6—Onset of the 1929 Crisis and the Pivot toward Fascism

MUCH HAS BEEN WRITTEN to undo the once widely held view that the prosperous 1920s in the United States ended suddenly and without warning on October 24, 1929, when the Wall Street stock market crash set off a general crisis of American capitalism. Nothing could be further from the truth. By mid-decade, a good part of the U.S. economy was already in trouble, although exuberant cheerleaders in business and government made it difficult for most people to see anything wrong. Such was the paradoxical character of capitalist progress in 1920s America: despite the apparent prosperity, contradictions in American capitalism were creating a widening gap between wealth and poverty, as terrorist and non-terrorist fascist processes emerged to secure the supremacy of capital over society.

The spectacle of prosperity, however, concealed much of this reality. A booming economy and lifestyle defined by the automobile, kitchen appliances, and the sizzling culture of the Jazz Age in full swing was enough to blind millions of Americans who mainly saw, heard, or read what was given to them in the glitter and ballyhoo of Boomtown USA. All of it served to conceal an epic crisis in the making. With easy money driving that great American invention the installment plan, enough consumers were buying whatever Big Business or Wall Street served up. As Jonathan Norton Leonard wrote a decade later:

The New York Stock Exchange in 1929 was the nation’s Fairy Godmother. It was Aladdin’s Lamp. Its workings were beyond the grasp of ordinary minds, but under the direction of the Wall Street general staff it turned out money faster than all of the gold-mines, mints and printing presses in the world. Everybody could get his portion by buying a few shares of stock in a company—like Radio Corporation—which was known to have a great future. The theory of this miracle might be a bit obscure, but the practical application was very simple indeed.

The practical side was certainly evident. Leonard caught the pulse of the Exchange, claiming one could stand in front of it on a typical workday and “almost hear the beating of the nation’s heart”:

Inside the building itself, on a large littered floor, a thousand brokers struggled in shifting clots like ants on a sprinkle of sugar. They were much more noisy than ants…. An elaborate mechanism of clerks, messenger boys and electricity sifted this sound, extracted long trains of figures and sent them out to the eagerly waiting nation and the almost as eager world.

This was the nation’s “state of mind” as Leonard interpreted it just months before the crash. People generally believed that prosperity would continue indefinitely because “unregulated and self-seeking businessmen could be trusted as national leaders.”1

Yet, as labor economist and writer George Soule noted two decades later, one could not wholly blame the man in the street for his ignorance or greed, given the easy access to credit that had empowered him to indulge in the constant flow of new things. “The delusions that prevailed were shared by the leaders of finance, business, government, and even many academic experts in economics,” Soule wrote. “Rarely has a people been so misled by those who were supposed to be its wisest and most seasoned counselors.”2 Even great minds were misled, including the soon-to-be-celebrated British economist John Maynard Keynes, who told his students they would see “no further crash in our lifetime,” or Rudolph Hilferding, the social-democratic economist who theorized that “organised capitalism” had removed the anarchic character of the market and thus with it the possibility of future crises.³

But they were wrong. A crisis of American capitalism was developing within the Great Boom. The rapid rise in the output of goods in the early and mid-1920s created the basis for a mass consumer society that required greater efficiency of industrial production in order to sustain itself while keeping profits high. But the constant drive to raise productivity in an increasingly ruthless competitive system ultimately undermined it. The rise in the fixed component of constant capital, that is, the new machinery in which technical innovations were embedded, diminished the level of variable capital, that is, the labor-power of workers. Herein lay a fundamental contradiction that spawned the coming crisis: a reserve army of labor grew and wages remained stagnant, while capitalists were compelled to rely increasingly on technological innovation to produce goods more efficiently, thereby further diminishing the role of human labor-power. Most of the gain in productivity went to the owners of capital rather than workers, who experienced greater poverty.

Here was the coming bust in the boom. As the purchasing power of workers declined, capitalists pumped the masses, through advertising, public relations, and propaganda, to keep them buying, while increasing their debt through easy credit schemes. Still, consumption lagged behind production. By 1927, overproduction and saturated markets were bringing matters to a head. As inventories piled up and the real value of commodities declined, capitalists stopped investing in productive enterprise because it was not profitable. The lag between production and consumption only added to the burden of industry, which had operated at much lower than full capacity even in the peak years of the boom. “Excess capacity was enormous,” Lewis Corey wrote. “In 1928–29, in spite of the sharp upward spurt in production, most American industries were capable of producing from 25% to 75% more goods than markets could absorb,” and “particularly great in the newer industries” like automobiles.4

The Wall Street crash set in motion events that slowly revealed to some observers just how far the ruling capitalist class had gone to bankrupt the nation for the sake of preserving its economic interests and political power. As for the masses, it is still difficult to determine from the evidence how much they had mistakenly put their faith in the virtues and integrity of people who had led them to ruin. Nevertheless, their political quiescence enabled capitalist owners and managers to behave with impunity for much of the 1920s. Workers and people in the ranks of the middle classes perhaps saw little alternative but to go along with the promises of uninterrupted prosperity in the hope that some of the fabulous wealth amassed at the top would indeed trickle down. Only the crash and the economic depression that quickly followed made it possible for a few writers to begin peeling back the layers of deception and fraud propagated by propaganda in the service of an oligarchy selfishly entrenched and wholly insensitive to deprivation and suffering. The ruling capitalist class that had pledged to be guardians of the Republic had wrecked what they were coming to own and control.

SYSTEMIC CONTRADICTIONS IN THE GREAT BOOM

During much of the growth from 1922 to 1929, overproduction and underconsumption became the two main currents developing in the American economy. Production had expanded rapidly as a huge wave of investment spurred technological innovations and the scientific management of production. American industry became the leader of global capitalism, mass-producing capital goods and durable consumer goods with fewer workers. Fierce competition at all levels in the economic system created winners and losers. This was evident even at the top, where the incessant drive to make production more efficient furthered the concentration of capital and the centralization of ownership on a massive scale in such a short time. At the same time, the steady deterioration of purchasing power mandated the opening of new foreign markets for capital investment and exports, none of which occurred at sufficient levels for an imperial giant on the rise.

The United States had achieved impressive gains in foreign trade as a result of its role in the First World War, from which it assumed the mantle of global economic leadership. Its share of world exports had increased while Europe’s declined, creating a favorable trade balance for the United States during much of the 1920s. Nevertheless, the dramatic increase in exports fell short of what American capitalism needed—sufficient numbers of new outlets to absorb domestic goods. By 1929, the United States was producing 40 percent of all products manufactured by the world’s industrial nations.5 While overall manufacturing output increased by 50 percent between 1922 and 1929, exports lagged behind at 38 percent.⁶ One finds no better examples than in the auto and steel industries, both major forces fueling the domestic boom. Auto production hit excess capacity by mid-decade, but exports only averaged 15.2 percent of its output between 1924 and 1929. Steel exports were somewhat better at 20 percent.⁷ Political leaders proved incapable of molding policies that would open the global market to increased American commerce. President Woodrow Wilson’s postwar vision of an “open-door” foreign policy that would extend the principle of free trade throughout the global economy had dissolved with a new, much-espoused isolationism. Given this shift in foreign policy, the three Republican administrations of the 1920s turned over much of its decision making to opportunist Wall Street bankers, who dispensed with Wilson’s lofty idealism while extending the global reach of U.S. capital. But it was not enough to absorb all the capital available for new investment, which revealed a major contradiction. Believing that much of the prosperity lay in the domestic market, decision makers rejected the open door and threw up barriers to foreign imports in 1922 and 1924.

As the world’s leading creditor nation and banker, the United States needed to import more than it exported in order to reap the benefits of its investment potential abroad. Without access to U.S. markets due to rising protectionism, however, foreign borrowers could not sell their products at levels sufficient to repay the loans and other forms of credit extended to them by American bankers, further inhibiting U.S. capital investment in their economies. Simply put, U.S. protectionism was gumming up trade and capital flow for a capitalist empire that needed to be free of all obstacles between its domestic and foreign markets. Instead, protective tariffs were erected to assuage American businessmen who sought above all to protect what it called “infant industries” from European competitors and cheaper goods. The Fordney-McCumer Tariff of 1922 was just one example of the way U.S. trade policy negated America’s new status as the world’s great creditor nation.8

Barriers constructed in the name of “America first” only intensified an already protracted crisis in domestic agriculture and the plight of rural communities across much of the nation. With one-fifth of the population still working the land, American farmers endured throughout the 1920s what historian David Kennedy calls “a stubborn agricultural depression.”⁹ In 1914, they had taken full advantage of a historic opportunity to benefit from the misery of others by producing foodstuffs for war-torn European allies, as well as for other markets disrupted by the global conflict. But the great wartime stimulus dissipated quickly after the war ended and European production of primary goods returned to prewar levels. By 1920, U.S. farm prices plummeted as farmers in the South and Midwest stared disaster in the face. The price of cotton dropped from 35 cents to 16 cents per pound, corn from $1.50 to 52 cents per bushel.10 From 1919 to 1929, wheat prices fell from $2.19 a bushel to $1.04.¹¹ Farmers who had borrowed heavily to put marginal land in cultivation, purchasing gas-powered tractors and other new farm machinery, in order to reap inflated, wartime prices, now faced the problems of overproduction. The rapid pace of technological innovation during the 1920s, which increased productivity, only added to their burden.

Already carrying considerable debt from wartime borrowing, farmers were squeezed by rising production and declining demand. In 1919, they accounted for 16 percent of the national income; by 1929 it had dropped to 9 percent. Crop acreage decreased for the first time in U.S. history between 1919 and 1924, as “13 million acres were abandoned to brush.” Throughout the 1920s, farm income remained below prewar levels.¹² As the historian Alan Lawson has written:

The average annual income of the 5.8 million farm families at mid-decade was only $240, and, although modern technology and increased money at the top for land speculation had produced an elite of large growers, 54 percent of all farmers earned less than $1000 per year. Steadily, farm mortgage debt rose while commodity prices and land value declined even though the cost of manufactured goods increased and nonfarm land values almost doubled.¹³

Across the board, farmers believed they were hit by a combination of forces. A booming industrial economy had put them at a disadvantage as producers and consumers. By 1929, farming became a more “speculative business enterprise” that departed from the traditions of a productive rural economy.¹⁴

By mid-decade U.S industry faced similar perils as the nation’s productive capacity expanded far beyond the demand of consumers. Well before the debacle on Wall Street, the domestic market spilled over with record numbers of unsold automobiles, appliances, and other consumer goods. Lewis Corey saw this in 1934: the yearly average of production of all goods between 1923 and 1929 was 5.9 percent above its “normal” rate; consumption, reflected in retail sales, was only 1.3 percent above its “normal” rate.15 According to economic historian Richard DuBoff, business inventories had tripled between late 1928 through mid-1929.¹⁶ David Kennedy also found that inventories nearly quadrupled in value to some $2 billion between late 1928 and the following summer.¹⁷ By mid-decade, it was already clear that the market for new automobile sales and residential construction was saturated. The auto industry, the most dynamic of newer industries, was the first to show signs of a slowdown. Although the number of cars on American roadways increased from 9.3 million in 1921 to 23.1 million in 1929, an analysis of passenger car registrations shows that the percentage rate of increase peaked at 24 percent in 1923 and then steadily slowed until it dropped to 5 percent in 1927, the same year output of new cars decreased by 22 percent. The number of replacement buyers steadily increased, while the rate of first-time buyers declined.¹⁸

As inventories piled up, banks, corporations and smaller companies used various forms of consumer credit and installment buying to sustain consumer demand for new cars, but to no avail. By the late 1920s, three out of every five cars were bought on installment plans. As one historian of the Depression, Robert McElvaine, has written, “The amount of installment credit outstanding in the United States more than doubled, from $1.38 billion to $3 billion” between 1925 and 1929.¹⁹ The boom in residential construction, which easily surpassed investment in commercial and industrial buildings in the early 1920s, also peaked by mid-decade; for one-family houses in 1925 and for multifamily apartments in 1926.²⁰ By 1929, Corey says, excess capacity was enormous for most American industries: they were capable of producing anywhere from 25 percent to 75 percent more goods than existing domestic markets could absorb.²¹ All these trends demonstrated that the rapid expansion of installment buying still could not keep up with the rising glut of durable goods in the marketplace and warehouses. The general problem was exacerbated by the fast approaching limits of the consumers themselves, and what constituted good-risk borrowers. As Soule wrote, the only way that purchasing power could keep up with the expansion of industrial goods was “through sufficient increases in wages and salaries or through sufficient reduction in retail prices.”22 Neither occurred.

Once again, herein lay the contradictions of capitalist prosperity during the Great Boom. With productivity increases going their way, capitalists enjoyed rising profits at the expense of workers whose wages lagged far behind. Corey reports that profits in manufactures in 1929 were 22.9 percent higher than in 1923, though total wages rose only 6.1 percent. He admits that the economic revival between 1922 and 1929 was partly the result of a substantial rise in real wages due to depressed agricultural prices, which did increase mass purchasing power to some degree. Consumption was 6.5 percent higher in 1923 than it was in 1920, “an unparalleled increase.” After 1923, however, the “upward movement in real wages and mass consumption slackened and came practically to a standstill.” Corey reports that the yearly average of all wages for 1924 to 1928 was higher than in 1923, but he says this was “not the true measure of wages in relation to corporate profits” because it included “wages of servants and of workers in non-corporate enterprises, whose profits are not included.” For Corey, industrial wages (manufactures, mining, construction, and transportation) provided a truer picture. Between 1924 and 1928, the average of industrial wages was only 0.5 percent higher than in 1923.²³

With wages stagnant after 1925, the income gap widened between those who owned and controlled capital and those who worked for their companies. Between 1923 and 1929, the top 1 percent of Americans saw their share of the national income rise by almost a fifth; by 1929, the richest 5 percent of the population owned a third of the nation’s wealth.²⁴ Robert McElvaine cites a Brookings Institution study, America’s Capacity to Consume, which showed that “the top 0.1 percent of American families in 1929 had an aggregate income equal to that of the bottom 42 percent.” In real numbers, about 24,000 families at the top had a combined income equal to that of 11.5 million working-class and lower-middle-class families. While disposable income per capita for all Americans rose by 9 percent between 1920 and 1929, this figure paled in comparison to the top 1 percent who benefited from a 75 percent increase. The disparity in wealth was even greater; in 1929, nearly 80 percent of America’s families (21.5 million households) had no savings, compared to the top 0.1 percent (24,000 families) that held 34 percent of total savings.25 According to Richard DuBoff, real disposable income per person between 1920 and 1929 showed an incredible disparity. Those in the top 5 percent enjoyed an increase in their share of disposable income from 24 to 34 percent. “By 1929,” DuBoff wrote, “the income distribution reached another ‘plateau of high inequality.’”²⁶ That personal debt grew much faster than disposable income after 1922 contributed to this trend.²⁷ In contrast, capitalists reaped profits 22.9 percent higher that year than in 1923.²⁸ According to two communist writers, A. B. McGill and Henry Stevens, net corporate profits increased from $7.7 billion in 1923 to $10.9 billion in 1929.²⁹

Without doubt, rising wealth in the 1920s flowed disproportionately to the owners of capital. The extraordinary increase in the wealth of American capitalists was greatly due to their ability to benefit from rising productivity levels. According to historian Alan Lawson, capitalist ownership enjoyed a “30 percent rise in productivity per worker from 1921 to 1929.”³⁰ Political scientist Alan Dawley comes up with almost the same statistic (32 percent between 1922 and 1929) and then compares it to the 8 percent increase in wages for the same period. The numbers, which he says were ignored at the time, “harbored a hidden time bomb.”³¹

In the final analysis, declining purchasing power added to the economic distress experienced by the mass of working people and undercut the hype about growing prosperity for all. “Almost 8 percent of workers in the industrial sector were unemployed,” Alan Lawson says, “a consequence of technological advances and higher worker productivity that the euphoria of progress overshadowed.” Citing the 1934 study by the Brookings Institution, Lawson described the realities of life for millions of Americans in the previous decade: more than 70 million persons in over 60 percent of America’s families “subsisted at less than the $2000 per year needed to acquire basic necessities.” Only 25 percent of the 21.6 million nonfarm families had enough income for an adequate diet. “Especially ominous for the economy,” he wrote, “was the unheeded downslide that most people experienced even before the Great Crash; between 1928 and 1929, the meager overall rise in income since World War I reversed into a 4 percent decline for 93 percent of the nonfarm population.”32

Income at the top soared as a result of the growing concentration of wealth and centralization of corporate control over the economy. More and more corporate wealth fell into the hands of fewer capitalists. The magnates of industry and finance became an even greater economic and political force through corporate consolidation and mergers. The number of recorded mergers in manufacturing and mining increased from 438 in 1919 to 1,245 in 1929; the total share of net income of the wealthiest 5 percent increased from 76.7 percent to 84 percent.³³ Five years after the stock market crash, Lewis Corey provided a precise breakdown. In 1923, the largest 1,026 corporations, 0.26 percent of all, received 47.9 percent of all net corporate income. Six years later, the largest 1,349 corporations, again 0.26 percent of total, received 60.3 percent of all corporate net income.³⁴ Meanwhile, 8,000 businesses went down during the same period.³⁵

Horizontal mergers pulled together leading companies in the production of steel, chemicals, food products, primary metals, non-electrical machinery, and coal which often led to the emergence of a giant “number two firm.” The merger movement traversed the whole spectrum of capitalist enterprises, among them General Motors, Chrysler, B. F. Goodrich, Caterpillar Tractor, United Aircraft, General Mills, and leading petroleum companies. General Foods Corporation was the first diversified food giant.³⁶ Electric light and power companies led the merger movement. According to William Leuchtenburg, by the end of the decade, the United States was producing more electric power “than all the rest of the world combined.” Holding companies merged small firms into “great utility empires” that caused over 3,700 local utilities to disappear between 1919 and 1927. Following the same trend, larger banks swallowed up smaller ones, and then created branches. Between 1920 and 1930, the number of branch banks rose from 1,280 to 3,516. “By 1929, one percent of the financial institutions in the country controlled over 46 percent of the nation’s banking resources.” The merger movement, Leuchtenburg wrote, “had reached boom proportions. By 1929, the 200 largest non-financial corporations in America owned nearly half the corporate wealth of the nation, and they were growing much faster than smaller businesses.” The same processes were at work in banking. The number of bank mergers increased from 80 in 1919 to 259 in 1927.37

With wealth more concentrated at the top, it fell to the leading institutions of finance capital to keep the consumer economy buoyant by providing cheap money to those who had enough income to consume. The result was a short-lived recovery in 1928 and the first half of 1929. But the “final spurt,” as George Soule put it, was the by-product of increasing speculation rather than further expansion of the productive economy. Thanks to huge cash reserves from productivity increases, large corporations were awash in cash and in no need of commercial credit from banks. This compelled them to engage in speculative lending, especially to individual investors and stockbrokers. Such was the impetus for the Great Bull Market that quickly transformed the purchase of stocks based on their actual value to prices that primarily reflected the inflated value of constant resale for quick profit. As businesses entered recession in 1927, the stock market kept rising. The Federal Reserve added to the speculative mania. In the second half of 1927, the Fed fueled the flow of easy money toward speculation in the stock market by lowering the discount rate from 4 to 3.5 percent, causing loans and investments among its member banks to shoot up by almost $1.8 billion in the same period, although only 7 percent of the increase went toward commercial loans. “Much of the credit,” as George Soule wrote, “flowed into stock market speculation, brokers’ loans on the New York Stock Exchange rising 24 percent.” The whole process of financing speculation by corporations and banks ultimately fell to the control of the speculators themselves. Financiers acquired new status as the chief promoters of economic growth. Meanwhile, the most fortunate sectors of the corporate and business economy benefited in the form of large salaries and dividends. By 1929, dividends amounted to 7.2 percent of total national income.38

That everyone was becoming rich from the stock market was just ballyhoo. According to Robert McElvaine, the actual distribution of dividends tells the real story. Just before the crash, stock ownership had become extremely centralized. Only 4 million out of the total U.S. population of approximately 120 million owned stock that year; 1.5 million of those held enough stocks to warrant an account with a broker. In fact, the vast majority of stockholders owned little stock at all. According to McElvaine:

Almost 74 percent of all 1929 dividends went to the fewer than 600,000 individual stockholders with taxable incomes in excess of $5,000. Just under 25 percent went to the 24,000 taking in over $100,000 for the year, and nearly 6 percent of all dividends went to 513 individuals whose families reported an income more than $1 million for the year.³⁹

Perhaps the best explanation of the causes of the Great Depression was provided by Lewis Corey with the 1934 publication of The Decline of American Capitalism. From his meticulous use of statistical evidence combed from all available sources, Corey demonstrated that contradictions in capitalist accumulation during the 1920s were the root cause of the general crisis of U.S. capitalism. Applying Karl Marx’s approach and method to the study of political economy, Corey was able to show how the unprecedented buildup of the means of production served to raise overall profits to the biggest capitalists at the expense of workers who were displaced or removed from employment.

For Corey, one contradiction was primary: in the economic expansion of the Great Boom between 1923 and 1929, constant capital in manufactures grew significantly more than variable capital. As the number of machines grew, fewer workers were needed. Affirming one of Marx’s principal arguments about capitalist accumulation, Corey showed that the average wages for American workers in 1929 was nearly the same as in 1923. As the capitalist mode of production expanded to new heights based on the growth of constant capital, profits soared while wages fell. Here was the contradiction based on Marxist political economy: “Wages must decrease as the composition of capital becomes higher: larger capital investment requires larger profits, and more capital is invested in the constant than in the variable form.” For Corey, as for Marx, capitalist growth made labor increasingly superfluous.40 As Corey said:

The most characteristic expression of the decline of capitalism is the misery of an increasing “surplus population” of unemployed and unemployable workers (including professionals), who barely exist on the “rations” of reluctant charity, meager unemployment insurance, or poor relief.⁴¹

Corey saw another significant development: the multiplication of stockholders led to “a financial oligarchy” made up of representatives from the largest banks and financial houses. While profits of non-financial corporations between 1923 and 1929 rose 14 percent from $5 billion to $5.6 billion, those of financial corporations (including banks, finance, and holding companies) were much greater, what Corey called “a phenomenal increase” of 177 percent, from $879 million to $2.4 billion. The whole process became even more “frenzied” in the two-year period leading up to the crash, prompting Corey to conclude: “Finance capital, interested more in the speculative production of profits than in the production of goods, dominates industry; the appropriation of surplus value and profits is increasingly separated from their production.” Consequently, corporations greatly increased disbursements to investors. Dividends (excluding intercorporate dividends) in the same six-year period rose from $3.3 billion to $5.8 billion and interest payments from $3.3 billion to almost $5 billion. While the average yearly increase in industrial wages was only 0.5 percent, the income for stockholders was significantly greater at 16.4 percent.42

In this increasingly speculative economic climate Corey also detected a growing need for the upper classes to sustain consumption by purchasing luxury goods. Despite the clamor about mass consumption and mass markets, economic growth relied on a leap in conspicuous consumption during the 1923–1929 period, primarily by those who could afford to consume the most expensive goods. Although installment buying had pulled in the middle class, the burden of sustainable consumption fell steadily to the wealthier classes. This was evident by mid-decade when the extension of credit and an avalanche of advertising could not bridge the widening gap between excess capacity and slackening demand. As Corey wrote, luxury goods were always important in capitalism because they were ruling-class necessities and desires. However, they were never more central to the history of capitalism than during the 1920s:

As mass markets are saturated because of the limited conditions of mass consumption, an increase in production, other than capital goods, comes to depend upon “those people who have buying surplus, who buy for style, change, whim, fancy,” and whose incomes, particularly the speculative, rise steadily during prosperity. Surplus capital flows into luxury or variety production, where low wages and the lower composition of capital (more variable than constant) yield an exceptionally high rate of profit. This eases the pressure of surplus capital on the rate of profit in other industries. But the high rate of profit in variety production eventually tends to fall, because of excess capacity and competition and because modern luxury production often requires large fixed capital.43

Even as the rich played a growing role in perpetuating prosperity, they only hastened the day when all would face the consequences of a contradictory system on the verge of a profound crisis.

A WORLD-HISTORICAL APPROACH to the study of fascism is critical to understanding why it emerged as a distinct form of politics in the opening decades of the twentieth century. For one thing, it enables us to transcend the myopia that fascism was for the most part a European political form. This was already clear to the Marxist economist Paul Baran in 1952 when, in the midst of anti-communist hysteria fueled by Senator Joseph McCarthy, he warned Americans of “the widely observable complacency” about “the danger of fascism in this country.” It had permeated “the political thinking of the so-called general public, of the conformist intellectuals, and of the kept press.” To see fascism only from the standpoint of its Italian and German characteristics, Baran said, was “quite misleading.” To determine whether something was fascist on the basis of Italian and German examples—extreme and violent mass movements led by men in black or brown shirts, racist and anti-Semitic at their core, “illiberal” and “intolerant of opposition, hostile to civil liberties and human rights”—only reinforced the “complacency” Baran observed in the American public about the threat of a particular form of fascism developing from within.⁴⁴

There were reasons why the majority of Americans were complacent. The myopic tendency to see all things fascist through a European lens put too much focus on the “forms of political events” and “insufficient attention to their social content and historical significance.” Baran did not discount the importance of knowing all about the forms themselves. But it was more crucial to recognize that they varied “from country to country and from period to period, and that it is only through understanding the economic and social substance of the historical process that specific political events can be seen in their proper light.” From this standpoint, Baran wrote:

Fascism is a political system evolved by capitalist societies in the age of imperialism, wars, and social and national revolutions. It is designed to strengthen the state as an instrument of capitalist domination and to adapt it to the requirements of intensified class struggle on the national and/or international scene.45

Baran’s view of fascism as a global phenomenon rooted in capitalist development, specifically a crisis of the system that intensified the class struggle and required the capitalist class to rely on the greater coercive power of the state, marked the continuation of a budding discourse on fascism that began in the 1930s. At that time, Big Business and Wall Street were seen as the driving forces of fascism in the United States. As A. B. Magil and Henry Stevens wrote in The Peril of Fascism (1938), its “germ” inhered within American monopoly capitalism.⁴⁶ Magil and Stevens had recognized that the mechanisms of fascist oppression were already emerging in the prosperity of the 1920s but became “a definite political force of ominous proportions” in the Great Depression that followed.⁴⁷ Given their main objective as members of the Communist Party in 1938 to forge a democratic, popular front against fascism at home and abroad, the two writers focused on the authoritarian, coercive, and terrorist processes they defined as fascist.

But as we have seen, the germ of American fascism within monopoly capitalism went much deeper than Magil and Stevens thought. Lewis Corey, a more formidable Marxist with detailed knowledge of political economy, had already pointed to this in 1934 in his analysis of the causes of the Great Depression. Corey examined the anatomy of capitalist production and exchange of American capitalism in the 1920s and early 1930s from the standpoint of one of Marx’s central tenets in Capital, what he called the “general law” of capitalist accumulation. In so doing, Corey showed that economic growth during the Great Boom of 1922–1929 only furthered the unbridgeable divide between capital and labor, owner and worker, class against class. While the capitalist ruling class reaped more wealth and power, the rest of society was consigned to greater unemployment and poverty in the midst of plenty—until the bust that was inevitable.

For Corey in 1934, the general crisis that inhered in the boom was a clear sign of American capitalism in decline and decay, its ruling class driven toward state monopoly capitalism—with fascism as a last resort—to maintain its rule over society by eviscerating liberal democracy while always looking to snuff out working-class radicalism and a socialist alternative. Although a brilliant Marxist autodidact, Corey still fell short of grasping the full potential of the United States to save itself from economic collapse as the world’s banker and leading creditor. For Corey, the contradictions seemed too advanced for him to consider what actually did occur: Roosevelt’s second New Deal in 1935 and his complete embrace of Keynesianism, or what some of his closest advisers called a compensatory economy based on permanent government intervention in 1938. This was pivotal to recovery and based partly on preparing for war industrially to fight fascism elsewhere in the world.

Still, from the perspective of the present, Corey was accurate in discerning the essential characteristics of U.S. monopoly-finance capitalism and, to some extent, the future course of the American Empire. Throughout the interwar period of boom and bust in the United States, the advance of monopoly-finance capital was palpable and incontrovertible: greater centralization of wealth and power among fewer capitalists with state power falling increasingly into the hands of the executive branches of government. In the process, Big Business and the government built what Magil and Stevens described as an “entire mechanism of repression” to save the capitalist order in the 1920s, clearly fascist in character once the crisis struck. The power of capital to dominate society and the individual in the most advanced capitalist society required methods of persuasion and manipulation as well, which Corey, Magil, and Stevens observed though not fully. Capitalist rule also came to depend on the capacities of advertising, public relations, and propaganda to manufacture consent. It meant the class-conscious effort of its gurus to construct a spectacle of prosperity that dazzled the masses and drove them toward more acquisitiveness. Throughout boom and bust, however, the power of American finance capital and Wall Street—the “fountainhead” of fascism in the United States—prevailed and ultimately became greater in its magnitude and reach.

Contemporary U.S. history clearly reveals two fundamental trends that have long been ignored, marginalized, or trivialized in the liberal historiography of the 1920s and 1930s, past and present alike. While the reproduction of capital furthered the centralization of ownership toward a financial oligarchy, the oligarchs used state power to advance, preserve, and protect ruling-class interests at the expense of democracy. This was true of Republicans and Democrats. After contradictions in capitalist accumulation set off a crisis in 1929, the ruling capitalist class forged new means to keep a Pax Americana intact, the social-democratic welfare state, that is, until the Second World War brought the United States out of the Depression with another round of massive capital accumulation based on the formation of a permanent war economy. This is the history of the interwar period that also reveals the genesis of fascist processes, terrorist and non-terrorist, aimed at the domination of capital over society, the individual, and nature—in the march of monopoly-finance capitalism toward centralization of ownership and authoritarian control of constitutional-democratic government.

From another perspective, fascist processes undermined the concept of citizenship at the heart of liberal capitalist democracy. As capital extended its powers over society and the individual, the citizen was transformed into a consumer who had been convinced by advertising and propaganda that real democracy was in the marketplace and not in the polling place. The quest for greater and greater profits on the part of the ruling class was based on its mantra of making business the compass for all Americans. The businessman was the new hero, who, in serving his community, did so as a True American. Business was becoming a system of power in its own right. Capitalist owners depended less on their guns at home—but certainly not abroad!—following the Red Scare of the early 1920s and relied more on advertising, public relations, and propaganda to persuade and manipulate the public into believing that capitalism in the New Era would fulfill their dreams of wealth, security, and comfort. On top of general repression brought by the steady advance of state power in their hands, the ruling oligarchy sought further success by turning the public into a commodity, adding to the “masquerade” of a coming American fascism in the name of democracy and the “shibboleths of old-fashioned Americanism” that Magil, Stevens, and others saw clearly as imminent and perilous during the Great Depression of the 1930s.48