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Albert Gates

An Economic Review of 1941

Prospects for the Coming Year

(February 1942)

From The New International, Vol. VIII No. 2, March 1942, pp. 37–43.
Transcribed & marked up by Einde O’Callaghan.

“We live and work in an era completely dominated by war, and we look forward to a future that will be shaped, and conditioned and determined, by the outcomes of the wars that are now under way, and perhaps by those of still other wars that may grow out of them.” – The Cleveland Trust Company Business Bulletin

The significance of the above-quoted description of the present era is accentuated by its terseness. The United States has entered the arena of the war as a belligerent. In the two months since the attack on Pearl Harbor the government has moved quickly toward perfecting the machinery necessary for the prosecution of what appears to be a long war extending in multiple directions over the entire globe. An economic review of the nation in this period, therefore, can be written only if one trains his vision on the panorama of the war and keeps it there constantly.

The outstanding feature of 1941, as of the entire period since September, 1939, is the conclusive development of America’s war economy. The speculative stage has ended! The future of the United States is completely joined to that of every member of the United Nations. But for that very reason, its responsibilities have been manifestly increased, since the problem of supplying war materials to all the Allies has been complicated and made more difficult by the need of equipping its own mass military forces.

In my article, Modern War and Economy (The New International, November 1941), I endeavored to outline the principal features of the new type of total warfare and the economic requirements arising therefrom. A series of fundamental measures, essential to the modern war effort, was cited to indicate the nature and extent of the required economic reorganization. Briefly stated, they are the following:

• Production: Augmentation of the production of the heavy goods of war; reduction in output of consumer goods and the consequent reduction of national consumption, to be accomplished by conversion of the existing industrial plant; reduction in investments of new capital (private); depletion of existing capital, particularly in light and non-war industries. The net result is a further strengthening of heavy metallurgical industries at the expense of light-consumer industries.
   
• Consumption: A sharp diminution of the standard of living of the masses, since it can be raised only at the expense of armament production; “it is impossible to have both more guns and more butter.”
   
• State: The government intervenes more actively in the production process to the point where it is the final arbiter, planner, and supplier of money capital. The government has become the greatest market in the domestic economy and foreign trade is primarily a matter of supplying the material of war to the Allies and obtaining raw materials for war purposes.
   
• Balance: In the concrete manifestations of the war economy it is necessary to maintain class peace, especially in view of the inherent tendency of bourgeois war economy to increase the polarization of wealth expressed through the astronomical rise of war profits and the decline of the mass standard of living. The government seeks labor peace for the duration, a ceiling on wages for fear of inflation, control of prices, and control, not abolition, of the profit economy. The government, likewise, seeks to keep the public debt at the lowest possible point by a system of taxation destined to strike hardest at those least able to pay.
   

The End of the New Deal

This is certainly a far cry from the New Deal, which was the product of the severe crisis of 1929. The New Deal sought a stabilization of American economy on a lower level in a peaceful period. As an earnest of the difficulties faced by American capitalism ten years ago, it must be remembered that even then, the direction was not toward expanded production and a constantly rising index of industrial activity, or a rise in the living standards, but toward ever diminishing living standards and artificially stimulated production on depressed levels.

The New Deal experienced its own ebbs and flows; it was primarily a series of stop-gap measures designed to bring about a halt in the precipitate decline of the economic curve. New Dealism represented the belated arrival of American reformism with state power in its hands. It was the era in which social legislation flourished and the labor movement grew by many millions. Achievements were necessarily temporary, because the New Deal endeavored to reach economic stabilization by restricting industrial and agricultural production, while seeking to enlarge the specific weight of America’s foreign trade in a contracted world market.

On a world scale, a genuine improvement of the bourgeois economic order was precluded. The economic prosperity of one nation, or group of nations, depended upon the veritable destruction of competing economies and a thorough subjugation of the colonial areas of the world. International competition was fraught with the danger of war, and it came once Hitler had consolidated national power. The outbreak of war over the domination of the continent, between the two principal European powers, Great Britain and Germany, was only the preliminary stage leading to the world conflict for a redivision of the earth. Thus, the New Deal was doomed at the outbreak of the war.

The war, while it expresses the deep-going stagnation and decline of bourgeois society, propels forward one-sided production because of the enormous requirements of materials of every kind and description. Economic developments in the United States since 1939, and especially during 1941, show rising indices. In this respect, the country is merely repeating the experiences of the other major powers engaged in war, and while some of these powers appear to have reached a maximum expansion and production and tend toward a stationary situation, or slow decline, American economy is first beginning its new production. No ceiling has yet been indicated in this experimental period since information relating to the limits of the native war economy is incomplete.
 

The Growth of Production

After the 1937 economic rise, American capitalism, still seeking a high level of revival through the New Deal, experienced a new decline. This situation, according to the Survey of Current Business of the U.S. Department of Commerce, continued up to the outbreak of the European war. Taking the figure of 100 for the period 1935–39, the report disclosed:

Since 1939, a rapid rise occurred in all economic fields. Between the period of September of the foregoing year and actual belligerency, American economy passed through the preliminary stages of war conversion. The transformation occurred slowly and by fits and starts. No little cause for this lay in the confusion of the Administration, inter-Administration conflict and the adamant refusal of big business to make the slightest concessions to Administration demands without prior guarantees of large profits and post-war relief of business by the government. Now, however, conversion takes place with giant strides.

The figures cited below indicate the sharp rise in economic activity as compared to the foregoing table. They include, for purposes of comparison, those of 1929 and 1932, at which time the economic crisis had reached its lowest point. The figures are taken from the Survey of Current Business. The period 1935–1939 = 100.

The Monthly Review of the Federal Reserve Bank of New York, for January 1942, records that industrial production rose to 167 for November, and its issue of February 1942 shows a figure of 168 for December, with the gauge pointed upward. Business Week for February 7 indicates that in the first month of the new year, the business index rose to 169.9. The production aims of the government are such that the business index may well reach 200 at the end of 1942.
 

The Influence of the War Budget

The new war budget adopted by Congress will have a revolutionizing effect upon all of industry. Whatever was accomplished, in 1941, however, was already due to the national budget and the stimulation induced by governmental orders. As of October 15, 1941, the authorized budget of the war program was more than $57,000,000,000, of which $37,000,000,000 was awarded in contracts as of September 30th, and $10,650,000,000 already disbursed. The latter figure explains the rise of business activity for the last year.

Money spent by the government for arms production rose from $157 million a month in June, 1940, to $1,347 million in September, 1941. The total expenditure for the year 1941 reached almost $15 billion. While this marked a tremendous rise in the war budget actually expended, it was only about 15 per cent of the national income.

Total war appropriations jumped from $5 billion in June of 1940 to $63 billion in September of 1941. The actual manufacture of war goods rose from $2 billion a year in June 1940 to an approximate $16 billion a year in September 1941. From the beginning of the fiscal year, July 1941 to December 1941, almost 72 per cent of all moneys spent by the federal government went for war purposes. It is in these figures that one must seek the explanation for the rise in the industrial index.
 

Change in the Character of Production

The process of conversion, though incomplete, registered sufficient changes in 1941 to indicate the degree and intensity of war production and what impends in 1942 and 1943. There was a rapid rise in the production of heavy durable goods (war) and the setting in of a decline in the production of non-durable goods (primarily consumers’ material).

The board of governors of the Federal Reserve Bank, in its report dated December 19, 1941, points out the following developments (1935–39 = 100):

The figures represent increases but the output of non-durable goods rose only 21 points in a year, while the output of durable goods rose by more than 51 points. This is only a partial story, for beginning in 1942 the production of non-durable goods began to decline while the production of durable goods has already passed the figure previously mentioned.

Breaking these figures down, we find this distinctive point of interest: iron and steel production, according to the Federal Reserve System reports, rose to 191, machinery to 234, shipbuilding to 659 and aircraft to 1,397. The implication of these figures are plain. Many plants engaged in the production of non-durable and overall consumers goods will be closed down as a result of priorities on raw materials. Washington has estimated that at least 20,000 business may very likely be destroyed as a result of the arms program.

This trend is accentuated by the death-like grip which monopoly capitalism maintains upon the war program by its control of the governmental agencies in charge of contracts. The concentration of contracts in the hands of an already highly monopolized industry only hastens the destruction of small business. Despite the avalanche of protest by the “little man” and the setting up of a special department to insure “a fair allocation of contracts,” the situation remains unchanged. Toward the end of the year, only 6,657 of the 12,000 plans chosen by the Army and Navy for utilization in war production, were employed. It is the little more than six thousand plants out of 184,000 manufacturing concerns which held prime defense contracts of $50,000 or more.
 

The Growth of Profits

The war program has boldly accentuated the class character of American economy and this is nowhere so sharply illustrated as in the tremendous rise in profits of monopoly capitalism contrasted with the decline in the living standards of the overwhelming majority of the people. In face of mounting taxes, the profits of industry grew continuously. According to the Economic Outlook for January, 1942, an organ of the CIO, preliminary reports “on industrial profits of 71 principal corporations for the year 1941 show an increase of 77 per cent over the year 1939. This is after all deductions for corporate and excess profits taxes, depreciation, depletion, contingency reserves, etc.” (Emphasis mine – A.G.)

The report further points out that for detailed figures up to the first nine months of 1941, the profits of 401 leading corporations increased 26.1 per cent over the corresponding period of 1940, and 78.6 per cent over the same period of 1939.

“The greatest increase in profits,” says Economic Outlook, “occurred in the durable goods and defense industries. For example, profits of five aircraft manufacturing companies increased 38.2 per cent in the first nine months of 1941 over the same period of 1940 and 171 per cent over the first nine months of 1939 ... for the automobile industry, profits increased for 13 representative companies 29.7 per cent in the first nine months of 1941 over 1940. The increase over 1939 was 51.7 per cent.

“Profits for four copper and brass fabricators, mainly producers of shells and other ordnance equipment for the Army and Navy, showed profit increases of 77.5 per cent in 1941 over 1940 and 1270 per cent over 1930. The increase in profits for 28 industrial machinery and accessory corporations, mainly producers of machine tools for defense industries, was 153 per cent in 1941 over 1939. Some five copper mining companies showed an increase of too per cent in 1941 over 1939.” (Emphasis mine – A.G.)

It is also pointed out that of a representative group of thirty-two iron and steel corporations, profits increased 36.1 per cent in 1941 over 1940 and 338 per cent over 1939.
 

Reports from Other Sources

This is the prevailing tendency in profits. Anticipating objections to the foregoing figures of the CIO, I cite the resume on industrial profits made by the New York Times. In a report by Kenneth L. Austin, Industrial Profits in 1941 Near 1929, the writer states:

“Industrial profits in 1941 were second only to those of 1929 and, for some groups, exceeded the records of that boom year by a comfortable margin, a survey of the first seventy-one principal corporations to report last year’s results shows. Twenty-one of these companies earned more in 1941 than in 1929 or any other year in the last fourteen years. Five others bested the 1929 results but earned slightly less than in one or two intervening years.

“Combined net profits of the seventy-one companies for 1941 were $426,114,500, in comparison with $364,906,900 in 1940 and $526,302,400, the only better year, in 1929. This decline of $100,000,000 decline from the 1929 peak, however, consists mainly of a $90,000,000 shrinkage in the combined profits of five steel companies ... Thus profits came within 7.7 per cent of the record results.” (Emphasis mine – A.G.)

This is only part of the picture. As Austin points out: “There is no doubt that 1941 earnings would have exceeded those of any prior year substantially had the same rates and principles of taxation applied.” There are additional reasons for this, among which are lower income tax rates and the absence of excess profits taxes in 1929, absence of social security taxes, a current higher total employment, lower income from investments and far greater current appropriations for contingency, inventory, self-insurance and other reserves in preparation for an “eventual return to peacetime operations.”

A subsequent report made for the New York Times by the same Mr. Austin, analyzing 337 industrial corporations, merely substantiates the trends he enumerated in his analysis of the 71 corporations. He adds that for the 337 corporations, “the cumulative earnings over twelve-month periods have not shown a single decline since 1938.”

Elsewhere he states that “it is clearly shown that the earnings have made an unbroken rise, although they were slowed up somewhat in the third and final quarters of 1940 by the first of the heavy tax measures, known as the Second Revenue Act of 1940.”

Moreover, the profits of manufacturing industries rose high enough to offset the even “harsher” tax program in the Revenue Act of 1941. This is illustrated by Mr. Austin in the following words:

Whereas in 1940 taxation required 30 to 40 per cent of earnings, the United States Treasury absorbed 50 to 65 per cent of earnings in 1941. Nonetheless, the twelve-month cumulative profits resumed a definitely upward trend last year.

The figures given are the following for 337 companies:

For 454 manufacturing corporations, the following combined net profits are recorded during the first two years of the war.

The increase is 18.28 per cent for 1941 over 1940.

From another source, Business Week (January 24, 1943), we learn that “corporation profits are rising – from about $4,000,000,000 in 1939, to 14,500,000,000 in 1940, to $6,250,000,000 in 1941, though they are still below 1929’s $8,100,000,000.”

The important point to be remembered, however, is that while these high profits were achieved in 1941 even with the setting aside of huge and varied reserves and higher taxes, profits will continue to increase to higher levels in 1942–43 as the war program operates more efficiently and production mounts.
 

Big Business Shows Indignation

Big business, with its accumulated knowledge of what had transpired during the last war, is out to get the limits of profits out of this one. The war of 1914–18 is as nothing as compared with the expenditures that will be made in the present carnage. A ruthless determination characterizes the mood of monopoly capitalism.

Whatever the many purposes of the Truman and Vinson reports, they disclosed incontestable facts which have remained uncontroverted by the most reactionary elements of a labor-hating Congress, that the profits of the large corporations are “unconscionable” in the most important instances. When these reports became public property, the business world retorted with the cry of “persecution.” And when big business was charged with hampering the war effort by delaying conversion in favor of large profits through normal production, they went veritably berserk.

The Automobile Manufacturers Association, in full-page ads, cried: “We stand under an attack and a challenge. This attack impugns our integrity, our ability, our loyalty to our country.” (Emphasis mine – A.G.)

The big business press denounced the congressional reports as extremely one-sided, since their condemnations, might be interpreted as directed at the profit system rather than individual culprits. By this charge they merely indicated either a lack of astuteness, or political purpose, on the part of the congressmen. As a matter of fact, the disclosures of the congressional committees were merely scratching the surface of the true situation.

The injured congressmen declare that they have far more “interesting” facts yet to announce, and unless big business becomes more amenable to certain unimportant restrictions, they will be compelled to take more drastic action, especially if the labor movement continues its pressure for “equality of sacrifice.”

Pearson and Allen, in their column of February 19, 1942, wrote:

“Not nearly has the whole story been told on war profiteering ... There is information that certain big-money executives of war production firms with huge cost-plus orders kilted their salaries sky-high. The government pays all the freight; so these self-given boosts come out of the taxpayers’ pocket ... In one case the head of an aircraft company gave himself a raise of $35,000 a year. Another increase doubled the boss’ salary – from $25,000 to $50,000 ... The Army and Navy resorted to cost-plus to expedite production. But the contracts were so loosely drawn by business-minded military bureaucrats and dollar-a-year ‘experts’ that the government has practically no protection against gouging.” (Emphasis mine – A.G.)
 

Labor and the War Economy

Be that as it may, the great monopolies go blithely on their way to grab everything, conscionable or unconscionable, legally or illegally. They are prepared to travel the legal highways and to fight any efforts to reduce their take in the war effort. They have little to fear of post-war litigation by the government since they know by experience that such legal entanglements stretch out over so many years that by the time decisions are reached, they can “prove” such enormous contributions and mitigating circumstances as to warrant anything they “earned.” (See the case of U.S. vs. Bethlehem Steel Co.) Or else they may file counter-charges against the government for additional bonuses for “extraordinary services,” certain that somewhere along the route, one or another of the courts will find for them. In the worst case, they can settle any dispute by compromise and still come out ahead of the game. After all, it is their game.

The position of the working class in the war economy is sharply contrasted to the bourgeoisie enjoying enormous profits made possible by monopoly capitalism. Undoubtedly a large section of the working class has increased its wage earnings, but these increases are already offset by the measures adopted in Washington to render them ineffective and the mounting cost of living.

The exact figures on wage increases are difficult to obtain because the numerous research bodies engaged in assessing the economic situation in the country do not always agree as to figures, but more important, their various approaches to the question often conflict. But in general, it is possible to state that the following situation exists:

Up to October 1941, hourly earnings in all manufacturing industries rose by 14.7 per cent. In the one year from October 1940 to October 1941, average weekly earnings in all manufacturing industries increased by 20.6 per cent. A variety of figures have been published to show how wages have risen not only in the last year, but from previous periods. For example, Labor Department researchers announced that factory wages increased 33.9 per cent from August 1939 to mid-November 1941. In order to make the pay rises appear more startling, figures were released to show that weekly earnings in all manufacturing groups rose “from $17.86 at the end of 1932 to $32.81 at the close of November 1941 ...” Note well, that this comparison is made between the year in which the economic crisis reached its lowest point and the year in which war production began to rise, the whole period covering an entire decade!

On the basis of the figures which disclose that the working class, more particularly the organized working class, has received wage increases, a national conspiracy is being organized to saddle labor with far heavier war burdens than it now suffers. It is necessary, however, to contrast real wages with wage increases in order to determine the actual position of the working class.
 

Real Earnings of the Workers

In the midst of the present war boom the state of unemployment has been completely overlooked. This is not unnatural since the tendency, in a. period of war production, is toward an ever-greater employment of the labor supply. Whatever the tendency, the fact remains that as of November 1941 there were 5,470,000 unemployed, an increase of 8.6 per cent over October. This growth in unemployment is partly due to the slow process of war conversion of industry, but this fact is balanced, too, by the fact that more than two million former and potential workers have entered the armed forces. Even before the problem of plant conversion arose in its acute form there were 4,871,000 unemployed workers (September 1941). The overall effect of such a large number of unemployed upon the working class is to reduce partially some of the gain achieved by a section of the higher paid employed workers.

While there has been an absolute increase in factory earnings, a large part of this increase is not due to higher employment but to overtime payments, double time for Sunday work and the seven day week. No appreciable change has taken place in shift-work to employ more workers. Monopoly capitalism, up to this point, at any rate, has sought to meet the demands of increased production by intensifying the exploitation of its present labor force.

The intensified exploitation of labor is manifested by a rise in productivity.

“From 1937 through November 1941,” writes Economic Outlook, “labor costs per unit of output, in spite of the 15 per cent rise in average hourly earnings for all manufacturing industries, is unchanged. This occurred because output per man hour in all manufacturing industries increased 15 per cent in the same period.” (Emphasis mine – A.G.)

In addition thereto the Office of Price Administration made public the fact that industry’s overhead costs have decreased by 3.6 per cent (the figure of Isidore Lubin) since the outbreak of the war and that this also resulted in a further reduction in overall production costs.

Thus the rise in hourly and weekly earnings of manufacturing labor was of no cost to industry since increased productivity cancelled out the wage increases. Actually then, increased wages in no way affected the profits of American capitalism.
 

Wages and the Cost of Living

Of infinitely more importance than the above mentioned factors is the relation of wages to the rising cost of living, because the latter automatically results in the destruction of the gains of at least that section of labor which won them by its organization and struggle. When the comparison is made of wage increases to the rising cost of living, it will be immediately noted that the real standard of living of the masses, following a short rise, has actually remained static for the past period.

The U.S. Bureau of Labor Statistics pointed out that between August 1939 and December 1941 the cost of living rose by 12.1 per cent. From January 15, 1941, the increase was 9.8 per cent!

Prices for staple commodities directly affecting the consumer, i.e., retail food, which makes up the most important part of the cost of living, increased in the corresponding period by 21.8 per cent. From January 15, 1941, the rise was 15.7 per cent. Wholesale food prices increased by 38.6 per cent from August 1939 to January 10, 1942, while 29.1 per cent of this increase occurred since January 15, 1941. In the case of a limited number of food items reported in the Daily Basic Commodities Index of the Bureau of Labor Statistics an increase of 76.7 per cent is recorded, with 49.7 per cent of this rise taking place during the past year.

Prices will continue to rise in the coming year and they will be hastened in their upward march by the constantly declining production of consumer goods and the increased national demand for the dwindling total of available consumer commodities. As of October 1941 the cost of living had soared to the point where, according to Economic Outlook, the net increase of wage earnings was only 10.5 per cent. The most important aspect of this relationship lies in the fact that since then wages have remained virtually static. Prices, however, continued to rise.
 

Labor’s Living Standards and Taxes

The economic position of the working class is further depressed by the taxation program passed for the year 1941 and will be greatly aggravated by impending legislation. By the simple expedient of reducing the taxable income of the head of a family to $1,500 a year and of a single person to $750 yearly, the Administration has created an estimated new group of taxpayers of many millions among the lowest income earners. This is only one aspect of the question.

The steadily mounting war budget has the financial experts of Washington busily engaged in figuring new ways and means of raising additional funds. In the President’s budget message, he indicated that the Administration would soon propose measures which would increase the Treasury income another seven billion dollars and thus reduce the simultaneously mounting national debt. Although the precise aims of the Administration are not yet known, sufficient feelers have been put out by the President and his aides in Congress to permit of some forecasts.

There is no doubt that there will be an increase on corporation profits (the enormous earnings of the corporations from governmental war contracts makes certain that the Administration will seek some return of these funds in this manner). Increased corporation taxes will be accompanied by a still further lowering of exemptions on incomes, those on heads of families to $1,000 and on single persons to $500. The tax laws now in the making will carry provisions for “selective” excise and sales taxes. With the decline in the production of consumer goods, Congress will seek to drain off considerable sums from consumer purchasing power. In each instance, whatever the final determinations of the Administration and Congress, the working class will suffer the burden of new forms of taxation.

Consider for a moment the fact that, without a single new increase in taxation, workers’ families with incomes ranging between $1,000 and $3,000 yearly, pay approximately 17 per cent of their incomes in variety of federal, state and local taxes.

It is no wonder then, why E.A. Evans, writing in the New York World-Telegram for February 19, stated:

The money income of Americans is going up. In 1942, it will reach a record-smashing total of at least $95,000,000,000 (only one-third of this income will go to the working class).

But their average standard of living is going down to depression depths. In 1942 they can buy civilian goods and services worth only, at present prices, $65,000,000,000 or less. There can’t be any more, because more than half of the country’s industrial capacity must be devoted to war. (Parenthetical comment and emphasis mine – A.G.)
 

The Income of the Proletariat

Thus the rising cost of living, the decline in consumer goods, the continued existence of a large number of unemployed and the creation of a series of new taxing measures, will have the cumulative effect of sharply smashing the standard of living of the masses, which had not yet completely emerged from the devastating effects of the ten years’ economic crisis.

This condition is brought out in bold relief by the investigation of all committees devoted to estimating minimum requirements for a minimum standard of living. The Department of Labor once estimated $2,100 a year as the minimum amount required for a reasonable standard of living for a family of five. The Heller Committee of the University of California, narrowing its investigation to the City of San Francisco, raised this figure to $2,211 yearly, which the CIO corrected, in the light of the increased cost of living, to $2,400 yearly.

The Economic Division of the CIO, in a study of incomes among the higher paid workers, revealed that the average yearly wage per family was $2,000, at least $400 below the minimum requirements stated in the Heller Committee report. But there are only 7,747,000 workers in this category. More than 24,516,000 workers early less than $30 a week, or $1,500 yearly. Of this number, more than half, or 13,769,000 workers, earn less than $20 a week ($1,000 a year). This figure may be broken down once more to reveal that of this number, 4,9750,00 people earn between $10 and $15 a week ($500 to $750 yearly), and 3,324,000 people earn below $10 a week. There is the real picture of American society as revealed by the income earning groups. (The figures are taken from a report by Secretary of the Treasury Morgenthau.)
 

Some Future Prospects

Let us try to simplify several of the problems posed before America’s class society. As visualized by the Administration leaders in charge of war production and by big business, the national income, variously estimated at $92,200,000,000 (New York Sun, January 21) for the year 1941 and anywhere from ninety-five to a hundred billion dollars for 1942, will undergo a sharp change in composition.

During 1941, the production of war materials of every type consumed only 15 per cent of the total national income (fifteen billion dollars). Stated in another way by the Department of Commerce, production for military purposes aggregated only 21 per cent of total production in 1941. The initial estimates produced by the Administration for the impending year is that 53 per cent of the total industrial output will be devoted to military production, with expenditures reaching more than 50 per cent of the total national income.

The following are some of the projected production increases planned for 1942:

• In the durable goods field, an estimated “80 per cent of the total output will be for war purposes, compared with 35 per cent in 1941.”
   
• Total industrial production is expected to climb to 15 per cent over 1941, which when added to the 25 per cent increase between 1940 and 1941, will show a total industrial production increase of 42 per cent since 1939. The lower estimated rate of increase for 1942 is primarily due to the curtailment of the production of consumer goods.
   
• One-third of the estimated 1942 increase will occur in the aircraft industry. Machine industry will contribute almost another third of the increase. Shipbuilding will be the third highest contributor to this growth.
   
• A drop of 31 per cent in the “civilian portion” of production “will be more than offset by a gain of 188 per cent in the war portion.”
   

Wages, Taxes and Profits

We have already indicated that profits continue to rise, while wages have reached a static stage with “real wages” tending downward. Taxes continue to rise with a heavier share placed on the masses.

An increasing class tension is visible as monopoly capitalism is determined that the major burden for the war be taken by the working class. Since profit is the quintessential aim of big business, it fiercely resists any measures that will interfere with this pursuit, and thus far, with Congress in its vest pocket, has experienced no little success. Currently, all decisive measures to control war profits have been defeated and the latest attempt to tax excess war profits has been shelved by the Administration.

The National Association of Manufacturers, the kept press and a servile Congress have launched a successful drive against all wage increases on the theory that wage increases on the basis of a diminution of consumer goods must result in inflation. The Administration has come around to the point of view of big business, because in its calculations, based on a profit economy, war production is paramount, consumer goods must decline sharply and wages must remain static for the duration. Not only that, but bond sales and taxes must be so devised as to drain off large sums of the workers’ static wages. This will halt inflation, say the bourgeois minded “experts.” Other measures to halt inflation by invading the province of profit economy are hastily rejected.

The organized labor movement resists and in its resistance reflects the deep pressure of the workers who are completely aware of the profits of big business and the general enrichment of the ruling class through war production.
 

Wage Ceilings – A National Wage Cut

The approach of the industrialists and financiers has been so crass that it led Business Week, January 31, to say:

Labor’s action is understandable (demanding an increase in wage levels and heavier taxes on profits). So far, in the United States, a lot of us have treated defense as a national grab-bag. (!)

Elsewhere it points out that:

Congressional tax leaders are bucking the Administration ... They favor going easy on corporations, heavy on individuals. (Parenthecated matter mine – A.G.)

The present increase in labor militancy, precisely at a time when Washington exhorts all workers to sacrifice everything to raise war production, is indicative o£ the tension between the classes. The workers acutely feel their living standards declining while that o£ the ruling class increases and remains unaffected by the countless measures produced in Congress. They realize that all the forces o£ reaction are allied in the conflict over who is to pay tor the war. They instinctively feel that, as Economic Outlook wrote:

... the amount of national income available for consumption may be reduced to as low as forty billion dollars during the coming year. (This is in conflict with the estimate of E.A. Evans, but is more nearly correct – A.G.) This would be at the lowest level of the depression year 1932. If such a reduced income for consumption were to be distributed at the same ratio as present shares, workers would be forced to levels of poverty and starvation. (Emphasis mine – A.G.)

Faced with such a prospect, the labor movement demands an increased share of the national income and a reduction of the share of the ruling classes. In reply to the charge that increased wages would result in inflation, the labor organizations have stated that governmental price controls, taxation and rationing would balance the tendency and, therefore, urge a reduction of the profits of big business.

Since Congress has already precluded any sharp measures against monopoly capitalism and thrown some crumbs in the direction of the upper stratum of the farming population (the small farmers will receive no benefits by the congressional action hiking farm prices, and the large group of farm laborers remain one of the lowest income-earning groups in the country), it is their determination to compel the working class to pay for the war effort.

A ceiling on wages, a reduction in consumer goods and consequent reductions of the means of existence for the proletariat and lower middle class, is only another form of a national wage cut for the overwhelming majority of the population. Given a small and weak labor movement, the course of big business and the Administration would have been a direct national wage cut. But in face of a powerful trade union organization, this national wage cut is being accomplished by devious ways, and only for that reason difficulties and apparent confusion exist.

A veritable crusade has been organized against the labor movement, with a large part of the leadership of the labor movement already succumbing to the conspiracy of big business, Congress and a section of the Roosevelt Administration. The absence of labor unity, the deep inner conflict of the trade union leadership and the strike-breaking, reactionary role of the Stalinists in the labor organizations, have greatly weakened the struggle of labor for its existence. These subjective factors hinder the American proletariat and prepare it for some crushing economic blows.

* * *

In résumé, it will be observed that the tendencies of a war economy described in the early part of this review and contained in previous articles, have become the standards of measurement for American economy today. Obviously, we have not exhausted the subject since we treated only with several of its main features. But we shall often have occasion to return to these matters to examine their variegated manifestations.

February 21, 1942

 
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