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T.N. Vance

Economic Prospects for 1956

Capitalist Stability versus Current Economic Trends

(January 1956)

From The New International, Vol. XXI No. 4, Winter 1955–56, pp. 215–235.
Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

AMERICAN CAPITALISM ACHIEVED NEW PEAKS in production, employment and income during 1955. As the January 1956 Monthly Letter of the First National City Bank puts it: “The nation has ended its busiest and most prosperous year with the indexes of over-all business activity at the highest of the year. Latest figures on production, non-farm employment, consumption, income, and investment, indicate that the trend is still upward.”

The New York Times’ financial editor, John G. Forrest, in the annual review of the nation’s business, on January 3, 1956, stated: “Boom all the way. That was 1955 for United States industry.” Mr. Forrest summarizes the performances of 1955 by stating:

“When the tally is struck for 1955, it probably will show a gross national product of around $387 billion. That would be 7 per cent above 1954’s total and 6 per cent above 1953’s, the previous peak.”

No matter what measure is taken, whether it be the Federal Reserve index of production or just such a simple index as the output of steel, or any other likely measure, there is no doubt that 1955 was the number one year so far as production is concerned in the history of American capitalism.

This remarkable performance of the American economy, which to a certain extent is paralleled by the rest of the capitalist economy throughout the world, has persuaded some bold apologists for the bourgeoisie and some ex-socialists to reach the conclusion that there is no longer any class struggle in the United States; that depressions arc a thing of the past and that through some miraculous process (not quite clearly understood or explained by anyone) the millennium has arrived. There is no longer any need to advocate socialism because American capitalism, under the Eisenhower Administration, has produced a land of plenty and permanent prosperity. Some even go so far as to refer to this new utopian state of affairs as the “land of permanent peace and prosperity.”

The process by which The Permanent War Economy becomes “permanent peace and prosperity” is a triumph for the semantic arts. The question remains, however, to what extent, if any, has capitalism under The immanent War Economy eliminated the business cycle, or, if you prefer, eliminated severe depressions?

The interest in the subject is such that the Chamber of Commerce of the United States has devoted an entire pamphlet to the subject, entitled, Can We Depression-Proof Our Economy? This pamphlet refers to the adjustments and increases in production that have taken place since the end of World War II, and to the fact that there are “Numerous automatic built-in stabilizers or cushions which we did not have in 1929.”

“All these factors,” the pamphlet concludes, “have lead some students to believe that we are more or less depression-proof; or at least, that serious general depressions are less likely to occur than formerly.” The question is then raised: “Is this optimism justified? Or, have we merely been the beneficiaries of exceptionally favorable postwar factors?”

The United States Chamber of Commerce then proceeds to review the “evidence.” A Prentice-Hall release is cited in which it is stated that: “It is becoming crystal clear that serious depressions have been abolished in the United States by popular vote.” (Sic!)

It is pointed out that the 1953–1954 recession was unusually mild and the fact that it did not degenerate into a full-fledged depression is most heartening and perhaps warrants the belief that there are some new factors on the scene in the form of these “built-in stabilizers,” and while no categorical statement is made, the presumption is that perhaps, at the very least, severe depressions are a thing of the past.

On the other hand, the Chamber of Commerce proceeds to point out to those that arc unduly complacent that they should take heed from the warning issued by J.K. Galbraith published in Harper’s magazine, October 1954, to the effect that “important people begin to explain that it cannot happen because conditions are fundamentally sound.” From which Mr. Galbraith draws the conclusion that that is precisely the time to worry because another collapse, comparable to 1929, in his opinion, is definitely possible. The Chamber of Commerce, moreover, does not lose sight of the political importance of the subject. It points out that “if we attain this target [sustained prosperity], other domestic problems will remain manageable. For international reasons as well, the attainment of this goal is important. It will refute the Marxists’ criticisms of private capitalism both here and abroad.” The question of the so-called new perspective and economic outlook, that is, permanent prosperity, has engaged the President’s Council of Economic Advisers. In their 1955 economic report to the President, they review the experiences of the 1953–54 recession and draw the following lessons (quoted by the U.S. Chamber of Commerce):

First, that wise and early action by government can stave off serious difficulties later;

Second, that contraction may be stopped in its tracks, even when governmental expenditures and budget deficits are declining, provided effective means are taken for building confidence;

Third, that monetary policy can be a powerful instrument of economic recovery, so long as the confidence of consumers and businessmen in the future remains high;

Fourth, that automatic stabilizers, such as unemployment insurance and a tax system that is elastic with respect to the national income, can be of material aid in moderating cyclical fluctuations;

Fifth, that a minor contraction in this country need not produce a severe depression abroad;

Sixth, that an expanding world economy can facilitate our own readjustments.

Lest the apostles of the new religion of “permanent peace and prosperity under capitalism” jump to the conclusion that they have a real ally in the United States Chamber of Commerce, let us point out that immediately after the analysis presented above and the quotation from the President’s Council of Economic Advisers, the United States Chamber of Commerce states: “It would be difficult to find a single economist who believes, as some did in the late 1920s, that we are, indeed, depression-proof.” If the United States Chamber of Commerce is not ready to take the plunge into the new camp of “permanent peace and prosperity under capitalism,” there are others who are not quite so cautious. And that is pretty much the position of Sumner H. Slichter which he has expressed in various articles, including one published in the Atlantic Monthly for May 1955 entitled, Have We Conquered The Business Cycle?

While Slichter likes to leave himself an “out,” he is also fond of making headlines. For example, in a recent article of The New York Times Magazine section of December 4, 1955, dealing with the relationship of our economy to politics, Slichter states:

“A severe depression would undoubtedly sharpen the differences between the parties in the United States and would accentuate the influence of the left-wingers in the Democratic Party, but the days when this country can experience anything worse than moderate or possibly mild depressions are gone forever.” (My italics – T.N.V.)
 

WHAT ARE SOME OF THESE “BUILT-IN stabilizers” that are supposed to have eliminated severe depressions and achieved a more or less permanent modification in the business cycle? They are summarized by the United States Chamber of Commerce in the aforementioned pamphlet as follows:

(1) The quick offsetting reactions which occur in our tax structure, with the heavy reliance on the income tax; (2) Stability and size of the government expenditures; (3) The farm price support program; (4) Unemployment compensation; (5) The numerous private and public pension programs; (6) The Federal Deposit Insurance System; (7) The self-amortizing nature of most private debt; and (8) The volume of liquid assets held by individuals and businesses.

To the extent that these factors mean anything – and they do mean something that is very important – what is being said here is that capitalism under The Permanent War Economy has achieved a life of more or less permanent government intervention and that this government intervention has modified the business cycle.

Certainly the government’s Council of Economic Advisers takes credit for the fact that serious economic fluctuation or depression has been avoided in the past few years. Its chairman, Dr. Arthur F. Burns, puts it this way:

These are the basic premises that have controlled our business cycle policy in the recent past. If governmental policy in the months and years ahead continues to adhere to these premises, if government steadily maintains a watchful eye on the state of business and consumer sentiment and if it gives heed to the need of avoiding inflation as well as depression; we may, I think, be reasonably confident that – although we are likely to continue to have fluctuations in individual markets, to some degree even in the economy as a whole – we will avoid in the future the business depressions that have marred our brilliant record of free enterprise in the past.

This would seem to put the Council of Economic Advisers, an official government body, almost in the camp of Sumner Slichter.

The United States Chamber of Commerce concludes its pamphlet on this question as follows:

Are we, then, depression-proof? Prolonged and deep depressions are avoidable and will not occur again, unless we take complete leave of our wits – which could be. Minor fluctuations and rolling adjustments in industry after industry are inevitable. While having unfortunate aspects, they nevertheless perform a useful and essential function. Individual companies will face changing fortunes. Crises in international affairs can be upsetting. Domestic political uncertainties, threats of undue business regulation or taxation – these and many other factors could undo the promising developments in the field of stabilization. Stability has to be earned. (Italics in original only in the last sentence. – T.N.V.)

Is this a new era or is it not? On the one hand, severe depressions are avoidable and will not occur, that is, “unless we take complete leave of our wits,” but apparently it is possible, according to the United States Chamber of Commerce, that we may take complete leave of our wits. And one suspects that taking complete leave of our wits has reference to such measures as increasing the minimum wage law, etc.

Let us not be completely disheartened because later on in its conclusion the Chamber of Commerce makes the fairly bold statement: “If we have the courage to avoid excessive booms and the wit to use what we know, there is reason to believe that future instability can be kept within fairly tolerable limits.” (Sic!) In other words, if we can avoid depressions there will be no depressions. But how do we know we can avoid depressions?

Lest anyone accuse the United States Chamber of Commerce of a definitive statement on a subject of this kind, we must quote the very last sentence in their brochure: “And, since the future can never be foreseen with certainty, it is always wise to watch out for surprises.”

Lest there be any possible misunderstanding on this question, let us make it perfectly clear. If capitalism can succeed in eliminating the business cycle, i.e., in achieving permanent peace and prosperity, then not only has the class struggle been so transformed as to be unrecognizable but clearly there will be no need for a socialist form of society to organize the productive forces for capitalism will have guaranteed their permanent increase. The question, therefore, is of great theoretical and practical importance.

If the performance of the economy in 1955 was at record levels, the outlook for 1956 is clearly relevant. Will this boom keep rolling on and on and on, so that memories of depressions fade into the dim and distant past and pretty soon there will be no living inhabitants who recall the depression of the ’30s or the rather severe recession of ‘47 and ’48 or even the mild recession of ’53–’54?

The United States Chamber of Commerce is extremely bullish in its outlook for 1956. The forecast by its chief economist, Emerson P. Schmidt, states:

“The expansion which began in the summer of 1954 carried through 1955. The high Christmas sales will start 1956 off with good levels of employment, production and general economic activity. The year 1956 may well be our best year in history.” (My italics – T.N.V.)

There is no hedging here – “the year 1956 may well be our best year in history.” Of course, there is the qualifier “may,” but on the other hand the implication is that it should certainly be the best year in history.

Mr. Schmidt is a brave man and he has made these statements in a publication of the United States Chamber of Commerce, entitled Nation’s Business, which receives rather wide circulation. He states:

“To see unmistakably into the future, of course, is not given to man. Surprises – pleasant and unpleasant – are likely. But, in so far as it is possible to weigh and assess recent trends, optimism for next year is justified.”

The same issue of Nation’s Business (December 1955) contains an article by businessman Henry Ford II on the same subject, Outlook for ’56. Mr. Ford, in answer to the query, How does business look to you in 1956? states:

We are very optimistic. I think that it is a little early to tell about the whole year. Certainly the first half ought to be pretty good, but we have an election year coming up. People get preoccupied with candidates and issues in an election year and when feelings run high business has a tendency to run low. As a result 1956 might not be quite as big as this year – but I think it ought to be a good year. (My italics – T.N.V.)

“1956 will be a very prosperous year, but perhaps not quite as good as 1955.” It is possible that businessman Henry Ford II’s outlook is colored by the fact that his firm produces automobiles. In answer to the question, How about the automobile business?, Mr. Ford states:

The automobile business will have a fine year, too. My personal feeling is that it won’t be as big as 1955. How big the reduction is going to be is anybody’s guess. If we assume a 10 per cent reduction, we will still have our second biggest year. Ten per cent of what do you want to say, 7,600,000? That would still be the second biggest year after 1955.
 

WE SHALL RETURN TO THE OUTLOOK for the automobile industry. Meanwhile, let us consider a few more general statements on the business outlook for 1956. The confidential Babson’s Reports issued early in November on the 1956 forecast for stocks and bonds shows a rather sharp disagreement with the extremely bullish statements that have emanated from most sources. States Babson: “For the year ahead we are forecasting that the Babson chart index of the physical volume of business will average around 150 – some five per cent below the record 1955 mark.” Babson amplifies its general prediction by stating: “We look for a decline in general business during the first half of the year which is likely to be somewhat more vigorous than the recovery which we anticipate will set in during the last half of the year.”

The Babson forecast is unique in that all those who are cautious about ’56 other than Babson, state that the boom will continue to roll during the first half of the year and if there is a decline it will be in the second half. Babson, however, predicates its reverse forecast on the fact that it expects a decline in the automobile industry and that this decline will be concentrated in the first half of the year but in the second half of the year when 1957 models will be introduced very early, there will be a sharp increase. Babson also expects a sharp decline (about 15 per cent) in the home building industry in 1956. He feels that when this trend is apparent the government will then step in and take steps to revive building. There is a logical analysis here; whether it will prove to be accurate, of course, remains to be seen. The important point, however, is that here is a very reputable bourgeois outfit (whose reputation for accurate forecasting in the past is unusually good) that does not feel that the boom continues to roll on and on, but that 1955 was the peak. This, of course has important implications for the general question under analysis.

Of equal interest with the Babson forecast is that of Fortune Magazine according to its own blurb, “the ne plus ultra of business publications.” Fortune’s own summary of its 1956 economic forecast contained in its January 1956 issue under the Business Roundup is to the effect that:

“1956 may be a little rough on a number of businesses. This, despite the fact that it starts out as the best year yet: in ’56 the Gross National Product rate will edge up to around $403 billion from ’55’s sensational year-end rate of nearly $400 billion. But there will be a slight down-turn about midyear.”

More interesting is Fortune’s forecast by major industries:

If you’re in any branch of capital goods – machinery, plant, equipment – things look good. But home goods are slowing, steel will go down by midyear, home building starts will be off 100,000 units or so, car buying by a million or more. All consumer businesses are up against the competition of $35 billion in consumer debt repayments during ’56, up $4 billion from ’55. And unemployment could rise to over four million, since two million jobs will be cut out by increased productivity, and some 700,000 new workers will join the labor force ...” (Italics mine – T.N.V.)

Most business men are optimistic about 1956. Retailers particularly reflect the results of a study made in October by the Survey Research Center of the University of Michigan which indicated that 71 per cent of all people expect good times to continue at least through the first eight months of 1956.

At the recent meetings of the American Economics Association there was much discussion about this question, and it was noteworthy that there is now some hedging about the continuation of the business boom. As The New York Times in Mr. Forrest’s column of January 1 puts it:

“Some economists last week differed on the 1956 business picture, with several leaning to the theory that the boom would reach its peak early in the year and that caution should be the watchword after that.”

The only really discordant note was struck by Dr. Edwin G. Nourse, former chairman of President Truman’s Council of Economic Advisers. Dr. Nourse predicted (according to the same article in The New York Times): “We should contemplate a drop of 15 or even 20 per cent in business during 1956.” (Italics mine – T.N.V.) A drop of this magnitude would mean a decline of $60 to $70 billion in gross national product and a catastrophic increase in unemployment. Here we would have not just a mild depression, but from every point of view a rather severe one.

There can be no doubt that Nourse was expressing what might well be termed “the Democratic point of view” on the business outlook. As a matter of record, this view was expressed by the supplemental views of the Democrats on the Joint Committee on the Economic Report in connection with the January 1955 Economic Report of the President. (Report No. 60, 84th Congress, First Session). This supplemental report showed that while they agreed that recovery had taken place from the trough of the 1953–54 recession, we were not really out of the woods, and that there was great danger that developments in the automobile industry and related industries such as construction could cause a downturn of fairly sizable proportions.

To quote the Democratic members (Senators Douglas, Sparkman and O’Mahoney and Representatives Patman, Bolling, Mills and Kelley):

Because the president’s confident expectations for the coming year are centered on a shift of inventory policy from liquidation to accumulation, on the recovery in automobile production, and on rising expenditure for new construction, it is necessary to examine carefully these areas. These may not be sustained throughout the year. A sharp cut-back in automobile production in the last half of the year would have pervasive effects in the steel, coal, textile, and accessory parts industries. Some analysts expressed uneasiness whether the recent rise in construction will persist. If, however, the automobile or construction industries should encounter heavy weather in the last half of the year, and if other segments of the economy do not recover sufficiently to offset them, it would be a matter of prudent and judicious action to fly the storm warnings. Economic declines are like landslides – it takes less to stop them early than after they gain momentum.

The record shows that the Republicans were better forecasters in ’55 than 1956, but the Democrats have held to their basic analysis. What they are doing (and Nourse is clearly one of their most influential spokesmen) is to project into 1956 the forecast they had made for the later part of 1955.

What does Nourse base his views on? Actually, he is basing himself on a better understanding of the long-run and traditional functionings of capitalism than many of our new apostles of the virtues of “free private enterprise.” Nourse has devoted some study apparently to some of the fundamental trends at work, particularly in relation to automation and increasing productivity. His testimony on October 28 before the Subcommittee on Automation of the Joint Committee on the Economic Report received a proper headline in The New York Times of October 29, 1955, namely: Economist Fears Overproduction.

Dr. Nourse’s testimony is worth study. He states:

The real change came when we passed from this kind of continuous process mechanization to that in which electronic devices make it possible to dispense to considerable extent with the mental element in manual control and to use the feedback principle extensively. Under this principle electronic mechanisms make it possible to conduct more elaborate, more economical, and more precise continuous productive operations because the outcome of the process controls the process itself, starting, altering, or stopping it so as to make it produce a desired result. This should dispose of the cliche that automation is nothing new – just more mechanization. It has its roots in mechanization, to be sure, but something new was added when electronic devices made possible the widespread application of the feedback principle ...

The issue which automation now raises is this: Will it alter present economic relations in such ways as to disturb these favorable conditions, or will our business system be able to translate these technological improvements fully and properly into still greater general prosperity and higher standards of living? It is evident it will change wage income both by numbers of jobs, some places up and some places down, and by wage rates upgraded here and downgraded there. It will obsolete some capital equipment and make important demands for new capital equipment. It will affect unit costs for some products, but not all; prices in some markets, not in others; profits and dividends, tax yields, and public spending ...

In contrast to the preponderant attitude of business executives, labor union officials have been outspokenly concerned about the economic impact of automation on the well-being of the mass of worker-consumers in the years immediately ahead ... “But we believe that much study is needed by all parties if the gains are to be made as large and as steady as possible and the temporary dislocations and local burdens or losses made as small as possible and most equitably shared.” With this view I find myself in accord rather than with the idea that the problem will take care of itself or be disposed of automatically by the invisible hand of free enterprise ...

When businessmen or others say that technological progress is good per se and that it takes care of its own economic process, they invoke a simple logic of the free enterprise economy. The entrepreneur seeks profit by adopting a device for raising efficiency. This lowers cost. Price falls proportionately and thus broadens the market. This restores the number of jobs or even increases them and raises the level of living or real incomes. This comfortable formula presupposes a state of complete and perfect competition in a quite simple economic environment with great mobility of labor, both geographical and occupational. But these are not the conditions of today’s industrial society, with large corporations and administered prices; with large unions and complicated term contracts covering wages, working conditions, and “security”; with complex tax structures, credit systems, and extensive government employment and procurement. The smooth and beneficent assimilation of sharp and rapid technological change has to be effectuated through intelligent and even generous policies painstakingly arrived at by administrative agencies, private and public ... (Italics mine – T.N.V.)

Against the complacent picture presented by some witnesses at these hearings let us put the actual sequence of economic developments in postwar United States. Technology (with infant but growing automation) has been put to full use under conditions of extraordinarily high and sustained demand, public and private. Labor, viewing this unparalleled rise in productivity, has sought to capture the largest possible share in the form of successive rounds of widespread wage increases in basic rates, escalation formulas, and fringe benefits. As the unit cost of labor went up, management sought to maintain or improve its earning position by raising prices and/or by introducing labor-saving machines and administration. The first solution of management’s problem – that is, price raising – has been facilitated by our elastic monetary system, and we are now drifting along on a Sybaritic course of mild inflation as a way of life. The second solution of management’s problem of meeting labor’s wage demands has accelerated piecemeal mechanization, yesterday’s infant “scientific management,” today’s adolescent automation. [And still there are some who say the class struggle has disappeared!] ...

I strongly suspect that we have already built up at many points a productive capacity in excess of the absorptive capacity of the forthcoming market under city and country income patterns that have been provided, and employment patterns that will result from this automated operation. We are told on impressive authority that we have not been making adequate capital provision for re-equipping industry in step with the progress of technology. This is probably true if it means making full application of electronic devices and univac controls generally throughout our industrial plant. But we have not yet demonstrated our ability to adjust the actual market of 1956-1957, etc., to the productivity of the production lines we have already “modernized.” They have not yet come to full production, but as they do we see incipient unemployment appearing. Since that, along with slight credit tightening, will tend in some degree to restrict the market appetite, it seems likely that next year will see a still further enlarged output somewhat out of balance with this reduced demand. Suggestions have been made that balance could be restored by lowering prices or by cutting the work week. Both processes take time and present their own difficulties. Meanwhile, the current trend is toward higher prices reflecting wage advances already negotiated ... (My Italics – T.N.V.)

In the course of these hearings various members of the committee and its staff have raised the question whether legislation should be recommended to deal with the problems created by so-called automation. The answer, I think, is an unqualified NO. To curb or redirect the process of scientific discovery and engineering application and the adaptations of businessmen and consumers to these changes would be utterly repugnant to the system of free enterprise and individual choice that have made our country great. None the less, every time the Congress passes a money bill, every time it revises our tax structure, every time it passes a regulatory measure for price maintenance (alias “fair trade”), farm price supports (alias “parity”), or stockpiling of copper, rubber, wool, or silver it is giving punch-card or tape instructions to some part of the continuous flow mechanism of our economy. Public policy on all these matters should be framed in the light of the fullest possible understanding of the integrated character of the price-income structure and behavior of our economy, with an eye single to promoting “maximum production, employment, and purchasing power” for the whole people, not to serve the immediate interest of any special group ...

But in a free enterprise system human judgment is given play at most of the important points of interrelationship. Unless the responsible executives seek to integrate their operations to the prosperity of the whole economy and use the full apparatus available for gathering and processing the data relevant to policy determination our economic process will disintegrate into wasteful struggles for individual or group short-run advantage. Much of the potential benefit of technological progress (of which automation is one particular expression) may be lost through failure to make our economic structure and practices equally scientific.

It is not necessary to belabor the point. There are sharp differences of opinion within the bourgeoisie itself on the outlook for 1956. The fact that some of the more eminent representatives of the bourgeoisie are not too confident about the outlook for 1956 or about the perpetual prosperity that the disciples of the new era proclaim, ought to give these disciples some pause. That it will, however, is highly dubious. They will have to encounter hard reality before their views are shaken.

Perhaps the proper way to put it is that there is a form of malaise penetrating almost every sector of society. For example, The New York Times’ column, The Merchant’s Point of View, in its December 11, 1955, issue, states:

“Industrial production, now leveling off after surpassing all previous peaks, will be unable to take care of a growing labor force. This will mean a rise in unemployment which can exercise a dampening effect upon buying enthusiasm.” (Italics mine – T.N.V.)

If the business cycle has been eliminated, or if severe depressions are a thing of the past, relegated to the history books, one may logically ask, why does this feeling of malaise persist?

The previously cited monthly letter of the First National City Bank of January 1956 observes:

The economy does not yet show convincing signs that excesses have reached dangerous proportions, nor are they in any sense inevitable, but they could develop if we substitute enthusiasm for caution and emphasize prosperity to the extent that we forget its problems. The biggest problem of all is to slow down to a sustainable rate of growth without going through a cycle of boom and bust.” (Italics mine – T.N.V.)

Is this merely a psychological hangover from the past history of capitalism or is there a realistic danger that depressions are still possible?

It seems to us that the general feeling of cautiousness or malaise that has more recently penetrated the more knowledgeable circles of the bourgeoisie and its spokesmen, is not without practical foundation. The recent boom has rested in large part on the automobile and construction industries. If these industries are indeed headed for declines of 10 to 15 per cent, then there will be rapid repercussions throughout the economy.

As for the outlook for the automobile industry, previously we cited the opinion of Henry Ford II. We now have the opinion of Harlow H. Curtice, president of the General Motors Corporation, that there will be a 12 per cent drop from the 1955 production total of 7,940,862 cars. This would be almost one million cars less to be produced in 1956 than in 1955.

George Romney, president of American Motors Corporation, put the decline at 15 per cent. Only L.L. Colbert, president of the Chrysler Corporation is bullish among the automobile magnates.

As The New York Times of December 11, 1955, put it:

“Nobody in the industry talks about market saturation. But nobody denies that sales are becoming increasingly difficult to make.”

As a matter of record, and as reported in The New York Times of December 25, 1955, the new car inventories have increased to the very substantial stockpile of 710,000, which is a record for this time of the year when new models have just been introduced. Even more significant is the fact that this large figure includes 325,000 new 1955 models which are likewise awaiting disposal.

An Automotive News tabulation, according to The New York Times article mentioned in the preceding paragraph, shows that before the full production of 1956 models got under way the dealers had 569,335 new cars on hand. For December 1954 the total stood at 265,153 units. In other words, there has been a substantial increase in the stocks of available cars, or to put the matter in simpler terms, production is outstripping sales. Automobile dealers are being squeezed and are beginning to go out of business.

It would appear to be the overwhelming consensus that American capitalism cannot in 1956 duplicate the almost 8,000,000 passenger car production of 1955. There will be a decline of 10 to 15 per cent. A decline of this magnitude is a matter not only of several billion dollars of automobiles, but of steel, parts and all the various supporting and allied industries, and has an accumulative effect for the simple reason that the automobile industry stands at the apex of the economy.

If it were possible for capitalism constantly to increase the output of automobiles and allied products and to dispose of them, then there might well be hope for the “permanent peace and prosperity” school. The facts, however, are otherwise. The natural laws of capitalism assert themselves in relatively quick order and we find that relative over-production is today a current problem plaguing the automobile industry. Tomorrow, the problem will be unemployment in the automobile industry and its allied industries.

As I told the editor when this article was requested, if he were willing to wait a few months history would provide all the answers needed to the nonsense that American capitalism has achieved permanent peace and prosperity. So far as the automobile industry is concerned, The New York Times of January 14, 1956, reveals that the manufacturers of automobiles are themselves not independent of economic facts, nor are they disposed to rely entirely on the verbiage of their public relations departments. The inevitable has happened, and sooner than expected. The headline, Big 3 Car Makers Cut Work Forces, makes it very clear that the predictions of a decline in automobile production in 1956 are about to be realized.

The subject has far greater importance than the 8500 workers who have so far been laid off at 15 or so automobile plants. To quote The New York Times:

A series of lay-offs was announced yesterday by the Big Three auto companies.

As one of them put it, the lay-offs were ordered to “maintain a balance between passenger car production and market demand.”

It has been no secret in the industry that sales of the 1956 models have been disappointing and new cars are piling up on dealers’ lots. Auto executives have frankly predicted some decline this year from the record sales and output of 1955, although they do not agree on how much of a decline it will be.

In recent weeks, the industry has abandoned Saturday and other overtime work, which had prevailed almost without a break for more than a year. (Italics mine – T.N.V.)

The automobile industry graphically illustrates the dynamic character of present-day capitalism, with its enormous accumulation of capital and consequent increase in productivity of labor.
 

Just what has been the rise in the productivity of labor is a subject which baffles the specialists. The Bureau of Labor Statistics has worked out many different methods of estimating productivity, and they generally show an increase of 3 to 3.6 per cent annually, depending upon the method used. In some industries, however, depending upon the method used, there can be an annual increase of labor productivity of as much as 10 per cent or more, the automobile industry being one of the noteworthy industries in this respect. If, however, we take a very conservative figure of a little better than 3 per cent as the annual increase in labor productivity, and if we recall that we now have an economy where there are well over 60 million employed, it is clear that normal increase in labor productivity, which accompanies normal accumulation of capital, renders superfluous approximately 2,000,000 workers each year. That is, this number would be rendered superfluous unless the economy could increase its output sufficiently to absorb this amount.

In addition to these 2,000,000 relatively displaced workers, for whom jobs must be found each year, there are, due to the increase in population, approximately 700,000 new entrants into the labor force each year. Here, then, is a measure of the problem that confronts American capitalism. Production must be increased sufficiently to absorb in the neighborhood of 2,700,000 workers annually in order merely to stand still so far as unemployment is concerned. Should there be instead of a five per cent increase in production, or a nine per cent increase which has been recorded in 1955, a decline of 10 per cent or even of five per cent, the results will be noticeable in very short order and will astound the advocates of the “permanent peace and prosperity” school.

The tip-off, in its own way, that 1956 will indeed be a considerably different year than 1955 is seen in the Christmas announcement by General Electric that its appliance prices are being slashed up to 30 per cent. This constitutes a reduction, according to an article in The New York Times, December 25, 1955, of approximately $23 million at retail for G.E. products. For example, a G.E. vacuum cleaner that has been selling for $69.95 will now be listed at $49.95. A G.E. toaster that had been sold for $19.95 will now be available at $17.95. The automatic steam iron has been reduced from $17.95 to $14.95. And so it goes.

Already G.E.’s competition has been forced to toe the line and other appliance manufacturers have announced similar or identical, or, at the very least, comparable reductions.

In part, undoubtedly G.E.’s move was designed to get a jump on Westinghouse, its major competitor whose production is considerably retarded by the present strike; in part no doubt, G.E.’s action is motivated by its desire to meet competition from the discount houses. But in part, and this is the most important part so far as we are concerned, the action of G.E. is predicated upon the fact that it has become increasingly difficult for G.E. dealers to dispose of G.E.’s enormous production. The squeeze is on, and as a matter of fact, the aspect of G.E.’s price reduction which received most comment in the business press is not the actual reduction in prices themselves, but the fact that G.E. took the revolutionary step of reducing the margins of profit available to the wholesaler and retailer. This is absolutely unprecedented in recent years and its consequences will indeed be far-reaching.

The automobile situation and the appliance situation typify the growing crisis in consumer durables – one of the twin peril points confronting American capitalism as it enters 1956.
 

THE OTHER PERIL POINT IS the agricultural crisis. Here, of course, there is no dispute about the fact that there is a crisis and that its political repercussions must be profound. Many competent observers, for example, interpret the large-scale Democratic victories in the by-elections of 1955 as due to the fact that the farm population, as a whole, has not participated in the boom; that the agricultural crisis has started much earlier and has deepened progressively as time goes on. This, of course, is in accordance with a typical capitalist pattern. It does not, however, alleviate the situation so far as the farmer or the political impact of the farmers’ crisis are concerned.

For a measure of the agricultural crisis we can turn to the November 1955 issue of the Survey of Current Business, the publication of the U.S. Department of Commerce. This staid official government publication is certainly not going to exaggerate the proportions of the agricultural crisis. Yet, in an article by L. Jay Atkinson entitled Agricultural Production and Income, it is stated:

The pressure of increased supplies has been such that a further decline has occurred in agricultural prices and in farm income. In the first three-quarters of 1955, cash receipts from farm marketings and CCC loans were about 4 per cent below a year earlier. Prices were about as much lower with the volume of marketings running about even with 1954. Production expenses have continued little changed and net farm income was down about one-tenth in the first 9 months of 1955 as compared with a year earlier.

Further on Mr. Atkinson states:

The decline in farm income and the small change in the asset position of farmers in recent years compares with a very substantial general advance in income and net assets in the non-farm economy. Although a gradual decline in the share of income from agricultural sources has occurred for a considerable period in the United States, a sharper drop in the past several years reflects a combination of curtailed exports of farm products and a considerable increase in output. The related influence of rising agricultural output throughout the world has effected a substantial reduction in world agricultural raw material prices and has limited any rise in United States farm exports during a period of stepped- up efforts at surplus disposal.

These influences have lowered farm income from the high level attained after the end of World War II despite a rise in consumer demand for farm products. They have been accompanied by a considerable shift in workers from farm to non-farm areas. After allowing for the reduction in the number of persons on farms, income from farming per person living on farms is down about one-fourth from the postwar high, and per capita income of the farm population from both farm and non-farm sources is off about one-eighth. Meanwhile non-farm personal income per capita has continued to advance. Farm income per capita now bears about the same ratio to non-farm income per capita as in 1929. (My italics – T.N.V.)

Of course, the record production has occurred in the face of all types of incentives to reduce production and more of the same is the only program that the Eisenhower Administration has to offer. It is clear that the relative position of the various farming classes has worsened materially in the post-war years and the end is not in sight.

The course of farm production in recent years is shown by the following table:

It will be seen that total farm output has increased 12 per cent during the past six years, which include the Korean war and the post-Korean war periods. The major increase has taken place in livestock and related products. Since the proposed incentives to reduce acreage will not in any way inhibit increases in livestock and related production, there can only be a further accentuation of this disproportion.

The proof of the pudding, so far as the farmers as a whole are concerned, is reflected in the parity ratio – this dubious measure of the ratio of prices received to prices paid, going back to a base of 1910–1914.

Whatever we may think of parity as a concept, the fact of the matter is that the trend in the parity ratio does reveal in one simple index what has been happening to the farming classes as a whole and is a relatively accurate measure of the extent of the agricultural crisis.

The current agricultural crisis is hardly a new development. It had its roots in the last years of the Truman administration, as world agricultural production was restored to pre-war levels, thereby beginning the decline in the export of large quantities of surplus American farm products. Throughout the Eisenhower administration the problem of the farmers – which in turn is a direct product of their relatively worsening economic situation – has been one that is uppermost in the minds of the politicians and frequently makes the headlines of the daily press.

The trend was quite clear almost three years ago when we wrote The Permanent War Economy Under Eisenhower in the March–April 1953 issue of The New International. On the subject of the parity ratio we had this to say at that time:

The parity ratio, comparing prices received and paid by farmers, shows a perceptible decline during 1952. The figure was 105 in January 1952, but declined almost 10 per cent to 95 in January 1953. Since the parity ratio is based on average prices received and paid by farmers in the period 1910–1914, which was a rather good period for American farmers, a parity ratio below 100 does not indicate that farmers are starving. But a decline of 10 per cent in a year is precipitous, and when the parity ratio goes below 100 (which it did beginning November) political storms start brewing in the Congressional farm bloc.

The latest figure available for November 1955 shows that the parity ratio has declined to 81. In November 1954 the parity ratio was 87. For three years the parity ratio has declined from 100 to 81 – a decline of 19 per cent, or better than an average of six per cent annually.

This steady persistent decline in the parity ratio merely reflects the deepening agricultural crisis. It takes place because agriculture is the classic case where capitalist production quickly outruns available markets. It is taking plate, moreover, at a time when American imperialism is seeking to prevent the crisis in consumer goods from deepening and paralleling that in agriculture.

Hence, there is a frantic search for export markets for the products of American industry. American capital investment abroad has doubled in the postwar period, private investments abroad reaching about 326.5 billion at the end of 1954.

Of course, to the extent that American capitalism succeeds in alleviating the developing crisis in consumer durable goods by increasing the export markets for these products, to that extent will it aggravate the agricultural crisis. For in most cases the only manner in which these countries of the Western Hemisphere and western Europe can pay for the industrial products of America is through raw materials and agricultural products.

The tremendous increase in the output of farm products is a result of the application on a constantly expanding scale of large-scale capitalist methods of production to farming. All kinds of new agricultural implements and labor-saving devices have been developed and produced, so that with a constantly falling farm population it has been possible steadily to increase the output of agricultural products.

The process of government intervention has not ceased under the Eisenhower Administration. According to The New York Times of January 11, 1956:

“The Agricultural Department reported today that the Government’s investment in price- supported farm products amounted to $8,206,826,000 on Nov. 30.

“This was an increase of $1,316,809,000 from Nov. 30, 1954, when the investment stood at $6,890,017,000.”

In other words, during the past year there has been an increase of almost 20 per cent in the government’s investment in price-supported farm products – at a time when the parity ratio has declined another six points.

It is only natural, therefore, that the farm problem is of sufficient magnitude to occasion a special presidential message – particularly since 1956 is a presidential election year. This message was delivered by Eisenhower on January 9. Its major feature is the establishment of what is euphemistically called a “soil bank.” This means that farmers will be paid in cash or surplus commodities for withdrawing surplus producing land and putting it into soil-saving crops. Producers of cotton, wheat, corn and rice will be paid in cash or in kind from government stocks for reducing acres already allotted to them under federal controls. Cash will also be paid to farmers who devote their acreage to the so-called soil-building crops.

How this tepid proposal is to solve the agricultural crisis – assuming that it will be approved by the Congress, which is a large assumption indeed – is not at all clear, not even to the proponents of the proposal. It is both ironic and significant that the only person of any note to praise the program enthusiastically was Henry Wallace, former Secretary of Agriculture under Roosevelt, under whose auspices the AAA developed the classic capitalist theory of paying farmers to plow under every third row of cotton and wheat during the depths of the depression.

In the agricultural crisis there has existed for decades one of the truly fundamental contradictions of American capitalism – for which there is and can be no solution under capitalism. It is theoretically possible for the American bourgeoisie to discuss a solution comparable to that which the British bourgeoisie instituted over a century ago with the repeal of the Corn Laws, whereby British farming was abandoned to its fate and British capitalists permitted their customers in other lands who were buying their industrial exports to pay for them through agricultural imports into Britain. While a comparable program might be considered to be the goal of certain sections of the American bourgeoisie, it is clearly too risky in this day and age when a world war can easily become a fact of political life. In fact, it is easy for the opponents of any such plan to argue that the abandonment of the American farmer to the tender mercies of unbridled competition would merely encourage Stalinist imperialism to unleash World War III.

Thus the only thing that happens to the agricultural crisis is that it gets worse, and as it gets worse it has profound political repercussions and ultimately profound consequences on the entire economy. It is the agricultural crisis that provides the general background and setting for the developing crisis in consumer durables, both of which make it clear that to talk of permanent prosperity under capitalism is just so much poppycock.
 

DOES THIS MEAN THAT A LARGE-SCALE depression in 1956 is a realistic possibility? Obviously not. There have been certain fundamental changes in the nature and functioning of capitalism, two of which must be singled out for comment at this time. One of them has to do with the so-called built-in stabilizers, unemployment insurance, etc., constantly referred to by the advocates of the “permanent peace and prosperity” school. These are real and they do help to introduce an element of a sort of planning, which certainly prevents any rapid downward tobogganing of the various economic indexes. As unemployment develops, for example, it does not have precisely the same cumulative depressing effect on the markets for food, clothing and other basic economic necessities as formerly. The ability to manipulate tax rates likewise is a stabilizing element which should not be minimized. Since the recent boom has to a large extent been supported by the phenomenal accumulation of capital in the form of vast expansion in plant and equipment, it is not too much to say that the new tax law, with its new provisions for rapid depreciation, has played a great role in encouraging accumulation of capital.

Business borrowing has increased substantially, causing the government to raise the Federal Reserve discount rate to 214 per cent, a 20-year high. Interest rates in general have been rising. Bank loans increased about $3 billion during 1955, an increase of 16 per cent above the 1954 figure.

One of the interesting aspects of the boom in accumulation of capital is that it has largely been financed out of profits and surplus values accumulated in past periods. As The New York Times of January 8, 1956, puts it:

A detailed breakdown of long-term corporate financing in 1955 shows another striking phenomenon. Despite the sharp rise in business activity, external financing – raising funds from outside sources – did not increase. It ran at about $6,000,000,000, the same or a slightly higher rate than in 1954.

It should not be forgotten, in passing, that the need for financing in 1955 was great indeed. Companies spent more than $24,000,000,000 on plant and equipment, some $2,000,000,000 more than in 1954.

So where did business get the needed funds? The bulk by far, came from its own inner resources – earnings and depreciation allowances.

Retained earnings in the first half of last year amounted to $4,700,000,000. On that basis, for the year as a whole they totaled well over $9,000,000,000. When the final figures are toted up, that will probably set a new high record.

And take depreciation allowances, a steadily increasing factor in meeting capital requirements. Last year they topped $14,500,000000, a jump of more than $1,500,000,000 above the 1954 level.

Depreciation has bulked ever larger in corporate financial plans for several reasons. For one thing, the pressure of competition has forced constant additions to plant and equipment. Gross depreciable capital assets of non-financial corporations have soared to an astronomical $302,000,000,000. The high volume of new expenditures in recent years has meant that, after allowance for write-offs on worn-out and obsolete facilities, gross assets have risen at an annual rate of $20,000,000,000.

Under a “straight-line” depreciation, this increase in assets would boost depreciation allowances by more than $750,000,000 a year. The actual increase, however, has been substantially greater. From 1950 through 1954 and into 1955, for instance, the government’s fast amortization program allowed thousands of defense-supporting companies to write off their depreciation in five years. Facilities valued at more than $30,000,000,000 were granted this rapid write-off privilege.

The tax law of 1954 allowed all businesses to liberalize the basis on which they might depreciate capital assets acquired after January of that year. Previously, the straight-line method had required allowances to be spread evenly over the normal life of the asset; that might be twenty years or so. (Italics mine – T.N.V.)

There can be little doubt that the tax swindle law of 1954, the major accomplishment of the Eisenhower Administration, has contributed in no small way to the recent boom. The acceleration of the consumption of capital, however, does not in the long run eliminate the business cycle. If anything, it tends to aggravate the business cycle, for one must never forget that the basic law of motion of capitalist economy is Marx’s general law of capitalist accumulation: the greater the increase in capital accumulation, the greater the increase in the industrial reserve army.

We have analyzed for some years now, how the Permanent War Economy has tended to offset and to transform Marx’s general law of capitalist accumulation into one which reflects itself primarily in a relative decline in the standard of living of the working class. This, however, does not mean that the capitalist economy is either crisis-free or unemployment-free.

What these trends do, of course, is merely to reinforce a fundamental capitalist trend toward increasing monopoly. As Marx has pointed out, capitalism constantly strives in the direction of reaching the ultimate goal of one monopoly capitalist, but never, of course, quite reaches that exalted state of affairs.

In this connection it is interesting to note that now that the Democrats are in control of the committees of the Congress, the trend toward monopoly is receiving more publicity than previously. In a report published in The New York Times of December 27, 1955, we find that the sub-committee of the House Judiciary Committee investigating the question of monopoly – a committee headed by Representative Celler – agreed unanimously that “mergers were reaching a record for 25 years.” The Democrats, of course, blame the Republicans for this development, and the Republicans refuse to accept this responsibility.

According to this report, since January 1951 more than 3,000 companies in manufacturing, mining, trade and services have “disappeared in the swelling merger tide.”

It is true, of course, that the current wave of mergers is on an exceedingly large scale, and that it already has had the effect of confining the fantastic profits of the past few years to the largest corporations.

We must remember, however, in any analysis of the economy that these developments are taking place under a new stage of capitalism, one which we have described as the Permanent War Economy.
 

THE MAGNITUDE OF THIS THIRD SECTOR of the economy, i.e., outlays for the means of destruction as contrasted with outlays for the means of production or outlays for the means of consumption, is dramatically illustrated by a recent report of the Department of Defense, entitled Real and Personal Property as of December 31, 1954. We find that as of this date “the aggregate value of properties and inventories included in this report amounts to $123.9 billion for the Department of Defense.” This grand total is comprised of $34,082,000,000 for the Department of the Army; $56,428,000,000 for the Department of the Navy (including the Marine Corps); and $33,356,000,000 for the Department of the Air Force.

Major equipment in use for the entire armed forces totals $48,539,000,000, over 60 per cent of which belongs to the Navy. Equipment and supplies in the supply system account for a slightly larger figure, exceeding $50 billion, and more than $21 billion is in real property inventories, with almost $3 billion in machine tool inventories.

As The New York Times comments editorially on this report in its issue of October 31, 1955:

“An inventory of our national defense system brings up the astonishing figure of $124 billion as the current level of our military assets. This, of course, is still not the total figure. It does not include the atomic energy establishments, nor by any means all of the military materials now in use.”

It is, however, a staggering figure and the question logically arises, suppose that the Permanent War Economy did not exist and that instead of $124 billion of real and personal property belonging to the Department of Defense, the figure were only 10 per cent of this amount, what then? So far as the business cycle is concerned, the postwar prosperity would have ended quite some time ago.

It is worth trying to get some perspective on the extent of the military establishment and the nature of the investment that comprises the third sector of the economy, outlays for the means of destruction.

We find, for example, the extent of the acreage controlled is vast. To quote the report:

“The Department of Defense through the three military departments controlled a total of 29.4 million acres of land throughout the world on 1 January, 1955. This included land owned, leased, used on temporary permit, and various occupancy rights.”

In the United States alone, the acreage controlled totaled 24,172,739 acres, costing the government over $17.5 billion and representing about 37,800 square miles, equivalent to 1.3 per cent of total land area in continental United States.

The almost $3 billion inventory of machine tools, which admittedly is far from a complete tally, represents 2,494,363 metal cutting tools and 388,768 metal forming tools. If the military establishments had ordered only, say, 10 per cent of this quantity, what would be the situation in the machine tool industries today? Much the same question can be asked with reference to the more than $50 billion in inventories in the supply system throughout the entire armed forces.

The size and extent of the military establishment of American capitalist imperialism is so vast that it is difficult to appreciate its precise economic and political weight. The virtual interlocking directorate that has been established between the leaders of big business and the leaders of the military establishment is, however, a fact. It could not exist without the development of the Permanent War Economy and its mere existence and continuation have caused a qualitative change in the nature and functioning of the business cycle.

Of course, the direct investment in the establishments of the Department of Defense is not the sole measure of the importance of war outlays in the total economy. To this must be added the expenditures that are made for foreign aid, both military assistance and economic and technical assistance.

In a very interesting article in The New York Times of December 1, 1955, James Reston analyzes the dispute that has taken place between the advocates of a flexible and limited program and the advocates of a permanent commitment to this type of program.

As Reston puts it, the “Young Turks” (represented by such stalwart Eisenhower Republicans as Stassen, Nelson Rockefeller and Nixon):

“... are enthusiastic about the foreign aid program, want it to be larger, think it is a good thing in itself, good for the United States, and good for the development of a healthy world economy, which helps the United States.” (My italics – T.N.V.)

In the course of this article Reston supplies some convenient summary figures on the expenditures for foreign aid, as follows:

It will be seen that over $31 billion will have been spent for this purpose in a seven-year period. Again, we are dealing with a type of economic outlay which was unknown before the advent of the Permanent War Economy and one which is quantitatively not insignificant – either in its economic or political impact.
 

THE ESTABLISHMENT OF PRODUCTION OF means of destruction as a significant sector of the economy, both quantitatively and qualitatively, has necessarily altered many of the fundamental laws of motion of capitalism. It has not, however, transformed capitalism into a system capable of producing permanent peace and prosperity. It has not eliminated the class struggle either nationally or internationally. It has not eliminated the need for a socialist organization of society. On the contrary.

Despite the inflationary boom that has taken place during the past 18 months or so – let us admit that its size and extent have amazed us at least as much as it has amazed the leaders of the bourgeoisie – the process of atrophy that we have described repeatedly during the past several years remains at work.

Government intervention in its manifold forms may possibly reduce what otherwise would perhaps be a level of unemployment of 10 million to one of 5 million (in a period of recession under the Permanent War Economy, which is in the process of developing) but it is entirely possible that the political impact of an unemployment level of five million in an economy so highly geared as the present, may have far more serious consequences for the class struggle than 10 million did in the 1930s.

To put the matter another way, when the ratio of war outlays to total production declines, we find that the hypodermic effect of these injections into the economy is considerably more weakened than the mere recital of the figures would lend one to believe. It is, to use the metaphor of the drug addict, a case where a constantly increasing dosage is required to achieve the same effect, so that when a period arrives when the dosage is decreased the effects on the patient are startling.

To say that the recent boom has been purely a peacetime boom, without benefit of war outlays, as do many of the advocates of the “permanent peace and prosperity” school, is to fly in the face of facts. The ratio of war outlays to total production has undoubtedly declined somewhat in the last few years (the detailed computations and their analysis must await another article) but they still remain well above the 10 per cent level which we originally established as the significant dividing line.

A precarious economic equilibrium has been achieved both domestically and internationally. The extent of the precariousness is about to be revealed. Despite the very sizable production increases of the past 18 months, factory employment is still below 1953’s highs, thereby revealing that the boomlets must necessarily be shortlived.

Had not the Korean war intervened, the present measures of state intervention would long ago have been revealed as inadequate to achieve any type of capitalist stabilization. The forces of production are on the verge of breaking through their capitalist integument. The development of atomic power will require socialism. That is the true measure of the profound social crisis that exists in a very real sense throughout capitalist society today. That is why this feeling of malaise penetrates all sections of the bourgeoisie from the most prosperous to the least. They know that this prosperity is, above all, temporary.

The precarious equilibrium of the domestic economy, in turn, rests upon an equally precarious international equilibrium. So long as this relative balance of forces is maintained between Stalinist and American imperialism, and so long as the fear of total destruction operates to restrain an immediate resort to military adventures, the precarious equilibria, both internationally and domestically, can continue. This, however, is clearly a very limited situation.

An interesting document in this connection is a study prepared for the Joint Committee on the Economic Report by the Legislative Reference Service of the Library of Congress. It is entitled, Trends In Economic Growth, A Comparison of the Western Powers and the Soviet Bloc, and was published in 1955.

It is not necessary to go beyond two of the important conclusions to realize that the international equilibrium is indeed temporary and precarious.

In connection with power, which after all is crucial, the report states: “Atomic power, if it were to be systematically developed by either Western Europe or the Soviet Bloc at relatively low cost, could alter the economic balance between the two areas quickly.” Since both sides are feverishly straining to develop atomic power, how long will it be before one or the other succeeds in obtaining this relative advantage which would immediately upset the precarious equilibrium?

So far as the growth of the respective economies is concerned, the report states that:

“In the period 1938–1953, as a whole, the national product of the United States increased about three times as rapidly as that of independent Europe, and almost twice as rapidly as that of the Soviet Union. To a substantial degree, this difference reflects the varying effects of World War II. Between 1948 and 1953 the national product of the United States grew not quite 30 per cent faster than that of independent Europe and only two-thirds as fast as that of the Soviet Union.” (My italics – T.N.V.)

In other words, in the real postwar period the economy of the Soviet Union has been outstripping that of the United States in a ratio of 3 to 2.

No wonder the inheritors of Stalin’s empire prefer a period of “competitive coexistence,” for even if we assume that American output today, and the strength of America and its allies in general, is twice that of the Soviet Union, or of the Soviet Union and its allies, it would take less than 10 years – assuming that the Soviet Union maintains its relative advantage of an annual increase that exceeds that of the United States by a ratio of 3 to 2 for the Russian economy to surpass that of the United States. At the present respective rates of increase, even without the inevitable recession in the United States, it would take less than a decade for the balance of power to be radically altered.

Once the precarious international equilibrium is basically changed, then the domestic equilibrium, if it has not already been upset, will surely be destroyed.

It is entirely possible that the productivity of labor under Stalinism does not have to equal the productivity of labor under capitalism before the former has achieved military-economic supremacy over the latter. We do not, however, have to speculate about these matters. It is sufficient merely to postulate that the international equilibrium is precarious and necessarily short-lived. This, whether they admit it or not, destroys a fundamental postulate of the advocates of the “permanent peace and prosperity” school, for what they are really saying is that internationally the power blocs constituting Stalinist imperialism on the one hand, and American and allied imperialism on the other hand, can continue indefinitely their huge level of armaments.

It is true, of course, that both Stalinism and capitalism require each other in order to exist. This is one of the paradoxes and contradictions of the present world situation. While the prospects of a resolution of this cosmic paradox may not seem too bright at this time, that they should not cause any elation in the camp of the “permanent peace and prosperity” school. There is no peace. And the prosperity of American capitalism is built on quicksand, as the future will demonstrate.

January 1956

 
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