he £rilitran DaUi
Eighty-four years of editorial freedom
Edited and managed by students at the University of Michigan
Capitalism
and stagflation
Wednesday, October 9, 1974
News Phone: 764-0552
420 Maynard St., Ann Arbor, Mi. 48104
City shafts student voters
Editor's note: This analysis is
the second in a series of contrast-
ing viewpoints on the current
economic crisis. Readers' responses
in the form of articles or letters
will be welcomed.
By LEE REYNIS
and BRUCE STEINBERG
AMERICAN C A P I T A L-
ism,indeed world capital-
ism, is suffering its greatest
crisis in 40 years. For pessi-
mists, signs of an imminent
worldwide depression may be
read in the failure of major Eu-
ropean and American banks, in
increased consumer indebted-
ness and sharply declining cor-
porate liquidity, and in a
plummeting U. S. stock mar-
ket, which has tumbled down-
ward almost 500 points in the
past three years and which
this past week dipped below 600
to its lowest level since 1962.
But even the optimists among
us-with the exception of capi-
talists whose profits are up and
of supply considerations in the
current inflation, we feel that
the specific factors contributing
to it need to be examined in a
systematic fashion.
While apologists for capital-
ism are fond of referring to
our great "free enterprise"
system, this is hardly an ac-
curate characterization. The
last 100 years have witnessed
an ever-increasing concentra-
tion of capital assets, and few
industries remain competitive.
Economic power is extremely
concentrated, with obvious po-
litical consequences. In terms
of inflation, monopoly power
gives rise to the ability to ad-
minister prices; freed from the
discipline of the market, capi-
talist producers are able to
set prices ,so as to maintain
profit margins. (It must be not-
ed that increasing monopoliza-
tion is the direct result of com-
petition.) In this context that
we can begin to examine the
THE REGISTRARS at the Michigan
Union are to be commended for
managing to register some 1,500 vot-
ers despite blatant hanky-panky by
the Republican - dominated City
Council, which tried to see that as
few students as possible were regis-
tered.
It doesn't take a genius to see that
it is natural for more people in the
transient student population to regis-
ter each year than in the off-campus
areas of the city. For Council to cut
the number of campus registration
areas from three to one was a flag-
rant a violation of the right to vote.
That there was only one registra-
tion area was not the only offense by
any means. Location of the site in the
basement of the Union instead of a
more traveled area like the Fish
Bowl also smacked of discrimination
against would-be student voters.
ALTHOUGH REPRESENTATIVES
of the City Clerk's office said
yesterday they could not make even
a "foolhardy" estimate of the differ-
Sports Staff
MARC FELDMAN
Sports Editor
GEORGE HASTINGS
Executive Sports Editor
ROGER ROSSITER .... Managing Sports Editor
JOHN KAHLER ........ Associate Sports Editor
ence between last year's registration
rate and this year's, it was obvious
that many people were discouraged by
the long lines and confusion at the
Union site.
Unique to the student registration
location was its very own city-ap-
point sergeant-at-arms. One regis-
trar who was saving time Monday by
not administering the traditional
oath was asked to leave the table
by this supervisor. Other registrars
began administering oaths such as,
"Do you solemnly swear that you did
not kidnap the Lindberg baby?" But
the sergeant-at-arms failed to notice
these violations.
As many as 100 students at a time
braved the lines to register to vote.
There are only two ways to prevent a
similar circus every time students
register on campus: The city must
pass a specific ordinance that would
keep council from changing registra-
tion policy at whim, or voters must
elect a majority of council members
who do not cringe at the thought of
student enfranchisement.
-BARBARA CORNELL
TODAY'S STAFF:
News: Jeff Day, Barbara Cornell,
Mary Harris, Lois Josimovich, Judy
Ruskin, Sue Stephenson
Editorial Page: Steve Ross, Rebecca
Warner
Arts Page: Jeff Sorensen
Photo Technician: Karen Kasmausk i
terms which afforded a stand-
ard of living in the U. S. that
would have been impossible oth-
erwise. Effectively, the Third
World was made to pay the cost
of American affluence, an af-
fluence which soothed class an-
tagonisms in the U. S. But con-
trol over foreign resources re-
quired the backing, often mili-
tary, of the U. S. government.
The U. S. emerged from
World War II as the dominant
power in the capitalist world.
The rise of war-ravaged Europe
and Japan. as major industrial
powers presented a fundamen-
tal challenge to U. S. hegemony
in the world economy, but it
was Vietnam and the signing
of the Paris peace accords
which spelled real defeat for
American imperialism.
T H E SIGNIFICANCE of the
Organization of Petroleum Ex-
porting Countries (OPEC) must
be viewed in this context. For
the first time, countries which
possess natural resources were
able to challenge U. S. control
over these resources. This would
not have been possible without
Vietnam. Short of military in-
tervention - and Vietnam is a
lesson in the unwiseness of this
tactic - the U. S. has no lev-
erage over the Arab states; it
has been forced to accept high-
er prices.
But the increase in fuel and
gasoline prices is not solely at-
tributable to the Arabs. In addi-
tion to deriving such benefits
from the energy crisis as reduc-
ed competition from independ-
ents and suspension of various
environmental controls, the oil
companies were able to capital-
ize on the crisis, adding a sur-
'While apologists for capitalism are fond of
referring to our great "free enterprise" sys-
tem, this is hardly an accurate characteriza-
tion. The last 100 years have witnessed an
ever-increasing concentration of capital as-
sets, and few industries remain competitive.
Economic power is extremely concentrated;
with obvious political consequences.'
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OUR ECONOMY has increas-
ingly come to rely upon injec-
tions of government spending
- usually of a military nature-
to sustain rates of economic
growth, and upon government
use of monetary and fiscal poli-
cy tools to provide a framework
of economic stability.
There is evidence, however,
that the traditional tools of
macro - economic policy have
become less and less effective
in sustaining economic pros-
perity. It has become impossi-
fiscal policy.
IT ALSO IGNORES the fact
that business and government
may want a recession precise-
1v because the last recession
was incomplete: a worsening
economic situation which in-
cludeda balance of payments
crisis with elections forthcom-
ing in 1972 necessitated drastic
action by the government.
The recession was cut off be-
fore worker incomes had fallen.
The government put a clamp on
I k
;I
p oCOUPS a
\ I1ALO
CONGREiS
rising - can find little to be
happy about with the deteriorat-
ing economic situation: for stu-
dents, for workers, for people
on fixed incomes, things are
bad and they're likely to get
worseabefore they get better,
Over the past 12 months, the
Consumer Price Index has gone
up over 12 per cent, its highest
rate of increase ever, and there
is no sign that this upward es-
calation of prices will be soon
reversed. In the same period,
real take home pay for the
average worker declined over
five per cent, the largest de-
cline observed since such sta-
tistics were first collected.
T H E UNEMPLOYMENT
rate has increased sharply, up.
Four per cent in the past month
to a current rate of about 5.8
per cent - a figure that doesn't
even count people who have
given up looking for work, or
who work but would like to work
more, or who find themselves
in jobs far below their capabili-
ties. Even administration econ-
omists acknowledge that the
unemployment rate will go sub-
stantially higher. This phenome-
non is called stagflation. We had
a slight taste of it about four
years ago, but the current rate
of inflation in a period of eco-
nomic recession is unprecedent-
ed in American history.
While administration officials,
business leaders ,and most aca-
demic economists would have
us believe that the current eco-
nomic crisis is the result of a
coincidence of basically unre-
lated and transitory phenomena
- e.g. greedy oil sheiks and
bad weather - and of our irra-
tional and profligate behavior
as consumers, the fact is that
the current crisis has its roots.
deep in the very nature of capi-
talist production and in the his-
tory of monopoly capitalist de-
velopment in the U. S. What
then are the origins of the
current economic crisis?
ROOTS OF THE CURRENT
INFLATION
Most bourgeois economic an-
alysis would agree that the cur-
rent inflation is primarily the
result of supply factors, spe-
cifically greatly increased
prices for raw commodities such
as food and oil and a "wage-
price spiral." Most would prob-
ably also acknowledge some 'de-
gree of "demand-pull" inflation
as a hangover from Vietnam.
Without denying the importance
roots of the current inflation.
THE MID - SIXTIES saw a
inflation of the traditional de
mand - pull variety, as the gov
ernment, afraidto reveal th
true scope of the war to th+
American people, resorted t
the printing press to cover it
military expenses. One result o
this was to flood the world wit
American dollars, which Europ
and Japan were forced to accu.
mulate. The war thus had ser
ous consequences for an alread
deteriorating U. S. balance o
payments (financial claims b
Americans on foreigners minu
financial claims by foreigner
on Americans.) The balance o
payments went deeply into def
cit, forcing a long-postponed de
valuation of the dollar in 1971
Devaluation of the dollar, i
making imports more expen
sive, had a direct inflationar
impact, but it also exacerbate
the inflation situation indirect
ly. The government had bee
seeking ways of expanding ex
ports in order to carry out it
imperial designs, and agricu
tural product exports were
logical choice.
T H E DEVALUATION of th
dollar made U. S. agricultura
products cheaper for foreign
ers. At prevailing price levels
profit margins on foreign sale
of U. S. agricultural product
rose relative to those on domes
tic sales, creating an incentiv
for agricusiness concerns to d
vert output from the U. S. t
foreign markets.
This diversion of output oc
curred at a time when weathe
conditions produced shortfall
in U. S. agricultural output. Th
result was the food crisis of th
summer of 1973, a situatio
which was further aggravate
by government moves to freez
agricultural prices.
The other important commo
ity which has been blamed fo
escalating inflation is oil. Th
tendency is to point an accus
ing finger at the Arabs, bera
ing them for their greed. Bu
what is the impact of the pr
ducing countries' 'increase [
crude prices and how were the
able to pull off such a price in
crease?
ALTHOUGH THE U.S
possesses relatively abundax
natural resources, America
capitalists began quite early t
,exploit foreign resources o
n
ie
e
0
-s
o
h
)e
J-
lv
y
y
of
i-
a-
sources required the
mi ent.'
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'Although the U.S. possesses relatively abundant natural resources,
American capitalists began quite early to exploit foreign resources
on terms which afforded a standard of living in the U.S. that would
have been impossible otherwise. E f fectively, the Third World was
made to pay the cost of American affluence, an affluence which
soothed class antagonisms in the U.S. But control over foreign re-
backing, of 'en rmilitary, of the U.S. govern.
.
r
~ 4
n
.
J.
. charge of their own to reap
n massive increases in profits. No
n- longer able to force the Third
y World to pay the price of U. S.
tt- affluence, American capitalists
n- are forcing cutbacks in the
-n American standard of living.
sINCREASES IN FOOD, oil
J- and other commodity prices to-
a gether explain only a fraction
of the present inflation. Infla-
tion is to a large degree the re-
e sult of a struggle over national
_ income - an income already
- reduced because the Arabs
, have begun siphoning off their
s share - between workers and
s capitalists and among the vari-
- ous groups of capitalists them-
e selves.
i- - ..
to .The sixties saw workers gain-
ing a slightly larger share of
. national income due to a reduc-
r ed unemployment, while profits
s declined. In response to declin-
e ing profits, capitalists struck
e back. Wage-price controls pro-
n vided a temporary expedient,
d since wages were controlled far
e more effectively than prices,
and profits were allowed to
d- rise. The present inflation is a
r result of productive capitalists
e attempts to defend their rate
s- of profit in the face of increas-
t- ed worker militance, rising in-
t- terest rates, and rising raw ma-
o- terial costs.
n The ability of corporations to
y raise prices at a time of falling
-_ demand and thus insulate their
profits at the expense of de-
clining worker real incomes
S. rests with their monopoly pow-
nt er. The present inflation is, to a
n large extent, profit push infla-
o tion; it is a direct assault on the
n living standards of most Ameri-
cans by a privileged few.
ROOTS OF THE CURRENT
RECESSION
Capitalist economies tend to-
ward stagnation. It is fair to
say that the only periods of
prosperity enjoyed by t h e
American people have been
either during or in the after-
math of wars.
There is no doubt 'that we
are currently experiencing a re-
cession: real gross national
product (GNP adjusted for in-
flation) declined in the first two
quarters of the present year-
the classic indication of a re-
cession - and further decline
may be expected in the current
quarter.
It is important to realize that
a recession is not a period of
economic collapse or panic, but
a period of economic downturn.
Capitalist production has al-
ways been subject to intermit-
tent booms and busts. Rapid
rates of expansion eventually
lead to tightened labor markets
in which wages are bid up
thr.iah .-m-pt;tin for work-
BANKwS POME LSRIN6- " hrA1"L-MAF.H*W4
ble to achieve full employment
with relative price stability, and
it is becoming more and more
difficult to achieve full em-
ployment at all.
Difficulties in achieving full
employment result partly from
an increasing tendency to sub-
stitute capital for labor in pro-
duction and partly from the
growing inflexibility of the
American economy. Increased.
monopolization impairs the abil-
ity of the market mechanism to
allocate resources and results in
prices that resist downward
pressure.
But inflexibility also accom-
panies an expansion of the gov-
ernment's role within the econo-
my - an exnansion which is
necessitated by market failures
and imperfections, by the need
to mitigate the worst excesses
of capitalist production, and by
the need to stimulate production
to prevent economic stagnation.
TO THE EXTENT that the
administration is concerned
about unemployment, it is con-
l
') 10, >. It i kcl
I
MVIN1 IA ji FIA -TAf
wage gains in the form of wage-
price controls and thus permit-
ted capitalists to recapture lost
profits. But increasing worker
militancy, bred by an infla-
tionary erosion of real incomes,
again threatens profits at a time
when foreign markets are de-
pressed and when purchasing
power has been reduced by
rising oil prices, the benefits
of which accrue at least partly
to the Arab states.
While bad weather, recalci-
trant Arabs, and bad policy
may be held as factors in the'
current economic crisis, it is
clear that these factors by
themselves could not have pro-
duced the current situation.
The crisis is rather an almost
inevitable result of contradic-
tions that have arisen in the
course of capitalist develep-
ment.
THE CAPITALIST class finds
itself in the middle of a deter-
iorating economic situation that
is, in many respects, of its own
making. Government policy
a
TIM MIL'WAUKEE JOURNAL
publSiafirs-Hats 8yntt,' t .
1-.
'Don't look at me! I just sell 'em!'
Letters to the Daily
money
To The Daily:
I'D LIKE to comment on the
obscenity of the entire column
"A quickie glossary to economic
perils," but I'll restrict myself
to the one "definition" which is
at the base of all the others:
"Money - the foundation of
American Capitalism, the root
of all evil." If you're going
to assert that money is the root
of all evil, you ought to iden-
tify first what money is the
root of, and whether or not it
is evil.
I'll maintain that money, in
fact, is the symbol for the most
priceless of human values. Mon-
ey stands for those capacities of
tive achievement, and any ad-
vancement of his condition. To
denounce the meaning of money
is to denounce the rational fa-
culty; that which makes human
beings human (not that that
would be at all unique in the
context of human history).
YOU DID make one correct
observation: that money is "the
foundation of American Capi-
talism." It would be impossible
for .it not to be; they both de-
rive from the same philosophi-
cal base. That base, though, was
never identified while capital-
ism had a chance, which is why
people like you have no idea
what exactly money is the root
of.
While you quip about w h a t
jinx
To The Daily:
IN YOUR issue of September
25, Gordon Atcheson oointed out
the "20 year jinx" - that since
1840 every president elected in
a year divisible by 20 failed to
complete one of his terms.
There is another jinx. Except
for the two war heroes, Grant
and Eisenhower, no Republican
has ever had two full terms.
Hayes, Benjamin Harrison, Taft
and Hoover had one tegnm com-
plete; Garfield and Harding died
in their first term; Lincoln and
McKinley died at the Deginning
of their second term; Nixon re-
signed from his second term;
Andrew Johnson (who was real-
I --.
in his fourth term) managed it.
Curious coincidence?
-Preston Slosson
Professor emeritus
September 26
prison
To The Daily:
I AM A federal prisoner at
Leavenworth, Kansas. I Have
been in prison now just short
of six years. I expect to be
getting out within tae next 10
months. And after being in pri-
son for so long, I have lost all
contact with the people I once
know on the streets.
What I would like is people to
correspond with these last few
months of confinement so that
I may familiarize myelf with
the now things in the worldI to-
cerned about unemployment of
a relatively privileged group,
namely white male heads of
households. Labor stratification
means that certain groups -
women, blacks, teenagers -
pay the costs of unemployment,
suffering more sharply rising
jobless rates than white,
"adult," males.
The uniqueness of the current
recession rests with the facts
that it is accompanied by ac-
celerating rates of inflation,
that it fnllnws s clnsely on
tools have been blunted, and,
further, are incapable of simul-
taneously dealing with the many
facets of the problem.
It is clear that President Ford
will ask the American people,
who have already suffered an
erosion of living standards, to
make additional sacrifices. We
will bear the burden, while the
wealthy few attempt to main-
tain, their privilege.
Lee Revnis and Bruce Stein-