Escape from capitalism? (2026)

From the April 2026 issue of the Socialist Standard

On 13 February Krishnan Guru-Murthy interviewed Clara Mattei for Channel 4 News to discuss her book Escape from Capitalism: An Intervention which later circulated as a podcast.

In the interview Mattei argued that people are taught that capitalism is an economic system that arose spontaneously out of humans’ supposed natural propensity to barter, but in fact it is of relatively recent historical origin and was brought into being through violence and coercion. The state forced people off the land who, no longer able to meet their needs from directly working land, had no alternative but to work for wages.

Wage-labour, said Mattei, with workers creating more value than what they are paid as wages, is one of the two basic features of capitalism. The other is what she called ‘private investment’ for profit controlled by and for a privileged few; nothing is produced except in the expectation of ending up with more money than invested at the beginning. This means that ‘austerity’, in the sense of restricting how much people as wage-workers get to consume, is a structural feature of capitalism; it is not merely a policy pursued by some governments or the system not working properly but is the basis of the system. The logic of profit required that workers be denied direct access to what they need to live so obliging them to sell their ability to work for money to buy it; the money they are paid was never going to be enough to enable them to live without having to continue working for wages. Austerity, she concluded, was necessary for the system.

Good stuff. Questioned by Guru-Murthy, Mattei agreed that she was in the ‘Marxian tradition’ (she seemed to have deliberately used this adjective rather than Marxist, which is fair enough). What she particularly liked was Marx’s criticism of earlier writers who thought that capitalism was the natural economic system for humans; wage-labour and production for profit were parts of a system constructed by humans and so could be replaced by human action.

How, then, did she propose that people escape from capitalism? As well as being a professor of economics at Tulsa University in Oklahama, she is also the director of its ‘Forum for Real Economic Emancipation’. Here, she explained, she is running a pilot project to test on the ground an alternative. This involved encouraging people to take part in collective decision-making on economic matters, along the lines of ‘participatory budgeting’ practised in a number of cities in Brazil. Under this the local population are involved in deciding how money raised through local taxes should be spent. The implication is that in an alternative society to capitalism all economic decisions would be taken in this way, including in workplaces.

This brings out the ambiguity of the term she used to describe the second basic feature of capitalism, ‘private investment’. This could suggest that what is wrong with investment (as money used to initiate production) is not that it is money invested in production with a view to making more money but that it is controlled by a few at the top rather than democratically by all involved. What she seems to have in mind are factory councils as envisaged at one time by Gramsci (who she name-checks) and assemblies; these should decide democratically how the money obtained from sales should be allocated between individual workers, social amenities and new investment. In other words, a form of what has been called ‘market socialism’.

However, this wouldn’t be an escape from the logic of profit; it would mean that this logic would be applied by workers themselves rather than by their bosses as now. Escaping from capitalism has to mean escape from production for the market and the economic pressures this exerts on whoever actually takes the decisions at workplace level.

Adam Buick

Capital vs the environment (2025)

 

From the November 2025 issue of the Socialist Standard

If the scientists are right, humanity is facing a climate emergency. There has been much hand-wringing at the many COP-out meetings, but little protection has been afforded to the environment. In fact, the damage seems to be increasing. This should come as no surprise, as socialists have long argued that the capitalist system of production prevents rational stewardship of the planet. The five features of the system set out here show why this is so.

1. The economic status quo

The ownership/control of the world’s productive resources is in the hands of a small minority – via ‘legal title’, as with private capital, or via membership of a clique that controls a state. Yet this ownership/control is fragmented, creating a host of competing interests among that minority.

To consider the implications of this fragmentation, let’s imagine there’s an individual capitalist, Bill, the sole owner of a factory where copper pipe is produced, a standard product sold to industrial customers. All of Bill’s money is tied up in the factory, and the business provides him with an income that means he has no need to do any work himself.

This also means that, if he is to maintain his status as part of the minority, he is absolutely reliant on the continuing success of the business (and who can blame him for wanting to maintain his status? Who would willingly swap the relative freedom of the capitalist for the life of a worker?). However, Bill has no monopoly over copper pipe. His factory is competing in a market and, as any capitalist knows, competition means ‘expand or die’. So what does Bill have to do to avoid economic death?

Experience shows that competition constantly forces businesses to adopt new technologies to increase productivity, that is, to reduce the amount of labour used in their production processes, and produce more in the same amount of time. So Bill will be obliged to use much of the income generated by his company to bring in modern equipment.

One of the facts of new technology is that it won’t be new forever. Sooner or later, there’s no telling when, it will be overtaken by even newer tech that will tend to depress market prices. This means that Bill will have to ensure his new tech runs as fast as it will go to get as much of his product out of the door before prices drop, before his now outdated technology becomes relatively less productive or even economically unusable. This of course means an increase in the use of raw materials and in output – more pipe will be thrown onto the market.

And remember, competitors will be trying to match or better what Bill is doing, so demand for raw materials and output will be multiplied across the pipe-making sector.

A minor detail of new technology is that ‘early adopters’ expect to undercut their competitors for a while and gain market share. But this advantage will only persist until the new technology becomes the norm. This gives an additional impetus to increase production in the meantime, and of course, increase the use of raw materials.

The increased production in Bill’s sector cannot continue ad infinitum. Sooner or later, an imbalance, where supply exceeds demand, will occur. This will usually result in smaller, less productive companies being forced out of business. Supply will align more with demand, until competition creates a new imbalance. (The slump phase of the general business cycle would have a similar effect on Bill’s sector, but that is beyond the scope of the present analysis.)

2. Production for profit

Nothing is produced under the capitalist system unless there is an expectation of profit. In general, although rates of profit will vary, profits are made most of the time (even in a time of economic crisis when lots of businesses go to the wall, there is money capital around to pick up industrial assets at ‘fire sale’ prices which can then be exploited profitably). This increases the amount of money capital that, in light of the competition discussed above, has to be re-invested in some sort of productive process. Hence the staggering amount of wealth in the form of industrial assets that has accumulated under the capitalist system. And it is the very same competition that ensures that these assets can never be left idle for any extended period of time. They must always be put to use, putting new demands on natural resources.

3. The scramble for sales

What has been said above applies to every type of company, be it private, a PLC or workers’ cooperative. It applies too to every sector of capitalist production, be it ship-building, production of industrial robots or the garment trade. But there is an additional factor that operates when we consider the production of personal consumption goods – furniture, clothing, cars and the like.

As we saw above, capital is always on the look-out for profits. In the personal consumption goods sector, this results in the use of cheap materials, planned obsolescence and rapid turnover of fashions, anything in fact that will result in more sales. And on a more general level, it leads to the promotion of individual ownership when public provision would be a far more efficient use of resources (think public transport and laundries, tool libraries, even clothes libraries – why not, it works for wedding suits, doesn’t it?)

4. Anarchic production

The conflict of interests within the owning class makes the rational planning of production (and hence rational use of resources) impossible under the capitalist system. So at the time of writing, (August 2025) there is world overcapacity in, for example, steel, cars, and chemicals.

5. A ‘political’ dimension

Even though capital has now created a world market, individual nation-states, a hangover from capital’s early days, still have a role in protecting the common interests of ‘their’ owning class. So as we are seeing at present, the overcapacity that tends to arise from the economics of capitalist production can also be created or exacerbated by national industrial policies (eg the Chips Act in the US and the ‘Made in China 2025’ policy in China). Although this feature appears to be political, it derives directly from the underlying economic structure.

Budgie.

Letter: Full employment, slumps and other questions (1964)

Letter to the Editors from the October 1964 issue of the Socialist Standard

Full employment, slumps and other questions

Dear Sir.

An article published in the Socialist Standard in January of this year posed a question with its title, namely "Are you better off?" Unfortunately, however, the article does not provide any definite conclusion.

The article does however concede that the average increase of the purchasing power of take-home pay is probably about 10 per cent.

"In the meantime, owing to more than proportionate increases of pay deductions from pay (national insurance and income tax), the average increase of the purchasing power of take-home pay is not the 18 per cent of the two indexes would show (wage rate index and retail price index) but something less, probably about 10 per cent Socialist Standard, page 9, January 1964.”

It might also be pointed out that.the present alleged standard of affluence that many of the working class are at present living at is dependent on their wives going to work in order to augment the family budget. But, notwithstanding, this and other factors such as the tremendous growth in hire purchase commitments, it is difficult to deny that the worker of today is better off if fully employed, as the vast majority are at present, than his counterpart was when unemployed in large numbers before the Second World War, particularly in the slump of 1929. In case it should be asked why one should compare the lot of a fully employed worker to that of an unemployed one in the pre-war period the answer is that millions were unemployed then, and relatively few are unemployed now. The article in question gave four columns of figures, one of which gave the number of unemployed of 1938 when it stood at 1,927,000. The column next to this gives unemployment as a percentage of 1938. this year being taken as 100 per cent. If these figures are accurate, then we may conclude that unemployment has not reached 50 per cent of this level since 1938.

On this aspect of the problem the article in your journal is significantly silent. In fact I think it would be true to say that the Socialist Standard has failed to account for this continuing full employment since the end of the war and does not even find the subject worthy of discussion in its columns.

May 1 therefore ask the following questions?

(a) Why in your opinion has the slump which you maintain is an essential feature of capitalism failed to appear in England?

(b) Why has there been no slump of the magnitude of 1929 since the war.

(c) Are the present conditions of full employment, increasing the membership of your organisation and the sales of the Socialist Standard.

(d) Do you think the orthodox economists using ideas of the late Maynard Keynes have found a way of preventing widespread and profound slumps of the pre 1938 variety and if not how do you account for this rather prolonged period of full employment?

I am, yours etc.

T. Lawlor

Reply:

Our correspondent comments on the fact that, compared with pre-war years, the position of the workers has been affected by the decline of unemployment and the increased number of married women who go out to work, as well as by the rise of average wages in relation to prices. This was referred to in the article, where it was pointed out that total wages are about five times what they were in 1938, “mainly because of the decline of unemployment and the fact that far more married women are now out at work".

Whether this last factor can be regarded simply as a gain is another matter. In the nineteenth century the need of married women to work was commonly regarded as a disadvantage by those who studied its consequences.

If however it is a fact that most workers now are rather better off than before the war, this kind of development is not a new thing. Frederick Engels noted in 1885 that since 1844, when he wrote his The Condition of the Working Class in England, the factory workers had become “undoubtedly better off”, and the condition of engineers, carpenters, joiners and bricklayers, organised in the trade unions, “had remarkably improved". (See Preface to 1892 Edition).

In the same Preface and in the 1886 Preface to Capital Engels then went on to state a position which events proved to be wrong. He had concluded, because of the length and severity of the depression, that British Capitalism would never resume its expansion and that “either the country must go to pieces or capitalist production must ”. He thought unemployment was bound to increase year by year and that shortly, “ the unemployed . . . will take their fate into their own hands ”,

Profiting by Engels' mistakes the SPGB reached the conclusion (one indeed that Marx and Engels had themselves seen) that the achievement of Socialism calls for understanding on the part of the workers and cannot be the outcome of discontent and despair without understanding.

Our correspondent accepts rather too easily the claim that there has been “continuing full employment since the end of the war". In the column of figures to which he refers in the January Socialist Standard it is shown that since the war unemployment has ranged from 302,000 in January 1956 to 861,000 in January 1963. This latter figure may not be high by pre-war standards but it certainly cannot be described as “full employment”. Allowance ought also to be made for the fact that unemployment will have been increased in the nineteen thirties by the big flow of migration into this country. In post-war years up to about 1960 the net flow was outwards.

Against that background we can answer the specific questions.

(a) For this question it is necessary to take care about the use of words. If by “slump” our correspondent means only a “heavy slump” like that of the thirties, the answer is that such heavy slumps are not an essential feature following each capitalist crisis.

What we had as an essential feature o! capitalism is, to quote the words used by Marx in Capital, Volume I, Chapter XV, Section 8: —

The life of modern industry becomes a series of periods of moderate activity, prosperity, overproduction, crisis and stagnation.

The crises, that is the sharp interruptions of booms, have continued to happen in the post-war years. For example, the index of production in January 1963 was down to 108, after having reached 120 in January 1961. If in post-war years, the ensuing “stagnations" have not been heavy and prolonged this is in line with the experience of crises in the nineteenth century. Most of these crises were not followed by heavy prolonged slumps. The outstanding big ones were in the eighteen forties, the eighteen eighties (the one that threw Engels off-balance) and the nineteen thirties, and in between there were depressions that were not heavy or prolonged.

(b) Among the reasons why heavy depression existed in the nineteen thirties and not in post-war years in this country (experience of some other countries has been markedly different) is the absence of a very important factor which existed then. This is the pre-war feature of crisis-dislocation superimposed on the long-term decline of some very big industries, agriculture, coal and cotton without the counter effect of strongly expanding new industries. In post-war years, along with a much larger Civil Service, large armed forces and armaments industry, there has been expansion of building (helped by war-time destruction and stoppage of building), man-made fibres, electricity and electrical engineering, motor car and aircraft manufacture, television, chemicals and oil, electronics and nuclear power.

(c) If this question means has low unemployment since the end of the war been accompanied by a continuous increase of membership, etc., the answer is no; but we would not expect increase of membership to be determined by low unemployment any more than the heavy unemployment of the thirties had that effect. Other factors also come into it.

(d) This question relates to the supposed ability of governments to prevent widespread and profound slumps by means of the techniques associated with the late Lord Keynes. It will put the matter into perspective to point out that also before 1935 (the year Keyne's major work appeared) there were, between the heavy slump, long periods without heavy slumps.

If it is claimed that Keynesian techniques give Governments effective control over capitalism why did unemployment rise to 861,000 in 1963? As all governments have at their disposal these same techniques, and numerous economists who approve of them, why have many countries had heavy unemployment for prolonged periods since the war. among them U.S.A.. Canada. Germany, Italy, Belgium and Denmark? In Italy unemployment ranged between 1½ and 2 million for 10 years after the war. During this year unemployment has been at the 6 per cent level in Canada and U.S.A.

How have the techniques supposed to have worked? The Keynesians claim that the Government can, when it likes, stimulate capital investment and consumption and at other times damp down over-expansion. When the present motor car boom slackens off as it certainly will, what can the government do, if the world market for cars is temporality saturated, except wait for demand to recover? Theoretically the government could have prevented the industry from expanding so rapidly—and left the market to be filled with the cars of other producers—but the car manufacturers, the trade unions and the Tory and Opposition M.P.'s would all have protested.

Now that the Southern Rhodesian tobacco industry has been hit by falling prices following a bumper crop, how can Keynes help them? The producers are in fact turning to another and older technique, that of restricting production.

Of course it long ago ceased to he true that Keynesian doctrines were held only by the unorthodox minority. They had become the orthodoxy of large numbers of economists and members of governments. Now fashion is changing again and Keynes comes under increasing criticism. It would seem that his theories have not proved, even to his admirers, to be the panacea they were claimed to be.

Editorial Committee.

. . . . Begger Man, Thief (1948)

From the August 1948 issue of the Socialist Standard

As a well known spokesman of the Tory section of the British Capitalist Class, G. L. Schwartz seems to write the most incredible nonsense, especially when he gets on the subject of economics in his article, “Rich Man, Poor Man.” (Sunday Times, May 30th, 1948.) He is twitting the Labour Government for their caution in lifting controls, and says

“A thing is in short supply unless it is in absolute abundance like fresh air in the open or salt water at the sea shore. There is, a simple test, Has it a price? If it has a price even of one farthing per unit, there is a shortage.”

So presumably he is telling us that the Capitalist class put a price on commodities only when there are not enough of them to satisfy everybody’s needs. We rather wonder why capitalists have been known to burn tons of wheat, and dump other unsaleable, commodities into the sea, not because these goods had no price, but simply because the price was not high enough for them to realise their profits. Since these goods had a price they must have been in short supply, according to Mr. Schwartz’s theory—and yet they were dumped! Mr. Schwartz mentions two things, which are absolutely free—fresh air and salt water; we have an uncomfortable feeling that if it were at all possible to commercialise them, these too would have their price—after all if a man’s potential energies can be given a price why not?

It is however rather comforting when one is feeling weak at the knees about the task of converting the world’s millions to Socialism, to find Mr. Schwartz putting over a point which the Socialist Party is always making. Supporters of the capitalist class are fond of telling us that Socialism won’t work, because human nature being what it is, certain greedy people would not be content with taking just what they need, but would proceed to grab as much as possible, and here is one of their own spokesmen making the point for us : He says,

“Gloves and ties are coming off the ration. They are still in ‘short’ supply for they still have price tags. Now let’s see if the rich buy up the whole lot, Here’s a chance for my Lord Croesus to fit glass cases in his bedroom, and collect ties by the thousands including first editions.”

True he is only making a point for the capitalists’ pet squabble at the moment about which controls to lift, but you see even capitalists (known to be the greediest specie) can only wear one tie, and one pair of gloves at a time. Mr. Schwartz also has a very queer idea about equality. He tells us a little story. About 50 years ago he used to get a penny a week pocket money, and the grocer’s son got tuppence. Well he so hated this inequality that he knocked all the boy’s sweets out of his hand into the gutter. He speaks of this as his “early essay in equalitarianism” of which apparently he is rather ashamed ; but he comforts himself by saying that he might have been in the present Cabinet if instead of sublimating his inhibition he had bottled it up until it was sour. Well this is not even the Labour government’s idea of equality. Their idea is not to knock the sweets right out of the hands of the owning class but merely to abstract a few (just a very few, mind) and pour them into the hands of the very poor. As far as we are concerned in a Socialist system someone will not come, along and say “Here’s two for you and two for you and two for you !” This is not equality—it is absurdity. Under Socialism each shall have according to his needs, be it one or two or three or more, and despite what Mr. Schwartz says about a perpetual shortage, there could he enough and to spare even now, and still more reason to suppose there will he under Socialism, when everybody capable of it is doing a useful job of work instead of a large proportion of them doing useless jobs like ticket collecting, rent collecting —and peddling false notions of economics in Sunday newspapers.

E.D.

Proper Gander: The maxim of maximising (2025)

The Proper Gander column from the March 2025 issue of the Socialist Standard

In The Prophets of Profit, a five-part documentary on Radio 4, the BBC’s Business Editor Simon Jack ‘tracks how a simple idea became so powerful and why it shapes all of our lives today’. This idea is a common approach to running companies, and its ‘prophets’ are economist Milton Friedman and his successors. Being a radio programme, there aren’t any visual distractions to the words spoken by Jack’s interviewees or his explanations of the technicalities of commerce, which are more detailed than most documentaries bother with. However, this makes it harder to discern that buried underneath the talk of ‘maximising shareholder value’, ‘creative destruction’ and ‘equity-based compensation’ are the practicalities of goods being made and used by people.

The series takes 1970 as its starting point, when Milton Friedman’s article ‘The Social Responsibility of Business is to Increase its Profits’ was published in the New York Times. Clear from the title, Friedman’s ‘simple idea’ is that the main aim of corporate executives is to encourage profits, and any responsibilities a company has to wider society are covered by the wealth it generates. The documentary describes his influence through economists such as Michael C Jensen and Bill Meckling, who went from ‘disciples of Friedman to preachers for a new muscular brand of shareholder supremacy’, according to Jack. They, and those they inspired such as ‘corporate finance specialist’ Don Chew, believe that businesses have been held back by legislation and placing too much emphasis on cultural and environmental concerns or perks for staff such as pension schemes.

Chew quotes the view that ‘we’ve reached the point where every corporate interest is represented except for shareholders in the corporate boardroom’. To ‘correct’ this, executives should focus on directly maximising the value of shares, and this would lead to a better return on capital for shareholders than investment in wider issues. A sympathetic government would support this approach by minimising tax rates, regulation and legislation. Techniques to enhance share value which became popular through the 1970s and 80s included firms borrowing more to finance targeted growth, and ‘using cash generated by the business to buy back shares from existing shareholders so they can go and invest the proceeds in new industries’. Chew brags that Americans in particular have become adept at squeezing money out of failing organisations and in to growing industries, so the loss of one company means a boost to others. This is one application of ‘creative destruction’, a concept popularised by political economist Joseph Schumpeter, but which was earlier critiqued by Karl Marx. Those with an optimistic view of capitalism would say that overall this can lead to economic equilibrium, ignoring the hardships workers face when on the wrong end of ‘creative destruction’.

Maximising shareholder value also supposedly creates an equilibrium by being the most effective discipline to mould a well-run company for all, generating taxes for governments to spend while making innovative, decent products and happy workers. With this view, we’re expected to believe that wealth will trickle down to where it deserves to be. The series covers some of the actual consequences of the drive to raise shareholder value. Michael Jensen advocated ‘equity-based compensation’: executives being paid in shares to give them additional motivation to improve the company’s coffers. He didn’t foresee that many would be paid with salaries and bonuses as well, leading to a massive gulf between their income and that of most workers, nor that firms involved in scandals during the 2008 financial crash tended to have executives motivated by ‘equity-based compensation’. And as explained by economist Sir John Kay, a short-term focus on generating wealth can have disastrous effects, such as when crashes of Boeing’s 737 MAX aircraft were blamed on prioritising profits over investing sufficiently in safeguards.

The series uses the late-80s privatisation of the water industry as an example of Friedman’s ideas being put into practice in the UK. Michael Howard, the Tory Minister who oversaw this says that when owned by the state, the water industry had to compete for funding with other institutions such as the NHS. He claims that since privatisation, investment in the sector has always been higher than it was beforehand. However, in the ten years that Macquarie Group Limited owned Thames Water, it didn’t invest any of its own money in the business, which was sold off when in debt, with prices to customers subsequently raised. Sharon Graham, the General Secretary of Unite, is in favour of renationalisation, saying that water privatisation has led to poorly run services while shareholders have taken £72billion. As illustrated by Howard, though, being state-owned doesn’t mean that industries will be adequately resourced, or effectively managed either.

The impetus to maximise shareholder value has also led to ‘wasteful’ exercises such as American vehicle manufacturers buying steel from China rather than from more expensive local producers. This led to a decline in the American steel industry, which President Trump has said he’ll address by imposing tariffs on metal imports (presumably leading to ‘creative destruction’ elsewhere). Another example of Trump contributing to a change in what methods are seen as enhancing shareholder value is his dislike of ‘wokeness’ enabling companies such as Meta, Amazon, Walmart and McDonald’s to ditch their ‘diversity, equity and inclusion’ programmes.

The Prophets of Profit is timely in being broadcast during a shift back to the directions preferred by Friedman and his followers, especially in the USA. Much of episode four is an interview with Paul Polman, who took the opposing stance when he was Chief Executive of Unilever during the 2010s. Investing in staff and green programmes didn’t prevent Unilever’s returns to shareholders quadrupling in value during the decade Polman was in post. Maximising shareholder value was still the priority, though. This doesn’t really change, even if the most profitable approaches to achieve it alter over the years. The resurgence of Friedman-esque policies is a reminder that supposedly responsible business practices such as safeguards, regulation and workers’ rights can be lost as soon as they stop being compatible with the interests of the capitalist class.

Mike Foster

How we live and how we might live - Part 4 (2024)

From the December 2024 issue of the Socialist Standard

(Continued from last month)

In his 1884 talk, ‘How We Live And How We Might Live’, William Morris set out to describe what socialism can offer to working people that capitalism can’t. He began by inviting his audience to imagine a world without the miseries of poverty and war, curses that class societies like capitalism inflict upon us. In earlier articles in this series we explored how, in the modern world, the source of those ills lies in the deep structure of capitalism itself. This month we will explore those causes a little further and look at some of their consequences.

At the heart of modern capitalist societies lies a property system of universal competition based on the employer/employee relationship. This is a relatively recent development. Earlier ways of making a living by common access to the land or through small-scale craft work, for example, were largely extinguished as capitalism advanced and came to dominate Western Europe and America, and then later, the world. Today, everyone born into a capitalist society is forced to rely on the market to obtain what they need. According to their circumstances, they are forced into the role of an employer or an employee. If they are members of a cooperative or the owners of a small business, they must take on both roles, and manage the conflict between them.

Maximising profits

The aim of any capitalist business is to make a profit. It uses money capital to purchase materials, part-finished goods, machinery, office equipment, and other physical means of production. Crucially also, it buys human labour-power. It sets this and machinery to work on its purchased materials in order to produce goods for sale on the market. If the business has judged the market correctly, it will receive back from the sale of its products a sum of money equal to the capital sum originally advanced plus an additional amount — its profit — derived from workers’ labour. A portion of this money it will put into a fund for reinvestment in future production. Another portion will be used to pay taxes, rent and overhead costs like insurance. A third portion will be taken as revenue by the owners of the business or allocated as interest to shareholders.

If a business wants to stay in the market it must continuously receive back more money than it initially advanced. This is not just an aim but a necessity imposed by capitalism’s competitive property system. This additional sum, the business’s profit, is what allows it to grow. Growth, like profit, is not a choice, but a necessity enforced by the system. Let’s say our business owner has a very simple, inexpensive lifestyle (just for the sake of argument. Bear with us!). Could they not choose to keep their business small and make a minimal profit? For some small businesses who have found a niche market, that might be possible, at least for a while, but capitalism is a competitive society. Businesses compete for the money in your pocket. They know that if they do not grow by introducing labour-saving machinery, for example, or by taking advantage of economies of scale, then their competitors will, and they will be in danger of being priced out of the market. Competition drives growth in a capitalist economy.

To ensure that businesses stay competitive in the market, they must not only grow, but they must also maximise their profits. If at any time our frugal business-owner needs to replace less efficient or worn-out equipment, their low profit levels could well be a liability. If they need to borrow for this same purpose or simply to bridge the gap between investment and return, they may find themselves in difficulty. Lenders and investors aim, like other capitalists, to maximise their revenue, and will not be attracted to invest in businesses which cannot pay a going rate of interest. Thames Water, in the UK, is currently in just such a quandary. It is in dire need of inward investment, yet its inability to generate sufficient profit in the future has led its potential investors to declare it ‘uninvestable’.

To maximise income, businesses need to minimise their costs. In particular, they need to minimise their labour costs by keeping down their workers’ wages. Capitalist competition tends to result in businesses each making the same average rate of profit with respect to their invested capitals. By lacking direct competition, however, near-monopolies and cartels can often raise their individual rate of profit above the average. Exceptionally innovative businesses like those in the high-tech sector can often do the same, at least temporarily. Raised profits in these industries give their highly trained and creative workers scope for negotiating higher wages, especially, as is often the case, if their skills are in short supply on the labour market.

Below average

The bigger the front, however, the bigger the back. While some businesses can raise their profits above the average, others must operate below it. These need to keep wages down more firmly. Businesses of this sort often rely on a lot of partially skilled labour, which is often more plentiful and cheaper to buy in the market place. To get the maximum productivity out of their workers for minimum cost, their work regimes are often pressured, tedious and exhausting, leaving employees dispirited and lacking in self-esteem. Businesses of this kind tend to rely on a heavy disciplinary management style. They can demand long, irregular or unsocial hours of work. And if the law of the country permits, they tend to provide low levels of sick and maternity leave, and scant holiday pay. They often provide workers with little training or career development, giving them fewer chances to better their situation. When the market is in one of its cyclical declines and profits fall, their workers, being easily replaceable, are quickly laid off and find themselves surviving on minimal state benefits or, in the worst case, unable to pay rent and becoming homeless. And so the downward spiral continues.

Workers living on the poverty line and with few prospects sometimes gravitate towards the informal ‘black’ economy. This consists of businesses often operating in a highly competitive market that are fighting to minimise costs. Under these conditions, operating outside the law becomes a risk worth taking. For workers this has some advantages. If they get paid ‘under the table’ they can avoid deductions for tax and national insurance. The downside is that such companies tend to pay low wages, offer no training or possibility of advancement, and provide no arrangements for holiday or sick pay or other statutory benefits.

Another possibility which has always been an option for those with low skills and poor prospects is the criminal economy. For men, today, this generally means theft or burglary, or selling drugs. Most thieves are young men with few saleable skills. Despite the glamorous image perpetuated by heist films, a life of crime for most has few real rewards and the chances of getting caught are high. Selling drugs on the street is often gang-related and dangerous. And for the average dealer it nets little income. For women, entering the criminal economy generally means sex work or shoplifting where the prospects are even worse. Voluntary sex work is inherently dangerous. It is often illegal and dominated by pimps who skim off significant portions of a woman’s earnings. Shoplifting is stressful, provides low levels of income and again carries a high chance of arrest.

Race to the bottom

Poverty is not an unfortunate accident. It is a built-in feature of capitalism’s competitive property system and its employer/employee relationship. Businesses maximise profits by holding down wages, but they will take whatever means they can find to minimise costs. They will use cheap materials in their products like non-biodegradable plastics, or they will externalise costs by pumping waste into rivers and into the atmosphere. And just as the need to minimise costs drives pollution, so the competitive pressure towards growth fuels climate change. Damage to the human and natural environment is also a built-in feature of the capitalist system.

In 2005, Gordon Brown, then UK Chancellor of the Exchequer, commissioned Nicholas Stern to conduct research and report back on how moving to a low-carbon economy in the UK might be managed. The Stern Review, when it was finally delivered in October of the following year, was a vast, 700-page monster of a document. It has since spawned a significant academic industry. Today, however, its arguments seem ridiculously optimistic. It concluded that if states were to cooperate, the drivers of climate change could be economically managed, and CO2 levels kept below a threshold that at that time was thought to be sustainable. Skimming through its summary today, what stands out is the political naiveté on which it rested, its entire weight pirouetting on one tiny, innocent-sounding word: ‘if’ – ‘If states collaborate…’

Capitalism is not a collaborative system, nor is it designed to solve common problems. It is a system of ruthless competition. In the years before and since The Stern Review it has demonstrated over and again just how impossible it is for capitalist states to achieve the level of international cooperation Stern hoped for. Every year since 1995 thousands of scientists, politicians, and ‘stakeholders’ have sat closeted together in the UN’s COP meetings, thrashing out the issues. The effective outcome of all this activity has been negligible. Beyond a legally binding commitment of each participating country to implement its own greenhouse gas reduction measures, little has been achieved. Globally capitalism is still pumping CO2 into the atmosphere like there is no tomorrow. This year alone, CO2 levels have been soaring.

In 2013, George Osborne, Chancellor of the Exchequer in the Cameron government, summarised the problem in a carefully worded statement: ‘I want to provide for the country the cheapest energy possible, consistent with… playing our part in an international effort to tackle climate change. But I don’t want us to be the only people out there in front of the rest of the world’. And there we have it. Cheap energy is the key to keeping businesses competitive in the global marketplace. In a world of international competition, no country can afford to commit to using more expensive forms of energy unless all do. Finding anything but the loosest and most ineffective agreements on this issue has proven impossible. At the opening of the 29th meeting of COP last month in oil-rich Baku, Azerbaijan, Simon Stiell, the Climate Change Executive Secretary for the UN, made yet another plea for international cooperation to stem the rise in global temperatures. It is a plea that over thirty years has yet to generate meaningful results.

And so, here we are. War, poverty, pollution and climate change are just a few of the features damaging human life and disfiguring our world, all of them rooted in capitalism’s wage-labour/capital relationship which sits like a supermassive black hole at our economy’s galactic core. The only real and permanent solution to capitalism’s woes lies in its elimination. Yet, what kind of a society would that produce? In his talk 140 years ago last month, William Morris considered what kind of a world might result from eliminating capitalism’s class society. Yet we can ask, what would such a world look like in its own terms, and what might we be able to say about it? Is it feasible? How would it operate? These are the questions we will turn to next month in the Socialist Standard.

Hud.

Link to Part 5.

The bankers and the crisis (1982)

From the November 1982 issue of the Socialist Standard

The German philosopher. Hegel, said that the only lesson of history is "that people and governments never have learnt anything from history". This is not altogether true but it can be applied to the attitude of capitalists, of capitalist politicians and of economists to the recurrent crises and depressions of capitalism. In spite of a score or more of depressions in the past 200 years the capitalists (and most workers) believe, when each boom comes, that it will last for ever. As Marx put it, when the market is expanding, each capitalist behaves as if the demand for his products is limitless. For a time this appears to be true: there is a growing demand for raw materials and finished products, and for workers. Profit prospects are good, unemployment falls and wages rise. But, as Marx also said, that situation is "the harbinger of a coming crisis". Suddenly some industries find that they have overproduced for their particular market and start to halt further investment and curb output.

Capitalism does not go on producing if there is no profit in it. At that point (as happened in the autumn of 1973) there will be. side by side, some companies cutting back because of falling orders and other companies still reporting inability to meet their orders because of scarcity of materials and workers. Then they all become more or less involved in the depression as unemployment grows and demand falls generally.

When the inevitable depression takes place, politicians and economic "experts" say that something has gone wrong, and that what they have to do is discover what this something is, why it happened and how to avoid it next time. Dozens of "remedies" have been publicised: put wages up or put them down; raise prices or reduce them; go in for free trade or import restrictions; increase government expenditure or decrease it; stay in the EEC or leave it; induce the banks to lend more freely or the reverse; increase government borrowing or avoid it; increase taxation or reduce it; raise the foreign exchange rate of the pound or lower it; tighten up trade union law or relax it: have more nationalisation or less nationalisation. One thing ignored by all these peddlers of remedies is that they have all been tried before and failed.

Take the Thatcher government, with its “monetarist” policies. They say that all will be well if government expenditure, borrowing and taxation are reduced, inflation got rid of, wages and prices left to market forces, if there is less nationalisation and tighter laws governing trade unions and strikes. But all these supposed cures for depression existed in the last quarter of the 19th century. Government expenditure and taxation, in relation to the National Income, were only about a fifth of what they are now. There was no inflation. Wages and prices were then left to market forces and not only were the unions numerically much weaker but they operated under more stringent trade union law. There was much less nationalisation. For most of the time Tory governments were in office. So what happened? It was the period of the Great Depression, which lasted for over twenty years. In the middle of it, in 1884. the Tory leader. Lord Randolph Churchill, had this to say:

We are suffering from a depression of trade extending as far back as 1874. ten years of trade depression, and the most hopeful either among our capitalists or among our artisans can discern no signs of a revival.

He listed all the industries that were, in his words, dead or dying — coal, iron, shipbuilding, silk, wool and cotton. He ended: “Turn your eyes where you like, you will find signs of mortal disease".

This country had not at that time experienced capitalism run by Labour governments, whose record was in fact no better than that of the Tories or Liberals. In the fifty years 1929-79 there were four periods of Labour government, in all of which priority was given to reducing unemployment and keeping it low. (Actually they said they could abolish it entirely.) In all these four periods unemployment was higher when they left office than when they went in. The latest period was 1974-79, which saw unemployment rise from 629,000 to just under 1,300,000. The favourite remedy of Foot and Benn to this is to increase government expenditure. In 1973 unemployment was 630,000 and government expenditure £24,000m. The latter has increased every year since 1973. including the years of Thatcher government, and in 1981 was £107,000 million, but unemployment, though still much below the levels of the 1930s. is now over 3 million.

One question on which the Labour Party, the Tory Party and the economists are agreed is that one cause of depression and heavy unemployment is that prices are too high. In a similar situation of depression and heavy unemployment in 1931 a government committee (Committee on Finance and Industry), took exactly the opposite line. The fourteen top bankers, economists and Tory, Labour and Liberal politicians studied the problems for eighteen months and issued their Report in June 1931. Among the recommendations was a chapter on "The immediate necessity to raise prices above their present level”. Both views are baseless: capitalism has periodic depressions whether prices are high or low, rising or falling.

The belief of the searchers for remedies is based on a misconception. They believe that trade depression and heavy unemployment prove that something has gone wrong. They are mistaken. Nothing whatever has "gone wrong" with capitalism; it is just the way the system operates in accordance with its structure, with alternate expansion and contraction, much like the tides. If, one evening at the seaside, you see the sea almost up to road level, and then in the morning see that it has dropped twenty feet, you don't shout: "Something has gone wrong. What shall we do about it?"

Where the analogy with the tides fails is in respect of regularity and the length of trade depressions. It is not possible to count on all depressions lasting for some specified time. Some are quite short, others very long, like the Great Depression. (Some economists have recalled the "long-wave” speculative theory of Kondratieff. An article on this in the Financial Times on 6 September had the cheerful title:"Why The Recession May Last Till 1996".) All that can be said is that at some stage in the present depression, as in all the earlier ones, expansion will be resumed when capitalists, viewing all the relevant factors (prices, interest rates, wages) decide that it will be profitable to invest again in the development of new industries and the re-expansion of old ones.

The headlines have recently been made by the banking crisis. There is nothing new in this; every trade depression is accompanied by bank failures or banks losing much of their assets. Walter Leaf in Banking (1926 edition, page 59) says that in the crisis of 1837 "it is believed that every bank in the United States, without exception, suspended payment". And the same happened again in 1875. Writing of the American depression in the 1930s, H. G. Nicholas says that “two-thirds of the banks of the country had closed their doors". (The American Union, page 252.) H. M. Hyndman, in his Commercial Crises of the Nineteenth Century (page 95) wrote of the collapse of the great banking house Overend & Gurney, described as standing next to the Bank of England, and “their name and influence extended to all parts of the civilised globe”. When they stopped payment on 10 May 1866 "the panic occasioned throughout Great Britain was to the full as furious and unreasoning for the time . . . as the panic of 1857”. Hyndman says that the Foreign Secretary "was impelled to send a circular to all our Ambassadors abroad, in order to assure foreigners that the bottom had not fallen out of our island". Banks make most of their profit by borrowing money from depositors at a low rate of interest and lending or investing at a higher return. According to the Financial Times (27 September) the London Clearing Banks are now paying on average about 3 per cent to depositors and lending at over 12 per cent. Out of this margin they have to meet the costs of 234,000 staff and of maintaining some 11,000 branches. Banks can get into difficulties either by their depositors wanting to withdraw all their deposits, or by lending money to companies or governments which go bankrupt or default on the loan.

If depositors lose confidence in the bank and try to get their money out the bank is in trouble because they have only very small amounts of cash in their tills or on deposit at the Bank of England, and it may not be possible for them to turn other assets into cash at short notice without big losses. The Evening Standard (8 September) reported that the sudden decision of the Mexican government to nationalise all banks, suspend payment for five days and make the dollar an illegal currency was because there was a run on the banks; they "literally ran out of dollars". The Western bankers are all in trouble through having lent vast sums of money to companies and governments which, because of the depression, are unable to keep their repayment agreements or, in some cases, even to pay the interest. Mexico’s interest payments have been running at £580 million a month.

One aspect has been the fall of oil prices and oil consumption which have reduced the foreign investments of the oil producing countries (OPEC). At the same time Third World countries find their exports falling so that they are unable both to pay for necessary imports and meet commitments on their huge debts. One of the worst-hit countries is Mexico. On the strength of hoped-for big and increasing revenue from oil exports, loans were raised from world banks totalling £67,000 million, of which £15,700 million was due to be repaid this year. Because of the depression and falling oil revenues Mexico was unable to pay. In effect it was on the verge of defaulting. but that is the last thing the bankers want. So the Mexican authorities were able to induce the bankers, through the International Monetary Fund, to lend still more, an amount of £2,640 million, and with the agreement of the bankers to defer repayment of the debt in the hope that sometime or other Mexico will be better able to pay. However, IMF loans are granted only on the condition that the borrowing government agrees to restrict its expenditure and take whatever other measures the IMF will approve'. One action forced on the Mexican government is to impose a wage freeze until the end of the year.

Poland and many other countries are in the same plight as Mexico. While arrangements such as the IMF loan to Mexico save the banks from having to show big losses in their balance sheets, as they would if Mexico defaulted, they cannot avoid the loss they suffer through deferment of repayment of the loans. The Polish Government, which is in negotiation with Western banks over its huge debts is reported (Financial Times, 25 September) to have warned them that "there is no point in talking of repaying our debt over the next seven or eight years".

While the depression, like all the earlier ones, has seen thousands of companies go bankrupt in America. Britain and other countries, if appears that the governments will, this time, try to prevent widespread failures of big banks. And a small step has been taken in Britain to protect depositors against losses through bank failures. The banks, with Bank of England approval, have arranged to set up funds to ensure that depositors up to £10,000 will receive 75 per cent of their deposits in the event of the smaller banks closing down. The Midland Bank is reported (Sunday Times, 19 September) to be asking the government to guarantee any further loans to ailing companies to prevent them closing down, since this was done with government encouragement.

It should of course be remembered that whatever governments may, or may not do, the banks cannot escape running up huge bad debts in a depression, at the expense of bank shareholders. If banks fail, depositors lose. Any government financial aid must come out of taxation — a choice of evils as far as the banks are concerned. The Daily Mail (7 September) quotes an American banker as saying: “We’ll never sec most of these loans again. The best we can plan is to lose them gradually and gracefully”.

What of the future? In this depression, as in all the others, voices are heard prophesying the coming end of capitalism — a "final collapse". This overlooks the fact that all the parties of capitalism, including the Labour Party, far from seeking the end of capitalism, are busy devising policies to keep the system going. Until the world working class decide to end capitalism this present chaos will continue — the present depression will end followed by another crisis and depression, and another and another.

Edgar Hardcastle

Material World: Who voted for Elon Musk? (2024)

'Am I even in this article?'

The Material World column from the July 2024 issue of the Socialist Standard

According to mainstream economic theory as taught in schools and universities, the capitalist is fully entitled, by definition, to whatever they receive, be this modest or spectacularly large; they bore the risk by investing ‘their’ capital and so fully deserve the return it yields – a risk, nonetheless, that they can mitigate by expanding their already diverse investment portfolio and by taking considerable comfort in the legislative convenience afforded by the Law of Limited Liability.

The risk to the worker, on the other hand – whether we are talking about death or injury as a result of industrial accidents or the prospects of being made unemployed should the business close down as a consequence of entrepreneurial miscalculation – may not even be acknowledged, let alone ‘rewarded’. Our worker, unable to pay that medical bill or make the next mortgage repayment, might well find themselves, unlike our capitalist, homeless and on the street.

Risk per se may well be part of life but the kind of risks we are talking about here should, you would have thought, be dispensed with or pared down to a bare minimum – not glorified as that mindless machismo or short-sighted and selfish folly we associated with a so-called ‘rugged individualism’. The problem is that this is not possible today. ‘Risk’ in this latter sense is a built-in attribute of a ferociously competitive market economy that is itself simply taken for granted as the necessary context of all entrepreneurial decision-making.

The dogma that the capitalist provided the capital that got the production process going not only fails to address the question of where that capital came from in the first place; it also seeks to justify the return they receive on the grounds that they have to cover the operating costs of their business – unlike their employees who, happily, do not have to bear the heavy burden this entails.

But this overlooks that matter of where our capitalist derives the wherewithal to cover these costs – not to mention the fact that any inventory or equipment they may purchase out of this money remains, legally, entirely theirs. Such inventory or equipment was, needless to say, not produced by them – although at times you might be forgiven for thinking from the pronouncements of apologists for capitalism that that is precisely what happened. The issue, however, is not what contribution our capitalist made to production but, rather, where they got the money to make that contribution in the first instance.

An entrepreneur who owns a business that produces a product for which there is brisk demand, might be said to be ‘rewarded’ by society, according to this argument, in the sense that they are thereby enabled to become extremely rich by attentively responding to, and serving, this demand. Society – consumers in general – as it were, passes judgement on this product in the act of buying it. Their approval in the form of a market purchase is purportedly tantamount to a desire to reward our entrepreneur for making this product available on the market.

However, it is not difficult to see why such an argument (which is raised with surprising frequency) is little more than a specious and self-serving rationalisation. To begin with, the product itself, from its conception and design through to its manufacture, marketing and sale, is likely to involve the labour of a great many workers employed or subcontracted by our entrepreneur. Even so, these, unlike our entrepreneur, are not likely to find themselves suddenly enriched on account of their contribution to making this highly desirable product available to the public.

On the contrary, the entire revenue from the sale of this product will go to our capitalist entrepreneur, in the first instance, simply by virtue of their ownership of the business itself. What they then personally end up with in money terms, after deducting from that revenue all those production costs, including the wages bill, is a residual magnitude which can vary depending on other factors – including, of course, how much, or how little, they pay their workforce.

How the social product comes to be divided up has little or nothing to do with the public’s opinion of our entrepreneur or the putative role they perform. More than likely their existence will be completely unknown to consumers. These consumers are not concerned with ‘rewarding the producers’ for producing this product, let alone the entrepreneur who has employed these producers to produce it. That is a completely unwarranted imputation. All that the public is concerned with is the desirability and price of the product in question.

There is simply no way of effectively testing this proposition anyway, since the very valuations the public are supposedly making with respect to these different occupations in society (and the differential incomes they command) are themselves expressed through, and subject to, the limitations of, ‘effective demand’ – that is, demand backed up by purchasing power.

What this means is that even if we grant the argument that the public are, as it were, ‘voting’ for our entrepreneur, or their business, with each pound, dollar or whatever spent counting as a vote cast, it is still the case (to continue with this metaphor) that some have vastly more votes at their disposal compared to others and, indeed, that many of these others may as well be considered completely disenfranchised as far as a great many products in the market are concerned. That is to say, their ‘economic votes’ are prevented from being expressed in the determination of these products’ prices by their inability to afford these products in the first instance.

In any case, what is being asserted is a completely untestable proposition. Who decided – or voted for – Elon Musk to become the richest individual in the world? The answer is, of course – no one.

Robin Cox

Cooking the Books: More pro-business than thou (2024)

The Cooking the Books column from the June 2024 issue of the Socialist Standard

Chancellor-in-waiting Rachel Reeves’s commitment to private capitalist business knows no bounds. ‘We will be the most pro-business government ever, vows Reeves’ was the headline of an interview with her in the Times (25 April). For the record — to remember when someone asks you to vote Labour in the coming general election — her exact words were:

‘If I become chancellor, the next Labour government is going to be most pro-business the country has ever seen’.

That’s quite an ambition. To be more pro-capitalist than Gladstone’s Liberals in the 19th century, the Tory governments of the 1920s, and the Thatcher government of the 1980s!

But why is she saying this? It can’t be to catch votes since big business hasn’t a particularly good reputation amongst the general public. It can’t really be, either, to convince business that Labour is fit to govern in their interest as business has been convinced of that since the first Labour government a hundred year ago. It is more likely to assure ‘the markets’ so they don’t do to her what they did to Truss.

After all, like Truss, she has a plan to try to artificially stimulate ‘growth’. She put it this way:

‘I genuinely believe the way to improve living standards and to achieve our potential is by unlocking private business investment’.

Truss wouldn’t disagree. The difference is that Truss planned to do this by reducing direct taxes on profits while Reeves plans to do so by bribing capitalist firms with contracts and subsidies. Both hoping that the resulting growth would avoid the government having to cut spending (too much).

Reeves explained that under her plan:

‘the government would provide state support to give business the confidence to invest in expensive and risky technologies … To get people to invest to produce green hydrogen they need to know that at the end they can sell it … So the role of government in the sector might be to say, “You produce it and we will guarantee that it is purchased. We will be the backstop to that”’.

The government is going to do this by offering to put up a quarter of the cost (of in this case providing places where motor vehicles can fill up with hydrogen), by borrowing it from ‘the markets’, as long as private capitalist business invests the remaining three-quarters. There are two uncertainties here. First, private capitalist business won’t put up the money unless they expect to get the going ‘rate of return’ on their investment and, second, will the rate of interest that the speculators who lend the government money charge for their loan be less than the rate of return the government expects to get from investing in the project?

Neither is guaranteed. Nor can be. In other words, whether or not Reeves’s plan works depends entirely on decisions taken by profit-seeking private enterprises and international speculators. No wonder she is insisting the next Labour government will be so pro-business. Mind you, there is a certain perverse logic to her position. If you accept capitalism more or less as it is (as she and Labour do) you accept that the economy is driven by business investment for profit, therefore you must encourage this and kowtow to business. But she doesn’t need to be quite so obsequious.

Money — not workers — will be redundant (1978)

From the March 1978 issue of the Socialist Standard

At first sight it may seem inconceivable that any advanced economic system could function efficiently without the use of money. Money has existed as far back as the history books go and the economists endorse the supposed advantages of a money system. Indeed, some economists go even further than this, as R. G. Lipsey does in a widely used introductory textbook on economics where he says,

It is not without justification that money has been called one of the great inventions contributing to human freedom. (An Introduction to Positive Economics).

Lipsey here overlooks the fact that money is ‘liberating’ only for those who have money. For those who have no money, or insufficient of it, money is the form of bondage and oppression, not liberation. Thus, in praising a system that is ‘liberating’ for only a few, Lipsey is here, quite accidentally, revealing the class nature of economics as it is generally taught, and is showing that it constitutes mere apologetics for the capitalist system.

On the question of the functions of money in an economic system, the one generally regarded as the most important is that of a medium of exchange. In discussing the function of money as a medium of exchange Lipsey says,

Without money, our complicated economic system, which is based on specialisation and the division of labour, would be impossible, and we would have to return to a very primitive form of production and exchange.

Lipsey is right in saying that without money “our complicated economic system,” i.e. capitalism, would not be possible, but he is wrong to say that only a primitive form of production would be possible in the absence of money. Lipsey’s mistake lies in his thinking that exchange is a necessary characteristic of all societies, and that therefore in a moneyless world exchange would have to be carried out by the cumbersome method of individual barter. This fault is common to all bourgeois economists, notably to Adam Smith with his idea of man’s innate “propensity to truck, barter, and exchange one thing for another”. (The Wealth of Nations). This notion is typical of the way the bourgeois economists take the specific features of a particular society either as given eternal truths that must exist at all times or as emanations of an unchanging human nature (or both).

Exchange is possible only where the product of labour is privately owned. For example, in petty commodity production the product is directly owned by the individual who makes it and it is sold to acquire goods for his immediate use, while in capitalism the product is owned by the capitalist who then sells it in order to realise a profit. We can see from these examples nor only that exchange of products derives from property in these products, but also that the form of exchange is determined by the general nature of production in society. Contemporary capitalist exchange processes are characterised by the presence of large stores with an international range of commodities for sale, credit facilities of various sorts and extensive advertising, in order to increase the volume of sales and reduce the period of turnover of the commodities. These forms of exchange would have been quite inappropriate, say, in a feudal economy where output was on a smaller scale and intended primarily either for immediate use or for the local market.

But in a socialist society there will be no property in the means of production — the land, machinery, raw materials and power sources. The concept of property will have become redundant. Hence the product of society will be available for everyone to take from it freely what they require. Thus as property relations become redundant, so will the accompanying exchange relations and so too will money. In capitalist society we exchange the one commodity that we possess, our labour-power, for a wage or salary (if we’re lucky enough not to be unemployed), and then exchange this money for commodities. In socialist society we will participate directly in the process of production and then will take what we require from the common store of goods.

Thus to some extent Lipsey is correct in seeing a link between production and exchange. With the primitive form of exchange, i.e. barter, that he envisages in a moneyless world, the only form of production that would be possible would be a very unspecialised one where each domestic unit would try to produce for as many of their needs as possible in order to minimise their dependence on barter. In this situation overall production would be low and Lipsey is right to regard this as a retrogressive step. But what Lipsey doesn’t see is that in a world which has freed itself from property and exchange relations, production will also be free to develop without the fetters imposed on it by property society. It will be free to expand production without the fear of insufficient money demand, it will be free to develop the best possible products rather than having to minimise costs as is the case under capitalism, and it will be freed from having to produce the waste of capitalism such as armaments.

Redundant

Clearly then, money will be redundant in Socialism. But perhaps there are other functions that money performs apart from that of exchange that will still be required in socialism and will therefore necessitate the use of money in socialist society? Lipsey basically lists three functions of money. In addition to that of a medium of exchange, he also lists the functions of a store of wealth and a unit of account. By a store of wealth he is basically referring to a future claim on someone else’s goods, in other words, a medium of exchange with a time dimension attached to it. An exchange will have no meaning in Socialism, similarly future exchanges will have no meaning either. Just as we won’t need money to get the goods we need in the present, so we won’t need to save money to get goods for the future. (Which of course is not to say that society as a whole will not have to “save” for its future requirements.)

The notion of a unit of account is more complicated. Fundamentally it is related to the need of the capitalist to be able to quantify the production process in such a way that he can calculate the profits from any given investment. Secondarily it is related to the need for governments to have some overall idea of the movement of the economy in that it allows the government statisticians to aggregate over a range of commodities and compare different sectors of the economy. But in order for people to have some way of measuring productive activities, it is not necessary to have an actual system of money prices. Statisticians can invent any method they like of measuring or evaluating goods, e.g. in terms of labour input, energy used up, social usefulness, and these values can then be imputed to the goods in question for purely accounting purposes without using these imputed values as actual prices or exchange-ratios. Thus the need for a unit of account does not necessitate the use of money. In addition, the type of accounting done in a socialist society will be quite different from that in a capitalist society, and it may even be found that it is not necessary to have a universal unit of account of this sort.

Price System

Apart from listing the various functions of money in a capitalist society, the bourgeois economists advance another defence for a money system. They argue that a price system serves to allocate goods in a decentralized system to the areas where they are most required. This allocation takes the form of a production decision, viz what, how much and how to produce, and a distribution decision, viz for whom should these goods be produced. The price system solves these problems by ensuring that only the most profitable goods are produced in the most profitable manner, and that only those people who can afford to buy these goods should have the use of them. Some economists are less enthusiastic about the virtues of such a system than they used to be, but most endorse this form of organisation to a greater or lesser extent. Socialists, however, criticise an economic system organised on these lines and argue that a socialist society would in fact be far more efficient. In Socialism production would be regulated by people’s needs and distribution secured by free access. The necessary information for this could be secured from surveys, and the ‘take-up rate’ for the various items, to mention only the most obvious. This information could be processed on computers and passed on to those responsible for production. This system of communicating information could in fact be far more efficient than the price system which even the bourgeois economists have to admit is far from perfect in achieving the objective they ascribe to it.

The one function that the price mechanism does fulfil and which the economists do not understand properly, is that of a rationing device. Apart from the other problems that capitalism produces, it also produces scarcity, in spite of its tremendous potential for abundance. In a situation of scarcity, the price system serves as a rationing device where a £1 note serves the same function as a ration coupon with only the difference that a person can choose his rations (but not whether he/she is rationed). This rationing device allows the working class to receive only a fraction of what it has produced. This situation will not exist in socialist society. Without the fetters of capitalist profit-making and the concomitant wastefulness of capitalist production, there is no reason to suppose that social production will be inadequate to the task of satisfying people's needs. Hence there will be no rationing of the world’s wealth. And there will be no need for money.

B.

Cooking the Books: Stating the obvious (2006)

The Cooking the Books column from the December 2006 issue of the Socialist Standard

Edmund Phelps won the 2006 Nobel prize for economics for research into the interplay between prices, unemployment and inflation expectations. A press release gave the reasons:

“Phelps suggested that in setting prices and negotiating wages, employers and workers make judgements about future inflation that in turn influence the inflation outcome. As a consequence, the long-run rate of unemployment is not affected by inflation but only determined by the functioning of the labour market. The academy said the theoretical framework Phelps developed in the late 1960s helped economists understand the causes of soaring prices and unemployment in the 1970s. Phelps’s work has fundamentally altered our views on how the macroeconomy operates.” (MoneyCNN: Dead Link.)

Phelps’s explanation for inflation amounts to the circular argument that rising prices cause rising prices. This doesn’t really explain anything about contemporary capitalism and it doesn’t explain those periods of capitalist history when the general price level (including the price known as a wage or salary) was stable or falling.

The real explanation is to be found outside the circle of rising prices, in the government issuing more currency than is needed for economic transactions to take place. Whenever and wherever currency inflation has taken place, rising prices have been the result. It is of course true that once the psychology of inflationary expectations is established, employers and unions will want to take into account future inflation rates when determining wage levels. But the real underlying explanation (currency inflation) is radically different from Phelps’s superficial view that rising prices cause rising prices.

Up to the 1970s the ruling theory in economics was the Phillips Curve. This basically said that there was a trade-off between inflation and unemployment: we could have higher inflation and lower unemployment or lower inflation and higher unemployment. Until the 1970s, that is, when we had both rising inflation and rising unemployment. That discredited the Phillips Curve. But what would economists tell the ruling class now? According to Phelps, the message is: “unemployment is not affected by inflation.” Brilliant! Give that man a Nobel prize! But even this isn’t quite right, since it is possible for inflation to get seriously out of control, causing economic dislocation and rising unemployment as in Weimar Germany in the 1920s.

Phelps is right to say that the long-run rate of unemployment is determined by the functioning of the labour market. But this is something we have said for many years — well before Phelps. Can we have our Nobel prize now?

GB News and Gary’s Economics (2022)

From the December 2022 issue of the Socialist Standard

A recent slot for the Socialist Party on a GB News chat show (bit.ly/3Umo53W) revealed an interesting thing about what socialists are up against: not only do people not agree on what socialism is, they don’t agree on what capitalism is either. So when we’re arguing with a pro-capitalist, we should not make the mistake of thinking that we know what they’re defending, or that even they know what they’re defending. They might be talking about something else entirely.

The pro-capitalist on the show seemed to be arguing that the less-developed, 19th century ‘small-business’ economy was ‘real’ capitalism, in which the population supposedly shared in the general wealth and welfare to a far greater degree than today, when the world has been taken over by a hideous monster known as ‘corporatism’. As if to emphasise how terrible our modern corporate affliction is, he was perhaps tempted to overegg the pudding in relation to the Victorian incarnation of the profit system. Incredibly, he even summed up the conditions of workers in that age of slums, workhouses, TB, cholera and child labour as ‘they’d never had it so good’.

Which all goes to show, as regular readers know very well, the importance of precise definitions. It’s such second nature to us that it comes as a surprise to find that other people don’t operate that way. ‘Socialism’ in many people’s minds is just this cloudy amorphous notion that can easily mean anything to anyone. And apparently ‘capitalism’ too can mean anything.

For the record, you can see our definition of socialism in the Declaration of Principles, on page 23 of this issue, or on the website here (bit.ly/3Umo2Fi). And equally for the record, here is our definition of capitalism: a system of society based on the production of wealth for sale on a market for a profit. Things that are produced for sale are called commodities. Other societies had commodities, but their economies weren’t based on commodity production. Other societies produced things (of course they did), but those things weren’t produced primarily for sale so they weren’t commodities. Other societies had markets, but the markets weren’t the main reason for the production.

From this clear and straightforward definition it follows that any society which is based on production for sale on a market is a capitalist country, regardless of what that society might say about itself, eg. North Korea, Venezuela, etc. Many other consequences can also be logically derived, including the drive for perpetual growth, the super-concentration of capital, wildly increasing inequality, the tightening stranglehold of the rich on the machinery of power and propaganda, national and world wars, and global environmental devastation. Without that core definition, the architecture of economics falls apart into a miasma of vagueness and a tendency to discuss each issue in isolation, as if it was unrelated to the others.

An example of this kind of vagueness was evident in a recent Novara Media video (bit.ly/3TkQJBo) where Aaron Bastani, author of Fully Automated Luxury Communism (reviewed here – bit.ly/3UlGI8m) and sporting a funky MarxTM t-shirt, interviewed hip street economist Gary Stevenson, whose own YouTube channel Gary’s Economics (bit.ly/3tdDtE8) has been getting a lot of favourable attention lately, including from mainstream media.

Stevenson is a likeable, articulate and clearly passionate man who, having previously made a pile as a former top Citibank trader, is now on a mission to explain to ‘ordinary working-class people’ why it is that they are getting poorer while the rich are getting richer, and that, contrary to what they themselves pontificate about, ‘economics experts’ in universities and in the media don’t know or indeed care why this is. His jargon-free and swear-word rich elucidations of interest rates, inflation, gilt trading and national deficits feel like a breath of fresh air. He is motivated by an obviously sincere conviction that the poor are allowing themselves to be impoverished mainly because they don’t understand how economics works, which to an extent is self-evidently true, even if his trader’s take on it is not the same as ours.

One of his arguments is that governments make a fatal mistake simply handing money to the rich without having any means to tax it back again. This is a rather more sophisticated argument than the morally-motivated populist Tax-the-Rich agenda we’ve seen from groups like Occupy or individuals like US Democrat Alexandra Ocasio-Cortez. He’s quite right to point out that governments in general struggle to get money back from the rich through tax. Indeed that’s why governments rely largely on stealth-taxing the rich indirectly through the wages they pay to workers. He wants to tax them directly, though, because even though some flight of capital might occur, landed assets don’t move, and those assets can be taxed regardless of who owns them. Would the working class benefit if the state taxed the rich a lot more? In the short term perhaps in some ways through more public spending, but not in any way that would significantly transform their lot in life as wage slaves. And the rich would fight such taxes with every influence they can muster, because quite apart from financial considerations, big taxes make for a big state and they don’t want a state that’s rich and powerful enough to keep siphoning off their profits and interfering with their dodgy dealings.

So what’s the vagueness referred to earlier? Bastani, possibly somewhat overwhelmed by Stevenson’s charisma and fast-talking economic chops, seemed rather to have forgotten to get to the nub of what, for a Marxist, the conversation really ought to have been about. At one point Stevenson almost invites him to, when he says that, where he comes from in Ilford, people’s idea of capitalism is that’s it’s supposed to be a fair system where hard work, thrift and merit are ultimately rewarded, and they can’t understand why this doesn’t seem to happen in reality. That should have been the moment to nail down definitions, to identify exactly what capitalism was, and thereby to confront the question that was waiting all along like the elephant in the room – never mind trying to fix the unfixable, Gary, why don’t we talk about superseding the capitalist system itself, and having a society with no rich and poor, and no inequality in the first place?

Paddy Shannon