Midnight Notes on America post-WWII.
The decoded message of the Apocalypse reads: Work/Energy. Both sides of the “great energy debate” want to rebalance the ratio, but what unbalanced it in the first place? If the “energy crisis” began in 1973 the logical place to look is the period immediately before. What was happening to work/energy then? ... a capitalist catastrophe in commodity production and the reproduction of labor-power. Need we take out the old film strips? The ghetto riots, the Panthers, campus “unrest”, SDS and the Weatherpersons, a strung-out imperial army, DRUM in Detroit and the West Virginia wildcats, the welfare office sit-ins, the shooting of Andy Warhol, SCUM, the Stonewall blowout, Attica. Let graphs 2 and 3 suffice:
The first deals with a historic transformation in the wage profit relation, the second depicts the changed relation between defense and “social” expenditures. Both indicate that the late 60’s and early 70’s saw the inversion of long term trends.
If we look, e.g., at the two decades between 1947 and 1967 we see that in this period wages and profits intimated the fulfillment of an American Capitalist Dream: the class struggle can be bypassed, wages and profits can grow together, perhaps not at the same rate, but in a long-term growth equilibrium path. The Keynesian strategy of matching real wage increases with productivity increments seemed to succeed. To each his own, and thou wilt be satisfied. 1967 through 1972 was the shocker: for the first considerable period there was a decline in profits. This decline appeared at the cost of increased wages. The bets were off. Once again wages seemed antagonistic to profits as in the bad old days of Ricardo and Marx (lately exhumed by Sraffa). This period marked the end of the “social peace” worked out with the return of the vets from Europe and the Pacific into the plants. It was not, however, a period of wage “explosion” (as it could be characterized in Germany, Italy and France). Rather, it involved a mathematical inversion and the return to the zero- sum game of wage negotiation that seemed transcended by capital’s game-theorists during World War II and immediately after.
The second chart (#3) deals with the state’s function as the general guarantor of the average rate of profit. This requires that the State oversee the reproduction of the working class and provide for proportionate revenues. The bottom graph indicates the quantative increase in the state’s “share” of the total social value. It is not surprising that it should increase during the Vietnam war. What is surprising is that at the very moment the war was ongoing, the proportion of “defense” spending dropped dramatically.
“War” and “defense” are an essential, though unrecognized, part of the reproduction of labor power, which can dictate the death of millions of workers. Aushwitz, Dachau, Belsun, were extermination factories whose product — the suffocation and cremation of millions of bodies — was an essential moment in Nazi capital’s “labor policy”. The reproduction of labor power should not be identified as the reproduction of “human bodies” and “beings”. Moreover, “social welfare” spending by the state can be defense spending. Indeed, this second aspect was apparent in the late ’60s. Another war was being fought white-hot in the streets of the USA that needed immediate attention. Hence the precipitate increase in “social welfare” expenditure, i.e., “transfer” payments (but what is not a transfer payment in this system?) to deal with women, blacks, youth, who were increasingly refusing the way they were being reproduced. This chart indicates that whether you call it “war” or “welfare”, the process of ensuring a population accepting the large-scale wages, profits and productivity relations as well as the microrelations of love, job, discipline and quiet dying was in crisis. Not only was the work/energy ratio immediately in trouble, it was in more serious trouble over the long run.
Trouble, however, inspires thought and capital’s thinkers turned with new apprehension to the work/energy ratio. Now a ratio is an expression of a two-sided relation and can be looked upon from either side. From capital’s point of view, the work/ energy ratio is a more generalized form of the exploitation (or profit) rate. The crisis appears through these lenses as a decade-long, from the mid-60s to the mid-70s, plunge of profit rates. What were the causes of this decline? From the humblest industry gab and gripe sheets to the mathematical stratosphere of capital’s computer self- consciousness the answer comes in reverberations: TAXES and TIMIDITY.
The state is taxing “us” to death while “we” all too often take the “safe and secure path” that guarantees a small profit (but slow “growth”) instead of attempting risky, long-term ventures that really pay-off. The statistics showed this. Taxation on profits (calculated on “current production” profits) rose from 40% in 1965 to 60% in 1974. At the same time, the risk of investment fell. If we take as the measure of “risk” the interest rate on debt and equity corporations must pay to raise financial capital it is clear that capital collectively became chicken. The interest rate decreased from 8% in 1966 to 4% in 1972-73. Capital’s “claims” to its share of income were decreasing while what was claimed had to be increasingly given over to the state. U.S. capital appeared to be catching “the British disease”.
W.D. Nordhaus, in his celebrated article “The Falling Share of Profits”,1 appeals to Keynes’ subjective theory of investment to explain why the interest on investment faced such a decline. According to Keynes, the capitalists must overcome their “ignorance of the future” through calculation of “mathematical expectations”, second-, third-(and even higher) order judgements on the “average opinion” of other capitalists in the investment market, and finally with “animal spirits”, i.e., capital’s “spontaneous urge to action rather than inaction”. In agreement with this Keynesean existentialism, Nordaus claims that the fall in profits was due to an extra-ordinary period of calm in capital’s heart and mind:
The answer seems to me to lie in the general dissipation of the fear of a new Great Depression. For many years after the Crash, investors justifiably worried about a repetition of those events. Even as late as March 1955 when the fear might have reasonably faded, the statement by Prof. Galbraith that the Great Crash could repeat itself was sufficient to send the market into a temporary panic — or so he claims. Since that time, however, the memory of the bad old days has dimmed, and this freedom from fear may well provide a rationale for the post-war movement in the cost of capital.
Presumably, in the different psychic “climate” prevailing in the post-WWII era, investors became more confident in the future, had a new sense of guaranteed horizons, the risk factor seemed reduced. Thus, (according to this theory of profits) the expected returns on investment fell. For if risk is high the investor demands high profits, if the risk is low, he will settle for lower profits. What had brought about this freedom from fear, what psycho-analytical therapy had the capitalist mind undergone? Nordhaus does not explain, but to any therapist this much should be obvious: the healer must be paid his dues. In this case the healer of capital’s long term fears was the state and the “dues”, taxes. This is why the major structural transformation of the GNP was in the share of the State. The Federal budget increased from 10% of GNP in 1940 to an average of 20% in the period between 1960 and the present. In other words, by investing in the reproduction of labor power the State exorcised the trauma of the Depression (and its potentially revolutionary consequenses), and the increased tax on corporate profits was its fee. Every step capital takes in feeling more secure leads to a loss of profit.
But why should capital fear, why is investment risky, and the future so obscure? Why, indeed, must capital have “animal spirits” in the first place? Is this a metaphysical truth? Not really, because there are risks of different sorts. Some are dealt with in an almost mathematical manner, e.g., in fair toss gambling or in predicting the weather. You calculate future probabilities from past data, lay down your money and wait for the outcome. Such risks are not what Keynes is talking about. There are also strategy-game risks, those you take when you depend upon (or reply to) the actions of another player in a game where all the players agree to and are governed by the same rules. Here you cannot simply go upon past behavior; any game with a rich enough set of rules and positions can present completely novel situations and this forces you to speculate on the strategy of your opponent, to read out his likely move. This involves a risk, but the risk is encompassed in the network of rules that bind you with your opponents and allies (who may be continually turning into each other). This risk, typical of the poker game, is also calculable, as von Neumann showed. There is however a final risk that is not dependant upon mathematical expectations nor upon considerations of strategy because your opponents are neither predictable nor in agreement about the rules. Here, you have no clear basis for judging their future behaviour in response to your moves. This is a totally new kind of risk that requires “animal spirits”, a “spontaneous optimism”, an “urge to action” or, perhaps, a “will to power”. This is the class struggle.
Keynes worried about capital’s “state of confidence” during the Depression not because it involved a downturn in the business cycle, however steep. Such dips in capital’s life are to be expected and capitalized upon. What concerned Keynes was the altogether novel “sixth sense” capitalists had to develop in their investment decisions after the revolutionary wave that followed the First World War. This involved shifting attention from risks “outside” (market flucturations, weather, mineral discoveries, etc.) to risks “inside” (working class attitudes, training, work habits) the process of social production. The State had to intervene in Keynes prescription because of the increasing realization that the working class was not predictable nor “part of the game” but powerful enough to rip up the rules. The mixture of taxes and timidity are a direct consequence of Keynes’ recommendations.
Since the New Deal the State by careful use of collective bargaining, nuclear terror, FHA loans, had increasingly reduced the risks of investment. Hence the reduced interest on capital, for cooling capital’s anxiety inevitably reduced the pay-off of its projects. The transformation of the composition of the federal budget from “defense” to “welfare” in the ’60s indicated, however, that not only would the State’s “taking care” have an increased cost, but that the direction and nature of working class insubordination was changing in new, unpredictable ways. The period between 1967 and 1972 showed that the cost of calmness was increasing to a point where the therapy was ruining the patient. Freud never wrote that therapy could create the anxiety it was reducing. While the interest on capital followed the historical post-WWII trend, capital began to confront the fact that this trend meant euthanasia. Moreover, confidence was diminishing in the effectiveness of the State’s therapy when applied not to the traditional line workers, the veterans of Flint, Guam and McCarthy, but to altogether new subjects. Just what did those blackpowerlonghairdopesmoking-flagrentqueerhousewifelesbians want!
Between the mid-60s and mid-70s, the tax-timidity syndrome intensified. The relation between state and individual capital proposed by Keynes was in crisis. Capital was in a knot, a double bind, and it attempted to cut it in October 1973. The relaunching of the profit rate depended upon capital taking the initiative, cutting out its most vulnerable areas and, most crucially, quit playing by its old rules.
- 1 W. Nordhaus, “The Falling Share of Profits" in BROOKINGS INSTITUTE PAPERS, (Brookings Institute, 1975).