Paul Mattick Sr. (March 13, 1904 – February 7, 1981) was a Marxist political writer and social revolutionary, whose thought can be placed within the council communist and left communist traditions. Throughout his life, Mattick continually criticized Bolshevism, Vladimir Lenin and Leninist organizational methods, describing their political legacy as "serving as a mere ideology to justify the rise of modified capitalist (state-capitalist) systems, which were [...] controlled by way of an authoritarian state". (From: Wikipedia.org.)
Marxism and Brookings Institution
Source: International Review, vol. 2, No. 6, Aug. 1937, pp. 90-6;
Transcribed: by Thomas Schmidt.
ASIDE FROM minor criticism directed at the series of economic studies undertaken by the Brookings Institution under the general heading Income and Economic Progress, these publications have been widely hailed as an important contribution to contemporary economic research. A few details in the studies have met with opposition on the part of some economists. The computing methods and the results have been challenged by others. Still, looking at the whole work from a general point of view, one may venture to say that even the Marxist will be ready to pay homage to the Institution and to the authors of the series, to which there has recently been added the highly valuable volume entitled The Recovery Problem in the United States.
Progress in bourgeois economic theory is necessarily limited by the status-quo desires of the privileged under the capitalist relations. In so far as this “science” can advance, it is thereby doomed to proceed toward its own abolition, that is, to arrive at nothing more than the rediscovery of economic postulates presented to the world 70 years ago by Marx. J. M. Keynes’ latest attempt to “revolutionize” bourgeois economy, in his General Theory of Employment, Interest and Money, may serve as an example. It led him, as has been widely observed, one step nearer to Marxism, but also at the same time two steps farther away from real understanding. This borrowing from Marxism becomes a necessity even when the economist merely tries to do justice to the factual development; though, of course, the borrowing may be unconscious-as it is obvious that most of the famous economists, Keynes included, have never studied Marx. But unfortunately for them the facts are on Marx’s side. The secret of the observable predictive power of Marxian economics lies in its acceptance of the law of value as the determining inner law of capitalist development. And inversely, the impotence of present-day bourgeois economy, as distinguished from the classical economists, can be satisfactorily explained by its rejection of an objective measure of value. To accept incidentally, under such conditions, certain details of the Marxian theories makes the bourgeois theoretician only the more ridiculous; just as a naked man merely emphasizes his nudity by putting on one sock. We can understand the critic who referred to Mr. Keynes’ work and his crusading zeal as “an interesting exhibit in the museum of depression curiosities.”
The Brookings Institution, fortunately, has no ambition to “revolutionize” bourgeois economy. Basing its theory-such as there is-on nothing more than empirically observed facts, it arrives at statements and conclusions of the highest interest also to Marxists. Notwithstanding the rather pitiful petit-bourgeois sociological outlook, which finds its expression in economic reports calling for a return to good old laissez-faire capitalism and its democratic political institutions, and which seems utterly out of place, in view of the material presented, (which permits an entirely different social vision), the work of the Institution offers the case of a real evaluation of the present-day dilemma of capitalism by bourgeois economists.
In the third volume of the series, The Formation of Capital, H. G. Moulton had already pointed out that most of the errors of classical economy resulted in large part from the circumstance that these economists considered all economic problems from the standpoint of the individual capitalist instead of the total capital. This need for looking at capitalism as a whole, is also one of the main postulates of Marxian economic theory. The atomized economic activity of individual capitalists and capitalist groups must, to be sure, be taken into consideration, but a real understanding of all phenomena connected with this presupposes an analysis of the developmental tendencies of an abstract total capital, conditioned by the law of value. Even if in reality the law of value has to function by way of competition, this latter can explain nothing fundamental, but is itself in need of explanation; and this is furnished by the value concept. Competition is not a key to that understanding, and in fact no explanation of capitalism is possible from the point of view of the individual capitalist.
While Marx started out with the investigation of a single commodity and had already discovered in its twofold value form the whole secret of the grandeur and misery of capitalism, the Brookings Institution uses another method. It adds up the sum total of America’s capacity to produce and consume, investigates the formation of its capital in physical as well as in monetary terms, in so far as it was found possible, in order to determine “whether the existing method of distributing the national income tends to evoke from our productive resources the greatest flow of goods and services of which they are capable. Or if certain of our practices in the distribution of wealth introduce maladjustments into the productive system which tends to interfere with its most successful functioning?” Not only here, where Marx starts with the cell form of capitalism and the Brookings Institution with the sum total of economic capacities, does the Brookings method of investigation differ from Marx’s. But where the latter studies the determining sphere of production in order to explain the capitalist mode of distribution, the Brookings investigation tries to find out whether the latter interferes with the full development of the productive possibilities. Nevertheless, by following Marx’s method and applying it to the actualities of present-day capitalism, we arrive at conclusions quite similar to those presented by the Brookings Institution. And also, any attempt to get at the underlying causes of the symptoms revealed in the Brookings report would lead us finally to the value-character of capitalist production. For these reasons – as we shall see later – although the Brookings investigation does not conclude with a recognition of the contradictions involved in value production, its proposals and predictions are essentially the same as those Marx had arrived at in his own way, that is, in so far as they deal with capitalist necessities.
The value concept implies a distinction between the physical (natural) and the market form of wealth. The Brookings investigation also makes this distinction, although with less consistency and with an inadequate recognition of its importance. Thus, in Income and Economic Progress Moulton writes that “the level of consumption achieved by the people is governed in the last analysis by the volume of goods and services flowing from productive sources into consumptive channels.” To Marx also there lies at the base of all real economic understanding the concretizing of all phenomena. All socio-economic problems have to be reduced to their real, material form. For in the last analysis, says Marx, “any nation which ceases to work, if only for a few weeks, would die of hunger. The masses of products, corresponding to the different needs demand different and quantitatively determinate masses of social labor.” This situation, dictated by natural laws, Marx offers as proof of the correctness of his value concept and its usefulness as an explanation of the capitalist mechanism. For, he goes on to say, the form “in which this proportional division of labor operates, in a state of society in which the connection of social labor asserts itself as private exchange of the individual products of labor, is nothing other than the exchange value of these products.” To be sure, the Brookings Institution does not conceive such a presentation of the problem, but its conclusions, arrived at from a consideration of the physical side of production and consumption, are very similar to those which flow from an investigation of the problem from the viewpoint of use-value in the Marxian sense. It is true that in capitalist society, it is not the production of use-values, but of profit, which constitutes the determining factor. But it is precisely the incapacity for economic activity in terms of production for use which brings about the existing social distress. It is only by looking at production in the nude, by stripping it of its capital character, that an understanding of present-day society is possible.
A commodity has both use-value and exchange-value. The first is of interest to the buyer-consumer, the second to the producer-seller. One aspect expresses, so to speak, the natural property a commodity, while the other implies a specific social relationship. A recognition of the twofold character of commodities is indispensable to an understanding of capitalist economy, even though in reality, under value production, the two forms of value are completely fuzed. The road to fortune as well as the road to ruin has its bed in this twofold character existing in commodity values. From the viewpoint of use-value-if we may continue to use that term-human labor creates consumption goods, with the instruments of production. From a value point of view, however, production must be profitable in order to be possible. A smaller capital must become a greater capital; a surplus value must be created by the workers for the owners of the existing capital. This surplus value, expressed in physical terms, is nothing but unpaid labor power.
The appropriation of labor power by the owners of capital is possible because labor power, a commodity for sale like any other commodity, has both use and exchange-value. The worker’s wages, the market-price expression of the value of labor power – determined in the last instance by the labor time required for producing the commodities needed to keep the laborer fit for work and able to reproduce himself – are its exchange value. But the capitalist, in buying that labor power, gets its use value.
The worker is) able to produce more than he needs for existence: that is what makes capitalism possible. It is only the surplus value, that is, unpaid labor power, which enables expansion of capital. The mass of the appropriated surplus value determines the rate of capital expansion, or accumulation. We may be pardoned for restating these simple things, as they are essential to any understanding of the dynamics of capitalism, since it is only in the twofold character of the commodity labor power that the secret of capitalist progress, and also of capitalist decline, can be found. The greater the difference between the total social exchange value of labor power, that is, the total wage fund, and the total social use-value of labor power, that is, the sum total of all production, the faster capitalism can accumulate. Prosperity is only another word for an accelerated accumulation; the smaller the share of social production falling to the workers, the greater will be capitalist prosperity, the more can be “saved” in the form of additional capital. Progressive capitalism meant that the purchasing power of the workers relative to the increasing productivity fell continuously. All statistics comparing the rise of wages with the growth of productivity prove this fact unmistakably. Even though the wages of the American workers were higher in 1900 than in 1850, their share of the total social product in 1900 was much smaller than in 1850.
The twofold character of commodities implies a contradiction. Since the value of commodities is determined in the last analysis by the social average labor time necessary for their production, as this production time is reduced the value will be lowered. More use-values will be produced in a given period of time, but the exchange value of each commodity unit drops. As long as the productivity of labor rises faster than the value of the commodities declines, the decrease in the exchange value in the individual commodity is compensated by an increase, in the number of the commodities sold. This contradictory movement explains the rise of capitalism as well as why the workers could get higher wages and at the same time could be more exploited. An ever greater part of the labor time fell to the capitalists, thus permitting an increase in productivity by technological development which shortened the labor time necessary for the production and reproduction of labor power, in spite of an increase in the mass of actual commodities which the workers realized in the form of higher wages. The portion of the product falling to the workers increased, but it increased more slowly than their actual output. Without this increase in exploitation, that is, an ever greater mass of surplus value realized from a given number of workers, making possible the exploitation of additional workers, capitalism could not have driven forward. But this it did, embodying in itself the production of an ever greater number of use values, exploiting an ever growing number of wage slaves, appropriating more and still more surplus value, which, stated in a simple way, meant the development of the capitalist world market. To understand capitalism properly means to recognize in it a world problem. To Marxism, capitalist economy is international, and the Brookings Institution, in contradistinction to all the nonsense lately proclaimed by the autarchic illusionists of a capitalist planned economy, is right in stating that “the problem of the distribution of income in relation to economic progress is a world problem.”
According to the Brookings report, capital “at one and the same time increases our output of material means of human satisfaction and also displaces laborers who only through their employment gain the right to claim a share of this expanded product. Unless these workers are reabsorbed at some other point where expansion can be effected, their purchasing power is curtailed or even completely destroyed, and the market for consumption goods is contracted.” This situation has brought about the arguments concerning “over production” and “excess-capacity” and also the popular theories; to the effect that an increase in the purchasing power of the masses, or a slowing down of technological progress, that is, a total reversal of the previous trends of capitalism, will do away with the present difficulties. Suggestions are being made for more or less conscious intrusions into the market relations; a controlled capitalism is proposed; and various schemes have been devised for this purpose, and some of them even tried out, dealing with money and credit manipulations, restriction of production and artificial price control. All capitalist problems from such points of view are looked for in the sphere of distribution, which is assumed to be out of balance with production. But also to those, writes Moulton, “who would unleash our productive power and accelerate our economic progress, the distribution of wealth and income has become the central concern;” and this is the reason for the investigation of which the results are compiled in the series on Income and Economic Progress.
In measuring first the productive capacities of American economy, the Brookings has not based itself, as so often is done, on an evaluation of the productive apparatus alone, but also on labor power, in which it recognizes the only wealth-creating force; for “the maximum for many lines of production is determined by the total number of workers of a particular skill who are available, and the total operations of our economic system as a whole cannot exceed the total labor force available at any given time of peak demand.” This point of view is obviously correct, notwithstanding the fact of an ever existing army of unemployed, this latter being one of the necessities of capitalism as well as one of its many calamities. The Brookings summary in relation to the total of productive capacities estimates that “the economic machine operates at the best around 80 per that of capacity and at the worst at little more than 50 per cent. As a general average, over the fourteen-year period from 1922 through 1935, the productive mechanism by means of which our wants are supplied may be said to have run at little more than two-thirds efficiency.” The next question raised is as to why a 100 per cent efficiency was not possible. Rejected as an explanation for this shortcoming are possible difficulties within the productive mechanism itself, as well as difficulties related to consumptive requirements. For, as Moulton states in Income and Economic Progress, “the wants of people were far from satisfied during the period of our highest economic achievement. The value of the total national production of goods and services in 1929, if divided equally among the entire population, would have given to each person approximately $665.” A reasonable standard of living for all families would have necessitated an increase in production over 1929 levels of approximately 75 per cent, but even the full utilization of the then existing productive capacity would have permitted no more than a 20 per cent increase. Under such conditions, questions of over-production cannot arise.
Compared with corresponding but more popular statements of the technocratic economic sensationalists, this sad situation seems almost unrealistic. But not so from a Marxist point of view. No other situation is conceivable under capitalism. As Marx relates: “It is not a fact that too many necessities of life are produced in proportion to the existing population. The reverse is true. Not enough is produced to satisfy the wants of the great mass decently and humanely. It is not a fact that too many means of production are produced to employ the able-bodied portion of the population. The reverse is the case. In the first place, too large a portion of the population is produced consisting of people who are really not capable of working, who are dependent through force of circumstance on the exploitation of the labor of others, or compelled to perform certain kinds of labor which can be dignified with this name only under a miserable mode of production. In the second place, not enough means of production are produced to permit the employment of the entire able-bodied population under the most productive conditions, so that their absolute labor time would be shortened by the mass and effectiveness of the constant capital employed during working hours.” According to Marx, capitalism can never reach an economic stage of general abundance; at a certain point in its development, it becomes a hindrance to the further expansion of the productive forces of society. The Brookings report is a confirmation of this thesis. Capitalism will never be able to do away with restriction upon consumption. Even though to the superficial observer a curtailment of production with its accompanying lack of goods and its shortage of workers may appear paradoxically as over-production and excess population, any real investigation of the facts will reveal the true situation and the accuracy of Marx’s diagnosis.
Not the actual productive capacity or the consumptive requirements can be made responsible for the unsatisfactory functioning of the capitalist mechanism. According to the Brookings Institution, the maladjustment has its cause in a distribution of income which restricts the market for consumers’ goods. Too much is “saved,” due to the concentration of income; too little is spent by the great mass of the population. This familiar argument is also stated by Marxism. “Accumulate! Accumulate! That is Moses and all the prophets!” begins a paragraph in Capital. What is interesting in the Brookings report in relation to this question, however, is the proposed solution, which differs from most of the panaceas developed by the popular under-consumption theories.
There is no actual over-production of commodities. “Production has not year in and year out,” in Moulton’s opinion, “been in excess of actual consumption, notably in the period of the twenties when production was at its peak. There was no large accumulation of unsold inventories, but rather a notorious growth of hand-to-mouth buying with accompanying low stocks of merchandise. The phenomenon which is called over-production made its appearance, as it ordinarily does, chiefly in the ensuing depression when consumers’ purchase fell faster than productive operations could be curtailed.” Marxism also considers the over-production of commodities as a result, not as a cause of the crisis typical of capitalist production. It is only in relation to the unutilized productive capacities that the Brookings Institution adduces the unfortunate mechanism for distributing the national income, a mechanism which restricts consumption and so hinders the full efficiency of the productive apparatus. Looking at capitalism from a point of view to which it is foreign, that is, nourishing the illusion that the present economic system is designed to satisfy human needs, Moulton attempts to explain the process of capital formation as based on the growth of the consumptive demands. But he is unable to bring forward convincing proof for this opinion. He says that “an expansion of plant and equipment will not take place in any large way when consumptive demand is declining.” In reality, however, expansion of plant and equipment took place in spite and because of the fact that consumptive demands were declining relatively to this expansion. Accumulation is not based on the wants of the people, but on the needs for profit. This fact is somewhat beclouded by the circumstance that during the upswing, period of capitalism both the productive apparatus and also the consumption fund were growing. But the tempo in the growth of the former was faster than in that of the latter. As regards consumption, the growth was similar to that in the number of workers, which likewise grew with the growth of fixed capital, but slower than the latter. In no other way would capitalist progress have been possible. The consumptive demands do not lead but follow the accumulation of capital. The Marxist can agree with Moulton’s statement that “available evidence showed conclusively that new capital is constructed on any significant scale only during periods when consumption is also expanding. In periods of declining consumption the construction of new capital also decreases sharply.” But from this it does not necessarily follow that “consumption is of a controlling importance,” that “the rate of growth of new plant and equipment in a period of industrial expansion is adjusted to the rate of increase of consumptive demand rather than to the volume of savings available for investment purposes,” as Moulton maintains in Income and Economic Progress. It was the other way round; an increase in new capital meant an increase in consumptive demands also, and a decline in the construction of new capital reduced the consumptive demands.
Moulton’s point of view, which is unacceptable to the Marxist, results from a misunderstanding of the character of capital and hence a failure to get at the real problem, that of the overproduction of capital. Income and Economic Progress states “that between 1922 and 1929 the volume of funds rendered available for investment purposes was increasing rapidly, but that the volume of securities floated for purpose of constructing new plant and equipment remained practically unchanged in amount from year to year. In 1929, the volume of new securities issued for the purpose of actual capital construction plus mortgages was less than 5 billion, while the volume of funds seeking investment was in the neighborhood of 15 billion.” This surplus in investment money is, however, according to Moulton, a “comparatively new phenomenon in the United States.” If that is the case, then this “new phenomenon” cannot be used as an explanation of the statement that “industrial expansion is adjusted to the rate of increase of consumptive demand rather than to the volume of savings available for investment purposes,” a situation which is supposed to give rise to a surplus of investment money, whenever the consumptive demands cannot be extended sufficiently; for the capitalist dilemma of today is only an enlarged repetition of previous dilemmas in which such a great surplus of investment money was not discovered. The tremendous size of this surplus is a recent phenomenon in the capitalist development, and for the same reason that the number of workers in relation to the existing capital decreases no longer relatively, but absolutely, a situation which in the United States set in about 1920. Both, a surplus of unusable capital and unemployed workers, are the result of the over-production of capital.
An investigation of Industrial Profits in the United States, undertaken by Professor R. C. Epstein and published in 1934, states concerning the rates of profit that “the most surprising thing, on the whole was that no great or sustained upward trend characterizes them between 1922 and 1929.” This era has very often been dubbed a “profitless prosperity,” and it was in this period that the surplus mentioned by Moulton was piled up. That there was a slowing down in the rate of expansion is shown in the Brookings Formation of Capital. The two facts are interrelated, for times of great profits are times of great capital expansion, and a decline in profits is accompanied by a decrease in the rate of accumulation. The rate of profit determines the tempo and extent of capital formation. Moulton has been able to show that “the rate of profit upon capital investment in manufacturing industries as a whole showed a moderate upward trend between 1922 and 1929.” This moderate upward trend explains the comparatively moderate rate of expansion during these years. Moulton touches upon the real problem when he says that “the mere fact that the rate of profit showed an increase during these years does not of itself show that the volume of funds available for the expansion of plant and equipment was adequate.” “We must ask,” he goes on to say, if there “were not even higher rates necessary in order to finance and thus promote a more rapid economic progress?” Certainly, the rate of profit alone explains nothing; it serves only as an index of the mass of profit underlying it. But Moulton has no real answer to this question; he merely restates his assumption “that there was available in the markets throughout the period of the twenties an abundance of funds for purposes of capital expansion.” The money supply was apparently in excess of the requirements for plant expansion, but what are the requirements for further expansion? To this question Moulton has no answer, and furthermore, he does not need one, since to him these requirements are set by the consumptive demands, as if capitalism had no other function than to fill the bellies of the population.
Not every amount of capital is usable for further profitable accumulation. The necessary rate for this expansion is based on the previous rate, which has to be surpassed. Each period of accumulation sets a new record in so far as its tempo, its rate, is concerned. Any other rate is unprofitable and no incentive for accumulation. The question is, whether the surplus value can be sufficiently increased to make further advance possible. The answer is not to be sought in the sphere of circulation, but as already stated, is bound up with the contradictions arising in the field of production. And the contradiction here involved is that of obtaining sufficient surplus value to satisfy the needs for accumulation without impairing the value of labor power or reducing the consumptive requirements of the capitalists. Can capital always appropriate enough surplus value, regardless of its own size, to make itself progressively larger? This, and nothing else, is the real problem of capitalism.
The Brookings Institution has not seen this problem, and falls victim to a trick situation arising in a paradoxical system such as capitalism is. Obviously the expansion of capital, which made the periods of prosperity possible, meant the enlargement of its productive apparatus. The greater it became, the greater the need for additional capital, that is, surplus value; since the amount of the latter has to be adequate to the size attained by the existing productive apparatus, which from a value point of view can only temporarily be reduced by way of crisis and depression. Even if the amount of surplus value grows simultaneously with the productive apparatus, this very growth is converted into its opposite after capital has reached a certain size. And this brings us to the problem of the falling rate of profit, which accompanies the process of capital, expansion. Surplus value-that is surplus labor-is determined by the wage capital and the rate of exploitation. And the rate of exploitation is determined by the difference between what is necessary to enable the workers to live and what they actually produce. The more workers and the less they are paid in the form of wages, the greater the surplus value. But the rate of profit is determined by the surplus value in relation to the total capital. If the total capital increases faster than the portion invested in wages-as it does-then the rate of profit must decline. But if the productivity of labor increases faster than the rate of profit falls, due to the more rapid increase of the total capital with respect to the wage fund, then the fall in the rate of profit is harmless to capital, since it is compensated by an increase in the mass of profit. This sounds complicated, but it isn’t; the complication is only the consequence of the contradiction involved in the law of value, which means a decrease of exchange value following an increase in use value. Everyone knows, and the Brookings report proves it, that capital invested in means of production-or, to use another term, fixed capital-has throughout capitalist history grown faster than the part of capital invested in wages. Since only the wage-fund is wealth creating-a fact which also is recognized by the Brookings Institution-then if it were not for an ever accelerated increase in the productivity of labor, profits must become smaller in relation to the growth of capital. Only an impasse in exploitation, or a reduction of the size of capital, can relieve the situation.
Reducing the size of capital, or, to use a Marxist term, lowering the organic composition of capital, is only temporarily possible; this is a process involving devaluation and bankruptcies during the crisis. The depression period witnesses the attempts to switch this destructive phase of capitalism over into a new period of advance. This new prosperity, sought during the depression, necessitates a reorganization of capital and an increase in its productivity, which means the reestablishment of a sufficient profitability on a lower value-price level for those capitals which have pulled through the crisis. If this is possible, additional capital will be invested, an economic activity sets in which by its own momentum continues to operate on this new value-price level beyond the point of profitability, and ends again, by reason of this momentum, in a new crash. The smaller the magnitude of the total capital the easier it is to overcome the crisis. Conversely, the greater the capital in existence the more difficult it is to reestablish profitable capital accumulation, since it becomes more and more difficult to draw from the surplus value created the funds needed for further expansion, because the magnitude of these funds is determined by the magnitude which capital has already attained, and since the exploitation of a given number of workers has social and natural limits. Additional workers have to be exploited, but to make this possible on the basis of the high organic composition of capital already attained means a gigantic mass of surplus value to be invested in additional fixed capital. We repeat that not every amount of capital suffices for this purpose. The 10 billion mentioned by the Brookings Institution, large as this sum is, may be too small for the establishment of a productive apparatus capable of exploiting such an additional mass of workers as would be necessary to make this investment profitable and hence possible. Under such conditions this surplus would in reality represent a shortage of capital; and it is to this question that the Brookings Institution should direct its further attention, the more so because, as we shall presently see, in its recommendations it points directly to the unavoidable necessity of a tremendous enlargement; of the productive apparatus and of the army of labor.
In a Marxist explanation of the phenomenon, the 10 billions remained idle because they could not be invested profitably; for such an investment it proved to be too small. And so the rate of accumulation slowed down, the absolute number of workers decreased as productivity was further increased without an accompanying sufficient capital expansion. The contradiction between profit production and need for accumulation was too great. A relative stagnation ended in an absolute stagnation, that is, in crisis and depression. To overcome this situation and permit the investment of new profit-creating capital the surplus value had to be increased. There was no other way in the past, there is no other way at the present time; though it is already questionable whether this way is still open in view of the terrific need of surplus value for purposes of accumulation. We must refrain in this paper from expatiating further on Marx’s theory of over-accumulation; but from what has been said it follows indubitably that capital expansion is not determined by the consumptive needs, but that these needs can be continuously provided for only so long as a progressive capital accumulation is possible.
If the Brookings thesis were correct, all that would he necessary to permit the full use of the productive capacities and possibilities, including the idle surplus ready for investment, would be a shift in the distribution of income leading to an enlarged consumptive demand. And this is precisely what the Brookings proposes to do; but the method chosen for accomplishing this task defeats the proposal and also invalidates the thesis on which it is based. Moulton rejects the redistribution of income in favor of an increase in consumptive demands by political means or by some form of taxation such as proposed by the majority of contemporary social reformers. Such methods as redistribution, it is said, must fail because the “first requirement is to increase progressively the total amount of income to be divided.” This point of view, naturally, excludes all ideas dealing with the curtailment of production or productivity, either by way of a stoppage of technological development or by a shortening of the working time. Nor is the Brookings satisfied with the frequently advocated idea of “buying back what the workers have produced,” because it is evident “that as yet, and in all probability for many years to come, the procurement of higher wages through labor organization cannot be counted on to effect a broad nationwide increase in the purchasing power of the masses of the people. It can at best benefit only certain groups. In so doing it tends to affect other groups adversely.” But even if organization could bring about a general rise in wages of the working class – an impossibility under capitalism – surely the Brookings would not choose this way of increasing consumption, since it is a democratically impartial institution which desires a policy benefiting all the social classes.
The Brookings prefers the competitive method of distributing the national income, because “the interest of the profit-maker coincides with the welfare of the consumers” and because “increased efficiency makes possible lower prices, while the profit incentive insures the actual reduction of prices.” This price-reducing policy is assumed to benefit the entire population and to readjust the distributive mechanism with a view to enlargement of consumption and full use of the productive capacities. The entire history of capitalism is assumed to support this point of view. Of late, however, “the method of continuously expanding markets through a persistent reduction of prices as efficiency increases has in considerable measure ceased to operate.” The monopolization of capital is adduced as the most important reason for this unfortunate situation; but at the same time the tendency to price stabilization is recognized as the logical outcome of previous capitalist development. Nevertheless, writes Moulton, “to seek the acceleration of economic progress by means of price reductions is not to attack the system of private capitalism, but rather to return to the very logic upon which that system was justified and extolled by both lay and professional students of the economic process during the days when the system was assuming its present general character.” This position is really a flight from actual life into a mystic fatalism, covered up by an artificial optimism. The present stagnating capitalism has obviously grown out of free competitive capitalism, and it is impossible to attack the present without also opposing the past. And it is also obvious that the future is not destined to follow the pattern of the past, but immediately that of the present. From any point of view nothing else is possible. This bewailing the loss of competition through monopolization, capital concentration and artificial control schemes is, as a matter of fact, without any real basis, since all this has not essentially changed the features which capitalism possessed in its youth. In the classic capitalism of free competition there were monopolies, and in monopoly capitalism there is competition, although of a more mature sort. From general competition among small capitalists there arose, with the concentration of capital and as a result of this process, that of the monopolies among each other. A restriction of competition on the national scale brought about an intensification of the competitive struggle in the world market. If on the one hand competition waned as regards complexity, it was only in order to wax in other forms as regards intensity. However much the classic capitalism may differ from its present monopolistic successor, still the one cannot be set over against the other: monopoly capitalism is the old-age manifestation of laissez-faireism, that is, it is simply monopolistic laissez-faire. That “freezing of the status quo” brought about by the tendency to stabilize prices, and which seems so wrong to the Brookings Institution, is in reality and in the last analysis, as a method of destroying small capitalists, itself nothing else but an indication of sharpened competition. Whoever wants to have further capitalist progress must be in favor of the strangulation of the weaker capitalist groups, must be in favor of further monopolization, of a still greater elimination of national competition to strengthen the competitive power of capitalism on the basis of what capitalism really is-a world economy. To base the policies of present-day capitalism on the principles of the past means something other than the mere enlargement of mass consumption to further a greater use of the productive capacities. To a consistent thinker it can only mean the enlarged repetition of previous processes, since the real basis of the capitalist system today is the same as at its beginning, namely production for profit, appropriation of an ever greater portion of the products of labor. If this is possible, an enlarged but essentially identical result will be obtained: more concentration of capital, stricter monopolization, more difficulties, greater crisis. The very thing proposed by the Brookings Institution for effecting a better balance between consumption and production will, if put into practice, have created a greater gap.
The ideas developed by the Brookings Institution have found a practical application in the volume The Recovery Problem in the United States. This book, which is really indispensable to the lay as well as professional student of economics, we shall not consider at present with reference to all its contents or the tremendous and important factual material which it presents; we are here interested only in its conclusions and in so far as they deal with the present situation in relation to the general theories developed in Income and Economic Progress. While “the present world recovery movement has been under way for approximately four years,” still the authors recognize that “the degree of economic improvement has been far from sufficient to absorb unemployment and to restore former standards of living.”
This also holds for America, in which recovery “has been appreciably less than that in many other countries.” In what way, now, has this limited improvement been rendered possible? By; a better distribution of income in favor of the broad masses, which is supposed to lead to a fuller use of the productive capacities? Or by opposite trends, by a further curtailment of mass purchasing power, both in relation to current production and to, the situation prior to 1929? Has the process of recovery so far-attained justified the thesis of the Brookings Institution developed in Income and Economic Progress? There is nothing] in the whole volume on the Recovery Problem in the United States which would permit an affirmative answer.
Real recovery, as measured by previous periods of recovery after crisis, has not as yet occurred. The downward trend of capital was stopped and turned into a new upswing, but so far it has been unable to surpass the production level of 1929. For a real boom, the 1929 level must be surpassed by far, but as yet nothing of the sort can reasonably be expected. The Brookings; Institution describes the existing situation quite well in saying that it “is one of delicate adjustment and precarious balance. In a very real sense the world stands at the cross roads. We may move gradually forward along a broad front, achieving progressively higher levels of well-being; or we may suffer a reversal of current trends and enter upon a new period of recession, involving further deterioration of living standards and bringing a new era of disorganization, the consequences of which no one can foresee.”
The deepest point of world economy was reached in the middle of 1932. From that time on to the present the trend is upward. But four years of such favorable development have been unable to bring about a real prosperity. If the old business cycle were still in effect, a new crisis could be expected by 1938; but this crisis would set in at a lower point of production than that on which the boom of 1929 was broken. In other words the new crisis would establish the fact that capitalism was unable in the whole course of a complete business cycle to surpass the production level previously attained; it would justify the statement that capitalism is unable to overcome its stagnant character. The present depression would have failed to fulfill its function, that is, to clear the way for further progressive advance of capitalist society. But if depression has changed, then so also has prosperity. If the former is unable to function in the well-known ways, then also the latter will look different from previous; periods which were called prosperous. “Prosperity” would then be nothing more than a breathing spell in an irresistible downward trend of capital.
Leaving this question aside, however, the Brookings account of the extent to which recovery has been attained invalidates its theoretical consideration in relation to income and economic progress. According to its own and all other serious studies on the subject yet published and viewed from the standpoint of world economy, just as in the years from 1921 to 1929, so also in the years from 1932 to the present time the production of means of production has increased almost four times as fast as production for direct use. In order to bring about a real prosperity it should have been much faster, and the gap in relation to consumption goods production should have been wider. As it was, this development could only reach this still insufficient level by a great increase of production from public funds and by the tremendous armaments programs. If, in spite of the fact that it was a period of general rationalization, the years from 1921 to 1928 were already relatively unsatisfactory in regard to profitability of capital, the expectations cannot be great with reference to the profit needs for further progressive accumulation on the basis of the present character of the development of production.
“Production and employment are basic and ultimate points of reference in modern industrial life,” says the Brookings Institution correctly. In this relation the Recovery Problem presents the following picture: “On a full-time basis such as prevailed in 1929, more than 20 per cent of the nation’s labor force remains unutilized in 1936; by the middle of 1936 we were still 25-30 per cent below the adjusted 1929 level in both manufacturing production and total output of goods and services.” A very unfavorable situation, indicating the difficulties of capitalism in bending the economic reality to suit its need for profit. After two years of depression the productivity of the workers, which previously had increased after the crash of 1929, declined considerably, making the reestablishment of profitability still more difficult and indicating the impracticability of a decisive reduction in wages as a means of over-coming the crisis. What can be saved in that way may be wholly offset by a decrease in productivity, showing once more that only an accelerated accumulation is a real solution for capitalist difficulties. But this failed to come about, in spite of a rate of interest lower than ever before in capitalist history. The favorable circumstances for capital expansion were largely offset by many arising circumstances of an unfavorable character; as for instance, by an increase of socially unavoidable expenditures which ate from the already insufficient surplus value. The Brookings Institution notes that the degree of recovery so far attained was rendered possible only by a further spread between the actual output of the workers and their actual income. More value and surplus value was realized on a given capital, and this, in conjunction with the re-organization of capital during the crisis, and also with the governmental spending program, permitted the facelifting of capital which we have now witnessed. In so far as “prosperity” was advanced by an increase in governmental spending, made possible by extending the credit facilities, it can be justified only in case it leads to a real prosperity which will cover the deficit to which this artificial method has given rise. So that the somewhat happy present situation is clouded by forebodings about the future. Still, the basic need remains, in the eyes of the Brookings Institution, “the absorption of the unemployed in the production of additional goods and services in the field of private industry.” Under this general formula, to raise the standard of living of wage workers, as the Institution desires, “involves necessarily increasing the spread between the wage rates and prices. An increasing spread between wage rates and prices depends fundamentally upon increasing the efficiency of production.” But wages are the price of labor power. If prices fall, so also the price of labor power, otherwise profits would be reduced; but, says the Brookings Institution, “only inconsequential increases in wages can be achieved by trenching upon the profits.” To justify this contradictory statement is equivalent to denying the value-price character of labor power and if prices decline wages also must fall, unless wages were not to be subject to the law of value. But then the whole capitalist system would be an impossibility, as this system depends for its existence on the fact that labor power is a commodity subject to the law of value. What the Brookings Institution means to say is that prices should fall faster than the price of labor power, thus giving more actual purchasing power to the workers; a thing which characterizes the whole development of capitalism, but which also means that the productivity of the workers must increase more rapidly than consumption. But this process has led to the present situation; to repeat the process is equivalent to bringing about the same situation, which, however, the Brookings Institution is out to change, and the gap between production and consumption, which the Institution wants to be closed, will be widened. Tor be sure, the Brookings proposals are quite in harmony with the needs of capitalism; any other sort of proposal is so much nonsense. That this is the only field of action for capital is recognized by the Marxist also. But with this the all-embracing, all-groups-of-society-benefitting, socio-economic philosophy contained in the writings of the Brookings Institution is reduced to a fairy tale.
More profits, more surplus value: that is the real need of capital. If that need is satisfied, capitalist society will be happy all around. For this reason, and in spite of its philosophy, the Brookings Institute recognizes as favorable factors in the present situation: the low rate of interest, the reduction of private indebtedness; increasing efficiency of production and fuller utilization of capacity, making possible higher wages and higher profits in relation to prices; a sound banking and monetary policy; expansion of foreign trade, and the accumulated deficiency of production as a stimulus to further expansion. For all these factors increase the profitability of capital. And it looks with sorrow on all the existing unfavorable factors, such as the difficulties involved in maintaining fiscal stability, the danger of price inflation, the present trend in the labor movement toward a more self-seeking activity, the ill-conceived industrial and social legislation, and also the unstable international situation.
Aside from its illusions and errors, the Brookings Institution recognizes one thing with extreme clarity, and that is that the present system, based on profit production, can only function and proceed as such. In helping to make this clear and in pointing out all the capitalist problems arising from this situation, the Brookings Institution has rendered a service both to the capitalist class and also to Marxism.
From : Marxists.org
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