Michel Pablo

Capitalist Economy and the Atlantic Pact

(May 1951)

From Fourth International, Vol. 12 No. 3, May–June 1951, pp. 85–90.
Transcribed & marked up by Einde O’Callaghan for the Marxists’ Internet Archive.

As in the years 1935–38 preceding the Second World War, capitalist economy is again basically oriented towards an arms economy, as a step towards its transformation into a real war economy.

The specific economic causes which produced this orientation at that time were the necessity for all the capitalist countries affected by the great crisis of 1929–33 to compensate for the lack of external markets by the enlargement of internal markets and thereby avoid a new plunge into depression and crisis.

The arms economy, by involving numerous branches of industrial activity in its scope, by requiring a large working force and by providing enhanced possibilities for the investment of capital, is grafted to capitalism in its decline as one of the most important branches of its fundamental economic activity. The economic preparation for war and the economic function of war itself becomes an essential characteristic of the functioning of the capitalist regime in the imperialist epoch.

Rosa Luxembourg, in her reply to the revisionist criticism of Bernstein, had the occasion to emphasize the economic function of militarism which she considered “the most important type of investment for financial capital as for industrial capital.” (Reform or Revolution)

However, this parasitic function which could be discerned even before the outbreak of World War I, did not have the colossal scope which it assumed after the last war. Its importance has grown to the degree that the capitalist regime as a whole has plunged into an irremediable and accelerated decadence.

Between 1935–38 the arms economy gave rise to a semblance of economic revival in the principal capitalist countries and particularly in Hitlerite Germany. But its inevitable consequences were not long in making themselves felt. Viewed only from the specific reference of the logic of such an economy, it is not difficult to perceive that once the arms economy assumes a certain momentum it is no longer possible for capitalism to retreat without the explosion of a crisis, nor is it possible to maintain such an economy indefinitely.

Limits of the Arms Economy

The limits of the arms economy as a method of enlarging the internal market are attained at the moment when demand is “sterilized” by the rise of prices or of taxes, which generally accompanies a more or less rigid freezing of wages. On the other hand, from the time when armament production reaches a certain optimum point, it becomes senseless to continue to produce engines of war for an already overequipped army.

The move to the war economy proper, which is realized in war itself, then becomes necessary. War alone can consume the products of the arms economy, recreate new needs of all kinds, and consequently new internal as well as external outlets. On the other hand, by war the capitalist powers redivide the international market at the expense of the vanquished powers.

In contrast with what occurred in the years 1935–39, the capitalist countries of the present “Atlantic Community” have accelerated their armaments policy at a time when their economy appeared to be expanding and removed from the threat of crisis. But in reality the crisis was already latent, and some capitalist countries, first of all the USA, had no illusions about the real possibilities of expanding, or even of maintaining, their economic activity in a world market from which a large part of its colonial and semi-colonial domain had been amputated following the Asian revolutions and the formation of the Soviet European buffer zone.

During all of 1949 and part of 1950 the American economy operated at lower average levels than those of the preceding years with frequent declines from which it recovered each time only to be deflated again after a certain period.

The economy of the capitalist countries of Western Europe (except for England and Western Germany, each of which for specific reasons, were able to delay this moment until recently) seemed, thanks to American aid, to have attained a plateau [1] of world prices, and especially those of the USA, were at their lowest towards the middle of 1949 and resumed a strongly upward curve only following the war in Korea.

It was the “increase of necessary expenses for the strengthening of defense” which “stimulated” [2] the American economy in the latter part of the year 1950 and gave it the momentum which has since characterized it. The index of industrial production, which the calculations of the Federal Reserve Board placed at 179 at the end of 1949, passed 215 at the end of 1950, taking a leap of around 16 points between June and October 1950.

The “Stimulating” Effects of Rearmament

The “stimulating” effects of the rearmament of the other capitalist countries must not however be measured in terms of the American example. Specific reasons which account for the scope of the American armaments program, for the capacity of production and the possibility of supplying American industry with raw materials explain the present upward movement of production in the USA.

But as for the other countries, gravitating more and more around this fundamental capitalist mass which the USA now represents, and which therefore are drawn into the same important economic and political movements of this mass, armaments production will rather have the contrary effect on them. Where it doesn’t produce a clear decline it will permit at the most the maintenance of an activity neighboring on present levels, but dependent more closely than ever on the USA. [3]

Let us however examine what exactly is represented by the present effort of the “Atlantic Community” rearmament, and what it expects from this effort and what can really result therefrom.

Defense Expenditures

The so-called “national defense” expenditures of Western Europe, the USA and Canada remained at the level of 1948–49 up to the middle of 1950, totalling around 16.5 billion dollars. (Bulletin of Oxford University, Institute of Statistics, Nov. 1950). From this total, the expenditures of Western Europe alone are calculated at around 5 billion dollars, a sum much higher than the international American aid granted through the Marshall Plan in 1948–49.

Unencumbered by the burden of armaments and of the so-called “national defense,” Western Europe was already on the verge of freeing itself from dependence on America in 1948-49. The Korean war provoked a sharp turn in the economy of the capitalist countries.

In the USA it acted as a powerful catalyst enabling the worst reactionary military and economic forces to set the war machine into motion, which was to immediately revitalize American economy and on the other hand prepare the conquest of a world threatened by the extension of the colonial revolutions that are blocking the constitution of a world market dominated by Washington.

Pressed by the USA, the capitals of the Western European countries soon followed the same movement toward an arms economy. Its progressive extension is illustrated by the following facts:

In the USA, the so-called “national defense” expenditures, to which even in the opinion of the London Economist must now be added the Marshall credits, rose from 17.7 billion dollars in 1949–50 to 26.8 billions in 1950–51, and to 52 billions in 1951–52.

In Canada, from 350 million dollars in 1949–50 to 570 millions in 1950–51, to 1.6 billions in 1951–52, and to 3.4 billions in 1952–54.

In Great Britain, from 740 million pounds in 1949–50 to 859 millions in 1950–51, to 1,300 millions in 1951–52, to 1,600 millions in 1952–53, and 1,800 millions or more in 1953–54. (The Economist, Feb. 24, 1951).

In France, from 350 billion francs in 1949–50 to 420 billions in 1950–51, and to 546 billions in 1951–52.

In Italy, from 250 billion lira in 1949–50 to 296 billions in 1950–51, and to 546 billions in 1951–52.

In the Netherlands, from 223 million dollars in 1949–50 to 259 millions in 1950–51 to 400 millions for the following years.

In relation to the national revenue of these countries, the rearmament effort represents the following ascending tendency:

For the USA, 7% to 15% (end of 1951) and from 17% to 20% for the following years; for Canada from 3% in 194–50 to 10%; for Great Britain, from 7.4% in 1949–50 to more than 12% (end of 1951) and to more than 17% for the following years; for France, from 5% to 10%; for Italy, from 4% to 8%; for the Netherlands, from 6.1% in 1949–50 to 6.7% in 1950–51 and to more than 10% for the following years.

In order to cope with such an effort, the capitalist countries naturally envisage first of all an extension of production, “a corresponding increase of production” in order to “compensate for the new expenditures” imposed by rearmament. (Etudes et Conjunctures, Nov.–Dec. 1950, Economie de rearmament)

If this solution proves impossible, there remains only “the diversion of a part of production destined either for civil consumption or for capital investment.” (Ibid.). That would signify a “lowering of the standard of living” and a reduction of the retooling program. On the other hand, even in the event of a possible expansion of economic activity stimulated by arms production and expenditures, it is impossible to avoid the corresponding “inflationary movement” which begins with the rise of prices caused by the quest for, and the excessive stockpiling of raw materials.

Thus, the inflationary movement occurs on the basis of the existing gap – even in the event of an economic expansion and an increase in production – between the increased volume of money in the hands of the workers employed by the arms economy and the volume of consumers’ goods, arms production not being commodity production, a production of new values.

In order to limit this inevitable inflationary movement, the capitalist countries then ineluctably resort to taxes and to the more or less rigid wage freeze which accompanies their price policy.

Alternatives for Capitalist Economy

In reality only the USA and Canada have the possibility of combining their arms program with a considerable expansion of economic activity and of production. Charles Wilson, the new director of the Office of Defense Mobilization in his speech of Feb. 23, advanced impressive figures which according to him, illustrate the “unlimited” capacities of the “dynamic American economy.” As a possible aim of production for this economy in the coming 2–3 years he fixed a surplus of 150 billion dollars for rearmament without injury to the present civilian production. It is however doubtful if such an aim is realizable, even considered from a strictly economic point of view and leaving aside the inevitable reactions of the masses to the American arms program, the intensified taxation and inflation which will accompany this program as its inevitable results. The progressive diminution of the buying power of the masses will thus impede the rise of production to the levels which Wilson hopes to attain.

Such however is not the case for the European countries. None of them can hope to cope with the burden of rearmament by counting principally on a considerable increase of production. By increasing productivity these countries envisage covering a part of the necessary expenditures for rearmament, above all by an intensification of labor, by an enhanced exploitation of their national labor force. For example, England hopes to raise productivity by 4% in 1951–52 and thus to cover 250 million pounds of the 500 million pounds required by rearmament for the same period. But this modest figure is an “optimistic” figure for the Economist (Feb. 24) which hastens to add “it is out of the question that this percentage of increase can be increased to 12% toward 1954.”

In the opinion of this same periodical, more than half of the expenditures envisaged for rearmament must then be covered by reduction of the re-tooling program (modernization of industry and housing construction) and even more by “a very direct and considerable cut in the standard of living of the people.” This conclusion invariably recurs in the reasoning of all European capitalist journals that concern themselves with the question of rearmament. What is still more important, this conclusion is already a fact of life.

The “Price of Freedom”: Austerity

The European countries are coping with the needs of rearmament by drastically reducing civilian expenditures, investments in industrial and social, equipment – which they are diverting to the production of armaments [4] – and especially by lowering the already reduced standard of living of the masses.

The Ministers of the British Labor Party are announcing a program of “prolonged and worsening austerity” to the masses who have placed confidence in them to “build socialism in England.” This same announcement is repeated in the same solemn tones by all the ministers and responsible statesmen in France, Belgium, Holland, Italy.

This is now the price of “freedom” everywhere in Western Europe.

From England to Holland the slogan is “austerity” which means a more onerous system of taxation, a rigorous wage freeze, additional restrictions on foodstuffs. Before Europe has had the opportunity to really heal its war wounds, it is again beginning a new armaments economy and policy which this time, if pursued, will shake its fragile and only partially rebuilt edifice to its very foundations.

Since the war in Korea, the cost of living has already risen at least from 5–15% in the various countries of the “Atlantic Community” in the following order: France, USA, Italy, Germany, England, Holland, Canada, Belgium. In other countries, close to the “Atlantic Community” like Spain and Greece, this rise already considerably exceeds 15% and for certain consumer goods it has risen to 30% and even 50% in the last months. On the other hand, wages have practically been frozen everywhere in the course of the last year.

However, while the capitalist leaders and their agents find no difficulty in proposing the saving measure of a wage freeze to avoid the precipitation of the inflationary spiral, the masses refuse to accept the crushing and senseless burden of the preparations for a new war.

Without reaction from the masses, American capitalism can dream of producing 216,000 jet-engines and 35,000 tanks a year, as it proposes to do. Its European satellites on their side can stop the construction of housing in their ravaged countries and apply themselves to the task of equipping several divisions which, supposedly, will make a stand successively at the Elbe, at the Rhine, at ,the Pyrenees against the Soviet “invasion armies.” [5]

Inevitable Reaction of Masses

However, the reaction of the masses, which can checkmate these plans, is inevitable and has already assumed considerable scope almost everywhere in the “Atlantic” community. Impelled by the pressure on their constantly declining standard of living – the new inflationary pressure on prices which accompanies the arms economy – and stimulated by the repercussions of the colonial revolutions in Asia and the defeats suffered there by imperialism, the western proletarian masses are in turn being drawn again into the struggle.

In the USA, this new economic and political conjuncture has already led to the most serious break in 18 years between the reformist bureaucracy, reflecting the pressure of the ranks in a deformed but nonetheless significant way, and the Democratic administration. In the probable eventuality of a widespread inflation which would accompany the implementation of the colossal American armaments plan, the social evolution in the USA could soon take on an especially rapid tempo and crystallize the maturing political consciousness of the American proletariat, for example, in the creation of a Labor Party opposed to the two traditional parties of the bourgeoisie. Such a development joined to the possibility of great economic struggles of the American masses which are already in the offing, will have its effects on the capacity of the American bourgeoisie to realize its armaments program as well as on its ability to unleash the war as easily as it now believes possible because of its confidence of controlling the masses.

In England, in the last months, the new conjuncture has caused broad industrial unrest, strikes and various demonstrations of dockers, railroad workers, miners, metal workers. These are very often led by “committees” opposed to the treacherous official trade union leaderships and constitute an important step in the formation of a new revolutionary leadership of the British proletariat. This proletariat is at present one of the most advanced in Europe in its profound, conscious opposition to the preparation for and the unleashing of a new war.

Unrest in Europe

In Belgium, the recent strikes have manifested a similar character of spontaneity, of leadership by the ranks, of combativity, of determination. This mood now prevailing among the Belgian proletariat in large part determines the opposition role of the Belgian Socialist Party and its unique “leftist” course in contrast with the attitude of the other big European Social Democratic parties.

It was the existing discontent among the Dutch masses which complicated the solution of the last prolonged ministerial crisis, and naturally the new government’s program of enhanced “austerity” will not remove the threat of the great wave of struggles in the making in this country as well.

On the other hand, the savagery of the Franco regime was not able to prevent the magnificent Barcelona uprising. The Barcelona proletariat like that of the rest of Spain, has been subjected to a condition of extreme poverty, which will become even more intolerable by the projected inclusion of Spain in the western rearmament program.

Also desirous of making its “modest” contribution to rearmament, Italy is in the process of seeing the precarious stabilization it seems to have attained overwhelmed by an inflationary chaos which will give a new, stormy character to the already existing strike movements and political ferment.

Finally France is moving into the heart of the storm, impelled by the winds of inflation which its leaders, chained to the American chariot and to colonial adventures, have aided mightily in blowing up. From June to December the official index of wholesale prices in this country has risen 18% and the retail price index more than 13%. It is “appropriate to note that the rise in price of international raw materials (26% between June and December 1950) has not yet been completely assimilated” by these prices. (Banque et Bourse, Jan. 1951). The March 1951 wave of strikes has only given partial satisfaction to the workers, has led only to a truce which will be smashed by the irresistible inflationary pressure in this country which has been bled by the war in Indochina, by the costs of its enhanced repressive apparatus in the North African colonies and by its contribution to “Atlantic” rearmament.

German Workers on Move

As for Western Germany, already threatened with suffocation by the development of its productive forces which cannot be contained within the limits of its home market, it too could only take the road under its capitalist regime

toward an arms economy and to an inescapable transformation of the Ruhr into the principal war arsenal of all Western Europe.

The social consequences of this will not be unlike those in the other capitalist countries. The German proletariat is making itself heard and putting forward its demands in the economic sphere as well as in the sphere of the economic and political leadership of the country.

The Western bourgeoisie, by taking the orientation toward preparation for war and arms economy, has for all practical purposes interred all its projects and ideas for restoring its economic and social equilibrium and for meeting the threat of revolution by demonstrating the viability of its economic system.

Capitalist or Socialist United Europe?

The Marshall Plan, which they tried to present as having been initially conceived in this spirit and which expires in 13 months, is going to be merged, according to its administrator, William C. Foster, with the military aid program and with assistance to inadequately developed areas, hereafter also to be subordinated to the purely military objectives of imperialism. (“If the Marshall Plan had as its object the re-establishment of the economies of the European nations which were shaken by the war, the new plan will serve to adapt the economies of these nations to the needs of war production.” UP, March 19.)

On the other hand, the Schumann Plan, the other project for the “recovery” and “unification” of Europe in “peace,” which has just been signed under the pressure of the US, has also changed its character and will also be subordinated to military needs. [6]

Finally the only hope now of attaining the “unification” of Europe is through the imperatives of war preparation, the exigencies of the armaments economy and of the united European “army.”

As against the aggravation of the social crisis which the insane policy of the bourgeoisie in its historic impasse has provoked in Europe and in the entire “Atlantic community,” the proletariat should more than ever counterpose the perspective of the proletarian socialist revolution, of the Socialist United States of Europe, of the reorganisation of the economy freed from the burdens, the waste and the insanities of bourgeois management on the basis of the slatification of the means of production and of planning by the ma-sses and for the masses.

By clinging ever more desperately to the corpse of rotting capitalism, the Social Democracy reveals every day, even in the countries where the masses accord it an active support as in England and Belgium, that it is organically incapable of giving Europe and the world this chance before the outbreak of the orgy of a new war.

As for the Stalinist leadership of the CP’s, subjected to the orders of the Soviet bureaucracy, they content themselves with “neutralizing” Western Europe in order to facilitate, either a compromise with imperialism in the present period, or, in case of war to settle manu militari the fate of these countries mainly by the action of the Soviet army and their bureaucratic apparatuses without running the risk of being overwhelmed by the democratically organized revolutionary masses.

From now on it is the duty of the conscious elements of the European proletarian vanguard to raise higher the banner of the European Socialist revolution, of the Socialist United States of Europe. This is the only way to counteract the war preparations of imperialism, the mad and criminal adventure into which they are again inexorably leading humanity, and the plans of the Soviet bureaucracy which cannot envisage a possible move into the heart of Europe except if assured in advance of being able to demoralize the European proletariat and of keeping it firmly under control.


1. Heavy industry especially ran the risk of “saturating” its market, an overproduction of steel having already occurred.

2. Bulletin of Economic Information, USA – Jan. 10, 1951.

3. By cornering raw materials at high prices and by stockpiling them, the monopolist economy of the USA exercises a stricter control than ever over the world capitalist economy. Not only does the resulting rise in prices act as a strangling bottleneck on the industry of the other capitalist countries, imposing severe restrictions on them, but the division of certain raw materials doled out at the whim of the USA is such that the continuation of industrial production often really depends on that whim. In the course of 1950, the USA has become for the first time in the history of capitalism, the greatest importing country, surpassing England. It has stockpiled enormous quantities of raw materials like rubber, tin, zinc, other non-ferrous metals, wool, etc., indispensable for the operation of all industry. Following the classic tendency of capitalist economy, it has often acquired exclusive possession over raw materials at their very source. On the other hand, the USA produces a very large number of raw materials on its own soil, over which its present armaments economy has also established a strict monopoly.

The economy of the European countries must content itself with the raw materials the USA chooses to grant them and at the price which monopolist control imposes. Thus, for example, there has recently been in London a shortage of a raw material like sulphur, required for British industry, the USA supplying 90% of the world exports. By reducing the quantities hitherto granted England the USA is capable, through this single raw material, of producing paralysis in a large part of British industry.

4. The first to suffer in England is the program of housing construction as well as social security, i.e. the principal measures favoring the masses adopted by the Labor Government. In France too the already extremely modest construction program as well as social security will suffer. As for investment in equipment which was already reduced in 1950, a “new, painful choice” is predicted for 1951, i.e. a new reduction is already in operation.

In Belgium it is first of all a question “of public investments ... through a drastic reduction of the program of public works and private dwellings. Moreover it is necessary to stimulate new and useful investments notably those intended for armaments.” (Speech of Maurice Masoin, professor at the University of Louvain on the “economic, financial and monetary aspects of the armaments policy” quoted by L’Echo de la Bourse of Brussels, Jan. 19.)

In Holland, the new prime minister W. Drees announced in his “austerity” program the reduction of 150,000,000 guilders of civil expenditures incorporated in the budget, as well as the reduction of public and private investments.”

5. In reality, the ‘Atlantic’ powers have arrived at the conclusion that Western Europe is ‘undefendable’ and that their 18-odd divisions stationed in Germany will only serve the purpose of a holding operation to permit intervention of the ‘strategic’ American air force from bases in North Africa and England. This is also the gist of Eisenhower’s report to the American Congress.

In practice the whole ‘rearmament’ effort of Western Europe leads merely to widen the social crisis in these countries, without any serious results in the sphere of an effective ‘defense.’

6. “One cannot fail to note that the Schumann plan which was originally conceived as a remedy for the danger of overproduction (of steel and coal – MP) enters its first period at the moment when these dangers not only no longer exist (because of rearmament – MP) but when the only question now is that of shortages. In a rearmament economy the plan still has) its usefulness, but its purpose is altered.” – Figaro, March 20.

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Updated on: 10 April 2015