combinations now use the same tricks against each other that 
they use against independents: denial of supplies, price cutting, and 
banking pressure, all means to get a larger share of the market and 
higher profits. 

To overcome these limitations of monopolist combinations, the 
financial oligarchy develops community of interest among them by 
interlocking directorates and the centralization of financial control. 
This is only partly successful. A particular combination must show 
profits, by aggressive competition if necessary: the rate of profit is an 
inexorable driving force. When bankers reorganize a company (bank- 
ruptcy does not force large concerns out of business, because of their 
great masses of fixed capital) they undersell competitors: by scaling 
down capital claims, the reorganized company's competitive strength 
is invigorated. Financial oligarchs, moreover, while they cooperate, are 
split up into rival groups. In 1931, the Morgans and Rockefellers inter- 
locked some of their utility interests: the Standard Oil Company of 
New Jersey acquired a 30% interest in the gas-pipe lines of the Co- 
lumbia system, dominated by United Corporation. Yet two years later, 
the Chairman of the Chase National Bank, both the bank and himself 
parts of the Rockefeller oligarchy, urged bank reforms which struck 
directly at the Morgans. (When }. P. Morgan and Company "crack 
the whip too much,'' according to one commentator, there is a little 
revolt.)^* The oligarchs encourage competition, if it means the possi- 
bility of higher profits, and the formation of new enterprises in fields 
where monopoly profits are inviting. This is stimulated by the ad- 

Monopoly and Finance Capital 407 

venturous and speculative character of finance capital the super- 
abundance and surplus o£ available capital, the tendency of the rate 
of profit to fall, and the fact that new enterprises may have the ad- 
vantage of higher technical-economic efficiency and lower overhead 
costs. Monopolist combinations only relatively and temporarily suppress 
competition; there may be comparative peace for considerable periods, 
but eventually competition flares up in the destructive battles of giants. 

While 1,300 monopolist combinations dominate American industry, 
there are 475,000 other corporations in control of roughly 40% of in- 
dustry. Among them competition rages continuously and furiously. 
The competition is aggravated by the prevalence of monopolist com- 
binations. They exploit small-scale industry by forcing it to pay high 
prices for supplies or by invading its markets. Monopoly Umits in- 
vestment opportunities in the fields it dominates; in any event, invest- 
ment is open only to large capitals. This forces large masses of capital 
into non-monopolist fields of enterprise. Monopoly capitalism is ac- 
companied by accelerated accumulation of relatively surplus capital, 
pressing for profitable investment; this capital flows particularly into 
new industries or into fields not yet dominated by monopolist com- 
binations, and there intensifies competition. In 1919, only thirty pro- 
ducers were in the radio field; in the two years 1921-22, 5,000 new 
producers went into business, most of them being wiped out in a few 
years.^^ The drive to capture markets by enlarging output and lower- 
ing costs led to a condition of acute excess capacity: in 1929, one pro- 
ducer could have supplied the whole market demand. In order to 
survive, smaller concerns increase their capacity, made possible by the 
superabundance of capital; the inevitable increase in excess capacity 
sharpens competition, a competition made all the more destructive by 
the greater size of the concerns involved. The upflare of the "new 
competition" in 1923-29 was coincident with an unusually rapid 
growth of concentration and combination. 

The advantages of large-scale enterprise are obvious : higher produc- 
tivity of labor, standardization, elimination of waste and production of 
by-products, large financial resources, organized research, planning for 
long-time expansion, control of markets and prices, reduction of 
fluctuations in profits. But there are many serious disadvantages. The 
superiority of large-scale production itself is neither progressive nor 
absolute; beyond a certain point mere size becomes inefficient and un- 
profitable, unless offset by monopoly prices. But monopoly means com- 
bination beyond the limits of industrial concentration, and this tends 
to aggravate inefficiency. Since monopolist combinations are under the 

4o8 The Decline of American Capitalism 

control of finance capital, which is interested in the production (and 
concentration) of financial profits, not in the production of goods, 
combinations tend to exceed the most efficient size. In some cases the 
disadvantages are overcome by the holding company device, w^hich 
decentralizes plant and local administration while centralizing finan- 
cial control. Resulting gains in efficiency are offset by competition and 
predatory monopoly practices, particularly the overcapitalization of 
combinations, which tends to produce a fictitious but still disastrous fall 
in the rate of profit. In other cases, moreover, the holding company 
"unites" a hodge-podge of enterprises wholly regardless of efficiency, 
merely to secure promoters' profits, strive toward monopoly, or insure 
financial control. The disadvantages of large-scale enterprise invite 
and make possible, within limits, the frequently successful competition 
of smaller concerns — small, however, only in relation to the giant 
combinations. Recent technological changes {e.g,, electric power, 
higher productivity based on qualitative rather than quantitative ele- 
ments in machinery) provide the means for smaller concerns to realize 
many of the advantages of large-scale production with lower overhead 
costs and a higher rate of profit; in addition, they are more flexible, 
more adaptable to market changes, and they can increase their size 
where necessary because of the superabundance of capital. The larger 
concerns redouble their efforts to get "a bigger slice of the consumer's 
dollar" by forcing the sale of old products or adding new products to 
their output. Alongside of these contradictions and antagonisms, com- 
petition is again aggravated by the growth of production for variety 
demands and markets. Finally, competition, itself aggravated by excess 
capacity, reacts and increases excess capacity; since markets are re- 
stricted by the restriction of mass consumption, competition becomes 
worse. The rate of profit moves downward. Desperately, capitalist 
enterprise tries all sorts of devices to limit production and competition 
in order to raise prices and profits. Trade associations and trade in- 
stitutes tried to do legally what the anti-trust laws forbade, but they 
were not very successful. One of the main objectives of state capitalism, 
especially as expressed in the NRA, is the attempt to realize the 
primary aim of monopoly : to secure a higher, or at least a more stable, 
rate of profit, by means of restriction of production, limitation of 
competition, higher prices, and higher profits. 

The NRA promotes both concentration and combination and the 
cartellization of industry. But competition is not eliminated, it is 
merely transformed. It crops up in the most unexpected manner. Thus, 
before the NRA codes, rayon competed with cotton textiles on a style 

Monopoly and Finance Capital 409 

basis; minimum wages raised the costs of one more than the other, 
because cotton manufacturing needs more labor than rayon, making 
it possible for rayon to compete with cotton on the basis of style and 
price/^ The NRA tends to inflame the "new competition" which was 
so disastrous in 1923—29, while simultaneously making it more difficult 
for the smaller producers to survive. This aspect of the situation has 
been thus described by the financial expert of the New York Herald 

"The NRA cartel idea may finally nullify itself because the cartelliza- 
tion of all industries merely serves to bring each industry into more 
direct competition with others in the effort to capture increasing por- 
tions of the national income. It cannot be stressed too emphatically 
that competition will remain just as strong under the NRA as before. 
It will merely take another form, and instead of being between units 
of an industry it will be between whole industries. With mercantile 
groups organized, manufacturers will meet organized resistance in any 
effort to advance prices at the expense of wholesale and retail outlets. 
Producers of basic materials will meet the same sort of resistance from 
manufacturers. Gains in income can only be made in other direc- 
tions." ^' 

This competition of industry against industry becomes all the 
greater under the conditions of capitalist decline, of mass unemploy- 
ment, restricted markets, and lower profits. Nor will it be limited to 
industry against industry: competition will also flourish within an 
industry, in different but more savage forms, stimulating concentration 
and combination. 

What happens to competition under monopoly capitalism is this: 
competition is transformed, assumes higher forms. It is no longer 
primarily the competition of small individual capitals, but of combined 
million-capitals. The area of competition is restricted, its intensity and 
destructive character sharpened. The capitalism of free competition, 
whose economic and class characteristics were petty individual enter- 
prise and a comparatively independent class of small producers, was 
"free" only within the charmed circle of the possessors of capital and 
was limited by the unequal distribution and sizes of the competing 
capitals. Monopoly capitalism, whose economic and class characteristics 
are large-scale corporate enterprise, the decline of small capitalists, and 
the rule of finance capital, limits competition only by making it im- 
possible for small capitals to arise and compete independently except 
in unimportant fields, and by limiting (but not eliminating) competi- 

410 The Decline of American Capitalism 

tion among the larger enterprises. There never was any "pure" free 
competition; there is no "pure" monopoly. 

Monopoly capitalism practically destroys the economic significance 
of the old middle class o£ small producers (and small merchants).'*^ 
This destroys the material conditions underlying the petty-bourgeois 
ideals of economic individualism. "The field of operations for the 
independent owner-manager," according to an engineer economist, 
"will be steadily restricted ... he will continue throughout to be a 
subordinate worker in a large corporate organization." ^* Ideals may 
persist beyond their economic basis, and the petty-bourgeois ideal of 
economic individualism still survives; but it is now merely an ideolog- 

* It is frequently argued that industrial concentration and monopoly create an eco- 
nomic crisis by destroying the small producers, the most important section of the middle 
class market. Until recently, however, this market tended to expand, not contract. Not 
all small producers defeated in the battle of competition were proletarianized, that is, 
deprived of all property and forced to become wage-workers. Some sold out to the 
larger enterprises and went into other businesses or retired, while others became execu- 
tive or managerial employees in corporations. The expansion of industry, moreover, 
permitted new batches of small capitalists to arise. At the same time the middle class 
market grew because of growth among its other elements: technical, supervisory, and 
managerial employees in corporate industry, storekeepers, and professionals (not to 
mention the multiplication of parasitic occupations). Thus the "new" middle class, i.e., 
all groups, exclusive of farmers, between the workers and the upper bourgeoisie, con- 
stituted a constantly greater part of the market, scoring, particularly in 1923-29, rela- 
tively much larger gains than the working class. That was, however, in the epoch of 
the upswing of capitalism; in the epoch of decline the situation is materially different. 
With the curve of production moving downward, defeated small producers are much 
more likely to be proletarianized, while the chances of new producers arising are slight: 
they now decrease in numbers as well as in economic significance. But the small pro- 
ducers are not the most important section of the middle class market, which shrinks 
primarily because the working class market shrinks, although not necessarily in the 
same proportion. The working class market shrinks because of disemployment and lower 
wages. Disemployment means a decrease in the production and realization of surplus 
value. Lower production throws many technical, supervisory, and managerial 
employees out of work. Disemployment and lower wages affect adversely the business of 
small storekeepers, whose customers are mainly workers. A serious fall in income and 
restriction of opportunity occur among that considerable part of professionals who 
answer calls for services from the workers. The economic crisis lessens school and college 
appropriations, resulting in widespread unemployment and salary cuts among teachers. 
Most of the members, the lower incomes, of the functional groups in the middle class 
are dependent upon prosperity among the workers: there is an economic identity of 
interest, not antagonism. (That is why the promise of fascism to improve, at the expense 
of the workers, the conditions of the middle class can benefit only small groups: condi- 
tions among the class as a whole must become worse.) Shrinkage in the middle class 
market is not produced directly by destruction of small capitalists; it is produced indi- 
rectly and primarily by capitalist decline and shrinkage of the working class market. 

Monopoly and Finance Capital 411 

ical lag protecting the predatory financial capitalists, who suppress 
economic individualism and free competition and increasingly exploit 
labor. . . . 

Monopoly can never be complete because monopoly is profitable 
only if it is limited. "The monopoly price of certain commodities," said 
Marx, "merely transfers a portion of the profit of the other producers 
of commodities to the commodities v^ith a monopoly price. . . . They 
leave the boundaries of surplus value itself untouched. If a commodity 
vi^ith a monopoly price should enter into the necessary consumption 
of the w^orker, it would ... be paid by a deduction from the real 
wages (that is, from the quantity of use values received by the worker 
for the same quantity of labor) and from the profits of other capital- 
ists."^^ The limits of monopoly are thus described by a bourgeois 
economist of to-day: 

"In a capitalist system monopolist industries reap their profits as 
parasites on free industries, i.e., on industries that are not given to 
trustification or organization in cartels or syndicates. . . . Only such 
proportion of the monopoly profits can be ploughed back as will 
enable the monopolist to retain his maximum differential in his 
privileged field; investment of monopoly profits must take place in 
free industries." ^° 

In addition, monopolist combinations exploit "free" industries (only 
relatively free, in process of development toward concentration, hence 
absorbing an increasing amount of capital goods) by means of 
monopoly prices. The exploitation is direct if the monopoHst combina- 
tions sell supplies to the "free" industries. It is indirect if the monopoly 
prices are for consumption goods, for that limits the demand for non- 
monopoly goods. Thus complete monopoly would nullify itself, ma\e 
impossible monopoly prices and profits. This is one reason why 
monopolist combinations are active in the export of capital and im- 
perialism, for in economically undeveloped countries the "free" indus- 
tries are still numerous. The Hmits of monopoly appear also from the 
fact that monopoly profits may be reaped at the expense of other 
monopolist combinations. The General Motors rate of profit rose from 
about 13% in 1922 to 31% in 1926-27, while the Ford rate fell from 
about 30% to a deficit; the du Pont rate of profit rose from about 5% 
in 1922 to 16% in 1927, while the rate of other la