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From The New International, Vol. VII No. 7 (Whole No. 56), August 1941, pp. 174–5.
Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).
WALL STREET EXPERIENCES several million share days. Does this mean a revival, which will parallel the tremendous rise in the stock market that occurred during World War I? One of the mysteries of World War II has been the continuance of the stock market in a state of unprecedented lethargy. The stock market, where the capitalists trade in certificates of ownership, claims to dividends and interest that the manufacturing bosses extract from the toil and sweat of their workers, is supposed to be a barometer of business conditions. Business has been booming; production has reached all-time highs due to the developing war economy; profits in many cases exceed the 1929 highs – and yet Wall Street has been in the doldrums. Prices are very low; business has been so poor that the brokers cannot, in many cases, even cover overhead expenses, resulting in forced mergers and consolidations. The best index of Wall Street depression in the midst of a business boom has been the decline in the price o£ seats on the Stock Exchange – the exclusive country club of the big financiers and speculators. Seats, which not so long ago used to sell for well over $100,000, are now in the twenty thousand dollar levels. Almost anyone – that is, for a small fee – con now buy the privilege of trading in stocks and bonds.
Interest is running very high among the capitalists concerning whether a real revival in the stock market is actually under way at last. While the workers don’t own any stocks and bonds, the advanced workers will follow this development with almost as much interest as the capitalists, for it is always important to know what the class enemy is thinking and doing. Moreover, a stock market boom, if it follows previous experience, always ends in a crash which makes the ensuing depression that much worse. The after-effects of the boom during World War I were not felt until late 1920 and culminated in the 1921 crash, which was resumed after the temporary prosperity of the 1920s in 1929.
Opinion in Wall Street is divided on the question of why the sudden increase in business, and whether a revival is really under way. Some claim that the continued resistance of the Russian armies is chiefly responsible for the rise in Wall Street. They interpret this as meaning a more favorable military outlook for the Allies (that is, for American imperialism) , which it surely is if Hitler is really bogged down on two fronts. American capitalist property and investments are in a sounder position – worth more – hence the rise in Wall Street and the increased volume of business.
Others say that some of the increased purchasing power being pumped into the hands of the public by increased government expenditures is finally finding its natural outlet – the stock market. In support of this contention, they cite the recent report of the Department of Commerce to the effect that income payments to individuals in the month of May reached a rate of $86 billion annually. This is the highest on record and compares with an estimated national income of some $75 billion in 1940 and the previous high in 1929 of some $82 billion. Increasing public confidence – that is, surplus incomes in the hands of the big capitalists and the upper middle class – means increasing support of the stock market.
Still others base their optimistic forecasts on the increasingly high profits being made by practically all sections of American business and the “realistic” tax proposals now being considered by the House Ways and Means Committee. They find especially heartening the apparent tendency of Congress to keep the excess profits tax at ridiculously low levels. Altogether, they find no tendency on the part of Congress to pass taxes which will discourage private initiative! Hence, Wall Street should reflect these increasing profits and the market should go up.
Undoubtedly there is some truth in all of the contentions. However, in estimating the prospects of capital’s colossal legalized gambling institution, known as the New York Stock Exchange and allied exchanges throughout the country, it is first necessary to understand why the stock market has not paralleled the rise in business during the past two years. Only then are we in a position to estimate whether the new forces, mentioned above, appear to be sufficiently powerful to offset the old forces that have kept Wall Street in a state of continued depression.
Here we are confronted with a powerful tendency, which appears to mark an entirely new technical stage in the process of accumulating capital. Hitherto, the chief legitimate function of the stock market in the capitalist economic system has been as a means of raising capital for corporations either for the purpose of floating new enterprises or adding capital to existing corporations, or replacing capital that has been used up by existing corporations. This function, beginning in the middle of the nineteenth century with the financing of the railroads, was made necessary by the increasing size of capital accumulations required to launch a capitalist enterprise. More capital was needed than could possibly be furnished by one man, or by small groups (partnerships). Through the device of the stock market, capital could easily and quickly be raised from all sections of the capitalist class and concentrated in the hands of a few finance capitalists, or their agents, who would direct it where it would do them the most good – that is, earn the highest rate of profit.
For some time, and with increasing frequency in the past few years, there has appeared a tendency for existing corporations to raise all the additional capital they have required, either to take care of depreciation or expansion or both through their own accumulated reserves of surplus capital and undivided profits. This is particularly true of the very large corporations. The very statistics of the Department of Commerce, referred to above, bear this out. Dividend payments have risen 5 per cent over last year, but entrepreneurial returns are up 9 per cent. Putting the matter very simply, almost one-half of the profits of corporations are not being paid out in the form of dividends to the stockholders but are being put aside in surplus and undivided profits accounts. These, can be used at the discretion of the management and board of directors for whatever purpose they wish. Most managements explain these steps by the necessity of piling up reserves for a “rainy day” in these uncertain times. But time and again, the large corporations use these reserves for routine capital financing.
This is having a noticeable effect on the structure of the capitalist class. It means the further concentration of control of huge enterprises in fewer and fewer hands – particularly in the hands of the management. The officers and directors of the large corporations become increasingly conservative as they rely more and more on these new methods of self-financing. The expansion of existing enterprises and, above all, the building of new enterprises, is resisted more and more by this newly-elevated capitalist bureaucracy. It becomes the most conservative section of society and acts, in the struggle for its increasing independence and enhancement and preservation of its own power, as a complete brake on the development of the productive forces. Even the imperialist war economy suffers as a result of this innate conservatism of the capitalist managers. The full implications of this trend are only in the process of being observed. They will require a separate theoretical analysis.
Meanwhile, Wall Street and those capitalists who operate on the exchanges have been suffering. I£ a number of big corporations can finance themselves completely or partially through their own accumulated reserves of surplus capital, this means less business for Wall Street. If less dividends are being paid out, there is less reason for the public, that is, the small capitalists, who had their fingers burnt badly in the 1929 crash, to invest their small, individual savings in the stock market. This factor has been the main one in explaining the depressed state of Wall Street. Wall Street has been further undermined by the liquidation of a large portion of British-held American securities through private deals, without benefit of the stock exchange mechanism. In addition, of course, the war has not been going too favorably for American imperialism. Also, many capitalists are genuinely frightened by the increasing tendency toward government control of industry that is an inevitable part of the process of developing a total war economy.
Wall Street, in one of the most widely-advertised publicity campaigns that it has ever put on, has tried to offset these unfavorable factors, as well as the strongly developed public trait of blaming all economic ills on Wall Street, by electing as its new president of the New York Stock Exchange Mr. Emil Schram, head of the RFC. Mr. Schram’s duties will be those of a public relations counselor. It will be his task to establish “better relations” with the government and to increase public confidence in Wall Street, to the end that more suckers can be induced to part with their savings.
It is always difficult to estimate the immediate prospects of Wall Street. But its long-term prospects are indeed gloomy. The tendency for corporations to depend increasingly on self-financing and thus cut themselves loose from Wall Street will mean that Wall Street’s main function will be more and more limited to the financing of new enterprises – and there cannot be too many of these in the general period of capitalist decline. The government will be forced to siphon more and more of the excess savings of the middle class into government channels through increased taxation and, eventually, compulsory savings for the purpose of maintaining government borrowing of a non-inflationary character. Moreover, the defeat of German imperialism looms as an increasingly long and costly undertaking.
These unhappy prospects for Wall Street over a long period of time seem to find reinforcement in the announcement of a sharp increase in the “short” position in Wall Street. The shorts are the speculators who operate in the hope that prices will go down. Wall Street rarely permits sentiment to interfere with its cold-blooded business calculations. In spite of all the ballyhoo, then, there is increasing opinion within Wall Street that there will be no immediate boom in the stock market. In any case, it appears quite safe to predict that this time there will be no run-away boom on the 1916-1920 or 1926-1929 models. Any rise that does take place will be of a temporary and limited character, depending largely on temporary conjunctural factors.
All of which helps to point to the inescapable conclusion that capitalism is getting old – in fact, old to the point of senility. No rational economic order requires such an archaic and bloodthirsty institution as the stock market. The financing of new enterprises, as well as the expansion and maintenance of old ones, today requires the establishment of a planned economy. The trend toward the establishment of planned economy is an irresistible one; moreover, it appears on a world scale. The question is merely whether it will be the totalitarian, bureaucratic and reactionary planning of the capitalist or Stalinist variety, or whether it will be the democratic and progressive planning of socialism. In the last analysis, it is the workers, particularly the American workers, who will have the final say on this historically decisive question.
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