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From Fourth International, March 1947, Vol.8 No.3, pp.71-75
Transcribed, Edited and Formatted by Ted Crawford and David Walters in 2008 for the Encyclopedia of Trotskyism On-Line..
Transcribed, edited & formatted by Ted Crawford & David Walters in 2008 for ETOL.
“Millions of low income families find themselves priced out of the market. The demand for most goods is very high because of the backlog of wants and the high incomes and liquid savings of those in the middle and higher income brackets. These demands cannot form the basis of continuing prosperity. Long term prosperity must be based on expanded mass buying power. It cannot be achieved by shrinking the buying power of the workers in order that profits may rise beyond reasonable and stable levels.”
This is the theme of the report [1] which the CIO commissioned the Nathan firm of economists to prepare. It deals with the wages that US industry can afford to pay out of its superprofits. The union officials released it as their opening move in wage negotiations for this year. The employers countered with a barrage of answers to the Nathan report from their leading economic experts and editorial writers.
The Nathan report contains some excellent statistics but it does not follow them very far. On the whole it is not a strong report. Even so, it is a step by the labor movement toward exposing the basic policy of the employers. Necessarily it brings out some of the facts, it tells some of the truth. Therefore the employers have good reason to fear it.
The Nathan report itself begins with a discussion of the profits of, American industry and takes up later the primary factor of production, which gives rise to the profits. We shall follow the logical order, beginning with production. This will emphasize the fundamental situation. Then we can compare the Nathan program and the employers’ program, the two ways proposed for dealing with the same situation.
The very good series of charts in the Nathan report does begin with production. The first chart shows that national production has “more than doubled between 1939 and the peak war years.” Production dropped a little at the end of the war, but rose again, until by the end of 1946 it was back to the war peak.
This means that peacetime production today is more than twice as much as peacetime production before the war, counting in dollar values. Even counting in actual physical goods, American output right now is nearly twice as great as before the war.
The statistics: In 1939 production amounted to 88 billion dollars a year. It rose to about 200 billion dollars in the war years 1944 and 1945. At the end of the war production fell off to a rate of 180 billion, but this “low point” was still double the pre-war figure of 88 billion. By the last quarter of 1946 production was back to the 200 billion rate again, this time in peace.
It may be difficult to find a suit of clothes, or a house to live in, or a car, or a piece of meat. Millions of us can’t find goods. We just find shortages and high prices. But these shortages do not come from low production.
The steel industry before the war had capacity to produce sixty million tons a year, and much of that capacity remained idle. Steel came out of the war with capacity to produce 90 million tons a year, all of it working. Even so, they manage a “steel shortage.”
Total aluminium capacity before the war was 160 thousand tons a year. Today it is a million and a quarter tons. And so it goes, in material after material, in industry after industry. Capacity is at higher levels than US industry ever knew, and output is huge.
Where then is the output going? Not to the workers. They are being “priced out of the market,” as another chart illustrates pointedly. This chart compares average weekly wages, and the weekly cost of a minimum budget. With the termination of hostilities, in September 1945, the average weekly wage of a production worker sufficed for only about two-thirds of a minimum budget for a family of four. It fell short of this minimum living standard by $21.13 a week. Thirteen months later, in October 1946, the gap between wages and the minimum budget had widened. Wages were up, but prices were up even more, so the average wage dropped $24.69 a week below the cost of a minimum family budget. The workers were getting little goods, and each month they were getting less in goods, although this took place during the last quarter of 1946 when production climbed back to the wartime rate of 200 billion dollars a year.
The figures: The Nathan report uses the cost of living budget of the Heller Committee of the University of California. The Heller budget gives the cost of a minimum of goods for a level of health and decency for a family of four, and minimum here really means rock-bottom. For the father, the Heller budget allows a new suit every three years, an overcoat every six or seven years, two regular shirts and three work shirts a year. For the mother it allows, per year, two house dresses, two regular dresses, one pair of work shoes and one pair of street shoes. On other items the budget follows similar meager standards. It allows for no choice foods, no steaks, no savings. It makes no allowance for income tax or social security deductions, which are an unavoidable part of the cost of living today. In September 1945, the Heller budget for a family of four cost $62.00 a week; the average wage of production workers stood at $40.87; which was short of the budget by $21.13. In October 1946, the Heller budget cost $70.52 a week. The average production wage was $45.83, which was below the budget by $24.69.
To sum it up: Industry is producing an unheard-of volume of goods; it is paying out to the workers only enough to buy very little goods. What then happens to the remainder? In the first place, this remainder makes up the profits of the capitalists, an unheard-of flood of profits. The Nathan report hardly goes a step beyond this point. It starts with an estimate of profits and ends in the same way. It proves, over and over, that the capitalists are making fabulous profits, with greater profits in prospect and concludes that they could easily afford to pay higher wages and still have plenty of profits left.
The basic facts are clear – says the report in its summary – ... In manufacturing industries alone, the end of 1946 level of corporate profits after taxes will support a 21 per cent increase in the earnings of production workers, without any further increase in productivity, without any further expansion in volume, and without reducing the return after taxes on net worth to a rate below that of 1936-39. In total corporate enterprise, the profit position is less precise statistically but clearly much more favorable than in manufacturing alone, in comparison with pre-war; it may reasonably be conjectured tbat total corporate business can support a 25 per cent increase in wages on the same basis that manufacturing can support a 21 per cent increase.
“It is obviously futile,” to imagine that businessmen will correct this trend by cutting prices. “On the contrary, the business community has first pushed aside price controls and then raised prices rapidly in the face of already huge profits.”
It is not higher wages that caused price rises; instead prices have gone so far beyond wages that the workers are absolutely unable to buy the output of industry, or any healthy share of the output. “The present imbalance between wages and profits is unsound.” And again, “Unless there is an immediate increase in wages or a sharp drop in prices, we are flirting with collapse.”
It would not do laboror the public or business any good for labor to forego the needed wage increases. Rather, raising wages without any increase in prices appears to offer the only currently possible means of bringing about the kind of relationship which will avoid a serious decline in business activity. Such a policy would step up buying power, and bring back into the market for many categories of goods those millions of working families who have been removed from the market by rising prices. Such a policy should appeal to business as well as labor as a sound way to restore the basic economic strength, which will in turn bring optimism and a sense of security to replace the present pessimism and insecurity.
It would appear statesmanlike for both labor and management to look the facts in the face and arrive at peaceful conclusions with respect to sizable wage increases immediately. Through such a policy we can have industrial peace; we can have gradually increasing production accompanied by increasing efficiency and productivity; and finally we can have stable prosperity.
So runs the Nathan report: The capitalists can afford high wages and should pay them to avoid a collapse.
The capitalists do not answer with their real argument – that their sole concern is profits – because that can’t stand the light of day. Instead, they counter by casting doubts and laying down a smoke-screen.
Thus the economists for the US Chamber of Commerce, the National Association of Manufacturers, etc., in issuing press releases against Nathan, regularly charge that he stretches his statistics, that he takes an “abnormal period” as a base for comparison, and so on.
In fact, Nathan bent over backwards in the vain hope of avoiding precisely such charges. He took doctored capitalist statistics at their face value, but even so he was able to make a good case because all the doctoring could not hide the truth.
And the truth is that even a low level of profits for the year 1946 would have represented good business. Why? Because 1946 was the reconversion year in the course of which industry changed over from war production and tooled up for peacetime output. Tooling up builds for the future and it is not supposed to be profitable while under way. Had the industries managed to break even while changing over to new products, they could have counted that, too, as a “good year.”
Instead they were able to show the highest profits on record, and this on top of covering all the costs of reconversion and on top of faking billion-dollar losses. These “reconversion losses” were footed by the federal government, each “loss” being covered by a tax rebate to the corporations. In addition to being good propaganda to show losses (business, you see, was suffering along with everybody else), it also poured additional millions into the corporation coffers. The best corporations showed losses.
For example, Westinghouse Electric reported a fifty million dollar loss for 1946, which they lamented as being twice as large as their total losses during the three worst depression years. Hard times! They omitted to mention that the government made good all this “loss.” And so, after collecting their tax rebate, they somehow ended up with a profit of 4_ million dollars.
These and other “losses” had, of course, nothing to do with a low level of production. On the contrary, as Westinghouse admitted, their production was the highest in any previous peacetime year, except 1941. They rebuilt, tooled. up for new products, charged it all off in a single year and sent the bill to the government. In addition, they fought the union through a long strike and sent that bill to the government too. On top of all this, they rigged their books in every way to show greater “losses” so as to collect more from the government.
Other corporations did exactly the same. After they had paid all the costs of reconversion and had hidden all the profits they could, the part they could not hide showed up in their statistics. And this reported fraction of their profits turned out so big as to set a new high record!
The Nathan report does not breathe a word about the hidden profits of 1946. It argues only from the figures admitted by the corporations themselves.
Another favorite charge against Nathan is that he took the total profit margin in the economic system, and calculated as if it could all be used for 25 per cent wage raises in manufacturing alone, without an increase in prices. The corporation experts argue that a general 25 per cent wage increase would add 25 per cent to the cost of raw materials, another 25 per cent to manufacturing costs, and still another 25 per cent to distribution costs. So what Nathan calls 25 per cent increase would really raise costs 75 per cent, they say, which of course would just make things worse. To be sure, none of them has formulated a law that a 25 ‘“percent increase in wages requires a 75 per cent increase in prices, but such a law would follow from their logic.
This has become a standard anti-Nathan argument. Even Harold Stassen used it in a radio appearance against Nathan. Stassen used as an illustration the case of a small boy who has twenty cents. He could give 10 cents to any one of three different people and still have ten cents left. Stassen said Nathan argues that he could give 10 cents to all of them, making thirty cents paid out, and still have 10 cents left.
This argument is sheer invention. Nathan, in fact, took extra pains to avoid precisely such an error, but naturally he gets no thanks.
Let us examine Stassen’s illustration in the light of a few facts. For example, just what is the relation between, say, the price of cigarette and the wages of workers in this industry?
Before the war, standard brands sold, with matches, for 14 or 15 cents, and sometimes, two packages for a quarter. Today they are up to 16 cents and as high as 20 cents. At a conservative estimate, we can set the increase at two cents a pack, without taking into account the concealed increase resulting from the removal of the ten-cent brands off the market.
What went up? Was it labor costs? Material costs? Distribution costs?
According to the Twentieth Century Fund figures, the total cost of leaf tobacco in a package of cigarettes before the war was two cents. The total cost of labor, plus packaging, plus everything else in manufacturing came to less than one cent a package. Thus the total labor and material costs, all along the line, amounted to three cents. The tax was six cents a package. This made nine cents, leaving five cents out of a fourteen cent pack for advertising, sellers’ margins, and so on.
They have raised prices and they want us to believe that higher wages forced them to. The Nathan report reveals that, on the average, wage rates in industry last year went up only 8 per cent (not 18 per cent, as we are often told). If the tobacco industry raised wages 8 per cent, and if the package material people also raised their prices 8 per cent, they would still be raising only that one cent a package which covers labor and material costs. This 8 per cent increase would raise the cost of a pack of cigarettes by one-twelfth of a cent.
Perhaps distribution costs are higher, or other costs have gone up? On the contrary, the industry is selling 56 per cent more cigarettes than before the war, and this larger volume cuts the cost per unit.
Or let us take Westinghouse. Their total labor bill on an electric refrigerator that used to sell for $150 is only $17. Westinghouse, like other industries at the end of the war, reduced hours to stop paying overtime premiums, which cut their overall labor rate by 9 per cent, averaged over the whole week. The Westinghouse workers, like others winning the 18½ per cent pattern increase, after losing overtime premiums, really got only a 9½ per cent increase over the old rate. 9½ per cent of $17 makes an increased labor cost of $1.62 per refrigerator. A genuine 18½ per cent increase would have added only $3.15 to labor cost.
Would wage raises in raw materials perhaps account for this? No, the total cost, labor and material, of a refrigerator comes to $58. And 1½ per cent of that amounts to a trifle over ten dollars. No, the little boy is not quite so careless with his dimes as Stassen pretends.
The corporations are quick to minimize the effects of price changes in raw materials whenever it suits their purpose. When the price of nylon yarn was reduced recently, the industry hastened to warn the public not to expect lower prices for stockings, because, after all, the cost of nylon yarn in average stockings is only 11 cents! Yet 11 cents worth of nylon knitted up sells for $1.50 to $2.95. The knitting is a very rapid and cheap mechanical process. Distribution expenses cannot be very high for goods that are snapped up the moment they reach the counter. Plainly, the biggest part of the profit margin is collected in distribution.
Nathan makes this point quite clearly: “This more moderate rise in the rate of manufacturers’ returns compared with those of all corporations reflects particularly the present lush margins at all levels of distribution.” However, he says, adequate statistics are not available to make a full analysis of the distribution field. To be super-accurate he limits his analysis to manufacturing corporations and draws only the most cautious deductions about profits in distribution.
This is plainly stated in the report, but this does not stop the likes of Stassen.
For his part, Nathan weakens his case by never mentioning the facts about the low costs and high prices of any particular industry. He remains on the plane of general statistics, which invites such crude replies. Cost statistics are closely guarded and hard to dig up. “Opening the Books” would show exactly what the price gougers are doing and this demand is the best attack on them. Nathan avoids raising this demand. He still hopes to make no enemies among the capitalists.
None of the capitalist experts has really come to grips with the basic facts in the Nathan report, because they can’t. These facts are irrefutable. The financial magazines of Wall Street speak of the same gap between production and the market that Nathan points out. At the end of last year they were all fearful that production was bound to fall off soon, because it was already big enough not only to meet current demand but also to pile up unprecedented inventories. Therefore production must be too high for future demand. That’s just what Nathan says, and he advocates higher wages as a means of averting a slump.
It is the height of innocence, to put it mildly, to tell employers to raise wages “for their own good.” What good is the biggest market to a capitalist if he derives from it little or no profits? The employers know that they, as a class, can protect their profits only by paying the smallest wage they can. Nathan’s figures show, as do all previous figures in capitalist history, that precisely during periods of boom the average working class family receives a wage too low for even minimum living standards.
The average worker now earns around $2,000 a year. To buy the products of a 200 billion dollar a year output, that is, the present output, the average worker would have to receive around $5,000 a year. But such wages are excluded under capitalism because they would cut profits down to a trickle.
The employers do not intend to pay any such increased wages. If they cannot slash wages directly, they do so indirectly, by hiking prices. It is therefore a foregone conclusion that there will not be a market to absorb the present output. The future domestic market will remain at the same poverty levels as hitherto.
To be sure, there is a demand today. People need houses and cars, clothes and refrigerators. Right now the market seems able to absorb almost any volume of goods. Right now industry can produce any volume of goods. This happy combination ought to promote a flood of goods. Yet we witness instead an epidemic of shortages: housing shortage, sugar shortage, clothing shortage, meat shortage, and so on.
Whence these shortages? They are part and parcel of capitalist policy. It goes without saying that they almost never admit causing these shortages deliberately. But in rare moments of frankness we do get such an admission. It comes in plain words from the President’s Council of Economic Advisers, which has Edwin G. Nourse, formerly of the Brookings Institute, as chairman. Here is what this council of economic planners has to say in its First Annual Report to the President:
Everybody without a house or a car wants one this year. The success of ’47 and ’48 is gauged by our ability to make and sell 6,000,000 cars, 1,500,000 housiug units, and similar numbers of electric refrigerators, washing machines, and other accessories in each of these years. But the closer we come to this standard of performance in the immediate future, the more pressing becomes the problem of sustaining employment, production, and purchasing power in the years that follow. Automobiles, as we have learned under war conditions, have a normal life expectancy of 8 to 10 years, and houses last anywhere from 25 years to generations or even centuries. Hence, the very industries which feature the prosperity of the moment could, if nothing is done, be expected to drop to a replacement basis after a few years. This might be expected to spell depression for some later time.
If everybody gets a house or a radio this year, who’ll buy next year? That’s the worry in the minds of the capitalists. Also if the workers are able to buy goods and gain a high standard of living they’ll be expensive workers, and capitalism will have the trouble of beating down their standard of living to meager levels again. Scarcities are next year’s markets – therefore the capitalist program is to make the scarcity last as long as possible, by holding back goods, by artificially creating shortages, by raising prices so that the extra money in the market will buy no more than the old poverty standard of existence.
Can the capitalists get away with it? Will the veterans wait years for houses to suit the plans of the building material monopolists? Will the public suffer patiently while the capitalists try to stretch out the shortages of clothes and cars and sugar for month after month and year after year? Will the American workers accept scarcity, poverty and high prices in a country that is capable of miracles of productivity?
All along the line the capitalists are strangling American production and American purchasing power, throttling it down to levels that are safe for profits and scarcity. They can do this temporarily, as long as they are not challenged, by rationing essential materials, such as steel. The favored industries get steel. For the rest of the country there is a “steel shortage.” The mills cancel shipments month after month, and then release a trickle of metal. Small businesses throughout the nation really do feel a shortage. They can’t operate because they can’t get steel, or electric motors, or other needed parts which are held back, as “economic regulators.”
The whole nation feels the pinch, and smarts under it and wants to see something done to “break the log-jam.” The leaders of American labor have a golden opportunity to bring down the wrath of the whole nation on the capitalists who are committing this crime. All the labor leaders need to do is to speak out the truth, the plain truth, which everybody half-suspects anyway, that the private owners of industry are up to their old tricks.
The situation is ripe, over-ripe for a political attack by labor against the capitalist program of artificial scarcity, high prices, depressed living standards, and sabotage of production. A tremendous public sentiment would rally behind labor if it took the leadership.
And that’s why the capitalists are so touchy about the truth on production, prices and wages. Their policy absolutely requires deception. They are carrying out a sinister maneuver against production, against modern technology, and against the public. They don’t dare let the mass of the people find out what’s really being done against them. Hence the barrage against the Nathan report. The employers are thereby serving notice that they will not tolerate discussion from labor along this line.
In fact, the corporations are in such a tight spot that they can’t afford to be satisfied with labor leaders who merely stay quiet. They need union leaders who join in the chorus of deception, and help the maneuver against the country as a whole. Only such can the employers count among the faithful. We see top AFL bureaucrats rushing to join the faithful by denouncing the Nathan report.
Even the CIO officials who sponsored the report have kept strangely silent during the newspaper debate over it. They have not pressed the attack, nor have they used the opportunity publicity. They have backed away from the fight because they lack the courage for it. The Nathan report, with all its weaknesses, still points to a situation that is too acute for their taste.
The situation moves ahead, even though the labor leaders don’t. These spineless bureaucrats, trying to protect their own amiable relations with the employers, are twiddling their thumbs while the employers seek to ruin labor’s standing the public. They have let the employers pin the blame for scarcity and high prices on labor. The employers push this message for through every channel, every day, that labor is to blame scarcities and high prices, that labor holds back materials and prevents the building of houses, that labor has forced the employers to raise prices. The official union leaders have not raised a finger to stop the employers from exploiting the public sentiment for “breaking the log-jam.” The official union leaders are for letting the labor movement get saddled with the blame for the crimes of Big Business even though the situation is ideal for an attack against Big Business. That’s the measure of the failure of these incompetent bureaucrats.
In contrast, the Nathan report was a small and hesitant step in the right direction. But other and far bigger steps are required. We offer as an immediate and effective measure with the slogan “Open the Books!” Let the mass of the people learn the true facts about the actions and program of the corporations. Labor can show where the real blame lies for high prices, for scarcities and for poverty under capitalism. Open the Books!
1. A NATIONAL WAGE POLICY FOR 1947, by Robert R. Nathan and Oscar Gass, December 1946; 71 pages. Price by mail, fifty cents from Robert R. Natban Associates, Inc., No.3 Thomas Circle, Washington, D.C.
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