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Introduction: Elite Reaction to Crisis (with Digression on Maldistribution of Income)
William Appleman Williams summarized the lesson of the 1890s in this way: "Because of its dramatic and extensive nature,
the Crisis of the 1890's raised in many sections of American society the specter of chaos and revolution."1
American economic elites saw it as the result of overproduction and surplus capital, and believed it could be resolved only
through access to a "new frontier." Without state-guaranteed access to foreign markets, output would be too far below capacity,
unit costs would be driven up, and unemployment would reach dangerous levels.
The seriousness of the last threat was underscored by the radicalism of the Nineties. The Pullman Strike, Homestead, and
the formation of the Western Federation of Miners (precursor to the IWW) were signs of dangerous levels of labor unrest and
class consciousness. Coxey's Army marched on Washington, a small foretaste of the kinds of radicalism that could be produced
by unemployment. The anarchist movement had a growing foreign component, more radical than the older native faction, and the
People's Party seemed to have a serious chance of winning national elections. At one point Jay Gould, the mouthpiece of the
robber barons, was threatening a capital strike (much like those in Venezuela recently) if the populists came to power. In
1894 businessman F. L. Stetson warned, "We are on the edge of a very dark night, unless a return of commercial prosperity
relieves popular discontent."2
We should note, in passing, that from a mutualist perspective the roots of over-accumulation go much deeper than Stromberg's
description of cartelization under monopoly capitalism. The origin of overproduction and over-accumulation lies in the legal
privileges of "laissez-faire" capitalism, described under the headings of Tucker's "Big Four" in the last chapter.
J.A. Hobson, in his brilliant chapter on "The Economic Taproot of Imperialism," ascribed the problem to mal-distribution
of purchasing power. Ever greater incomes had been concentrated in the hands of the plutocracy, who were unable to dispose
of it on any conceivable amount of luxury; the result was that "a process of automatic saving set in..." This had the
effect of exacerbating the problem of excess capital accumulation, expanding production facilities still further to produce
even more output for which there was no demand. "The power of production has far outstripped the actual rate of consumption...."3
The excess of accumulation and shortfall in demand, by disrupting the circuit of capital and creating what Marx called a crisis
of realization, led to a worsening business cycle.
In response to his rhetorical question of why over-saving and under-consumption occurred, and consumption failed
to keep pace with productive capacity, Hobson pointed to the social system.
But it may be asked, "Why should there be any tendency to over-saving? why should the owners of consuming power withhold
a larger quantity for savings than can be serviceably employed?" Another way of putting the same question is this, "Why should
not the pressure of present wants keep pace with every possibility of satisfying them? The answer to these pertinent questions
carries us to the broadest issue of the distribution of wealth. If a tendency to distribute income or consuming power according
to needs is operative, it is evident that consumption would rise with every rise of producing power, for human needs are illimitable,
and there could be no excess of saving. But it is quite otherwise in a state of economic society where distribution has no
fixed relation to needs, but is determined by other conditions which assign to some people a consuming power vastly in excess
of needs or possible uses, while others are destitute of consuming power enough to satisfy even the full demands of physical
efficiency.4
Over-saving results almost entirely from the surplus income of the rich.5
The question remains, what is the reason for this mal-distribution of income? Hobson approached, without ever reaching,
an adequate explanation.
The over-saving which is the economic root of Imperialism is found by analysis to consist of rents, monopoly profits, and
other unearned or excessive elements of income, which, not being earned by labour of head or hand, have no legitimate raison
d'être. Having no natural relation to effort of production, they impel their recipients to no corresponding satisfaction
of consumption: they form a surplus wealth, which, having no proper place in the normal economy of production and consumption,
tends to accumulate as excessive savings.6
Hobson proposed, in response to this deficiency, what would later be called a Keynesian solution:
Let any turn in the tide of politico-economic forces divert from these owners their excess of income and make it flow,
either to the workers in higher wages, or to the community in taxes, so that it will be spent instead of being saved... there
will be no need to fight for foreign markets or foreign areas of investment....
Where the distribution of incomes is such as to enable all classes of the nation to convert their felt wants into an effective
demand for commodities, there can be no over-production, no under-employment of capital and labour, and no necessity to fight
for foreign markets.7
Hobson's reference to the divorce of consumption from the effort of production might have been written by Tucker. The natural
wage of labor, when the state does not specially privilege ownership of land and capital, is its product. When labor receives
its full product in payment for work done, the disutility of labor is directly related to its product by market price. The
laborer is able to decide how much to work, based on how much he wants to consume--and to cease work when his needs are met.
Whatever savings are made reflect the worker's own decision to work less in the future, either by living off present savings
or by investing them in more efficient production. No superfluity is ever created. But under the capitalist system of privilege,
the divorce of effort from consumption results in the same irrationality as any other violation of the cost principle that
governs free markets. Because the disutility and the benefit of labor are not both fully internalized by the laborer, he is
unable to govern productive output in relation to consumption. The laborer produces a surplus because the market relation
between effort and consumption is distorted, and he does not receive the market signal to stop work when he had met his own
needs. Because labor pays tribute for access to the means of production, the total output necessary to receive a given level
of consumption is always greater than the amount consumed; meanwhile the rentier classes collect a surplus income for which
they did not labor. The producing classes therefore create a surplus, not for their own consumption, but to be piled up by
a privileged class that cannot possibly dispose of it all.
In the end, Hobson failed to isolate the "taproot" of this phenomenon. His analysis repeatedly grazed the true nature of
the problem, without ever directly hitting it. The problem is not the failure to distribute income according to "need," but
according to work: labor does not receive its full product as a wage. And the solution is not the Keynesian redistribution
of income by the state from rich to poor, but an end to the state's existing redistribution of income from poor to rich. Thomas
Hodgskin had stuck nearer the real root of the problem a couple of generations earlier:
The wants of individuals which labour is intended to gratify, are the natural guides to their exertions. The instant they
are compelled to labour for others, this guide forsakes them, and their exertions are dictated by the greed and avarice, and
false hopes of their masters. The wants springing from our organization, and accompanying the power to labour, being created
by the same hand which creates and fashions the whole universe, ...it is fair to suppose that they would at all times guide
the exertions of the labourer, so as fully to ensure a supply of necessaries and conveniences, and nothing more.... By this
system [of the avarice and greed of masters] the hand is dissevered from the mouth, and labour is put in motion to
gratify vanity and ambition, not the natural wants of animal existence. When we look at the commercial history of our country,
and see the false hopes of our merchants and manufacturers leading to periodical commercial convulsions, we are compelled
to conclude, that they have not the same source as the regular and harmonious external world. Capitalists have no guide to
their exertions, because nature rejects and opposes their dominion over labour. Starts of national prosperity, followed by
bankruptcy and ruin, have the same source then as fraud and forgery. To our legal [as opposed to natural] right of
property we are indebted for those gleams of false wealth and real panic, which have so frequently shook, to its centre, the
whole trading world.8
The concentration of the economy in corporate form, in subsequent years, only intensified these inherent tendencies toward
crisis.
Nevertheless, despite their faulty understanding of the reasons for the crisis, both business and government resounded
with claims that U.S. productive capacity had outstripped the domestic market's ability to consume, and that the government
had to take active measures to obtain outlets. We proceed to a brief survey of typical remarks from business and government
leaders in the years following the depression of the 1890s. In reading the quotes over the next few pages, it's worth bearing
in mind that they are not the ravings of Marxist ideologues; they are, rather, the measured reflections of sound, conservative
businessmen. The theory of imperialism was the creation, not of Lenin, but of corporate leaders.
In 1897 NAM president Theodore C. Search said, "Many of our manufacturers have outgrown or are outgrowing their home
markets, and the expansion of our foreign trade is our only promise of relief."9 In the same year, Albert J.
Beveridge proclaimed: "American factories are making more than the American people can use; American soil is producing
more than they can consume. Fate has written our policy for us; the trade of the world must and shall be ours."10
As the State Department's Bureau of Foreign Commerce put it in 1898,
It seems to be conceded that every year we shall be confronted with an increasing surplus of manufactured goods for sale
in foreign markets if American operatives and artisans are to be kept employed the year around. The enlargement of foreign
consumption of the products of our mills and workshops has, therefore, become a serious problem of statesmanship as well as
of commerce.11
In 1900, former Secretary of State John W. Foster wrote, "it has come to be a necessity to find new and enlarged markets
for our agricultural and manufactured products. We cannot maintain our present industrial prosperity without them."12
Ohio governor McKinley emerged as spokesman for this new American consensus, proposing a combination of protective tariffs
and reciprocity treaties to open foreign markets to American surplus output with help from the state.13 As keynote
speaker at an organizational meeting of the National Association of Manufacturers in 1895, he said:
We want our own markets for our manufactures and agricultural products.... [W]e want a foreign market for our surplus
products.... We want a reciprocity which will give us foreign markets for our surplus products, and in turn that will open
our markets to foreigners for those products which they produce and we do not.14
The imperialism of McKinley and Roosevelt, and the resulting Spanish-American War, were outgrowths of this orientation.
They were not, however, the only or obvious form of state policy for securing foreign markets. Much more typical of U.S. policy,
in the coming years, was the orientation outlined in John Hay's Open Door Notes (the first was written in 1899), which
Williams called "Open Door Empire."
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