The Coming of the American Behemoth. Michael Joseph Roberto
was the result of a historic partnership joined by Big Business and the U.S. government that was designed to produce whatever the Allies needed. At President Wilson’s urging, Congress passed the Military Appropriations Act in August 1916, from which came a Council of National Defense. Cabinet members sat on the council, but its main work was done by business leaders. America’s entry into the war the following year led to the creation of the War Industries Board. Other new agencies quickly followed, for example, the Food, Fuel and Railway Administrations, the Shipping Board, the War Trade Board, and the Selective Service Administration. All were needed by the federal government to coordinate production, prices, and labor for the purpose of establishing an effective wartime economy. The waging of imperialist war had made planning a necessity in the workings of capitalist production and exchange. Of course, none of this hurt Big Business. For the first time in the history of capitalism, the state became a highly conscious and informed manager of business interests. Some other wartime European governments had moved in this direction but none as far as the United States in achieving a new benchmark for state power.
Meanwhile, organized labor argued that its commitment to wartime production had earned it a rightful place at the decision-making table with employers and politicians. The AFL contended that business and government needed to take stock of its longtime commitment to reformism and also recognize the hard line it had taken against the IWW. Moreover, its ability to keep workers in line with concessions for higher wages and better working conditions had helped to dampen sentiments for strikes and walkouts. The fact that wartime prosperity had found its way downward to parts of the working class, especially those engaged in war-related production, had raised wages and levels of comfort and security. Nevertheless, whatever gains workers received were undermined by the deepening compromise struck between Samuel Gompers and other AFL leadership with Big Business. The ideological disposition of the AFL could not be clearer. In its deliberate aim to reject any hint of socialism, it sought harmonious relations with capital in the hope that it would lead American workers to become partners with business.12
Here were the combined forces at home—government, business, and labor—that turned the United States into a preponderant global power by war’s end. This required a foreign policy to open doors for the export of American capital and goods, though the main intent of economic planners and strategists was for the door to swing outward. As mentioned, exports exceeded imports in the billions. The export of American capital also soared to new heights as leading businessmen saw profitable opportunities to invest their capital reserves in underdeveloped areas of the world economy, especially in Latin America. The creation of the American International Corporation in 1915, which included some of the largest U.S. companies and banks, facilitated such investment.13 By 1918, U.S. banks had established branches in sixteen European and Latin American countries, and the rise of their leadership of the capitalist world coincided with New York replacing London as the world’s financial center. That the war had qualitatively advanced the global reach of the American empire at the expense of European capitalist countries was clear to capitalists and communists alike. Even as early as 1915, Thomas W. Lamont of J. P. Morgan and Company gleefully noted that the increase in war business had greatly swung America’s trade balance in its favor, enabling American capitalists to buy back U.S. securities from foreign concerns, which eliminated the drain on foreign exchange. Instead of paying interest and dividends to foreigners, American investors were now the recipients. Nine years later, the Soviet economist E. A. Preobrazhensky saw this even more clearly by connecting America’s imperial rise to the dollar as the new, dominant currency in the global capitalist system.14
Nevertheless, the contradictions of wartime capitalist enterprise ushered in a sharp recession not long after the Armistice was signed in November 1918. Government subsidies had resulted in a combination of huge surpluses in agricultural and manufacturing goods, highly profitable investments, and price inflation. But the coming of peace brought their abrupt end. As the War Department quickly canceled nearly half of its $6 billion in outstanding contracts, the federal government drastically cut overall spending in fiscal year 1919 from $18 billion to $6 billion. Domestic markets already saturated with product were additionally burdened by the relatively quick recovery throughout much of Europe, which only added to the excess. The result was an immediate slowdown in American production across the board. Total industrial output fell by one-third. As inventories piled up, prices nosedived. By 1921, wholesale prices had dropped by 37 percent, with key farm products the lowest. Investments in new factories and machinery declined precipitously, causing unemployment to rise sharply as the decline in demand for industrial workers was made worse with the decommissioning of nearly four million servicemen returning home in search of work.15 As great as war had been for American capitalism, the coming of peace brought just the opposite.
THE GREAT BOOM
The postwar downturn did not last long. As Lewis Corey would explain, a normal process of general liquidation of prices, wages, and accumulated goods quickly wiped out fixed capital. Eliminating the disproportionate accumulations of capital and goods that had caused the downturn then made possible a new phase of accumulation based on rising demand for consumer goods. Corey likened the process to “the blood-letting of medieval medicine.” The point at which the bleeding weakened the patient, who then required the first of several transfusions to regain his vigor, resembled the beginning of recovery as consumer demand rose again. But here, Corey argued, was the real challenge for leading capitalists. To satisfy rising demand for consumer goods required renewed investment in capital goods to replace equipment in old industries or for use in new industries. As Corey said, “The speed of revival and the scope of recovery and prosperity depend upon an increasing output of capital goods and the opportunities it provides for capital investment and accumulation.” On this basis industry revived and wages rose, giving workers more purchasing power. The recovery that began in 1922 set the stage for the New Era of prosperity to come, though it never would deliver its promise of uninterrupted prosperity and universal wealth.16
Yet, the aggregate numbers gave full force to those who were trumpeting its arrival. GNP climbed from $74 billion to $104 billion from the beginning of the recovery in 1921 to the stock market crash in October 1929.17 In the same period, the output of all manufactures rose 64 percent, though there were wide variations of growth within the industrial complex; for example, the petroleum and coal products industry topped all other producers with a gain of 156 percent.18 Electric motors rapidly replaced steam engines; by 1927, 70 percent of American industry was electrified.19 Automobiles and electrification, the twin pillars of growth and prosperity, fueled tremendous expansion beyond the cities with new highways that connected urban centers with new areas of concentric growth, the suburbs. By 1929, there were 26.7 million autos in use, one for every 4.6 Americans. As the automobile revolutionized transportation and redefined social existence, a range of new household appliances rolled off the assembly lines in record numbers.20 Inside the home, life became more manageable, comfortable, and leisurely. The percentage of households with flush lavatories more than doubled between 1920 and 1930, while the number of homes with radios went from zero to 40 percent. Cheap electricity facilitated new appliances that made cooking and cleaning less burdensome.21 From this remarkable surge in economic growth emerged a culture of mass consumption based on increasing purchasing power. Total U.S. income rose from $67.9 billion in 1923 to $82.4 billion in 1929, an increase of 21 percent.22
By any measure, overall economic growth between 1922 and 1929 was phenomenal. But what was behind it? Writing from the vantage point of the Depression in 1934, Corey explained that the prosperity during those years depended on rising opportunities for capital accumulation, which ultimately depended on sustaining investment and output of capital goods. This, in turn, required that the goods produced for consumers would continue selling at profitable levels. But there was a caveat. As long as sales of consumer goods kept pace with the investment and output of capital goods, capitalist accumulation would proceed on a generally upward path. On this basis, new construction (mainly commercial and industrial building) played a major role in fueling the boom, rising 31 percent. Equally important, the wholesale value of automobile output averaged over $3 billion yearly. Then again, integral to the expansion of capital goods was increasing productivity that provided more impetus for capitalists to invest in new industrial machinery and electrification.