Chapter IV
Part Two of this book is an autopsy of the capitalist revolution. This chapter is an autopsy of the industrial revolution as a capitalistic dynamic. That page of history calls for neither a funeral oration nor an indictment. The prevailing opinion that, on the whole, the industrial revolution did far more good than harm to mankind, is not here controverted. Our interest in the process is confined mainly to establishing one fact and drawing certain inferences: the fact that, as a constructive force for private capitalism, the industrial revolution is now over. Technological change continues. But such change is neither dynamic nor constructive for capitalism any longer. The great capitalist democracies are already industrialized. Further industrial or technological change in them will go on but will not prove helpful to capitalism as a source of increased total demand.
The first and, perhaps, the most important of the five major reasons why the capitalist revolution of the past three hundred years is over is considered in this chapter. While the industrial revolution is over as a capitalistic dynamic in America and the British Empire, it is in its infancy in Russia. There it is not proving a constructive force for world capitalism. In the first place, Russia’s going socialist after the World War robbed capitalism of what might have been its last frontier and one the exploitation of which might have prolonged the life of world capitalism for several decades. In the second place, Germany’s going national socialist in 1933 closed to capitalism the backward and unindustrialized areas of southern and eastern Europe. The industrial revolution in the twentieth century moves eastward from the Atlantic across Europe and westward under Japanese leadership across Asia,—but, in both movements, under the banners of socialism. Therefore, for vast areas of backward Europe and more backward Asia, the industrial revolution is just beginning, but not as a dynamic force for capitalism. No matter who wins or what happens next in China, British and American capitalists there are on the way out. This is why our fighting Japan for the open door in China or for Chinese national sovereignty will be a folly on a par with our entry into the last world war.
In certain backward areas of the United States the industrial revolution is still in progress. But, alas for capitalism, the industrialization of one area at the expense of another has not a dynamic or beneficial net effect on the capitalist system. The rapid industrialization of the South accompanied by a corresponding de-industrialization in the North and the East is not good for American business as a whole. Industries moving from New England to the South in search of lower production costs create some additional prosperity in the South at a Grade B level of living standards, but in so doing, seal the doom of prosperity in many New England regions at a Grade A level of living standards. This is the industrial revolution for the South, perhaps, but not for America as a whole. This is not the sort of industrial revolution on which nineteenth century capitalism flourished.
During the nineteenth century the industrialization of one region, whether in England or New England or even in Germany, invariably facilitated and accelerated industrialization in other regions all over the world. Thus, the rise of steel, machine and tool industries in Birmingham and Sheffield, England not only meant industrialization and higher living standards there but also contributed to identically the same processes in America and other far-off lands which were thus enabled to start new industries and build new railways with British machinery and steel rails. Today, however, the rise of the largest steel mill in the British Empire out in India does not stimulate railway or factory construction back in England. It means less steel production and fewer jobs in England, fewer English steel exports and less cargo for British bottoms. Momentarily certain British capitalists may receive dividends from the Tata works in India, the largest steel mill in the British Empire, while British workers lose jobs as a result of the expansion of the Indian steel industry. But, as soon as the Indians go nationalistic and do to British capital what the Mexicans have recently done to British and American capital invested in Mexican oil fields, the British investors in India will be out of dividends just as thousands of British workers have been put permanently out of jobs as a result of these investments. As a process of technological change and as a mighty dynamic of socialism, the industrial revolution is still going on. But as a capitalist dynamic it is over.
There can be no doubt that the industrial revolution is the chief factor responsible since 1917 for the survival and success of socialism in Russia. As it may be possible for industrialization to go on in Russia for another century before that country attains the industrial maturity and saturation with factories and machinery now reached in Britain and the United States, there is no immediate occasion for worry about the adequacy of Soviet dynamics. The population factor, also, is especially dynamic in Russia and favorable to the success of socialism. The Russian birth rate is twice that of the democracies. Moscow has three times as many births each year as Chicago, a city of about the same size. As the death rate is falling rapidly due to improved hygiene and better living standards, the rate of population increase in Russia today is about four times what it is in the United States. In the decade 1940-1950 our annual net increase in population will average about 700,000 while that of Russia will be between 3,400,000 and 4,000,000. The question arises: Can socialism work without an industrial revolution and rapid population increase, both of which dynamics are necessarily temporary? While this question need not worry Russian socialists for several generations, it is of vital concern to Americans, Englishmen and Frenchmen as well as Germans.
It may well be that war and religion are the only ultimate and enduring social dynamisms. Those here listed on which nineteenth century capitalism and democracy ran are all necessarily temporary. Wars, of course, are included in that list. But the nineteenth century wars of democracy were never totalitarian wars. They were also mostly easy wars which the democrats and capitalists had fought for them by mercenary armies largely, and always with firearms usually against the natives who fought with tomahawks or bows and arrows. Easy wars for one side are obviously temporary. Today at least one of the yellow peoples is as well armed as the whites.
Actually, capitalism, by itself, was never really dynamic. Profit seeking by individuals may be considered dynamic, but it can only occur in a situation in which a combination of dynamic forces, such as the frontier and easy wars of conquest, make the winning of large profits possible for the lucky. It is not a dynamism like war which can be practiced anywhere, anytime, by any people. Ireland’s fight against England over the past three hundred and fifty years is an example of perennial, profitless and dynamic warfare with economic resources for warfare at a minimum on one side and at a maximum on the other side. Profit seeking is not today a dynamic force in the interior of China under communist war lords and brigands. Nor was it anywhere in the world a dynamic force for thousands of years in the past; for instance, not anywhere in Europe between the fall of Rome and the opening of the Renaissance a thousand years later. The profits dynamism inheres in the nature of a special situation, not in human nature as we have been taught by the classical economists. Living on the hunt was a dynamic way of life for the North American Indian a century ago. But, for this way of life to be possible for a group, there must be available an adequate supply of game. The real source of this particular dynamism is the game supply, not an innate love of the chase. The fact that capitalism is not in itself dynamic is an important new discovery. It has taken the necessity for relief and pump priming deficits running each year into the billions over a period of ten consecutive years in the most richly favored of all capitalist countries to reveal this truth. Before the depression, even the Marxists considered capitalism as inherently dynamic though doomed to smash up in a head-on collision with a more dynamic working class revolution. Actually it is coming to grief in no such heroic manner. It is slowly dying of pernicious anemia and waiting for a major war collapse to administer the coup de grace.
The driving forces of nineteenth century capitalism, all listed on the page preceding this chapter, are now making a success of socialism in Russia. Capitalism cannot run without these driving forces; socialism can run equally well with them; and their availability does not depend on whether a nation is capitalist or socialist. It will be known a century hence, when the frontier and the industrial revolution will be over in Russia, whether socialism can run without this particular blend of fuel, or whether it will be able to run on an entirely new source of power, say brotherly love. Nothing in the Russian experiment with socialism so far warrants such a hope.
Inasmuch as continuity in social change has to be maintained if chaos is to be averted, it is desirable to understand what has made the social wheels go round in the past and what may and may not make them turn in the near future. As just observed, neither capitalism nor socialism is by itself dynamic. The trouble with most of our social thinking is that, being done in terms of eighteenth century rationalism, it takes dynamism for granted and assumes that the chief social problems are those of knowing what you want and how to get it. The chief social problem is that of generating and unifying the social will that creates activity, change and what we have been wont to call progress. Differences in the availability and effectiveness of dynamic forces are not matters of mass preference but largely of historical necessity. The Russians by going socialist did not create the expansive forces which are now carrying them forward. They merely provided those forces with a new and more efficient vehicle. The same forces made a success of capitalism in America during the nineteenth century: the frontier, population growth, the industrial revolution, extension of public instruction and the suffrage.
Socialists and liberal reformers with socialist leanings have generally confused our problems quite as much as the reactionaries or the defenders of things as they are. Neither the socialist nor the capitalist has been willing to recognize that his system depends absolutely on certain social dynamisms which are not peculiar to the system but which are peculiar only to given countries at given times and in given military, economic and population phases. Both socialist and capitalist doctrinaries think in terms of an ideological system rather than a factual situation. Saying this is an indictment neither of capitalism nor of socialism. It is merely a plea for realism in analyzing both.
It explains nothing to say that capitalism is a profit system or that socialism is a welfare system. What we need to know is why a society can be operated on the profit motive in one situation and phase and not in another. Capitalism did far more for welfare in its heyday in America and England than socialism has done since the war in Russia. But this fact proves nothing about the comparative availability of capitalism and socialism for use in Russia or Eastern Europe, or even the United States, today. To get at the roots of these problems we have to think things, not words; we must think events, not abstractions.
The industrial revolution was a series of events in time and space. We cannot think realistically of capitalism and democracy without thinking concretely of the events which constituted the industrial revolution. It was a continuation of the commercial revolution which began about the opening of the seventeenth century when the first English colony was founded at Jamestown and when more or less continuous trade relations with the East were established by the British. The piracy of the Elizabethan era provided working capital for the ensuing and more respectable ventures of trade and colonization. The entire movement stretched from the beginning of the seventeenth to the beginning of the twentieth centuries. It may be traced still further back to the Crusades and then to the Renaissance or to the beginning of the fifteenth century, which marked the rise of new interests, tastes, and economic demands resulting in the creation of the modern state, new religions, science, the voyages of discovery and the development of trade routes and relations.
With the commercial and agricultural revolution in England in the seventeenth century also went political and social revolution. (The agricultural revolution introduced rotation of crops and a more efficient land utilization which made possible population increase by enlarging the food supply.) Cromwell’s revolution of 1649 and the Glorious Revolution of 1688, which liquidated the Stuarts and divine right of kings and established the supremacy of the shopkeeper, i.e., of parliamentary democracy, were the great events of the political revolution of the seventeenth century. This new regime was revolutionary only as long as it was expansive, which was up to the turn of the century forty years ago. Technological change still goes on in America, but it is no longer expansive for the industrial system as a whole.
Between 1720 and 1760 British exports doubled and between 1760 and 1795 they doubled again. French exports increased fivefold between 1715 and 1789. The big idea was international division of labor; the big incentive, the possibilities of making fabulous profits. The battle for the inauguration of the factory system was won in the eighteenth century with the inclosure of the land. The battle for free trade was not won until the repeal of the last corn laws in the middle of the nineteenth century, by which time England had ceased exporting and started importing food. The great revolutionary tract of this movement was Adam Smith’s Wealth of Nations, published in 1775.
It was a revolution, the transition from feudalism to industrialism; from pastoral and inefficient agricultural production and small handicraft production in the home for strictly local or regional consumption to mass production in specialized plants for a world market; from serfdom to contract labor; from barter to money and credit. The details may be omitted on the assumption that they are well enough known to every reader for the purpose of following intelligently the argument of this book.
Liberal economists and historians have never been entirely happy over the application of the term revolution to this bright era of a young and healthy capitalism. But, as Professor Bonn, writing in the Encyclopaedia of Social Sciences on the industrial revolution says, “A revolution which continued for a hundred and fifty years may well seem to need a new label. Yet, despite all hesitation, the term stands and no better one has been devised.” Tawney said that the material appearance of England changed “more profoundly than at any other time since the epoch of the last geological changes.”
This chapter underlines a few generally overlooked points about the industrial revolution. The first, as already indicated, is that, as a constructive or dynamic force for capitalism, it is over. The second is that its essence was revolutionary change. The third is that it was change by growth or continuous expansion, which means that it had to be a transient phase in the history of any country in which it occurred. This means that these expansive processes cannot be revived. The fourth is that, on the economic side, the most important characteristic of the industrial revolution for capitalistic purposes, after that of continuous expansion, was monopoly.
Summarizing briefly, the end of the industrial revolution for capitalism means the end of a phase of change, growth and monopoly. No features of capitalism have been more laboriously understated or glossed over than those just mentioned. Malthus and Sismondi were among the few influential theorists of the early nineteenth century to give the expansion aspect serious consideration. Liberal thinkers of the nineteenth century generally refused to discuss social problems in their entirety or to envisage society as an organic whole. Their respective fields of inquiry were definitely circumscribed by artificial boundaries of definition. One still hears intelligent people speak of keeping politics out of economics or government out of business, a wish one would rationally expect only burglars or criminals to entertain. The social sciences of the nineteenth century were built around the individual and not around society. What was studied, discussed and explained was the individual, his desires, motives and behavior, considered in detachment from the living social organism and the moving social drama of which the individual is never more than one, and usually an extremely minor, actor. For these theorists, society and the state were nuisances, like droughts and epidemics, with which the individual had to contend and over which he had to triumph.
Growth in geometrical progression and monopoly were two features of the industrial revolution and two requisites of capitalism, and possibly also of socialism, which liberal theorists simply refused to examine in a scientific manner. Explanation of the reason growth by geometrical progression must always be temporary is left for the chapter on population. That this sort of growth was the essence of capitalism, was recognized by few thinkers except the Marxists during the nineteenth century. This is understandable. A man courting a beautiful young maiden does not discourse to her on the brevity of youth and beauty and the inevitability of old age and death. Liberal thinkers were engaged mainly in courting, not in scientifically examining, the system from which they expected and received so many favors.
The Marxists, who, for moral reasons, were denouncing and not wooing business, quickly got off their most devastating criticism of the system on to one of their many moral tangents. One of these led to the inevitability of the overthrow of the system by the victimized workers, a point which seemed increasingly untenable as the standard of living of the alleged victims steadily rose throughout the nineteenth century. Another Marxist tangent led to an equally chimerical concept of a classless, stateless society. Now it becomes evident that what is wrong with capitalism is not its abuse of the workers or the workers’ resentment against the system, but the simple fact that it is running down, to the sorrow of the workers quite as much as the bosses. Eventually working class resentment against the capitalist and managing classes may develop, but only if and because, in the breakdown of the system, the latter oppose change. The trouble with the industrial revolution is not that it made millionaires but that it now fails to create enough jobs. As a capitalist dynamic, it is over. The liberal theory that capitalism would go on forever growing bigger and better is to be blamed only for being wrong as a forecast.
Statistical measurements of the changes wrought by the industrial revolution in recent times could be multiplied ad infinitum, as for example, the following: At the beginning of the Civil War we had only thirty thousand miles of railways against 260,000 miles today. At the turn of the century we had only a hundred thousand miles of surfaced highways against some 900,000 miles today. In 1850 we manufactured products of a value of only about a billion dollars as against seventy billion for the banner year of 1929. During the past two generations output per worker in industry has increased three and one third times from 1870 to 1930 and real wages have more than doubled. But the broad facts of industrial change do not need to be proved or illustrated. What we are interested in is the process as a past dynamism and a future possibility.
Business-cycle theory has been spun now for a full century on the basis of the implied assumption that the phases of boom, collapse, depression and recovery constituted a perennial sequence like the four seasons of the year. It was explained with some degree of success why one phase succeeded another. But it was not found possible to time these occurrences. The chief value of this research and theorizing was to furnish assurance that as we had always recovered before we should always recover again, especially this time.
The trouble with the business-cycle theory during the industrial revolution was that it failed to see the tide for the waves. It assumed that a tide which kept rising for a century was as permanent as the Gulf Stream. In terms of geological time, even the Gulf Stream and the present seasonal variations of the weather are not permanent. In relation to the millions of years man is on the earth, the past century or two is but a brief moment, hence the utter absurdity of most textbook talk about what is normal, natural or economic in reference to social phenomena, the basis of such talk being only the history of a mere century and that century being the most abnormal one since the beginning of history. Projecting upward moving trend lines of past statistical series into the future for an indefinite period is not science but hokum. The impossibility of perpetual growth or expansion is one of the most easily verified laws of science. The one point which all business-cycle theories should have stressed was omitted or inadequately stated in all of them, namely, that nineteenth century growth curves of capitalistic institutions and statistical series could not long be maintained.
During the postwar period economists have sought to get around certain iron laws of physics and mathematics by arguing that the industrial revolution could be indefinitely prolonged and stabilized as an evolutionary process. This was to be achieved without necessity for continuous population increase by means of the simple expedients of raising living standards and introducing new inventions and techniques all the time. Thus Professor E. L. Bogart, writing as late as 1935 in his Economic History of the American People said, “The new technology, based upon the use of electricity, the internal combustion engine, the radio and the airplane, is inaugurating economic and social changes even more momentous than those introduced by the inventions of the steam engine one hundred and fifty years ago.”
The catch in generalizations like those of Professor Bogart’s is that they are inadequately correlated with the entire social process. Steam, electricity, the railroad and steam driven factory, automobile and all the allied inventions and industries went with an era of expansion and activity in which unemployment was virtually unknown. Inventions were not dynamic by themselves but only in conjunction with population growth and the frontier. The only real test of the dynamism or momentousness of industrial change is that of total economic activity. If activity and employment at present peacetime levels remain stationary or decline, no matter how revolutionary inventions and technological changes may seem, it is idle to call them momentous or dynamic. An invention which enabled man to harness unlimited motive power from the sun or the cracking of the atom might soon create such a crisis of unemployment that extreme socialism would have to be adopted almost overnight.
The simple truth is that, for capitalistic purposes, technological change used to be dynamic in the era of the frontier and rapid population growth, but is no longer because these last named factors are no longer dynamic. Today, so far as stimulating business expansion is concerned, industrial changes are no more dynamic than changing crossties or steel rails on a railroad. In industrial maturity large corporations, which produce most of our manufactures, are able to take care of technological change as a matter of routine out of reserves set aside out of earnings. As for entirely new products, they now tend to replace old products and to result in no net increase in consumption or production. Thus, to cite an important case in point, the production of petroleum for light, power, heat and transportation now takes less labor than did formerly the production of coal and agricultural fuel for draft animals. This last item alone absorbed the output of twenty-five million acres now unneeded. Electric refrigeration displaced ice and thousands of icemen. The talking pictures displaced hundreds of theaters and disemployed thousands of actors and musicians. Television may displace the talking picture theaters. But, and this is most important—the railroads a century ago did not displace the horse as the automobile has done since 1900. The factory ended homecraft industries, but gave rise to far more employment than it terminated in the home.
The classical economic doctrine, valid up to a few years ago, that labor displaced by new machinery, always found new employment as a result of the investment of the additional savings effected by the new machinery, rested on the assumption that banks and capitalists would never fail to keep funds or idle bank reserves fully employed and, by such failure, lose interest. In theory this was true only because in practice there was always a demand in excess of supply so far as savings were concerned. During the industrial revolution capitalists did not hoard and banks did not carry colossal surplus reserves as at present. The nineteenth century theorists stated or implied that there was no hoarding because of an innate human aversion to hoarding. This, obviously, was not true, as the rich in the East have for thousands of years hoarded their wealth in idle gold, silver and precious stones. Whether the rich hoard or not in no way depends on their personal preferences as between keeping money hoarded in gold and precious stones and putting it out at interest. It depends entirely on whether the objective conditions of the period provide sufficient investment incentives. Liberal economists basing their theory on the experience of the most abnormal century and a half in all history assumed that investment incentives and attractive interest rates were perpetually normal conditions. Actually, they were, in the nineteenth century, normal conditions only because of the phenomenally abnormal character of that brief era.
One big reason there was no hoarding and there was an industrial revolution during the nineteenth century was that, in those abnormal times, almost every new industry became to some extent a monopoly. Now if there is anything an orthodox economist abhors, it is monopoly. The economists spend most of their time trying to prove that monopoly is bad for business and businessmen spend most of their time trying to achieve monopoly or failing in business because they are unsuccessful in achieving it.
There is more hypocrisy about monopoly than any other subject in the whole field of economics. For practical purposes, monopoly may be defined as the enjoyment of a situation in which competition need not be feared. If three automobile makers share more or less equally two thirds of the automobile sales in this country over a long period of time without ever engaging in cutthroat price competition, it may fairly be said that each of the three shares a monopoly and fears no competition from the makers of the remaining third of the cars sold or from each other. If an individual opens a restaurant in a community having twice as many restaurants as it needs, he cannot be called a monopolist unless, perchance, his cooking happens to be so much more popular than that of any of his competitors that he need not fear competition. In that case, he becomes a monopolist.
Monopoly is not a legal but a factual situation. A railroad may have a legal monopoly to furnish transportation where there is not enough traffic to make profitable operation possible, the case in innumerable railway lines in America today. Whether a franchise holder has a real monopoly or not, depends entirely on the facts of operation and not on the legal charter alone. During the nineteenth century not only American railways but also textile mills both in Manchester, England, and Manchester, New Hampshire, enjoyed for decades on end virtual monopolies solely by reason of the expansion processes of that phase of economic history. Today the railway and textile industries in both England and the United States are permanently depressed industries though they are more efficiently conducted now than ever. Today many new industries are arising, some of which, like aluminum or agricultural machinery, quickly acquire a monopoly situation and enjoy monopoly profits and prosperity, while millions of their consumers are on relief. But such prosperity is offset—in the cyclical downswings more than offset—by the lack of profits and prosperity in such major basic industries as agriculture, the railroads, the textile trades and coal mining all of which are in permanent decline as profit makers. The net result is chronic depression, except as mitigated by pump priming. Broadly speaking, most of the service industries, certainly the railroads, are prosperous only during those brief periods of peak industrial production.
Those who argue that the industrial revolution can go on forever in an evolutionary form also fall back on another fallacy of classical economics, that of consumer sovereignty. According to this hoary fallacy, goods and services are produced for a profit in response to consumer needs and demands. The fallacy makes the consumer sovereign. His demand is supposed to regulate or determine the quantity and kinds of output. The inventory explanation of business slumps and rallies rests on the same error. According to this particular refinement, business slumps because inventories, or stocks of merchandise in warehouse and on the shelves, grow too large, wherefore orders for more goods are temporarily curtailed; and business revives because inventories grow too small, wherefore new orders begin to be placed to replenish depleted stocks. Actually, of course, inventories are never either too large or too small in the absolute, but only relatively to current demand. This, in turn, rises in measure as inventories are expanded and declines as inventories are allowed to shrink by reason of the curtailment of new orders. The inventory explanation, therefore, is largely a piece of circuitous reasoning.
If the notion of consumer sovereignty were true, there would be no long depressions. Consumer needs and wants are limitless. Therefore, capitalists, producers and merchants would continuously expand production and thereby create purchasing power to pay for all that was produced. The only limit to total production would be that of potential productive capacity. And potential productive capacity would steadily increase by reason of the continuous reinvestment of the savings of the profit makers and by reason of new inventions and new sources of raw materials. This is the way it happens in storybook capitalism. According to the storybooks, the only reasons it does not so work out in practice are numerous devils like government interference, institutional frictions and persons and groups lacking in good will. Barring the interferences of these devils, production and consumption would go on expanding in an ever widening circle. According to Say’s law, production necessarily creates the purchasing power to pay for what is produced. Hence there can be no overproduction or underconsumption due to the mechanics of the system.
Why does it not really work that way? Or why does the industrial revolution not go on forever? The answer, of course, is that the major premise of consumer sovereignty is 100 per cent false. Producer demand, not consumer demand, is sovereign. The producers decide what, when and how much to produce, including the volume of construction and producer goods activity such as new plants, office buildings, etc. In other words, volume and rate of reinvestment of profits and savings determine swings in consumer demand. Producers and investors determine swings in the volume and velocity of the flow of consumer purchasing power. Booms are made by producer and investor optimism and ended by producer and investor pessimism. Consumer needs and desires have no more to do with the up- and downswings than sunspots. When producers decide to curtail production, consumer purchasing power declines and thus arise good reasons to cut production and employment and wages still further. The process is reversed by a change in producer and investor psychology. The producer decisions, as everyone knows, are governed mainly by changes in expectations of profit.
It may be asked why, if capitalists could keep up the boom merely by maintaining expenditures for new capital goods and larger inventories, they do not do so since they would thus keep up consumer purchasing power, sales to consumers and profits. The answer is fairly simple and has been most clearly stated by the Marxists: It is compound interest or the continuous reinvestment of profits. For the system to work, the accumulation of private income yielding wealth in geometrical progression must be fairly continuous. This, obviously, is a mathematical and a physical impossibility over any long period. That it went on long enough to enable a school of theorists to make it a norm of their system is one of the peculiarities of the past hundred and fifty years. The explanation is to be found in two sets of factors. The first, already mentioned and to be discussed further in connection with the frontier and population growth, was that of an unprecedented expansion of the physical factors of labor, land and producer’s goods in geometrical progression during this abnormal nineteenth century. The second part of the explanation was that constant and large losses by unlucky investors and business enterprisers during that era kept down the rate of capital accumulation, while, at the same time, perfectly fantastic profits from lucky strikes and rising land values provided enough incentives to new investment to offset the discouragement of the large losses.
Capitalism, or the process of continuous investment of savings in new profit-seeking enterprises, might work in a perfectly static economy and population if current losses on business operations and ventures always equaled current savings and profits and if, on this basis, incentives to new investment and enterprise proved ample. Thus, each year, the write-off would equal the write-up and there would be no compound interest or geometrical-progression problem. But, as a practical matter, and as we now have ample opportunity to observe, it cannot work out this way unless the winners are allowed to keep the winnings and unless the winnings are, in many cases, sensationally large. Today progressive taxation on incomes makes it impossible for the big winners to keep more than a small part of their winnings, if they win, or, when they lose, to deduct their losses from their winnings of a prior or later period. Either a company or an individual may make a net profit over a period of ten years but actually, as a result of taxation on income, be a net loser, if it has alternating years of large losses and large profits.
In consequence of the reduced number of chances of making a killing and of the certainty, if and when one is made, of having to pay most of it out in progressive taxation, wealthy investors and large enterprisers are now seeking investments and operations which present a minimum of risk. Among the results, naturally, are increased hoarding and unemployment. Hoarding may take the form of larger surplus cash reserves of banks or larger purchases of government and high-grade bonds refunded at ever lower rates of interest, or of the simple holding of more cash by individuals.
Positive evidence that industrial expansion as a capitalist dynamic is over may best be found in the fact that since 1929 capitalism in America has been unable to get a single boom started except on fear of inflation. The first was the short-lived spurt of 1933 which was generated by the devaluation of the dollar. The second and more substantial one came in late 1936 and early 1937 as a result of the payment of the bonus and unusually heavy deficit spending by the federal government. The third began in mid-1938 on a rescue increase in public spending for relief and rearmament following the 1937 slump caused by a drop in deficit spending from the 1936 peak. The fourth came in 1939 on the outbreak of war in Europe. No one of these four spurts was in any sense a capital goods or investment boom. No one of them was generated by expectations of profits from industrial expansion. Each was caused by fear of inflation. As a capitalistic dynamism, then, the industrial revolution is over. Therefore, public investment or pyramid building must supplement or completely supplant profit-seeking private investment.