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Product Details
| ISBN-13: | 9780745337944 |
|---|---|
| Publisher: | Pluto Press |
| Publication date: | 06/20/2018 |
| Edition description: | 1 |
| Pages: | 240 |
| Product dimensions: | 5.25(w) x 8.50(h) x 1.00(d) |
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CHAPTER 1
The Nineteenth Century: Framework Stimulants, Destructive Competition and the Making of Oligopoly Capitalism
Relatively long-term sustained capitalist growth has required major innovations. The most significant of these are of a singular kind, framework stimulants: distinctive types of creation which facilitate and stimulate sustained economic growth by providing an economically fecund configuration within which a broad, nationwide surge of investment, production and employment is made possible. I adapt here Paul Baran and Paul Sweezy's notion of "epoch-making innovations" and Edward Nell's concept of "transformative innovations" (Baran and Sweezy, 1966; Nell, 1988, 2005).
These promote overall economic growth in their capacity as large-scale national projects "which create vast investment outlets in addition to the capital which they directly absorb" (Baran and Sweezy, 1966: 219). In this chapter I discuss the two major framework stimulants of the U.S. period of basic industrialization, the steam engine and the railroad, and the general-purpose technologies of the Second Industrial Revolution (roughly 1870–1900) whose large-scale impact on production was not as immediate as were the steam engine and the railroad, and which did not exhibit as immediately and directly some of the key contradictions of industrializing capitalism, mainly overinvestment or excess capacity, and overproduction. I give special attention to the railroad, the innovation most directly implicated in early industrialization and in fact the biggest industry in both the country and the world at the time. We shall see how the railroad is a paradigm case of the destructive tendency of capitalist competition to generate overinvestment and thereby to bring about serial business failures. Private capital by itself was unable to expunge this destabilizing feature of the system and had to call upon an extra-market agent, namely the State, to intervene in order to impose upon business a regulation that business, left to its own devices, could not successfully sustain.
THE FIRST INDUSTRIAL REVOLUTION'S FRAMEWORK STIMULANTS: THE STEAM ENGINE AND THE RAILROAD
Two framework innovations created the initial conditions for mass production and mass distribution: the steam engine first opened the door to mass production by overcoming geographical restrictions on the location of business enterprises; the railroad enabled these enterprises to distribute their output to a national market. Between them, these framework innovations removed the principal initial obstacles to American industrialization. The steam engine ended the original reliance of human societies on human and animal energy, a severe limitation to the possibilities of production and growth. Since then, reliance on inanimate forms of power has been a hallmark of capitalism. The use of water power was an important precursor of the steam engine in this respect. Water powered the nation's earliest textile mills in New England. As U.S. industrialization proceeded apace, the demand for power correspondingly increased, and the inefficiency as well as the geographical limits that the waterwheel placed on industrial location became fetters on the development of increasingly energy-intensive production. Moreover, industrialization was creating competing uses for water in the cities and towns growing up around the new factories. The demand for drinking water and sanitation underscored the restrictions on capitalist growth imposed by direct dependence on nature as the animating source of the production process (Atack and Passell, 1994: 197–201). What the dynamism of capitalist production and distribution required were increasingly efficient energy sources free from the limitations of geography.
The water turbine provided the spectacular spike in energy efficiency essential to the growth of industrializing capitalism. The limited number of sources of water power meant that the spread of industry required reliance upon steam for power (Atack, 1979). By the mid-nineteenth century, regions of the country where waterpower sites were more limited, such as the Midwest, the plains and the southeastern seaboard, were in the process of industrialization, and it was steam that made this possible. By the 1860s steam accounted for most of the total power generated in the U.S. In sum, by overcoming the site-specificity of water as a source of power, steam power created a framework within which great surges of capitalist activity on a transcontinental scale were made possible.
Framework stimulants can be "transformative" and can revolutionize not only the means of production but also entire ways of life (Nell, 1988, 2005). The steam engine facilitated the establishment of towns and cities and the location of economic activity in places where it was not hitherto possible. These processes required, in turn, major migrations and shifts in population. As local ethnic and religious populations relocated and mixed, parochiality was reduced and an embryonic national-identity consciousness began to form. Economic activity reliant on water flows for energy was constrained by the seasons and was thus unsuitable for capitalist production. By the latter half of the nineteenth century, the steam engine made year-round work habits possible for the first time in the U.S. A huge burst of productive potential was thus released.
The development of the national railroad network engendered political and economic crises, the responses to which brought about major reconfigurations of the economic system. Much of this chapter will illustrate precisely how the railroads both created severe crises and laid the groundwork for a transition to a more advanced stage of the development of industrially mature capitalism. (See the Introduction for a general characterization of industrial maturity.) Let us look first at the framework features of the railroad.
The railroad was the most growth-inducing application of the steam engine. In every industrializing country, the railroad has been the most powerful single initiator of sustained take-off into industrial growth. The groundwork was put in place in the U.S. between 1830 and 1860. The national market was greatly widened before mid-century by the railroads' lowering of transportation costs, facilitating the delivery of new products into new geographical areas. Towns and cities multiplied across the nation. Supplementing this enormous boost to domestic investment and consumption, the railroads hastened and cheapened the transportation of finished goods to coastal areas, encouraging further investment in export-oriented lines of production. That the predominant role of the railroad was its framework functions is reflected in the fact that before the mid-nineteenth century freight revenues, associated with the distribution of output, exceeded those from passengers (and have done so every year since then) (Atack and Passell, 1994: 429).
In response to these general growth-stimulating developments, core industries such as steel, iron, stone and lumber were launched into high gear. By the early 1880s ninety percent of the steel industry's total output was sold to the railroads. Industrialization involves the building of an infrastructure of basic and increasingly efficient capital goods. No less typical of industrial development is the proliferation of consumer goods industries. Increasingly advanced capital equipment enabled mass production of a limited but growing number of such items. Railroads provided the means of mass distribution of these goods by linking the states into a national market. The prospect of emerging mass markets gave further impetus to manufacturers to extend the mass production of consumption goods.
Thus, railroads made available for the first time to a growing transcontinental market the nation's first mass-produced basic consumer goods such as soap, baking powder, breakfast cereals, canned soups, cigarettes, cigars, matches, hats, ready-made clothes, carpets, shoes, brooms, telephones, light bulbs, electric lamps and more.
The railroad industry could not have performed its framework functions within the context of the private economy alone. Government was an indispensable enabler of railway expansion. Here we find what is merely the first historic illustration of a pattern that will be a leitmotif of this book, the politicized nature of the accumulation process. U.S. capitalism's developmental dynamic is periodically interrupted by crises precipitating either direct class intervention or the enlistment, by either the propertied or the working class, of state power in order to address crisis on terms beneficial to the class in question. Capital accumulation will be seen to become a progressively political process. In 1996 Robert Heilbroner and William Milberg wrote that "capitalism is today a social order at bay before forces that require containment or channeling by strong government policy" (Heilbroner and Milberg, 1996: 123).
The spread of the railroad would not have been possible without the system of federal grants which transferred 250 million square miles of public land to the railroad barons – Leland Stanford, Jay Gould and Collis P. Huntington, among others. Publicly owned land was given, free of charge (with qualification: U.S. troops were required to be transported for free, and mail was to be carried at rates fixed by Congress, not the market) to the railroad companies. In the nineteenth century the State had generally been regarded by the population as decisively dominated by business, effectively privatized. This did not appear to change until the popular movements of the 1930s, discussed in Chapter 4.
COMPETITION AND CRISIS
The story told in mainstream economic textbooks about the workings and merits of competitive capitalism is a remarkable ideological production. The market is alleged to require no human intervention because it is held to be a self-regulated system, almost instantaneously correcting outcomes that are out of accord with the desires of economic agents. The benefits of the market system must be brought about apolitically, without the exercise of political agency aimed at bringing about social goods. The dynamics alleged to bring about this felicitous outcome constitute the core of Microeconomics 101. On this account, sustained recession or depression are impossible. This secularization of Divine Providence was nowhere to be found in the real world of capitalist self-interested competition.
Nor does this orthodox vision accord with the period of nineteenth-century U.S. industrialization, which saw unbridled profit-seeking competition with virtually no oversight or regulation by either private individuals or the State. Leading elites and influential commentators soon came to question and finally to reject the received wisdom. The very first business elites soon recognized, as we shall see on pages 23–5, that the story of the self-regulating crisis-immune market was a fairy tale.
The development of the railroad industry illustrates vividly how the orthodox narrative misrepresents the tendencies endogenous to capitalist competition. Even the most observant capitalists and business commentators were stricken at the irrationality of single-handed cutthroat competition. They sought to bring an end to unbridled price-cutting, urged concerted collusive action in the pursuit of profit, and advocated government regulation of economic activity. What we shall see in the case of the railroads is true of every stage in the development of American capitalism, that few class agents have in fact wanted the free market or its political counterpart, the liberal, hands-off State.
Free-market outcomes have been continuously resisted by those under its aegis, including capitalists. Alfred E. Kahn, chairman of Jimmy Carter's Council on Wage and Price Stability, put it this way in testimony before the Joint Economic Committee, U.S. Congress, December 6, 1978: "The fact is that most people in this country don't like the way a truly competitive economy operates, and have found ways of protecting themselves against it." Developments in the railroad and steel industries illustrate the persistent tendency of economic agents to intervene in order to obviate disastrous market outcomes. From the late 1870s to the present, businessmen and workers have sought to minimize the influence of the market on the generation of profits and wages.
The late nineteenth century exhibited a prolonged crisis of competitive capitalism. When the economy returned to peacetime conditions after the Civil War (1861–65), its performance was highly troublesome through the remainder of the century. Economists have referred to the "Great Depression of 1873–1896" (Capie and Wood, 1997: 148–9; Fels, 1949: 69–73). The period featured three long contractions. The first and longest in U.S. history, from 1873 to 1879 (referred to by some economists as the "Long Depression"), lasted 65 months and surpassed the plunges of 1882–85, 1893–97 and 1929–33. In the 396 months between 1867 and 1900, the economy expanded during 199 months and was in either recession or depression during 197 months (DuBoff, 1989: 41–2). Chronic overproduction and serial bankruptcies blighted the economy from 1870 to the late 1890s. How can it be that a century featuring an unprecedented growth of industrial output, urbanization, railroadization and the formation of the greatest business enterprises in the world was simultaneously a period of persistent crisis?
Prominent scholars have argued that the "dynamism" of the economy during this period belies the claim of crisis. In The Making of Global Capitalism: The Political Economy of American Empire, Leo Panitch and Sam Gindin make light of "misleading American business notions of surplus capital" and write, in a section headed "The Dynamic Economy," that "The huge strength and expansive dynamism of the U.S. economy was momentarily obscured by an economic crisis that began in 1893." The 1873–79 depression, the longest downturn in American history, receives no attention, and the deep and protracted depression of 1893–98 is described as a "recession," a negligible blip in a period of spectacular growth (Panitch and Gindin, 2013: 27–9). In fact, the last 30 years of the nineteenth century evidenced both unparalleled growth and deep-rooted and prolonged instability. "Expansive dynamism" is compatible with overexpansion, as is an investment boom with overinvestment. We shall see that the latter lay at the heart of the century's economic turbulence. As the economic historian Richard DuBoff put it, "The paradox of the last third of the nineteenth century is that it was a Golden Age – the heyday of private enterprise if ever there was one – and yet a period of profound instability and anxiety" (DuBoff, 1989: 41).
The unprecedented growth of output, the object of Panitch and Gindin's enthusiasm, is entirely compatible with declining growth rates, profit rates and productivity – sources of deep disruption unmentioned by those writers. Capitalists are concerned not merely with increasing the absolute size of overall output but also with selling it at remunerative prices and profit rates. Capital was wildly successful on the former front, but encountered recurring obstacles on the latter, due to the destabilizing effects of unregulated competition. Hence the retardation of annual growth rates of GNP from 1870 to 1900. The downshift was evident in key indicators: the growth of per capita GNP, of GNP per worker and of labor productivity all declined over the period (Livingston, 1987: 72–3, 74). Prices too fell about 30 percent between 1873 and 1896 under the pressure of the cutthroat competition unleashed by the widening of the national market and the rapid rate of technological innovation. In many cases revenues fell faster than costs, giving further impetus to competitive price cutting. Commodity price levels trended downward from the late 1870s through the late 1890s (United States Bureau of the Census, 1975: 200–1, 208–9). The result was downward pressure on profits (DuBoff, 1989: 47; Livingston, 1987: 70). On top of all this, during the final two decades of the century a class of skilled workers successfully resisted the wage reductions that capitalists sought in order to counteract price, profit and productivity declines, and thereby secured wage levels that cut into profits (Livingston, 1987: 79–82).
(Continues…)
Excerpted from "Overripe Economy"
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