Does the monopoly capital model of B+S align with historical reality? The model’s driving dynamic is the tendency of the surplus to rise, without sufficient investment opportunities to absorb the rising surplus. So what we must seek is ‘potential surplus,’ because unabsorbed surplus is also unproduced surplus. So rather than profit or investment figures, B+S use historical figures of unemployment and unutilized productive capacity, from the starting point of monopoly capitalism within the American context (after the Civil War). 

In social research, the complexity of the subject matter (societies or economies over decades or centuries) means that theorized forces/tendencies like those within this book are affected, in varying degrees, at different times, by countervailing forces. The purpose of effective social research is to be able to parse and identify these counterforces in relation to the theorized forces. By doing so, we learn more about how the system works without overly simplifying away the model’s connection to historical reality. 

No economy could grow as the US economy did from 1860-1960 if the depressive forces identified in this book operated unrestrained. According to B+S, the two external stimuli that counteracted the depressive mechanisms of monopoly capitalism are 1) epoch-making inventions, and 2) wars and their aftermaths. Epoch-making inventions are those which fundamentally reshaped the society’s economic patterns, altering both the location and magnitude of economic output. For B+S, there are only three of these: the steam engine, the railroad, and the automobile. 

All three of these changed the ways that people lived and worked, expanding both the possibilities of current production and opening massive new markets for novel goods and services. The steam engine opened up far more investment opportunities that it absorbed directly. For example, while steam engine production was never a huge industry, the steam engine enabled the economic explosion that was the Industrial Revolution, far beyond the steam engine industry itself. The same goes for the automobile. While the auto industry is gigantic, the indirect effects of suburbanization, highway construction, the rubber and glass industries, and most importantly the petroleum industry, go beyond even the auto industry’s economic footprint. 

The railroad, meanwhile, occupies a unique place in the history of capitalism, as able to directly absorb so many of the investment opportunities it made possible. From 1850-1900, railroad investment was greater than all manufacturing industries combined, taking up ~40-50% of all private capital. On top of these direct effects, the railroad also had similar scale indirect economic effects to the steam engine and automobile, rendering it the overwhelmingly dominant force in half a century of economic development.  

On the second counteracting force (war and its effects/aftermath), this was previously basically disregarded by economists, and not without good reason. In the century between the Napoleonic Wars and WWI, inter-capitalist wars were relatively few, brief, and economically inconsequential. This was the era of colonial wars, but the economic effects here were related to imperialism, not directly to war. The 20th century has been the exact inverse of this paradigm. Wars played a foundational role in the economic history of the 20th century, in a way comparable to the epoch-making inventions. 

From an economic standpoint, wars are divided into two phases: combat and aftermath. During combat (a war economy), production in all industries is shifted heavily towards military requirements, at the expense of consumer goods and services. As we saw in Chapter 7, war is the closest a monopoly capitalist society can get to mobilizing all of its labour and resource potential. In the aftermath, the consequences of the war economy become forefront and relevant; demand backlogs, scrapping war production, investing in consumer production, etc. This is not a return to the pre-war normal, but a new normal, in a fundamentally-shifted economy. 

We now must return to the question of the depressive mechanisms of a monopoly capitalist economy, in the absence of major external forces like epoch-making inventions and war. Starting in 1870, B+S begin to chart the American economy’s ability to absorb the ever-increasing potential surplus. Up to 1900, there is no evidence that the economy was struggling to absorb new surplus. Why was this the case? Because of the historical context of the ‘railroadization’ of the American economy, with this unique invention/industry absorbing roughly half of all investment in the 30 year period. The railroad was thus a sufficient counteractive force to prevent the depressive mechanism of monopoly capitalism from becoming economically problematic. 

However, did the period of railroadization end in 1900? Not really. There was a downturn in railroad investment during the 1892-96 depression, but it picked back up until the real crisis of 1907. Comparing the two periods of 1900-07 and 1908-15, miles of tracked built (-45.1%), locomotives added (-40.5%), and freight cars added (-49.4%) all fell drastically. B+S claim that, by 1907, the economic stimulus of the railroads had been exhausted. 

The interval between the end of the ‘railroad economy’ (1907) and outbreak of WWI (1914) offer a perfect opportunity to test B+S’s theory of monopoly capitalist dynamics. From 1907-1914, the automobile had yet to make major economic inroads, and there were no major American wars. If their theory is valid, we should (and do) see clear evidence of economic stagnation in this period. In a way, this period is the precursor to the Great Depression, only ending with the outbreak of WWI, like the Depression really only ended with WWII. 

By tracking the troughs and peaks of business cycles (~3-4 year periods) we see the following: during the five cycles from 1891-1908, in each cycle, the economy expanded for 23.2 months and contracted for 17.8 months (both on average). In the following two cycles from 1908-1914, the economy expanded for 15.5 months and contracted for 23.5 months (both on average). Additionally, using available unemployment data (which already tends to underestimate the actual number of unemployed workers), we can see the following trends. The average unemployment from 1900-1907 was 2.9%, and from 1908-1915 it was 6.6%. The annual rate for the first period only once rose above 5%. The annual rate for the second period got as high as 10% in 1915, when the USA was undoubtedly entering a depression, and before the Americans joined WWI (1917). This is exactly the kind of ‘creeping stagnation’ predicted by the monopoly capitalist model. 

The WWI aftermath boom came at the exact right time for American capitalism. ‘Automobilization’ had continued steadily throughout the war, and the twin forces of the automobile and unfulfilled demand (especially for housing) from the war economy led to the famous ‘Roaring Twenties.’ Between 1915 and 1929, automobile registrations went up by 10x. The average unemployment rate also shrank to ~3%. However, with hindsight we know that the seeds of the Depression were watered in the 1920s. Despite the WWI aftermath/automobile boom, excess capacity began to build up greatly after 1923. Diminishing capacity utilization, in tandem with increasing investment levels, was a core component behind the looming crisis. From a peak of ~94% utilization in 1923, 1930 saw a capacity utilization rate of just 66%. A third of the enormous American economy was sitting idle. 

When speaking of what caused the Great Depression, bourgeois economists allude to many factors. Lower population growth, capital savings through innovation, the ‘disappearance of the frontier,’ overexpansion of agriculture, weaknesses in banking and credit, the ‘anti-capitalist bias of the New Deal.’ However, B+S assert that American economics, if not bourgeois economics in general, has no theory for how or why the most important economic event of the 20th century occurred. At least, until Monopoly Capital was published. 

According to the theory in this book, the Great Depression was not an aberration, but the systemic result of what Marx called an economic ‘law of motion’: the inability of monopoly capitalism to produce sufficient investment opportunities to absorb its rising surplus. In this way, we can see how the Depression really dawned in 1907, at the end of ‘railroadization,’ only to be put off for fifteen years by WWI. The other mainstream factors were important here, but none were the root cause of the Great Depression, like Monopoly Capital can claim to explain. The Depression even hit with such intensity as to hold up the force of automobilization. It only really regained steam after WWII. Stagnation was so overwhelming that, in 1932, unemployment peaked at 25%, and capacity utilization fell to 42%. 

The WWII aftermath boom was additionally fueled by further processes of automobilization and suburbanization, but increasingly funded by mortgage and personal debt. The second wave of automobilization occurred in the late 40s, rather than the late 30s, primarily because people only had the necessary income to buy cars after the war, not after the worst of the Depression. This was also accompanied by the increase in peacetime military spending we’ve previously analyzed. However, despite all of this, stagnation couldn’t be kicked. By the late 1950s, capacity utilization was back in the low 80s%, and unemployment was once again rising beyond 5%.