More Power to the Workers: Seymour Melman on Extraction by the Military, Managers, and Finance

Yves here. Get a cup of coffee. This is a meaty and important post.

While I agree overwhelmingly with the main points, I have a few quibbles. One is that Rynn attributes the dollar’s role as reserve currency to oil being denominated in dollars. As we’ve discussed, the requirements of being a reserve currency is running persistent trade deficits so that there is a lot of the reserve currency in foreign hands so it is tradable. The reason foreigners are so happy to have the US run trade deficits is that pretty much everyone but us runs mercantilist trade policies. The US is effectively exporting jobs to these countries. They can have a higher savings rate and our exporting jobs alleviates the employment cost. What’s not to like from their perspective?

By Jon Rynn,  the author of Manufacturing Green Prosperity: The power to rebuild the American Middle Class, and many other writings available at His twitter handle is @JonathanRynn. Originally published at Economic Reconstruction

Seymour Melman was one of the most important political economists and peace activists of the 20th century. He would have been 100 years old on December 30, 2017 (he died in 2004), therefore this is a good time to consider his legacy, and more importantly from his point of view, to think about how his writings can help us achieve a more just world.

Melman always had a two-track intellectual focus, writing about both the military and the economy. The two concepts were intertwined in his books about the deleterious economic effects of military production, for instance, in ‘Pentagon Capitalism’, ‘The Permanent War Economy’, and ‘Profits without Production’. He sought to decrease military spending, not just because American wars after World War II were unjust, but also because that spending constituted missed opportunities to improve the public sphere of life, and even more fundamentally, because military spending destroyed the core competence in manufacturing that Melman saw as the basis of economic life.

This integration of peace activism and economics crystallized after the 1950s. In the 1950s, Melman was involved with what became known as the ‘ban the bomb’ movement. There was a great deal of concern at the time that nuclear war of any sort could lead to the destruction of most if not all mankind, and it took quite a bit of activist effort to eventually lead to, for instance, a ban on testing nuclear weapons overground. Melman and others, such as another political economist born in 1917, Barry Commoner, argued that trying to survive a nuclear strike in fallout shelters and the like was madness, and that the aftereffects of nuclear war would make affected areas unlivable. Melman made the term ‘overkill’ popular, as a reference to the idea that you only need a small number of nuclear weapons to wipe out your enemy, and any more than that is a complete waste of money. Melman, and others such as Marcus Raskin, founder of the Institute for Policy Studies, helped create a movement for global nuclear disarmament.

At the same time that Melman was addressing the issue of nuclear war, academically Melman was pursuing a production-centered understanding of the economy, as opposed to the exchange-centered approach of mainstream economics that was then beginning to dominate economics departments. As a professor of industrial engineering at Columbia University from 1948 on, his bread-and-butter expertise concerned how to increase productivity on the factory floor. While he was best known for critiquing the military economy, his critiques were based on his intimate knowledge of how things are produced.

Production and Worker Centered Economics

To understand his critique of the role of the military in the economy, therefore, it is critical to understand his understanding of political economy. Much of his framework can be summed up thus: the more decision-making power is given to factory workers, the better the factory and the economy performs. In addition, the more the engineers and managers of industrial firms are competent to organize production, the better the economy of the country-as-a-whole performs. Military production and financial domination interfere with both processes, and divert resources from the infrastructure, another critical part of the production economy.

However, before we can understand why he came to these conclusions, we need to attempt an even more fundamental question, which when answered will make the other hypotheses easier to explore: how does an economy work? What creates economic growth? You may be thinking ‘that’s what economic departments are there to explain’, or, ‘I took some economics courses, so I know the answer to that question’. From Melman’s perspective, mainstream economics cannot adequately answer these questions. Actually, from my perspective as well, since I spent 20 years working closely with Melman, and wrote a dissertation, book, and articles based on his world view.

The problem revolves around the concept of production. Usually, the concept of production boils down to manufacturing, or ‘industrial production’, which also involves things like construction and electricity generation. The epochal ideological problem, if you will, as far as I have been able to figure it out, is this: for most of the 19th and 20th centuries, the spectacular increases in growth and standards of living that manufacturing and other industry provided were glaringly obvious to most people, and in particular to intellectuals and urban folk. Most people lived through big technological transformations, for instance, to an electrical society or to one using trains, then cars, then planes . The role of manufacturing and other industry was obvious — maybe a little too obvious. Economics grew, not to explain this technological explosion, but mainly to explain the market mechanisms that enveloped this system of productive machinery.

It was into this industrial environment that people like Seymour Melman, Barry Commoner, John Kenneth Galbraith, John Maynard Keynes, and other, what I would call, ‘production-oriented’ economists grew up. Indeed, Karl Marx and prewar Marxists also experienced manufacturing transformations. What none of them developed, including Melman, was an explicit argument or framework that manufacturing is the foundation of a wealthy economy. It was obvious. For instance, Melman simply wrote in several books that ‘In order to survive, a society must produce’. True enough, but in the current society in which the urban population, and professionals and intellectuals as a whole, have as much exposure to manufacturing as they have to other exotic and remote ecosystems, this doesn’t explain much. However, Melman’s writings offer a set of principles that can help us grasp the true nature of the political economy.

Let’s actually start all the way at the beginning. Humans dominate the planet because we have hands and a brain that cooperatively are able to use tools to make other tools that then make things that we want. This was always our advantage over other animals, and has allowed us to create our own environments (houses and infrastructure in cities, for example), instead of going along with whatever the ecosystem happened to provide.

I said that we make tools that are used to make other tools, not that we simply make tools. The key to human success is ability to use a set of tools together, as a system, and to use one set of tools to make another set. So for instance in the modern economy, there are tools called machine tools that make all kinds of metal parts that are then used to make the machinery that we see in factories, and more machine tools, and which eventually make the goods that we use and the services that use those goods.

What we make depends critically, then, on what kinds of tools and machinery we use to make them. The production machinery may be out of sight, but without it we won’t have anything we need. For instance, smart phones would not be possible without all kinds of very sophisticated machinery that makes the small parts that go into the phone. And those machines were made using other machines, in conjunction with workers. So let us explore a list of ten principles that we may glean from Melman’s writings.

Melman’s Principles of Political Economy

1) The goods we use and their final price depend on what kind of tools/machinery are available to make them. Advances in tool/machine making is basically what drives economic growth — you don’t get electricity in your society because the market is set free, you get electricity because the machinery is available to generate electricity, and the tools/machines are available to make the machinery that generates the electricity. Melman was a world-leading expert in the production of machine tools.

2) In order to put this machinery together, and to use the machinery in the best way possible, engineers and managers have to have ‘the competence to organize production’, as Melman put it. This is the basic stuff of industrial engineering — how do you design a factory, or any other workplace, so that you get the most output with the least input. If you do this better than other companies, then you can charge less for your product, and presumably get a bigger market share and make more profit. If the country as a whole is doing is organizing work competently, then it will do better than other countries, economically.

3) In order to maximize the usability of this critical production machinery, you need to maximize the ‘productivity of capital’, that is, you need to keep the machinery running (maximizing ‘uptime’). If you have a car factory and the assembly line keeps breaking down, you will get less output in a particular period of time, just as most people can’t be productive now if particular websites are ‘down’. This ‘uptime’ is crucial to a well-functioning factory and indeed an economy. One of the reasons that the Soviet Union collapsed, according to Melman’s analysis, is that the Soviets were so focused on making military equipment that they let their industrial machinery literally fall apart, and so they were experiencing a production crisis when Gorbachev entered the scene and decided he needed to shake things up.

4) The more decision-making power you give workers on the shop floor, the better the machinery will perform, that is, you will maximize the productivity of capital, because well-trained and well-motivated workers will be able to prevent problems in the machinery from happening in the first place, and will react quickly if problems arise (for instance, on the famous Toyota assembly line, any worker can stop all production if they see a problem) . When workers are ‘dumbed-down’ and have no say, machinery breaks down and the entire production process — the organization of work — in not as efficient as it could be.

5) An economic ‘virtuous cycle’ emerges if you pay workers more, because competent managers will compensate for higher wages by using more and better machinery, and by improving the way work is organized, which will then lead to higher profits, which can lead to higher wages, leading to better machinery/organization of work, and so on. Indeed, Melman even argued that if you have strong unions, management will be forced to figure out more clever ways of organizing work than just trying to decrease wages.

6) When wages go up faster than the price of the machinery that is being produced by workers, then this ‘virtuous cycle’ is reinforced. Melman followed this ratio in various countries starting in the 1950s. For instance, in his last published book ‘After Capitalism’ he noted that the Japanese and Germans were increasing wages at a higher rate than the increase in their machinery prices, and their machinery industries were world-leading and their workers made more than their American counterparts. In America, on the other hand, machinery prices were going up faster than wages. So cutting or stagnating wages reverses the ‘virtuous cycle’ of increasing wages leading to better machinery and organization of work. This dynamic was one of the themes of Melman’s first book, ‘Dynamic Factors in Industrial Productivity’.

7) A well-functioning management and concomitant organization of work is the basis of a thriving middle class, particularly if unions are strong, that is, workers have decision-making power in the firm. Basically, by generating more wealth, the society becomes richer, but if you generate more wealth by at the same time increasing wages, you not only keep the virtuous cycle of better productivity going, you obviously have a richer working class.

8) Management, instead of contributing to a country’s economic wealth by competently organizing production — including giving workers more decision-making power — usually instead divert resources to their own ‘administrative overhead’, as Melman put it in his dissertation in 1948. He continued to track this society-wide diversion of resources from production to administration until his last book, and found that the ratio of administrative overhead to production continued to increase (and was even worse in the Soviet Union).

9) Melman agreed with my hypothesis that in order to thrive, a manufacturing sector needs to encompass a full suite of industries. A region’s economy will thrive most if all the parts of the manufacturing economy are present in some form. In other words, national manufacturing specialization does not work. You can’t be the best in making cars if someone else is making the machine tools that you use to make the cars, or if your country isn’t making its own steel. There are relationships of positive reinforcement that occur among the various manufacturing industries. The economy is an ecosystem (a concept Melman’s mentor used and I developed further in my writings), the important point being that you can’t rip various parts of the regional manufacturing ecosystem apart, sending them willy nilly to other countries, and expect the surviving industries to thrive. This goes against the deification of David Ricardo and his theory of comparative advantage in economics, which is used to justify globalization and many trade treaties which have helped to devastate American manufacturing.

Tenth and finally for our purposes here, the United States has perhaps already reached a ‘point of no return’ where the managerial class has become so incompetent that the only way they understand to increase profits is to decrease labor costs by moving factories overseas. Not only does this rob the US of its production base, it decreases global growth by discouraging the use of better machinery and organization of work inside the factory. The virtuous cycle is broken. Part of the reason companies offshore factories is because they want to break the power of unions. Melman stressed that management pursues greater power as much as or more than they pursue greater profits — and unions decrease managerial power. He called this dynamic ‘power extension’, which he considered more important than simply the drive for profits.

Consequences of Melman’s Principles

If we apply these principles broadly, we can see that they collectively offer an alternative to mainstream economics. In the worldview of most economists, growth magically appears if you decrease government intervention. In the real world, economic growth appears if you create better machinery, organize work better, and pay your workers more. In the mainstream economics view, military production is just like anything else, in fact, any production or economic activity is just as important as any other, whether it’s providing for tourists, creating machine tools, or making a tank. In the real world, there is a hierarchy of importance of economic activity, and manufacturing, and in particular manufacturing machinery, is at the top of that hierarchy. In the world of the economist, lower wages is equivalent to improving machinery, as long as the short-term profit is the same; in the real world, cutting wages leads to lower productivity which leads to a poorer country overall. In the view of economists, machinery is viewed as a replacement for workers; as I hope these principles have illustrated, machinery actually makes worker participation and decision-maker power more important, and in a well-functioning economy, machinery innovation brings better wages and more jobs.

Since Melman was generally at least a decade or two ahead of his time, we may need to dwell a bit on the following conundrum: in the economists’ world, automation means less work, which means less people are needed to work in an economy. In the real world, automation has been going on since the start of the Industrial Revolution, but because of the actions of the managerial class to outsource production and the attendant increase in inequality, in the last few decades the standard of living of the working/middle class has stagnated or even declined.

There has been quite a bit of discussion about automation and inequality recently. Bernie Sanders made the problem of inequality the basis of an almost-successful run for the Presidency, and Thomas Piketty wrote a very well reviewed book about inequality. On the other hand, on the right (and neoliberal center), it has become an article of faith that automation will wreak havoc on the concept of work as we have known it, and maybe a ‘basic income’ policy will become necessary so that the hordes of unemployed at least can survive without work.

The problem with all of these ideas about automation, and in fact a problem with the progressive agenda as a whole (not to mention the conservative one), is that they ignore ‘production’, or what I have described as Melman’s principles of production (Melman would often use the shorthand of ‘they don’t understand production’ to dismiss someone’s argument, a problem I hope to alleviate here). If production is the central way that a society creates wealth, and if that function is removed from an economy, then clearly you are going to have a lot less wealth. If one quarter of the working population in the 1960s was in manufacturing and one tenth is now, and the lost employment went into low-paying services while the income went into finance, then no wonder there has been an increase in inequality. The part of the economy that was producing material wealth, and that supported the backbone of the middle class, was ripped out and thrown away. The society became poorer, and with it most of its people, except the top 1%. (see for a further explanation)

The astute reader might remember his or her intellectual betters explaining that we are now in a ‘post-industrial’ society — a phrase that drove Melman crazy — because most people work in the service economy. Manufacturing has been ‘solved’, according to this line of thinking, and is ‘less advanced’, so it naturally migrates to ‘less advanced’ countries like China — ignoring the fact that more advanced countries like Germany and Japan have wealthier middle classes than we do because they have much larger manufacturing sectors. But let’s look at the service economy a bit closer.

Services are what you do with goods that are manufactured, for the most part. For instance, the retail and wholesale service sectors retail and wholesale goods. Marketers are generally marketing goods. Airlines run a service based on the use of machinery (jets), and computers are, well, machines. The health industry is very dependent on machinery and goods like drugs, and the restaurant business can actually be considered a kind of manufacturing facility. The real estate industry is based on the construction industry, which uses machinery and goods produced in the manufacturing sector. Just about wherever you look, services mean using goods.

If services are the act of using goods, then it should be clear that a big country can’t pay for most of its imported goods by exchanging them for services — there simply aren’t enough exportable services to exchange for all the goods. Any other country besides the US would have had a rude awakening of a decline in their currency had they had the level of trade deficits the US has, that is, the amount of goods and services that are imported vs. the amount exported. The US survives because other countries use the dollar as a medium of exchange and need dollars to buy oil. But this state of affairs will not last forever.

Manufacturing has always contributed the bulk of productivity growth in an economy. In fact, manufacturing productivity increases at about 3%, year after year, at least for the last 100 years. Technological improvements are made to machinery and the organization of work, year after year. The same does not happen in services, generally, because services require human intervention. Ah, but pundits will proclaim that artificial intelligence will replace much human service work. The problem is that the statistics on productivity don’t show it, that is, the same amount of labor is still needed for the same amount of work, in almost all service industries. But there is ‘technological unemployment’ as machines take over some jobs, as they have been doing for almost two centuries, and often those people, unlike other decades, have not been able to find new work. What went wrong?

The Rise and Decline of the Virtuous Cycle

This is what happened in the two decades certainly after World War II, when about the same level of growth of automation (and mechanization) was occurring then as now: when a factory could output more goods with the same work force (because the machinery was better or the organization of work was improved), then the manager could offer the good for a lower price, or he could offer a better product for the same price (common in the electronics industry). By offering the good at a lower price or offering a better product at the same price, consumers would want more, that is, demand would go up. In order to meet the higher demand, the manager would actually hire more workers. In addition, some other workers would be employed in the industries making the automation machinery. So when consumers have enough disposable income to take advantage of advances in technology, automation actually leads to more employment, not less. The history of industrial growth between the end of the Civil War and the 1960s are a testament to this continually occurring (interrupted occasionally by terrible depressions).

This is the process Melman advances in his first book in the 1950s, “Dynamic Factors in Industrial Productivity”. This process breaks down when consumers are not being given their fair share of the national income. That is, as more and more of the wealth of what is being generated by the economy winds up with the very rich, there is less and less for the rest of the society to spend on ever-increasing opportunities to buy stuff. Thus we have the phenomenon of all kinds of ways for your self-respecting highly-paid professional to spend money, including fancy goods, food, and housing, while the vast majority of the population is worried about making it to the end of the month and can’t take advantage of cheaper or better goods — and therefore, automation now leads to less employment, instead of more employment.

John Maynard Keynes basically laid out this problem in the 1930s. I called Keynes ‘production-centered’ because his logic assumed that most economic activity occurred in factories, as did most pre-WWII economists. But he also saw that warping income distribution would lead to lower levels of production. That is, the economy produces a certain amount of wealth, and it needs most people to have enough money in order to buy that produced wealth. When much of that wealth winds up with the very rich, the very rich don’t spend that wealth on the produced wealth of the economy. Some goods go unbought, or what is the same thing, are never produced in the first place, and therefore, less people are needed to produce that wealth. Eventually, Keynes argued, the economy spins out of control and works its way into a depression, like the Great Depression. Only the government can kick start the economy, by supplying the demand that was sucked out by the very rich.

Although Melman did not explicitly use Keynes’ formulations, he studied Keynes carefully and Keynes’ ideas inform Melman’s ideas. Melman also was enamored about another theory as to causes of depressions, one that has been mostly ignored, promulgated by the economist Leonard Ayres in a tract called ‘The chief cause of this and other depressions’, written in 1935. Briefly, Ayres argued that when the growth of consumer goods slows, then managers stop buying new factory machinery. When they stop buying factory machinery, the factory machinery managers start laying off factory machinery workers. When that happens, demand for all goods lessens because now less people are employed, consumer goods managers lay off more workers, and the economy goes into a death spiral. Since the 1960s the US economy has many fewer machinery jobs than it used to, the US doesn’t even have much of the demand from those job holders that it used to have, and the economy becomes more brittle. But the effect Ayres writes about has a similar effect to the one Keynes describes: there is not enough demand for all the goods people are employed to produce, and the economy teeters toward depression.

As the rich get richer and the middle class and poor get poorer, the society-wide benefits of productivity increase — automation — break down, and actually make things worse. In an economy like the US that now imports much of its factory machinery, automation doesn’t even create many new jobs in the US, like it used to. However there is an additional problem that Keynes could not have foreseen, that is, the decreasing competence of the American managerial class to produce, partly because of the effects of military production. Military production leads to a management that is not trained to produce for the civilian market, that is, it doesn’t know how to increase the quality of goods or decrease the price by improving machinery or the organization of work, it only knows how to increase profits, often by making goods more expensive and less reliable. Since profits are assured, much of the manufacturing sector gravitate toward military production. The extreme case of this was the Soviet Union, whose manufacturing prowess was almost completely destroyed by the time of its collapse.

So the problem, contra much of progressive thinking, is not simply the lack of demand or the inequality of wealth (which leads to lack of demand). The problem in the US has gotten to the point where supply is a problem, that is, American management doesn’t know how to compete globally. Whether the need is for industrial machinery, which mostly now comes from places like Germany or Japan, or the demand is for mass produced consumer goods, where China currently excels, the US is being squeezed from both the high and low quality sides, because management has given up its historic function of organizing work and creating better machinery.

The Role of the Military Industrial Complex

For much of the 1960s and 1970s, Melman laid the most blame for the deterioration of American manufacturing competence at the feet of the military industrial complex. His arguments became an important part of the arsenal of progressive forces in their attempt to reign in the military and the military industrial complex. The military did not harm the economy solely through a creeping incompetence in the economy, however. The military also wasted a huge amount of resources in their bloated budgets. Taking the cue from Eisenhower’s famous ‘Iron of Cross’ speech, in which he lamented all of the schools, roads, and other infrastructure that could be built with the money spent on arms, Melman widely published charts and articles on the equivalence between, say, the cost of a bomber and how many schools could be built instead. Seconding John Kenneth Galbraith’s concern about ‘private opulence and public squalor’, Melman wrote the books ‘Peace Race’ and ‘Our Depleted Society’ in the first half of the 1960s in an effort to alert the public to the fact that America had enduring social and infrastructural problems that needed much more resources, while at the same time the monies were being wasted on useless military equipment that was often making the US less secure. When Martin Luther King and other civil rights leaders talked to LBJ about the problems of the cities, they brought Melman with them to explain the spreading deterioration of urban public works.

Somehow he also got an audience with Secretary of Defense Robert McNamara as the Vietnam War heated up. Melman blamed McNamara, formerly head of Ford Motor Company, for rationalizing and systematizing the military industrial complex. After McNamara got through with it, the Department of Defense had turned into the headquarters of the military industrial complex, with the contractors as virtual divisions of the Pentagon. Melman was concerned that the military industrial complex was siphoning off much of the best and the brightest engineers and scientists, and that there was a surfeit of engineering talent available for civilian firms. “Where are the engineers?! Where are the engineers?!” Melman remembers McNamara screaming at him. It is a question we can continue to ask to this day.

The frustration and suffering caused by the Vietnam War buildup made a bad situation worse for the economic fortunes of the country. Martin Luther King and other progressives were furious that money was being taken from worthwhile domestic programs to fund the war. Melman became deeply involved with anti-war activity along with other leading intellectuals such as Noam Chomsky, with whom he began a long, productive friendship. As in the case of arguing for nuclear disarmament, Melman’s main public image was as an important peace activist.

This combination of concern for war and the preparation for war was complementary to his economic thought. Indeed, the entire field of economics was formerly referred to as political economy, because it was recognized that the state (government) was a vital actor, both good and bad, in the economy. Thorstein Veblen founded the Journal of Political Economy (which now only concentrates on economics), and Melman’s mentor, the important industrial engineer Walter Rautenstrauch, worked with Veblen (and also with Frederick Winslow Taylor). The economists and sociologists that Melman encountered at Columbia and at CCNY in the 1930s and 1940s, such as Robert Lynd and John Maurice Clark, were a more eclectic group of thinkers than would emerge in the 1950s. Melman also worked with C. Wright Mills, whose ‘Power Elite’ were composed of corporate, government, and military officials, and with Paul Goodman and non-mainstream economists.

The Answer: More Democracy

The problem, in both economics and war, are similar: a group of elites attempt to exploit the working people of a country, either by denying workers power over their paychecks and working conditions, on the one hand, or by forcing them to be instruments of elite power extension in the form of war, on the other. In both cases, the answer to Melman was clear: more democracy.

In the case of war, democracy meant forcing the government, whether through protest or voting, to stop an enterprise that the vast majority of people opposed. On the economic front, the answer is to extend democracy to the level of the firm, that is workplace democracy, or a bit more formally, employee-owned-and-operated firms. Workplace democracy is what would come ‘After Capitalism’, the title of his last published book.

Melman’s interest in self-management was kindled in the 1930s, by the temporary success of anarcho-syndicalists in Spain (before Franco brutally suppressed them) and by the example of the kibbutz in what would become Israel. Melman was part of a radical Zionist group at CCNY, and he briefly lived on a kibbutz. His second academic book in 1958, ‘Decision-making and productivity’, concentrated on the Standard Motor Company in England, which gave an unusual amount of work floor power to the union (he almost got fired from Columbia for the affront of singing the praises of unions, until some eminent professors came to his defense). By the 1980s, he again focused on workplace democracy, exploring the Mondragon system of cooperatives in the Basque region of Spain and the Emilia-Romagna cooperative system in Italy. In ‘After Capitalism’, he devoted a great deal of space to the problem of constructing a democratic alternative to the hierarchical, managerial structure of most firms.

His last Ph.D. student, in fact, wrote up a comparison of two shops at Ford, one in which the workers were given a great deal of authority and training in the operation of machine tools, and one in which they were only allowed to press an on and off button. His student found that the shop with greater worker decision-making was much more productive, and this finding can be found in numerous other studies.

Full-blown democracy within the firm is perhaps the ultimate manifestation of giving more power to workers. Many of Melman’s economic principles are encouraged when managers do not have dictatorial control over the firm. The virtuous cycle, of salaries increasing more than the prices of the produced goods, can be easily enforced, because employees will want to distribute the income of the firm among themselves, not vacuum up most of it for the top managers and absentee owners. Higher wages will lead to greater consumer spending in the economy as a whole, leading to more employment and more spending. Administrative overhead will be minimized, freeing up resources for innovation and rising wages. Employees will not allow their factories (or service companies) to be shut down and moved abroad if they own the company (and can’t sell it, as in the Mondragon system). In no case did Melman find, in the 1980s and 1990s, that a factory that had been closed had not been profitable. In other words, had (miraculously) all factories been owned and operated by their workers at the start of the 1980s, no (or very few) factories would have been shut down in the last 30 plus years, and we would have many millions more factory jobs, a strong middle class, and my guess is, no Trump.

This last consideration was very important to Melman, although of course he did not see Trump himself coming (who did?). Melman was very concerned, even by the 1990s, that we were arriving at a ‘Weimar moment’, as he wrote about in ‘The Demilitarized Society’. That is, like 1920s Germany, a large ‘lumpenproletariat’ appeared, to use Karl Marx’s phrase, that is, a large segment of the population who had been excised from the economy — much of the manufacturing working class — and that such a group would naturally be open to the ramblings of a demagogue — like Trump.

By the 1980s, it was clear to Melman that the military industrial complex was not the only major sector that was hurtling manufacturing over a cliff. In ‘Profits without Production’, he linked the financial sector to the worsening situation of manufacturing. The early 1980s were marked by disastrously high interest rates, which he worried would be the nail in the coffin of American manufacturing exports, and he was right. About that time the Japanese came roaring into the American market, the result of decades of American military industrial spending, financial shenanigans, and the attempted destruction of the American working class. The financial sector, like the military industrial complex, sucked resources out of the manufacturing system, which was the source of the wealth, and gave nothing in return. Money would make more money much more quickly (eventually, in nanoseconds) than building a factory ever could. Global trade treaties, in conjunction with cheaper digital communications, would by the 1990s lead to a rapidly sinking prognosis for manufacturing. Something had to be done, but what?

Having witnessed Melman’s attempts to start a manufacturing renaissance first hand, I can say that ‘we’ (including scholars like Jonathan Feldman) tried a number of things. By the late 1980s, Melman had convinced the Speaker of the House, Jim Wright, to make what Melman called ‘economic conversion’ a top priority in the House. Economic conversion, as Melman conceived it, would involve requiring every military factory to create a plan to convert that factory to some useful civilian production. Then, if the military budget should be cut, factory workers would not have to fear for their jobs, as they could pull out a plan to succeed in civilian markets. This would also include training engineers and workers in civilian production techniques. Of course, this was not something the Pentagon favored, since the great source of their power is not the defense of the country, but the political machine for creating jobs known as the military industrial complex. Consequently, the Representative from the defense contractor Martin Marietta’s home district, Newt Gingrich, plotted to and eventually was able to bring down Jim Wright, torpedo economic conversion, and begin his march to right-wing Republican domination of Congress in the 1990s.

Well, we thought, when the Soviet Union fell, since the main excuse for a large military budget had disappeared, perhaps the American public would be open to arguments for a well-deserved ‘peace dividend’, that is, the government could finally divert some of the money the Pentagon was using to upgrade the infrastructure. We organized a ‘National Town Meeting’, involving many cities and progressive politicians. But by this time, the Left as a whole had undergone over 10 years of Reagan politics, and they didn’t seem up to the challenge.

Melman also tried various ways of encouraging the unions to take a more innovative path, that is, to work toward a reindustrialization of the US. But they, too, were doing their best to survive the relentless assaults of offshoring and deindustrialization. Looking back on the early 1990s, perhaps if the gravity of global warming had been clearer, it would have been easier to formulate a framework that Melman and I evolved, but unfortunately only shortly before he died. The formulation was the following: To rebuild the economy, rebuild manufacturing, and to rebuild manufacturing, rebuild the infrastructure. With global warming and all the other ecological catastrophes looming on the horizon — warnings that Barry Commoner and others had been broadcasting for a couple of decades — it should be clear that the entire infrastructure, transportation, water, energy, urban, and other systems, need to be redesigned in order for global civilization to survive into the 22nd century (I have written a book on this subject, “Manufacturing Green Prosperity”, and article in an edited volume and a sample Federal budget,

The idea is that by spending trillions on constructing new infrastructure systems such as high-speed rail and national wind systems, new transit systems and walkable neighborhoods, and fixing old infrastructure, the government would supply the kind of long-term demand for domestic manufacturing that would revive American manufacturing. This effort, in turn, could make unemployment a thing of the past, and that kind of policy would negate the ‘Weimar moment’ and bring with it enthusiastic support from the entire working class, white, African-American, Latino, of whatever ethnicity or gender. Oh, and the oceans would not rise and wipe out all coastal cities and turn the rest of the land into deserts.

In the ‘Demilitarized Society’, Melman warned that fear was not a sustainable motivation for progressive activism. Eventually, fear turns to right-wing paranoia and the easy solution of demagogues, a situation we more and more find ourselves in today. Instead, a concrete set of solutions must be advanced at the same time that analysis and warnings are given.

I’m afraid that progressives are still toiling the fields of fear instead of constructing a structure of solutions. Climate activists are warning us of frightening futures, but they have not put forth solutions that fit the scope of the problem, such as spending trillions on infrastructure. The Resistance to Trump and the Republicans is doing an excellent job of rallying people to vote and protest, but they have not put forward a program, such as spending trillions of infrastructure that would create tens of millions of jobs and rebuild manufacturing, that would deal a death blow to the 1920s-style right-wing political revival. Instead of simply decrying the greed and overreach of the large corporations, we should be thinking about how to create an economic system in which employees own and operate their enterprises (Brian D’Agostino has proposed ways to make workplace democracy society-wide in his book ‘The Middle Class Fights Back’)

Melman would have urged us to understand the importance of production in the economy, of the inner workings of manufacturing, factories and machinery, why workplace democracy leads to greater prosperity, and how a middle class forms out of the virtuous cycle of increasing wages. Using this understanding of the economy as a foundation, we can then propose solutions to our biggest problems — inequality, climate change, right-wing nationalism, militarism, and others — that can capture the imaginations of the world’s peoples.

*This article is meant as a wide-ranging, ‘high-altitude’ look at Melman’s work, not as an exhaustive survey. Please see for more of Melman’s work, as well as his many books and articles.

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  1. SoCal Rhino

    Ran across this a few days back – strikes me as a more fruitful line of argument for political communication than MMT (very challenging to persuade with counterintuitive arguments).

  2. JCC

    Thanks for this. As someone who worked for one of the few ongoing successful machine tool manufacturers in this country as a field service engineer, I got the chance to work in factories across the US and also got the chance to watch them shutdown throughout the eighties and nineties. I also watched the progress of exactly what this article discusses, bloated administrations and fewer workers, most relegated to button-pusher employment.

    After 3 years of no raises at all while watching Management wages increase substantially, I finally took heed to the writing on the wall and bailed out (luckily just in time for me) for a better line of work within the M.I.C.

    My preference would have been to stick with the factories, but unfortunately they no longer exist at numbers that would have assured a decent working life (the Factory Service Dept. of the company I worked for is now less than 25% of the size it was – most of it off-loaded to low-wage distributorships and/or off-shored.

    From the perspective of long-term society goodness, it was not the best decision, but from my perspective of personal goodness – food on my table, affordable health insurance, and a working furnace in the winter – it was my only choice of employment with decent wages that this country offered someone with my skills.

    As hedge fund managers like to say relative to the long haul, IBGYBG, but it’s a crappy philosophy to live by, especially considering that at the rate we’re going, I might not be gone.

  3. Jon Rynn

    JCC, Melman once announced to me that as far as he could tell, all machine tool companies in the US were either foreign or foreign-owned — although I think there were a few American owned, like Haas. The machine tool industry is the ‘canary in the coal mine’, if that goes, the rest of manufacturing competence is not far behind.

    I think you and millions of others like you are making the rational decision to either get out or not to get in in the first place, and now there is skills shortage. This will require a strong industrial policy from the Federal government, in my opinion.

    1. JCC

      Mr. Rynn,

      The company I worked for is still operating as an American owned company located in NY State. It is still considered a premier Machine Tool Company (they build what are known as Super Precision Machine Tools) and unlike many other smaller American Machine Tool Mfgs. it actually bought some foreign companies as well as what was left of Bridgeport and one or two others instead of being bought. There was a close call a few years ago, if I remember correctly, when they were being courted by what I seem to recall was a foreign-owned Hedge Fund.

      I have my regrets and I still consider it to be a good company, but from a financial standpoint, I’m also glad I left. My years there were a major wake-up call to what was happening to Mfg., as well as large businesses in general, across the country during the late 80’s through the 90’s. I have a very negative attitude towards Accounting/Financial Departments completely taking over the Management of business because of what I saw and experienced. They’ve gutted the best parts of what these companies provide to their respective communities and stake-holders, and the country.

      Your article pointed out that particular problem as well as a few more of the more obvious issues. Thanks for that. It needs wide distribution.

      1. John Wright

        This information indicates the company is Hardinge Inc.

        I have had an opportunity to spend some time using a Hardinge HLV lathe at the company I work at.

        Very nice equipment, for both amateur/inexperienced (me)/ and experienced machinist users..

        In 2010 a Brazilian company attempted to buy Hardinge, and it was rebuffed

        Some details on the offer:


        “The offer came from a private company in Brazil that operates in a similar line of business. This company is looking to buy Hardinge in its entirety for an absolute steal: The bidder has offered to buy the company for about $90 million, which is not much more than Hardinge’s net current assets! The company’s fixed assets (which are substantial in this line of business, with a book value of $180 million!), access to the company’s markets, customer relationships and engineering know-how would all be thrown in for free!”.

        So it took a foreign company to recognize that Hardinge was undervalued.

        In this case, a US maker of premium machine tools was of little interest to the US financial industry.

        Hardinge Inc is still a US company from what I can determine.

  4. McWatt

    Having experienced all this as a manufacturer in the 70’s and 80’s Melman’s concepts ring true to me. I’d love to hear Michael Hudson comment on Melman’s theories.

  5. Ed

    I’ve not encountered Melman before, and he seems like someone who I should read directly. This site provides a real service.

    However, I’ll admit I just skimmed the article. My interest is history, not economics, and the same dynamic occurs again and again and again throughout history. And there is even an economics term that could be used for this, “the Dutch disease”.

    Basically, national economies over time will increasingly specialize in what is most profitable at the moment. Other sectors will gradually be starved of capital since investment will go to the most profitable sector, with less influence in the government, and in some cases be plundered to provide capital for the profitable sector. This creates a cycle as eventually even talented people who don’t want to work in the specialized sectors will have to.

    The classic example of this is Hapsburg Spain. Castille in fact had a pretty diverse economy in the 15th century, but increasingly specialized in producing soldiers and priests, and this was widely noted in commentary at the time. Personally, having grown up in New York City, I went into finance pretty much because it was either that or retail. New York City actually had a diverse economy before I was born and for a little bit afterwards.

    The same process occurred in early 20th century Britain, with finance being the main specialized sector, but it was mild compared to Spain. The British wound down their empire after mid-century. That is a key point. Empires will increasingly specialize in priests, soldiers, and bureaucrats (financiers are are a sort of bureaucrat), finance by overt or implied tribute, because that is what is most profitable at the center. The hollowing out of Italian industry and agriculture was widely noted during the Roman Empire, even as people flocked to Rome. And the only way to fix the damage caused to the center in this way is to get rid of the empire.

    1. WobblyTelomeres

      IANAE. And I took macro 45 years ago, so I most likely have only the vaguest gauzy notion of the following.

      Keynes suggested that trade imbalances, which occur when A is able to produce goods more efficiently than B will self correct as the currency of B will be devalued over time wrt the currency of A.

      When the currency of B is the global reserve currency (which, I believe, Keynes did not address), this may result in a real constraint on this self-balancing, right? So, in this sense, your statement:

      And the only way to fix the damage caused to the center in this way is to get rid of the empire.

      might be rephrased as:

      And the only way to fix the damage caused to the center in this way is to get rid of the global reserve currency.

      Is this accurate?

      1. Mikkel

        Actually Keynes addressed this very clearly. He knew that various policies can prevent currencies from self regulating and so believed that supranational regulation was required.

        He argued for the IMF to be founded with the primary purpose of providing this regulation, including the creation of a global trade currency called the Bancor

        Here is a summary of the idea and why things fell apart — leading to the IMF instead becoming a capo for the creditor nations.

    2. Jon Rynn

      I would add that you can narrow down the causes of decline to two main sectors: the military and finance. Basically, if manufacturing is the most important source of wealth — or manufacturing and infrastructure more generally — then the state will often divert the surplus from manufacturing in order to become imperial, that is, they will take the surplus and build a military establishment in order to further empire. This certainly happened in Britain, and can be applied to France, Rome, etc., with perhaps the most glaring example being the Soviet Union.

      Finance also diverts resources from manufacturing, because the surplus from manufacturing usually takes the form of money, and finance controls the money. But more importantly, the finance sector can increase its economic power faster than manufacturing because money makes more money much more quickly than factories can be built to create real wealth. We saw that in Britain, and the US.

      1. HotFlash

        perhaps the most glaring example being the Soviet Union

        Oooh, I can think of at least one other country…

        Boeing, Lockheed-Martin, Raytheon. How odd that mfg in the US these days is less about making life better than about making it short.

        1. Jonathan Holland Becnel

          I worked on General Dynamics and Raytheon equipment as an ATC Equipment repairer in the Army a few years back. Lol

          Thx for the article, JR. Manufacturing is THE ISSUE of 2018 as far as im concerned.

  6. a different chris

    This was good except for this one glaring mishmash of a paragraph, which needs to be either fixed or removed:

    Somehow he also got an audience with Secretary of Defense Robert McNamara as the Vietnam War heated up. Melman blamed McNamara, formerly head of Ford Motor Company, for rationalizing and systematizing the military industrial complex. After McNamara got through with it, the Department of Defense had turned into the headquarters of the military industrial complex, with the contractors as virtual divisions of the Pentagon. Melman was concerned that the military industrial complex was siphoning off much of the best and the brightest engineers and scientists, and that there was a surfeit of engineering talent available for civilian firms. “Where are the engineers?! Where are the engineers?!” Melman remembers McNamara screaming at him. It is a question we can continue to ask to this day.

    Why was McNamara the one screaming about not having engineers, when the rest of the paragraph says he was the engineering sink? To a lesser extent, why did Melman (“somehow” is not satisfying) have an audience with McNamara, and was it during this audience that he “blasted” McNamara?

    I’m thinking Melman told McNamara that he (McNamara) had all the engineers, and McNamara was denying it, but it’s really hard to parse out and I don’t even know why it’s worth a sitting duck paragraph in a humongous post anyway.

    1. Jon Rynn

      Point taken. I know it’s unclear, and to the best of my recollection, Melman didn’t know how to respond either. I guess the point is, McNamara didn’t know how to handle what Melman was telling him. And also I have to admit I don’t have the total context. Occassionally Melman would be invited by the military to give a talk, because they figured he knew what he was talking about and they actually wanted to know. I just thought it was an interesting anecdote, but maybe it’s a bit too confusing.

  7. Synoia

    Selling to the Military is easy, when one employs a few ex Generals. Number of salespeople low, and costs controlled.

    Selling to the public, hard, costs orders of magnitude higher, and there is that pesky “marketing risk and cost”

    What a surprise that the MIC is the easy way…..

  8. sivalenka

    As a trained Industrial Engineer who worked in the midwest in the 90s , I can vouch for the science behind productivity gains that come from more worker freedoms. As a untrained economist, I can also confirm what I saw was the slow but steady destruction of rust belt and it’s middle class from globalization. Finally, it is also evident that these same laid off workers voted for leaders who both expanded the militiary industrial complex and globalization. Sad.

  9. Paul Hirschman

    Along with Veblen around 1900 were other political economists like John Hobson (England) and some left-wing American Progressives, all of whom argued along the lines Melman continued to study after WWII: manufacturing, workers’ broad and deep participation in these firms, conscious (planned) sharing of increases in wealth from improved productivity, and the invigoration of democracy (Industrial Democracy as it was then called). In the end, Power trumped productivity: a slower growing economic “pie” would support an extravagant 1% while the rest of society would have to learn to struggle with diminishing opportunities and options (institutionalized inequality). The “political” in political economy was (is?) stronger than the “economy,” by which I mean that the creation of the military-industrial complex (anti-Communism, continued racism, etc) marks the abandonment of a dynamic economy in favor of an increasingly rent-based economy that serves the 1%.

    Michael Hudson’s work fits this approach rather well.

    1. Jon Rynn

      I’d be interested to know more about political economists that had what we might call a ‘production-centered’, worker-centered view. I know Hobson from his analysis of imperialism, but part of the problem here is that there never arose an alternative framework to challenge neoclassical economics. There are people like Erik Reinart who sort of go there, and I think Michael Hudson does an excellent job of pointing out the flaws in our finance-centered economy. In the late 19th century there was more discussion of ‘industrial democracy’, and perhaps a better understanding of ideas like productivity, but that all seem to have been pushed aside by the domination of neoclassical economics.

      1. Paul Hirschman

        See Moshe Adler, ECONOMICS FOR THE REST OF US. Adler explains rather well the politics of the John Bates Clark wing of political economy around WWI. It is clear that Clark and the Marginalists intended to roll back the “political” in political economy precisely because it led to the kind of thinking Merman and his forebears pursued. One can even go back to Lincoln, who quite famously talked about the primacy of Labor over Capital. Americans created a rich tradition of thought that Melman drew upon, and which has been obliterated by the neoliberal surge since Reagan. Even John Commons–and the Institutionalist wing of economics–was too radical for the Marginalists. Marginalism is where the intellectual mischief is to be found.

        1. Jon Rynn

          Agreed. The problem, however, is to find people who attempted to build an alternative. There was John Commons, although I never studied his work, there was John Kenneth Galbraith to some extent, although he didn’t really construct what I am searching for, a ‘paradigm’, if you will (like Veblen, he was a little too focused on comedy). The problem is actually two fold — there is not a good defense of manufacturing, and there is not a good articulation of a positive role for the state in the economy, which is bad because historically the state has helped manufacturing. There is Freidrich List, about the best I could find, and Alexander Hamilton. Ironically, John Bates Clark’s son, John Maurice Clark, was also one of the better economists of his era, and I just found that he published a essay called “The Economics of Planning Public Works”

          1. Paul Hirschman

            There were plenty of people who attempted to build an alternative: Commons and his School, various social critics (Max and Crystal Eastman, Paul Kellogg and John Fitch, David Saposs, William Leiserson, Mary Van Kleeck, The Wisconsin Idea folks, members of League for Industrial Democracy, Debs et alia, and many many more), and, obviously, an entire labor movement–which supported its own educational and research organizations. The problem is that they were defeated.

            Can their ideas be resurrected for another time?

            1. Jon Rynn

              Paul, someone needs to put their ideas together so a new audience can hear about them. I was looking at the League for Industrial Democracy documents, and it seems that there may be quite a few good ideas in there, but it needs to be edited or brought together. Do you know of anyone who has done that?

  10. cnchal

    . . . If production is the central way that a society creates wealth . . .

    If? There are no ifs about it. I think though, that putting machine tools as the highest calling a molecule of metal can be part of misses the next step in the production system alluded to but not clearly defined.

    Many people when thinking of tools think hammer and saw or wrench and screwdriver, but what societie’s true precious metal is, is the steel, aluminum, copper, bronze or any other metal or material used in production tooling such as progressive metal stamping dies and injection molds, where the next hit of the die or shot of molten plastic creates something new.

    Machine tools can be thought of as different paint brushes an artist would use to create a work of art, which is what industrial tooling is. In manufacturing, there is no limit to the combinations of materials and shapes to obtain the final result desired, which at the end of a cycle creates a new object that a customer wants or needs to possess, whether it is an intermediate good that becomes a component in another object, or a finished good ready for the home or individual.

    This looked down on by those that never get their hands dirty, and frequently the discription “less educated or uneducated ” is used to disparage the people that choose this type of work, which because of cheap labor from China, results in low wages.

    Globalization is a disaster wherever one cares to look. The new wealth created by Chinese labor is stolen from them and is split between the elite here and there. Chinese labor get’s shot in the face if they try and organize in their police state, and we are competing with that. No wonder working conditions in factories here are deteriorating to Chinese sweat shop levels.

    Our elite wouldn’t have it any other way. More power and money to them.

    1. Jon Rynn

      cnchal, I devote a chapter of my book to your point, the chapter is downloadable here:

      That is, machine tools are one of several categories of production, they are an example of a tool/machine that shapes objects, while other machines make the materials that are shaped — such as steel-making machinery — while other machines create the energy which is necessary to produce and run the machinery — eg. electricity-generating turbines — and yet other machinery is used for information processing/feedback, most critically now semiconductor-making machinery. So there four categories of production — structure-forming, material-making, energy-converting, and information processing — and those intersect with stages of production, that is, in the first stage the technologies I described collectively reproduce each other — a machine tool needs steel and uses electricity and semiconductors, and the machine tool shapes parts used by the others. The reproduction machinery then produces the production machinery that sits in most factories that is used for the final stage, production of consumer goods and services. That’s my industrial metaphysics, if you will.

  11. doily

    Great post. I remember seeing Melman speak when I was in grad school. Amazingly, I just found the notes I took! This was on 28 September 1989, in one the largest halls on campus. I remember place was packed, and Melman seemed larger than life to me. Hopefully readers will find my notes interesting? (Health warning: Filtered through the ears of the grad student version of me 26 years ago!)

    Here are my notes:

    Since the Depression, manipulation of market demand has been crucial to economic policy and is universally accepted in economics. Since the depression all economics is Keynesian, and mainstream economics is Military Keynesian.

    GNP values all its components equally. Military = hospitals = shoes. It’s prices X quantities. By GNP, military is only 7% (1%??) of the economy. But step away from the GNP-centred outlook and see what military demand consists of:
    • 20% of engineering labour
    • 50% of transportation machinery
    • 10% of crucial raw materials
    • 20% of machines
    • And a very high percentage of other technologies
    • 120 thousand employees in the central offices of DOD, the largest central planning organisation in the world.

    The military is the largest single buyer in many of these markets.

    Furthermore consider the military use of capital (fixed equipment but not durables or finance). The current figure for the US economy is equivalent to the 1947-1987 total capital expenditure in the military. What we have spent on the military could have replaced all present fixed capital.

    Linkages between military investment and the civilian economy notwithstanding, it is CROWDING OUT city infrastructure, housing, railroads, education, environmental clean-up, health, etc., etc.

    Military contracting is a cost maximizing operation. Quotes Fitzgerald, a DOD insider. DOD subverts the credit market via government subsidies to its contractors.

    Typically, (US 1932-65) and Japan (1968-80), wages rose faster than the price of machines, inducing productivity growth (because investment in machines was a better use of profits). This reversed in the US after ’65, but not Japan, because of the shift to a parasitic cost-maximizing economy. Incompetence in production now makes spending on the crowding out laundry list above impossible.

    Lenin described the nation state as controller of the economy, politics, welfare. This is ”actually existing” in the US, even though it goes against the constitution and the Federalist papers.

    End of notes.

    1. Jon Rynn

      Awesome! I would note that you see here Melman’s ambivalence about ‘the state’, or the role of government. As something of an anarcho-syndicalist, he was very suspicious of central government anyway, and as he saw it, the military-industrial-complex had pretty much taken over the Federal government, making it a problematic agent of change. On the other hand, as you see in the notes, he thought the money and human resources wasted on the military should be spent on public uses of various sorts — which the state would need to do. So the general solution, it seems to me, is to move from a military-centered state to an infrastructure-building state.

      1. doily

        Just found the Fitzgerald source:

        Fitzgerald, A. Ernest. The High Priests of Waste (Norton 1972)

        “The Pentagon Deputy for Management Systems in the Air Force who lost his job for exposing colossal waste in weapons procurement…”

  12. John Wright

    Here’s a quote lifted from the web at

    “America’s recent economic folly, for example, is neatly summarized in a remark that the British colonial secretary, Joseph Chamberlain, made in 1904 to a smug group of his country’s financiers: “Granted that you are the clearinghouse of the world, [but] are you entirely beyond anxiety as to the permanence of your great position? . . . Banking is not the creator of our prosperity but is the creation of it. It is not the cause of our wealth, but it is the consequence of our wealth.””

    The financial industry has been powerful for a long time, at least in the UK.

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