Max Shachtman

What Is Cost-Plus?

The System Operates to Enrich Monopoly, by Increasing the Wealth,
Profits, Dividends and Salaries of Big Business Magnates

(August 1943)

From Labor Action, Vol. 7 No. 33, 16 August 1943, p. 1 & 4.
Transcribed & marked up by Einde O’Callaghan for the Marxists’ Internet Archive.

Labor’s position is growing worse by the month.

The cost of living continues to rise for the working man’s family. The official figures of the Department of Labor show that living costs have risen 26.9 per cent since January 1941. That is bad enough. But every worker, every housewife, knows that even this high figure is considerably below the real increase.

The official figures are too low because the government officials are afraid to give too much justification for labor’s demands for higher wages.

They are too low because they don’t take into account what the housewife is forced to take into account every time she buys something. Namely, the almost universal violation of the “price ceilings.” Namely, the fact that black market prices are far higher than the officially-fixed rate. Namely, that many commodities are being produced with such a lowering of quality, without a corresponding lowering of price, that it amounts to a stiff price increase in the end.

Price controls are a failure from one end of the country to the other. Price roll-backs are a bitter joke. Ninety-nine per cent of the government promises that prices would be rolled back or controlled have remained promises that never left the . paper they were written on.

Who Will Benefit from Subsidies?

It is estimated that the $485,000,000 payment made out of the U.S. Treasury to roll back prices on meat and butter will mean a saving of no more than thirty cents a week for a family of four. To put it another way, it means that to meet the high cost of living, the head of the family will get a “wage increase” of three-fifths of one cent per hour if he works a fifty-hour week.

Who will get the real benefit out of this payment? The big packers will get $400,000,000 per year as a gift, and the creameries will get another $85,000,000.

That is a typical example of how the government acts to “protect” the interests of the workers.

The cost of living has risen tremendously, almost 27 per cent according to the official and far too conservative figures of the government. But the government has ruled at the same time that no wages shall be raised more than 15 per cent above the rate paid in January 1941.

At holding back wages, the government works like a clock, and does not hesitate to use all the power and force at its command.

At holding back prices, the government is bankrupt and helpless, by its own admission.

The bankers, the business men, the corporation heads, the monopolists, the war profiteers – all cry that labor is well off, too well off. Their kept press echoes them. Their tools in the government say the same thing.

But the fact is that half of the 40,000,000 American workers outside of agriculture are worse off, financially, than they were before the World War broke out in Europe four years ago. These 20,000,000 have either receiyed no wage increase during the four years, or their income has lagged behind the galloping cost of living. The other 20,000,000 are able to keep a little closer pace with the skyrocketing prices only by toiling long, wearying, nerve-and-body-wrecking hours of overtime.

This statement is made by no less an authority than John W. Edelman, labor liaison officer on the staff of the Office of Price Administration. There are other reasons why the workers, even those who are getting a somewhat higher figure on their paycheck than they used to get, cannot keep up with the cost of living. Every worker knows what these reasons are.

The Standards for Workers

First, there are the rising taxes, which have increased for millions of workers anywhere from 5 to 35 per cent since the beginning of the war.

Second is the wage cut in the form of War Bond buying, which is voluntary in theory but which every worker in a plant knows to be close to compulsory in practice.

The situation has grown worse by the month. What is in sight? Relief from the situation? No, only a worse situation.

The Roosevelt Administration has no program, unless unkept promises are to be considered a program. Congress is even worse, for we have in Washington today the most reactionary Congress the country has had in years, an open tool of capital.

What is the program of the official labor leaders, the heads of the CIO and the AFL?

The organized labor union movement in this country is at the peak of its power. All told, it now numbers 13,000,000 organized men and women. This represents a force that can enforce its legitimate demands without the slightest difficulty.

But the labor leaders keep scraping and bowing and begging and whining. They sold labor’s most powerful weapon, the right to strike, and didn’t even get a mess of pottage for it. They have no program of action, no plan, for putting a stop to the raids on labor’s living standards. Their only program is to keep no scraping and bowing, begging and whining, before the very ones who are responsible for bringing about labor’s present condition.

The Communist Party, and the unions it controls and paralyzes, have a program. But it is a program for making things still worse! They are working with might and main to rain down the throats of the working class the system of “incentive pay.” The very idea of the system delights the capitalists. What does it mean? Three words sum it up: The speed-up system. The labor movement has fought the speed-up system, no matter in what guise it has appeared, since that movement was first organized. It was right. It is still right. It would kill itself if it allowed this system to be imposed upon it now.

What is to be done?

How is labor to meet this crisis in its life? How is it to deal with the problem of increased living costs?

We are concerned, first, last and always, with labor, with the working man and. the working woman, with the working class. The patriots can shout till they are blue in the face about the “defense of the nation.” But any “defense of the nation” which is not a defense, a protection, an improvement in the economic and political position of the working class, is not a “defense of the nation” but a defense of the capitalist class, the war profiteers and their interests.

Again, what is to be done?

To answer that question, look at what is being done by and for the capitalist class, enemy and exploiter of labor.

Big Business and Cost-Plus

The capitalists, who own and control the industrial and political life of the country, are hard at work “for the war.” Naturally. It is their war and they are coining profits out of the blood and suffering of the war such as they have never coined before.

Every child in this country knows that in spite of the “heavy taxes” on the corporations and other employers, their profits are still the highest in history. They are rolling in wealth that they themselves never believed existed.

How do they arrange this wonderful miracle for themselves? Aren’t they working for the “common good”? Aren’t they working “for the government,” on “defense contracts”?

They let industry produce for their common good. They are working for their government, because their government is working for them.

No wheel turns unless capital is guaranteed a contract which is based, in one form or another, on COST-PLUS. The capitalists have a program, and they do not yield an inch or move a step unless and until that program is carried out to the full.

What is cost-plus?

The corporations say: We will produce anything you want, IF you guarantee us pay us what it costs to produce the product, plus a “reasonable” profit for our enterprise and our noble patriotism. If our costs, and our profits, are not guaranteed, you can look elsewhere. For what good is a war, and what good is a government that does not guarantee us what it “costs” us to produce, plus our profi? That wouldn’t be our war and it wouldn’t be our government.

That is what the capitalists say and, from their viewpoint, they are one hundred per cent right.

So the government, and all its departments, sign contracts with the big and little corporations in which the corporations are guaranteed their cost – plus!

If the cost of raw materials which the corporations use goes up, that is covered by the government – plus the profit.

If the cost of transportation of materials, raw or finished, goes up, that is covered by the government – plus the profit.

If, by sheer organized might, labor gets an increase in wages, and the labor cost of the corporations goes up, that is covered by the government – plus the profit.

The capitalists and the corporations cannot lose. The government guarantees them against loss. The government protects their interests. The government guarantees that, come what may, they will get their blood-profits.

Costs are taken care of automatically. Whether they rise in reality, or rise only because of the thousand clever bookkeeping swindles and other swindles that the corporations know by heart, the government takes care to cover them.

How are profits judged? How is the “plus” figured out?

Very simply. The small capitalist, the weak corporation, can get only so much and not much more. The big corporations, strong economically and strong politically, demand more and get more. They use their organized power to obtain the biggest “plus,” the biggest profit, that they can get.

The government does even better. It does everything it can to show whose government it really is, whose interests it really protects and looks after.

The government sees to it that the corporations take as little risk as possible, so that their profits of yesterday are protected, their profits of today are protected, and even their profits of tomorrow are protected,

To produce for the staggering requirements of the war, industry had to be expanded, and some new ones created. Land had to be bought. New plants had to be built. New machinery had to be produced. Raw materials had to be found all over the world or manufactured synthetically. Labor had to be assembled and put to work. In a pinch, high-cost, inefficient production had to be started and operated.

Government Aids Big Business

The corporations and the bankers said to the government: That is a tough and risky proposition. You do it. You spend the money and make the efforts. The people will pay – but not we.

So the government bought thousands upon thousands of acres, of land – and turned them over to the corporations.

The government built thousands of plants throughput the country out of public funds – and turned them over to the corporations to operate and profit from.

The government scoured the country and the world to provide the corporations with a guaranteed flow of raw materials, in plants built or financed by the government, and set up on land bought by the government.

The government set up agencies to get labor for the corporations. Then it saw to it that labor’s wage demands on the corporations were kept down. Then it froze labor to the jobs of the corporations in the plants built or financed by the government on land bought by the government with the public funds.

The government wrote its contracts with these corporations so that if the war comes to an end, and the contracts for war goods are cancelled, the corporations would be compensated for their “costs and commitments on the uncompleted portion of the contract, plus some allowance for reasonable profit on the work done.” That is how the National City Bank Bulletin describes the arrangement.

The corporations can’t lose! They had a program and the government has fulfilled it to the letter.

Jesse Jones, head of the government’s RFC and Secretary of Commerce in the Roosevelt Administration, a bankers’ man, a corporation man, told of some of the things that have been done in a speech he delivered in Washington (at the Evening Star Radio Forum) on July 21.

In the past three years the government has spent twenty-five billion dollars building plants and facilities of one kind or another, including a total of 1,500 plants. These are turned over to big corporations to operate and draw profit from. Title remains in the hands of the government. If these plants are not needed at the end of the war, the government is left with them. The corporations are in the clear!

About one billion dollars went into the steel industry alone from the RFC. In Utah it put up a steel mill for the Geneva Steel Company, a subsidiary of the United States Steel Corporation, at a cost of $190,000,000. It did not cost Geneva Steel a penny. This branch of the steel trust operates it “for the RFC” and draws its profit from it.

That is what is meant by FREE enterprise!

In Homestead, Pa., RFC put up a steel mill for the Carnegie Steel Company at a cost of $100,000,000. More FREE enterprise for Carnegie Steel!

In Chicago, RFC put up a mill for the Republic Steel Company at a cost of $85,000,000. Republic Steel can’t possibly get stuck after the war. Title remains in the hands of the government.

At a total outlay of $760,000,000 of government funds, the RFC built nine aluminum plants and forty-five fabricating plants. Who runs them? Who draws guaranteed profits from them? Mostly, the aluminum trust of the United States.

Magnesium plants – the same story. The government set up $430,000,000 worth of magnesium plants, so that only eight per cent of magnesium production is privately owned. But all the production is run by the big corporations, and the profit is theirs.

The government invested $625,000,000 in plants and facilities for the manufacture of synthetic rubber. It spent more millions in setting up a machine-tool industry for the capitalists. It built not less, than 521 aircraft plants at a cost of $2,700,000,000 – almost three billion dollars, ten times the value of the privately-owned investment in that industry – and the benefit and profits from that construction go to the corporations.

Cost-Plus System at Work

There is more, much more. Only a small part can be recited here.

When the worker’s costs rise, he must absorb the increase as well as he can; that, says the government, is not its affair. When a shortage of tankers made it necessary to use tank cars and other railroad equipment, that meant a rise in costs. But when oil costs rose, the government began paying a subsidy of $300,000,000 a year to the oil companies.

It costs the copper employers more to get the metal from the low-grade ore mines than from the better mines. So the government steps in. It covers the higher costs. It subsidizes the high-cost copper mines now to the tune of $8,000,000 a year. The high-cost lead producers are subsidized by the government to the extent of $4,000,000 a year. The high-cost zinc producers get a subsidy of $11,000,000 a year from the government.

Shipping and shipping insurance companies get government subsidies to the extent of $94,000,000 a year.

The government covers their costs, covers them when they go up or when the companies say they go up, and guarantees them their profit on top of that.

In essentially the same way, the economic interests of the big, wealthy farmers, the big market producers, are protected by the government. The Commodity Credit Corporation and other government institutions are vigilantly at work, conscientiously protecting the big agricultural powers.

One simple example will show how it works: The ceiling price for soybeans is $1.68 a bushel. The CCC says, we will support the price at $1.80 a bushel. It buys the soybeans from the big producers at $1.80 and sells them back for $1.68 “to stabilize the price.” Last year the CCC spent $12,000,000 just on the subsidizing of the soybean producers.

That is the COST-PLUS system.

The capitalists and their corporations cannot lose. Their rising “living costs” are taken care of by the government – PLUS their profits.

* * *

In the second half of this article, to be published next week, the author will deal with WHAT a Cost-Plus wage is, and HOW labor can get it.

Shachtman button
Max Shachtman
Marx button
Marxist Writers’

Last updated on 12 June 2015