The Bankruptcy of Liberalism. (1931)

Book Review from the February 1931 issue of the Socialist Standard

A Liberal Economist on the Problems of Capitalism

In his book, “The Problem of Industrial Relations” (MacMillan & Co., 1929), Professor Clay maintains that the “problem of industrial relations” is how to secure harmonious relations between worker and employer, how to find “an adjustment of the interests of employers and employed, that will secure the co-operation of both in the work of production” (page 3). The present order of society riven into two conflicting classes, the owners of the means of living-and the non-owners, he accepts without question. He admits that industrial unrest arises from the conflict of interests between employer and employed, and he is concerned with reducing to a minimum the economic friction between these two classes.

His main thesis is that inequality of wage rates, intensified during the war period, as between one trade or industry and another, is largely responsible for industrial disputes, and that attention should therefore be directed towards “the equalisation of bargaining strength among all sections of wage-earners,” either by the lower-paid workers themselves organising in Trade Unions, or by Government regulations to prevent sweating, so that all sections of the working class can obtain a “fair wage.” He devotes several chapters to a discussion of the spread of Trade Unionism during the War, and the growth of arbitration and conciliation methods—Trade Boards, Whitley Councils, Joint Industrial Councils, Works Committees, Industrial Courts of Arbitration, and so forth—means of negotiation which enable a trial of strength between organised employers and employees to be made, or, as Clay says, “interpret the interplay of economic and social forces” (p. 231) and so enable wage disputes to be settled without strike or lock-out to interrupt the flow of profits to the capitalist.

To the Socialist, however, the problem is not one of ensuring that the lion and the lamb shall lie down together, but of waking the working class up to understand the economic and social forces which make them wage-slaves. So long as the means of wealth production and distribution are privately owned by the capitalist class, so long will the labour power of the propertyless worker be a commodity which he must sell for the best price he can get according to the fluctuations of supply and demand. Whether at any particular moment he gets “fair” wages or foul, the fierce competition arising from ever-present unemployment prevents wages in the long run from exceeding the cost of living a shoddy life. As stated in one of the reports of the Whitley Committee on the machinery of industrial conciliation, which Clay quotes, “. . . such machinery cannot be expected to furnish a settlement for the more serious conflicts of interest involved in the working of an economic system primarily governed and directed by motives of private profit” (p. 150). The remedy for this problem is for society to own the means of production, and to produce for use.

At some length, Professor Clay tries to show that “wage rates and unemployment are correlatives; if a wage rate is too high, it will cause unemployment” (p. 245), and that “it is no kindness to fix wage rates above the level set by an industry’s capacity to pay wages and still employ its labour” (p. 192). He holds that “normal” unemployment is mainly due to the wrong distribution of labour force; and the present abnormal unemployment he attributes to the War, which enhanced the maldistribution of labour force and removed a part of England’s markets. He therefore advocates that wages should, in some cases, be lowered, so that lost markets may be recovered from foreign competitors.

The old story of more work and less wages to recapture lost markets! The standard of living in Germany is a little lower than in England, and there are 3,000,000 German workers unemployed ; the standard of living in America is a little higher than in England, and the number of unemployed American workers has been estimated at about 7,000,000. Unemployment is increasing in Holland, Belgium, France, Italy, and elsewhere. In all these countries the employers’ journalistic and academic servants are urging the workers to work harder for lower wages, in a world glutted with products which cannot find buyers, whilst in many branches of production desperate efforts are being made to restrict output !

Unemployment is an inevitable feature of capitalism, and its tendency is to increase. Dealing with American unemployment, The Times (August 8th, 1930) says:

“It is beginning to be realised at long last that even if a recovery in business on a scale no longer thought probable should occur, it would not go very far to solve the unemployment problem. Throughout the years of fabulous prosperity that preceded the crash of last autumn unemployment was steadily increasing. The same processes of technological change, including the rapid substitution of capital for labour in industrial and agricultural production, were going on before the crash, are going on now, and will continue.”

Professor Clay recognises the increasing insecurity of “the propertyless worker, whether unskilled labourer, responsible organiser, or scientific expert” (p. 270), but fails to suggest the logical remedy. Only when the means of production are commonly owned and democratically controlled by the whole community will the application of science to production cease to divide the vast majority of mankind into the over-worked and the unemployed. “Meantime,” says The Times (July 29th, 1930), “rationalisation and unemployment are both increasing.”

Clay’s attempt to show that the various forms of public relief and social insurance increase the real income of the working class is really funny. First, he says that since these social services are paid for with money provided by taxation, and practically all the wage-earners fall below the income-tax exemption limit, then “the aggregate expenditure on social services is in the main an addition to the real income of the class that draws wages” (p. 2i7). He forgets that these social services, by lowering the cost of living, also tend to lower the workers’ wages in a labour market where there are always more men than jobs. Lord MacMillan, in making his report on woollen wage reductions, pointed out that social services such as pensions, insurance, etc., should be taken into consideration in fixing present-day wages. And Lord MacMillan was only stating explicitly a principle already being put into operation by the employers generally.

Clay himself gives figures showing that during the period from 1880 to 1914 real wages were falling whilst expenditure on social services was increasing; and points out that “the increase in expenditure . . . has followed, and to a large extent compensated for, the check to the rise in real wages.” Finally, he concludes that the effect of these social services “was to change the form, without altering the amount of wages. They ordained that the worker, instead of getting all his earnings in weekly wages, should get a part in the form of rights to income in sickness and unemployment, . . . (they) secured a better distribution of the wage-earner’s income, reducing it when he was working, but insuring thai it did not cease when he was unable to work. Wage-earners could have made a similar provision for themselves, as some of them did, through Friendly Societies and Trade Unions” (p. 219).

His chapters on the distribution of property are a plea for the small property-owner, and he gives many useful facts and figures with regard to the distribution of wealth in this and other countries. He shows that the total value of the properly left by 97,000 rich people who died during the year ending March, 1921, was £431,000,000. an average of nearly £4,300 per person, whilst “five-sixths of the population may be presumed to have less than £100 property each.” He asks, “How many working-class homes would have fetched more than £20, if sold up, before the War?” (p. 286). He also shows that alongside the increasing inequality of wealth has proceeded a change in its composition, contractual rights to money payments taking the place of real property, and this to an increasing extent in larger estates. A rich man’s estate consists largely of stocks and shares.

Clay describes this change in the nature of the right of property, brought about by capitalism, as the change involved in “the separation of the ownership and use of wealth,” by which property comes to consist not of a concrete thing but of a right to income. Before the days of capitalism, the simple tools of peasant and craftsman were their individual properly. To-day a railway shareholder cannot point to a single nut or smut as his own; but he holds a right to share in the profits. Clay shows from the Estate Duty returns that whereas house and business premises represent about 16 per cent., and land only about 9 per cent, of the total property, nearly 45 per cent, is in Stock Exchange securities; or, in other words, the largest element in property to-day is simply the claim to a share in the profits of industry, i.e., a legal right to live on the back of the working class. Clay is right in regarding this revolution in the form of property as being based on the change from puny individual production to mass production and distribution on a large scale by machinery too vast for individual ownership; but he is wrong in speaking of it as having resulted from “the separation of the ownership from the use and administration of capital.” The tools of the mediaeval craftsman were not capital. He makes the common error of confusing “capital” with “instruments of production,” which only became capital as a result of this separation of ownership from operation, by which the capitalist class, owning the means of production, can live on the wealth produced by the propertyless working class, who alone organise and operate the whole vast and complex mechanism of production and distribution.

The Professor is distressed at “the inequality of incomes, which is a chief cause of social unrest and the chief cause of waste in the modern economic system”; but he desires “the maintenance of the present right of property.” He wants property more evenly distributed, so as to check the growing inequality of wealth which threatens to engulf the small property owner and crush his “personal independence” (p. 207). He wishes to alleviate effects without abolishing fundamental causes. He wishes especially to remove those effects which injure the “middle class,” by means of some scheme of taxation “to enforce a continual re-distribution of property” for “the creation of a large independent class of small owners.” He regrets that “it would hardly be possible to frame a (scheme) . . . that would reach any large proportion of the propertyless proletariat ; but it would be easy to frame a scheme that would do something to restore the fortunes of the non-commercial, small-propertied middle class, on whom, since the aristocracy was superseded by a plutocracy, the maintenance of the finer arts of life mainly depends” (p. 313).

Thus, “economic inequality remains to be redressed,” but “no revolutionary change … is needed” (p. 317). For the wolf shall dwell with the lamb, and the leopard shall lie down with the kid; and the calf and the young lion and the fatling together; and a little (professorial) child shall lead them.

In his last chapter. Clay defends the Liberal Party, a Liberal Party which stands for Free Trade and freedom of enterprise, as the only alternative to “a Conservative Party that is protectionist in principle, and a Labour Party that is socialist in principle.” He advocates “freedom of private enterprise” as contrasted with the State monopoly of industry (which he imagines is Socialism); “freedom of international trade as a safeguard of international peace” ; and “a wider diffusion of property” to correct the growing inequality of wealth.

Apart from the absurd suggestion that the Labour Party is Socialist (their only service to the Socialist movement is their refusal to allow official Labour candidates to label themselves Socialist), it is very clear that Clay confuses Socialism with Nationalisation. He says: “None of the numerous varieties of Socialism could have any effect except still further to concentrate authority and subject the workers to a more detailed and complete subordination. All alike involve the establishment of legal monopolies, and are based on the subordination of the economic organisation to the State. The extinction of free enterprise by the competition and legalisation of monopoly would result in a bureaucratic inequality as oppressive as, and more difficult to control than, the present inequality” (p. 311). This is true enough if the word “Nationalisation” is substituted for “Socialism.” The nationalisation of an industry means that it is controlled, not by individual capitalists, but by the capitalist class as a whole through the Government, which is its “board of directors.” Thus Clay, thinking he is discrediting Socialism, only condemns the latest and most complete form of capitalist organisation.

He has to recognise, however, that “the extension of the State’s economic activities is necessary and will continue” although he desires “to keep the political and the economic organisation of society distinct” and “to develop international trade as a safeguard of international peace” (p. 306) ; for, he says, “we are members of an economic community . . . the boundaries of which do not coincide with those of any State.” He falls to grasp that the political division of the world into antagonistic States, when all its parts are economically dependent one upon another, is the political reflection of the contradiction inherent in capitalism; the contradiction of the social use and operation of the tools of production by the working class of the world, alongside the private ownership of these tools by competing groups of capitalists in the Great and Minor Powers.

This contradiction between social production and private ownership is the rock upon which capitalism splits. It has been the historical function of the capitalist class to bring about social production, with its enormous possibilities for human comfort and culture; it is the historical function of the working class to bring social ownership and control into line with social operation, and make these possibilities a glorious reality.

Frank Evans