Accumulation and Power
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Accumulation and Power

Economic History of the United States

Richard B. DuBoff

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eBook - ePub

Accumulation and Power

Economic History of the United States

Richard B. DuBoff

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About This Book

Accumulation and Power analyses America's economic development across three great waves of economic expansion: the Grand Traverse 1850-1900, the New Era 1916-1929 and the Great Postwar Boom, 1945-1972. Drawing on the work of Keynes, Schumpeter, Marx it departs radically from the "new economic history" model, focusing instead on capitalist decision making and its social consequences. It argues that the accumulation processisfar more important than competitive markets in explaining resource allocation and growth. This innovative book is essential reading for all students and scholars of American economic history.

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Information

Publisher
Routledge
Year
2016
ISBN
9781315492391
Edition
1

1
The Flow of Economic History: Accumulation, Monopolization, Competition

We live in an age of information overload. It comes not only through electronic media but also through an exploding number of textbooks and teaching materials at all levels of the U.S. education system. Under circumstances like these, how can a fundamental issue like the long-term development of the American economy be understood or even approached? How can students find their way amid all the competing versions of our economic history?
A look at the recent past may help. Of the several schools of thought vying for attention, the dominant one in the United States over the past three decades has been the "new economic history." Its explanation for U.S. economic growth is clear and concise: the free market is what lies behind America's success.1 Whether the issue is the long-run productivity performance of the nation, the economic viability of slavery in the Old South, or the suburbanizing of the landscape since the 1920s, the verdict of new economic historians is the same: "the market worked." There are rational cost-price explanations for the production decisions and technical innovations that helped shape the American economy. The competitive market created demands for goods and services that unleashed the energies of enterprising individuals, who responded to these opportunities by creating unparalleled economic growth.
The theme is invariably one of functional response and triumphant outcome. Financial, legal, and political institutions adapted to emerging market pressures, and per capita incomes, technological virtuosity, and international prestige all increased accordingly. In fact, the purpose of the new economic history has been to show how the American economy achieved its size and efficiency through a process of "free," unregulated decisionmaking. As the authors of a widely consulted new economic history collection state, even "irrationalities" such as "ignorance, market power, [or] government interference for social (or nonsocial) purposes ... may turn out to be rational when subjected to the scrutiny of an ingenious logic and a sympathetic insight into the actual conditions under which they occurred. Engaging in this exercise of finding rational patterns in history is, we confess, a source of endless delight to us."2
The focus of this intellectual exercise is an economy consisting of interconnected markets in which activities are coordinated by the price system. Changes in technology or the size of markets or the supply of labor bring about changes in relative prices, which then provide "signals" for allocating the economy's resources. Consumers and business firms react quickly—and rationally—to these market-generated prices, thereby determining what goods and services are needed and supplied, as well as what inputs are required to produce them. Thus, they are led by something like Adam Smith's "invisible hand" to invest, produce, and consume in ways that increase overall output and distribute the income that flows from it.
Available technologies, consumer tastes, and the role the government piays in the economy are treated as exogenous or "given." The economic advantages that accrue to some market participants are treated as endogenous—incidental results of decisions made in response to relative prices. The idea that all these phenomena are influenced by the structure of economic and political power falls outside the realm of the new economic history. The economy may sometimes react to political shocks, but it is treated as a self-contained, independent system. Nor does there appear to be any connection between economic and social organization, since relations among individuals or classes of individuals are not seen as particularly important.
Certainly no one can deny the achievements of the new economic history, several of which are reflected in this book. But assumptions based on pure competition and uncoerced maximizing decisions can hardly be expected to serve as guides for understanding the evolving institutional characteristics of economies. The new economic history, for example, leaves us uninformed about the growth and impact of the pace-setting institution in present-day capitalism—the multinational corporation with its command over production and employment.3 It exhibits a remarkable lack of interest in cyclical instability. Most of its cost-benefit studies have been used to determine whether a given investment or public policy represented the optimum use of resources compared to possible alternatives, while the social costs of free market growth itself, including the casualties inflicted on workers by industrialization, attract scant attention. Government is reduced to an "institutional arrangement" for defining "property rights." And by using government to reduce risk or redistribute income, groups of people are seen as acting just as anonymously competing individuals do: they spontaneously, almost robotically, follow market signals toward "reorganizational pro fits."4
A leading new economic historian has acknowledged that the "common element" of his craft "is the use of an explicit model with explicit assumptions. Most of the models used are neo-classical, and most of the questions asked concern either microeconomic problems, long-term growth, or price changes under conditions of essentially full employment. Keynesian models are available for use, of course, but they have been largely ignored."5 Another eminent new economic historian points out how the values implicit in this theoretical model "color the questions to be asked and the range of answers admitted." The new economic history, he concludes, "is viscerally conservative: the invisible hand has created the only world compatible with individual preferences, for if not, there would be a different one."6
Some of the same comments can be applied to the "new business history." It does not seem accidental that at the same time the new economic history was being introduced, Professor Alfred Chandler was recasting the foundations of business history in the United States.7 Like the new economic historians, Chandler saw his discipline as lacking in rigor and laboring under the foibles of traditional historians. He sought a middle ground between "progressive attacks" on the pioneers of big business as "robber barons" and conservative praise of them as "industrial statesmen." To "carry out the historian's basic responsibility for setting the record straight," Chandler drew on economics and organizational theory to uncover systematic patterns in industrial development, making it possible to assign business enterprises to specific categories according to the nature of their products and the production techniques available to them. For him, the size and administrative structure of business firms became functions of their strategic responses to external forces over which they presumably have little control—markets and technologies.
The core of Chandler's hypothesis is that the form of a business organization adapts itself to the nature of the tasks it performs in supplying its markets efficiently. This "strategy and structure" theorem is the new business history equivalent of the "market rationality" assumption of the new economic history. Concentration of market power in the hands of relatively few giant corporations is seen as an outgrowth of the competitive process. Chandler does acknowledge a reality foreign to neoclassical theory—the displacement of atomistically competitive markets by the constrained rivalry of oligopolies. But economic power still seems to be an incidental consequence of the development of large firms; it is thrust upon managers by technological advance, widening markets, and the quest for productive efficiency. Furthermore, the interplay between business and politics is almost wholly ignored. The result is that while Chandler trains a powerful light on "the managerial revolution in American business," he leaves us with a selective and partial view of the forces making for big business and its investment practices.
The analysis of America's economic development in the present work departs radically from both the new economic and new business history models. It focuses not on consumption and production choices in an allocative efficiency setting but on capitalist decisionmaking and its social consequences. That decisionmaking process is not seen as a series of adaptations to external market forces but rather as the major determinant of the pattern of economic growth and as the main element forcing change in the economy at large. In this view, the twin goals of capitalist enterprise are accumulation and monopolization.
Accumulation may be defined as "the process of mobilizing, transforming, and exploiting the inputs used in capitalist production and then selling the out-put."8 The goal is to increase the volume of capital under the control of private interests. This will guarantee the expansion of profits, which can then be used for the further expansion of capital, in a continuous process that makes capital a self-expanding value.
Capital, in this context, refers to income-generating property. It can take the form of land, buildings, machinery and equipment, or inventories of finished and unfinished goods, as well as unique personal skills and talents. But the driving force in the accumulation process is what economists call "capital formation" or "investment"—decisions by business firms to purchase new office buildings, factories, and machines that will contribute to the expansion of output and income over a number of years into the future. During the past century, investment in "intangible capital"—like research and development, employee training, and professional services—has grown, and this also has a long-term impact on a firm's production possibilities. In any case profits are the balance wheel: capitalists will not invest unless they are reasonably confident of their rate of return. And they will spare no effort to control the external world to keep it open for making more profits.
Since the industrial revolution began over two hundred years ago, accumulation has become embedded in "the regime of capital."9 In this sense "capital" must be regarded as something far more than just another "input" along with labor hours, raw materials, or acres of land; it implies property rights over the means of production, so that capitalists ("entrepreneurs" or "management" in the language of conventional economics) can organize the production and sale of goods and services on the basis of wage labor and reap the profits that result. This constitutes a social relation, the power of one class of people over another. American history is studded with examples of "heroic" entrepreneurs, but their exploits must be kept in perspective. The individual capitalist as such is an important figure only in so far as he is an owner of capital: deprived of his capital, he himself would be nothing special. Nor is it a question of "innate human propensities or instincts; the desire of the capitalist to expand the value under his control (to accumulate capital) springs from his special position in a particular form of organization of social production."10
Societies and economies can also be understood as systems of involuntary interdependences, where relations among people are mutual but imbalanced. This structured inequality creates sources of power—economic, political, psychological, often cultural. Capital as a social relation is no different. There is a minority of people who invest and produce, and they interact with a far greater number of people who own little except their own ability to work. This employer-worker relationship is distinguished by vastly unequal endowments of property, education, status, even self-confidence. Yet at the same time everybody in a private enterprise economy is dependent upon accumulation: wage and salary people need it for jobs and income, the government needs it for tax revenues. And for capitalists, accumulation is not a "choice" but a way of life. The expansion of business assets through investment makes possible the growth of output and sales, larger profits, the introduction of improved techniques, and the long-term survival of the firm, with each of these objectives essential for attaining the others.
Monopolization goes on at the same time as accumulation. It implies a drive for control over the economic environment, since the future can never be securely predicted and investment commitments are determined by profit expectations. As John Maynard Keynes explained, "the whole object of the accumulation of Wealth is to produce results, or potential results, at a comparatively distant, and sometimes at an indefinitely distant, date.... About these matters there is no scientific basis on which to form any calculable probability whatever. We simply do not know."11 It is pointless, and dangerous, to assume that business firms react quickly and accurately to any deviations of expected demand from planned supply. Producers have always operated in a far larger universe of uncertainty and risk. During the time between investment decisions and eventual profits, virtually anything can happen to change a firm's competitive situation, in its costs of transacting business, in the value of its equipment when left idle, among so many other unanticipated developments.
But uncertainties also present themselves as opportunities for monopolization, and anything that can be done to reduce risk simultaneously diminishes a rival's prospects. In this arena, the fight for markets and profits is a zero-sum game, although there are instances where cooperative arrangements can be reached to protect all capitalists against common risk (cartels and collusive price setting, tariffs and quotas, trade associations, government regulations). This is why, as economists used to say years ago, "monopoly is not a matter of desire but of opportunity": everyone desires control over economic uncertainties but only the most astute, or the luckiest, will succeed in gaining it. Efforts to gain such control must be monopolizing by their very nature. They range from the recognizably economic to such "nonmarket" tactics as bribery and corruption, concealment and misuse of information, spying on competitors,12 and outright coercion. All are types of behavior well known to students of business history. The father of neoclassical economics, Alfred Marshall, noted that "the feverish pursuit of wealth may induce men, capable of great work, to drift into distinctly criminal courses."13 But unorthodox methods fair or foul must be regarded as integral parts of the quest for monopoly advantages; the ends sought are the same as those pursued in the formal marketplace. Nonmarket means of monopolization do exist, a fact that does much to break down the artificial boundary between economic and noneconomic power.
Accumulation and monopolization are both driven by the dynamics of competition. Long-term growth of the capitalist system generates an investible economic surplus, and with it come sweeping changes in technology, equipment, organization, human skills, and usable natural resources. As levels of output increase, so do the degree of specialization among individuals and the number and variety of transactions occurring in the economy. Step by step, new opportunities and constraints appear in every area of economic life. The long-run development of capitalism thus takes place under conditions that destabilize and reconstitute the networks of human interdependencies. The upshot of the process is continuous change in the nature and quantity of power resources, along with the emergence of greater numbers of pretenders to the throne (or "new independent capitals").14 Individuals, social classes, and nation states are drawn into competition for power resources: with economic expansion, the available "chances" tend to be scarce relative to the mounting demands for them.
In this context "scarcity" is the central constraint that gives rise to the competitive process. It is not, however, the one-dimensional scarcity of conventional economics—"the science which studies human behavior as a relationship between ends and scarce means which have alternative uses,"15 Technology alone has greatly alleviated that kind of scarcity. The real problem is one of social scarcity: advancement in the capitalist economy becomes possible only by seizing one of the newer positions of power created by the continual revolutionizing of society's means of production. Over time the process multiplies the potential number of economic decisionmakers and intensifies the competitive contest for wealth-creating initiatives and personal status. "So the distributional struggle returns, heightened rather than relieved by the dynamic process of growth. It is an exact reversal of what economists and present-day politicians have come to expect growth to deliver."16
Competitive pressures force participants to adopt expansionist strategies for b...

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