The Importance of Marxism—(continued) (1940)

From the June 1940 issue of the Socialist Standard

Continued from the May 1940 issue.

The school of Political Economy that directly preceded Marx is that of Adam Smith (1723-1790) and David Ricardo (1772-1823).

Both exponents expressed the interests of the rising English industrialists, and as such were apostles of free trade. Marx has called all the economists I have mentioned “Classical Economists” (in contradistinction to many of his superficial and apologetic contemporaries, whom he has dubbed “Vulgar Economists”) because they really endeavoured to analyse the mechanism of capitalist society. All of them were, however, essentially bourgeois, and regarded capitalist society as an eternal order of things.

Adam Smith, in his “Wealth of Nations” (1770), correctly distinguishes between “value in use” and "value in exchange.” He points out that the things which are most useful (water, air, etc.) generally command little or nothing in exchange. Smith claimed that the “natural price” of an article (what we have called “average price”) is the centre of gravity around which the market price fluctuates. This "natural price” is governed by the labour taken to produce a commodity.

He, too, was inconsistent in his views, for he often confused the price of an article with the price of labour (labour-power) and sometimes imagined that prices were regulated by wages, profit and rent.

In his “Principles of Political Economy and Taxation” (1821), David Ricardo established the proposition that the value of a commodity is regulated by the quantity of labour necessary for its production. Ricardo, however, failed to solve the problem of surplus value because he did not see that what the worker sells to the capitalist is his labour power—not his labour. Moreover, Ricardo did not clearly differentiate between surplus-value and profit. 

Incidentally, whilst on Ricardo, it is interesting to notice what he thought of a contemporary “Vulgar Economist,” Thomas Malthus.

We have already alluded to “Vulgar Political Economy” as a school of thought which rehashed current views that were favourable to the capitalists and, instead of attempting to analyse, accepted appearances.

In this connection, Malthus’s economic views are even popularised to-day. His notions on population based on these views finds an echo in Nazi Germany, where Hitler proclaims his need for more “Lebensraum ” (living space).

In a letter to McCullough, dated May 2nd, 1820, Ricardo writes: —

  I have read his book—at present I feel a real difficulty for I confess I do not clearly perceive what Mr. Malthus’s system is.

And in a further letter, dated August 2nd, 1820: —

   Since I have been here I have been .giving a second reading to Mr. Malthus’s book. I am even less satisfied than I was at first. There is hardly a page which does not contain some fallacy.

The Ricardian Socialists

Ricardo’s formulation of the labour theory of value, including his classification of society into three classes (landlords, capitalists, workers), provided the groundwork for Utopian Socialism. The premises of the latter was: As labour is the source of all value, then to labour should all values rightly go.

This commendable proposition from a moral standpoint must not, however, be confused with Marxism. Scientific Socialism is most certainly based on the labour theory of value (we shall explain this in greater detail later) but not on moral implications which can be deduced from that theory. Notwithstanding the ethical basis of their Socialist teaching, the writings of the Utopians are full of illuminating points, which reveal to a remarkable extent the characteristics of the capitalist economic order. It is timely to revive the memory of those outstanding thinkers, who, in the early part of the nineteenth century, exercised a profound influence on the mental development of the founders of Scientific Socialism—particularly now, when most of their works are practically unobtainable.

The Basic Fallacy Underlying Utopian Socialism

Whether we take Robert Owen, Thompson, Hodgskin, Bray or Rodbertus, we shall find underlying each of their writings a basic economic fallacy. This fallacy is associated with the view that what the worker sells to the capitalist is in reality his labour—instead of, as we know to be the case, his labour-power.

The Utopians contended that the worker is robbed in the process of exchange, inasmuch as the capitalist buys his labour but does not pay for it at its full value. Let us illustrate their contention by giving an example: —

A tailor, shall we say, has worked fifty hours for his employer, during which period he has produced suits to the monetary value of £10 (we assume that the raw material, etc., have also been made by him). The value of his labour, i.e., his product, is therefore, expressed in terms of money, equal to £10. In this case the Utopians would have reasoned, quite wrongly, “The tailor has sold ten pounds worth of goods to his employer (his labour). The latter, however, because he owns the means of production, takes advantage of his position and pays the tailor, say, only £5 for the goods—thus perpetrating a fraud in exchange.”

This reasoning led the Utopians to the view that it was necessary, in order to abolish the possibility of fraudulent exchanges, to make the workers possessors of their own means of life. It was essential, they held, to establish communist settlements, in which every worker who laboured for a definite period would be entitled to exchange the goods he had produced for other articles embodying an equivalent amount of labour. Only in such communist settlements, they maintained, would the fraudulent transaction of an exchange of more labour for less labour, practised under capitalism, no longer be possible.

It would take us too far afield to dwell on the intricacies of their communist Utopias, many of which were tried and failed. Suffice it to point out that the Socialism of the Utopians lacked scientific content for the following three reasons: —

(1) Because of the undeveloped conditions of capitalism in which the ideas arose.
(2) Because the Utopians were under the illusion that Socialist society had always awaited discovery and did not grow out of particular circumstances.
(3) Because of the Utopians’ misunderstanding of the way in which the workers are robbed and, consequently, their inability to grasp the mechanism of capitalist production.

Moreover, when all these factors have been taken into consideration, Utopian Socialism still remains valuable for its brilliant critique of bourgeois society. Let us now examine this critique.

ROBERT OWEN (1771-1858) is generally classified as the founder of English Utopian Socialism. Owen was originally a factory owner and actually arrived at his Socialist conclusions as a result of studying the conditions in his own works. His advocacy of Socialism and his struggles to improve the conditions of life for the masses resulted in his becoming outlawed by supporters of capitalist society. Owen’s life and work have, however, been so ably treated by Engels in “Socialism, Utopian and Scientific,” that we cannot do better than refer the reader to that excellent pamphlet. In this review we shall deal in detail mainly with Owen’s disciples.

WILLIAM THOMPSON (1785-1833) was a native of the county of Cork. He was a friend of Jeremy Bentham, the philosopher, and to a considerable extent under the influence of the latter’s radical teachings. Thompson's principal work is an “Inquiry into the Principles of the Distribution of Wealth most conducive to Human Happiness (1824),” a book that runs into some six hundred pages. The essential theme of this work is that rent, profit, etc., are wealth forcibly and unjustly appropriated by the capitalists from the workers. But let Thompson himself speak: —

  "But as long as the labourer stands in society divested of everything but the mere power of producing, as long as he possesses neither the tools nor machinery to work with, the land or materials to work upon, the house and clothes that shelter him—as long as any institutions or expedients exist by the open or unseen operation of which he stands dependant, day by day, for his very life on those who have accumulated these necessary means of his exertions; so long will he remain deprived of almost all the products of his labour, instead of having the use of all of them/' (Page 590. Longman, Hurst Ed.)

And how are going to alter this state of affairs ?

   “In the usual course of things then the productive labourer is deprived of at least half the products of his labour by the capitalist. . . .  No doubt if the productive labourers acquired knowledge, and could trace the immense abstractions made under the name of profits from the products of their labour, they must see the injustice of such an arrangement and endeavour to become themselves possessed of all the articles under the name of capital or of the means of commanding the use of such articles necessary to make their labour productive. . . .  As long as two hostile masses of interests are suffered to exist in society, the owners of labour on the one side and the owners of the means of labouring on the other, as long as this unnatural distribution is forcibly maintained—for without force wielded by ignorance it could not be maintained—so long will perhaps as much as nine-tenths of obtainable human production never be brought into existence, and so long will ninety-nine hundred parts of attainable human happiness be sacrificed."(Pages 160-175.) 

Remember that the above was written over a century ago!

And shall we appeal to the capitalists to introduce Socialism?

   "The excessively rich as a class, like all other classes in every community, must obey the influence of the peculiar circumstances in which they are placed, must acquire the inclinations and characters, good or bad, springing out of the state of things surrounding them from their birth. Having always possessed wealth without labour they look upon it as their right and their family’s right always to possess it on the same terms.” (Page 211.)

In concluding this review of economic theory before Marx, mention must be made of John Stuart Mill (1806-1873), who accepted the labour theory of value but attempted to compromise between Vulgar Economy and Utopian Socialism.

The Utopian Socialists, notwithstanding their shortcomings, were men of outstanding intellect and clarity of vision. But as Utopian Socialism is itself a detailed subject we must reserve a discussion on it for our next article.

Solomon Goldstein

Notes on Economic History (10) (1961)

From the August 1961 issue of the Socialist Standard

The Value of Labour-power

Adam Smith wavers in his analysis of commodities and there is confusion regarding the determination of exchange value. He determines the value of a commodity by the labour time contained in it, but then relegates the principle to older or more simpler times. What seems to him to be true about a simple commodity does not apply to the more complex forms of capital—wage labour, and rent. The value of commodities, he says, used to be measured by labour time.

There is also confusion in his analysis of commodities about which he varies regarding the determination of exchange value. He makes the exchange value of labour, wages, the measure of the value of commodities. Thus, wages are equal to the amount of commodities purchased by a stated amount of living labour, or to the quantity of labour which can be bought by a given quantity of commodities. The value of labour, or rather labour power, varies, like all other commodities, and in this respect does not differ in kind from the value of other commodities. And so value itself becomes both the measure and the explanation of value and we go round in a circle.

Marx has demonstrated the fallacy of this reasoning. He also said, very appropriately, "It is one of the chief failings of classical economy that it has never succeeded, by means of its analysis of commodities, and in particular of their value, in discovering that form under which value becomes exchange-value. Even Adam Smith and Ricardo, the best representatives of this school, treat the form of value as a thing of no importance, as having no connection with the inherent nature of commodities. The reason for this is not solely because their attention is entirely absorbed in the analysis of the magnitude of value. It lies deeper. The value form of the product of labour is not only the most abstract, but it is also the most universal form taken by bourgeois production, and stamps that production as a particular species of social production and thereby gives it its historical character."

Adam Smith also saw that profit sprang from the exploitation of labour, for he says: "The value which the workmen add to the materials therefore resolves itself in this case into two parts, of which the one pays their wages, the other the profits of their employer upon the whole stock of materials and wages which he advances." But he also confused surplus value and profit.

Smith was the product of the early manufacturing period in this country. He made a valuable contribution to political economy, and was one of the most painstaking and critical of the small band who tried before Marx to find out what makes society tick.

Bob Ambridge

Notes on Economic History (9) (1961)

From the July 1961 issue of the Socialist Standard

What is Economic Life? 

Adam Smith's ideas on the development of economic life led him to make a clean sweep of all feudal ties and servitudes. The abolition of serfdom, the introduction of freedom of occupation and industry, freedom of movement, political autonomy; these were the inevitable corollaries of the new doctrine.

A demand heavy with consequences, the demand for free trade, formed a logical and essential part of the demand for the abolition of all restrictions upon production and distribution. Smith's theory of free trade was as follows:—

If trade be freed from all restraints, through the working of competition, it will come to pass in the long run that every country will produce those commodities which its natural facilities enable it to produce most cheaply. Thus there will arise a natural international division of labour, which will rebound to the maximum benefit of each nations, for each will be able to buy all it wants in the world market at the lowest possible prices: while selling there to the greatest advantage those things which it is exceptionally fitted to produce. It is the maxim of every prudent master of a family never to make at home what it will cost him more to make than to buy. (Wealth of Nations.)

In regard to the applying of these free trade principles, Smith was prepared to compromise. He agreed to the need of excise duties as a source of revenue, as also to the expediency of retaliatory duties imposed upon imports from countries whose policy was protectionist, and for duties for special purposes, for instance where an industry was judged to be essential for the safety of a country and was in need of protection. Smith, not being the dogmatist, as those who subsequently opposed his doctrines declared, was very cautious in practical matters.

Much of present day opinion of Smith's views is based upon the modifications his teachings underwent at the hands of Ricardo, and later still in the eighteen-thirties by the Manchester School of Free-traders. It is necessary to point out that Smith was not hostile to the landowning class. On the contrary, he considered that the interest of those who lived by rent was "strictly and inseparably connected with the general interest of Society" for their income increased proportionately to an increase in the general welfare.

Of the capitalist class he wrote that its interest had not the same connection with the general interest of Society as that of the landowners and wage-earners. For, he said, the rate of does not, like rent and wages, rise and fall with the booms and slumps that affect society. On the contrary, it is low in times of boom, and high in times of slump. Smith says it is always highest in countries that are going to ruin. To him, the interest of the second order, that of those who live by wages, is as strictly connected with the interest of the society as that of the landowning class. He advocated high wages and freedom of combination, but he deprecated State interference in wage contracts.

Smith's teaching brought about an entirely different way of looking at political economy. It did this, first of all, by showing investigators that the source of wealth is not a simple matter. He regarded labour as the primary source of wealth, but the conditions under which labour had to operate were of vital importance, and especially the increase of productiveness by the division of labour. Smith regarded everything from the outlook of exchange in the market, he conceived of economic phenomena as centering in exchange in the processes of "trade", and his explanation of the motive force of economics was derived from this conception.

Smith's chief contribution to economic doctrines was his neatly rounded and bold notion that economic life was a series of processes of exchange linked to each other. Herein lay such originality as he possessed. He finalised the physiocratic idea of the natural order, that is the harmonious encounter of numberless individual self-seeking economic activities. In his doctrine, exchange, the trading intercourse of separate economic agents, became the central manifestation of economic life. His system was not a theory of production, but a theory of price and value which he considered determined production just as much as distribution.

Like all economists worth considering, Smith endorsed the physiocratic concept of the average wage, termed by him the natural price of labour: "a man must always live by his work, and his wages must at least be sufficient to maintain him. They must even upon most occasions be somewhat more: otherwise it would be impossible for him to bring up a family and the race of such workmen could not last beyond the first generation". The fact that the development of the productive powers of labour brought no benefit to the worker is stressed by Adam Smith. Smith notes that the productive power of labour underwent no really important development until labour was transformed into wage labour, and until the means of production had taken the form of private ownership, either of land or of capital. Thus, labour's productive powers did not begin to develop until the worker was no longer able to take for himself the results of development.

Bob Ambridge

Notes on Economic History (8) (1961)

From the June 1961 issue of the Socialist Standard

Adam Smith's theories of Income

Adam Smith establishes an elaborate theory of the formation of value and of price, arguing that under primitive conditions, when there is little capital and when rent has not yet come into existence, the value of goods is determined solely by the amount of labour embodied in them. Things, like water, which a have a great use-value, have no exchange-value; and conversely, things with very little use-value, like diamonds, have a very high exchange-value. It follows that as the measure of the exchange-value of goods it is their "natural price" that matters. Not the utility of an article, but the amount of labour that has been expended in producing it.

In accordance with the fluctuations of supply and demand this market price swings to one side or the other of the labour expenditure price. The various items out of which the actual or market price is made up are the outcome of private property and the existing legal order, consisting of (a) wages, (b) the share payable to capital, and (c) rent, which may be regarded as interest paid for the use of land (equivalent to the difference between the price of the produce of the land, on the one hand and, on the other, the expenditure of the farmer upon wages, plus profit on his farming capital).

From this is deduced a theory of distribution, or of the formation of income (Smith uses the term "revenue"), for inasmuch as production is carried on with an eye to the market on the basis of the division of labour, the product is distributed in accordance with the laws of the formation of prices in the market. The distribution of wealth is effected in accordance with the constituents of every price; the worker receives the equivalent for his labour, and the capitalist and the landlord receive equivalent for the co-operation of capital and land.

Thus all the commodities which compose the whole annual produce of the labour of every country must resolve themselves into the same three parts, and be distributed among the different inhabitants of the country, either as wages, profit on capital, or rent for land. "Wages, profits and rent are the three original sources of all revenues as well as of all exchange-value. All other revenue is ultimately derivable from one or the other of these." Wealth of Nations (Book 1, Ch. VI).

Smith's theories on the laws of distribution may be briefly phrased as follows. rates of wages are determined, like market prices in general, by supply and demand, due to whose operation they vary to one side or the other of a subsistence wage:

The more capital there is in a country, the greater is the demand for labour, and the higher therefore are wages. The profit of capital has the opposite trend. The more capital there is, the lower is its rate of profit; the more capitalists there are, the greater is the tendency to underbid one another. Consequently, the more labour there is in a country, and the richer it therefore is, the lower in general is the profit of capital. (Book 1. Ch. IX.)

In the matter of land rent, a more complicated machinery is at work:

Increase in the productiveness of labour the division of labour and the expansion of manufacture leads to a fall in the prices of the products of industry. To the extent to which this happens, the products of agriculture automatically exchange for larger quantities of industrial products; that is, the former become dearer. This rise in agriculture prices is attended or followed by a rise in rent. (Book 1. Ch. XI.)

Rent also rises concurrently with an increase in capital, for since more capital and labour are applied to land, and land is therefore used more effectively, the income from land necessarily increases.

According to Smith economic life develops best when it is left alone. The main business of the State is to keep order. Economic activities when perfectly free develop harmoniously, and free competition must be left to do its work. Competition forces everyone to follow his own economic aims, to develop all his forces, and to produce as cheaply as possible. Consumers are supplied with goods at the lowest prices, capitalists can devote their energies to their tasks unhindered, and workers can seek employment wherever wages are highest. In this way a condition of social harmony is attained. At the same time, it results that everyone engages in the occupation which comes most natural to him. Division of labour takes place along the lines that are most economical.

By virtue of its own mechanism, society can get the better of that selfish outlook which is (primarily) hostile to society. Everyone becomes enabled, by the pursuit of his own advantage, to enjoy his natural rights.

Bob Ambridge

Notes on Economic History (7) (1961)

From the May 1961 issue of the Socialist Standard

Wealth of Nations

Since England was the first country in which modern large-scale industry developed, it was only to be expected that capitalist political economy would appear and flourish here. The introduction of spinning machinery (Wyatt 1783, Lewis Paul 1741, Arkwright 1769); the steam engine (Watt 1765 and 1770); and later of the power loom (Cartwright 1785, Jacquard 1802); and similar transformations in the methods of industrial production, indiced changes that led to an enormously accelerated growth of large scale industry.

Adam Smith was the man, who, under these conditions, established a new system of economic doctrine. Smith spent three years in France, where he became known personally to the physiocrats, and was greatly influenced by them. For ten years after his return from France, he devoted himself to economic study and to writing his book Inquiry into the Nature and Causes of the Wealth of Nations published in 1776.

Adam Smith defines the wealth of a nation in the opening of his inquiry.

The annual labour of every nation is the fund which originally supplies it with all the necessities and conveniences of life which it annually consumes, and which consist always either in the immediate produce of that labour, or in what is purchased with that produce from other nations.

To this he makes an important reservation. Labour which is not devoted to the production of useful things, which have an exchange value is to Smith unproductive. Thus, services of all kinds are unproductive. The wealth of a nation is greater accordingly as a larger proportion of its inhabitants are engaged in useful labour. This in turn depends upon the amount of capital devoted to the employment of workers (the wage fund), but above all, upon the productiveness of labour.

According to Smith the productiveness of labour is increased mainly by the division of labour. Consequently, the division of labour is the chief cause of prosperity. He illustrates this thesis by the many processes required for the manufacture of such a simple thing as a pin. The further the division of labour is carried, the more is production carried on with a view to marketing.

Now for the purpose of the market there must develop an acceptable means of exchange, or instrument of trade—in other words, money. Money, as explained by Smith, arises out of indirect exchange. Commodities are exchanged in the market by means of money as the medium of exchange, and thus originates an exchange-value or price of goods, as distinct from their use-value. We see, then, that the division of labour is the starting point of the economic process and its development; it is the cause of the exchange of goods, for no one can live upon the product of his own activity. But exchange is effected in accordance with exchange-value (price) and the exchange value is therefore decisive (a) for the distribution of the goods, since it settles the question who can buy them; and (b) for their production inasmuch as this is guided by the expectation of the price to be realised.

Upon this premise Adam Smith builds up his economic system, and so do all the capitalist schools that follow him. The laws that regulate the formation of exchange-value are held to be also laws in accordance with which the wealth of nations comes into being; they are, according to Smith, the primary laws of economic motion.

By formulating this conception of the nature of political economy, Smith made an important step forward in capitalist theory. He gave a new turn to economic thought. Whereas both the Mercantilists and the Physiocrats had made productive circulation the basis of their reasoning, now for the first time a study of the laws of exchange-value was undertaken. Thenceforward the theory of value and the theory of prices became the basis of economic theory in general. For since prices are the determinants of the production of goods, the law of prices decides what goods shall be produced; and since prices decide which would-be purchaser has sufficient purchasing power, the laws of prices are also the laws of distribution. In a word, the laws of price are also the laws of distribution. As a result, therefore, the theory of distribution is developed as a theory of particular prices (wages, rent, etc).

Bob Ambridge

Notes on Economic History (5) (1961)

From the March 1961 issue of the Socialist Standard

The Physiocrats

Although the Mercantile system was abundantly criticised, it was a long time before opposition to it became formed into a new doctrine. Such a new system of economic thought arose in France, its chief advocate being François Quesnay. He gave his doctrine the name Physiocracy—the rule of nature.

François Quesnay (1694-1774) was the son of a lawyer. He graduated as a doctor of medicine and became a physician to Madame de Pompadour and Louis XVth, His principal writings are the Economic Tables, 1758, and General Maims, 1758.

Quesnay's teaching is something more than economics; it appears to be part of a general philosophy. Setting out from the materialist notions of his time, he wanted to have social and moral phenomena regarded as being no less "natural" than physical phenomena; and the laws governing the former as well as the latter were to be seen as mechanical laws of nature.

The natural right of human beings in primitive society, he argues was the right to property—that is the right to the free disposal of goods which the individual has made or appropriated by means of his own labour. When at a later stage, men, for the better safeguarding of their natural rights, entered into the social contract, it was essential that they should not lose the right each of them had to earn his own living. Bound up in this right is another natural right of the individual—the right to foster his own economic interest and to shape his own future as best suited to him. This following of self-interest, according to Quesnay, leads to the establishment of a "natural order" in the economic association of human beings.

This doctrine of self-interest was eventually erected by Quesnay into a finished system. He endeavoured to study the laws of the economic "natural order", which were to be deduced by reason from the general plan of nature. This doctrine of "natural order" is important to him for two reasons. First, inasmuch as the pursuit of self-interest is regarded as an idea of natural right, a system of economic individualism is for the first time established. Secondly, the persons who, in their economic life, act consistently because they are guided by motives of self-interest, resemble atoms with fixed properties. The phenomena that result from their mutual contacts (in the market and elsewhere in society) are mechanically determined like those that result from the mutual contacts of the atoms. It follows, says Quesnay, that political economy, like the realm of material nature, is governed by natural laws.

To the question of what activity of the individual it is that regulates the economic machinery, and upon what foundation economic life depends. Quesnay answers—upon natural economic activities, namely agriculture. Agriculture is for him the source of all the wealth of the nation. Not money, trade, traffic and industry, but the tilling of the soil is the true source of public welfare. The former activities merely transform matter and move it from place to place; they are not creative. The agriculturist renders them possible by nourishing those who engage in them, and he supplies the raw material without which they cannot be undertaken. Commerce, industry and transport are to be considered as dependent upon agriculture.

The Physiocrats put the matter thus. The countryman gets hides, leather, and in the end his boots and other articles from his oxen; wood, and in the end his tools, from the trees on his farm; and so on. But, they said, to avoid the wasting of materials and energy, it is better that he should not himself undertake the work that transforms these basic materials, but should have it done for him by various specialists (the tanner, bootmaker, joiner, etc.) whom he must support of his agricultural surpluses.

The only productive, the only creative labour is, therefore, labour on the land. It is true that work which transforms materials derived from land, or moves them from place to place, can enhance the value of these things, but the cost of the supplementary labour is really defrayed by the agriculturist, who must feed the workers who perform it. The increase in value this produced is, therefore, according to the cost of the labour and is equal to the expense of maintaining the workers who do it. Such labour is once again covered and made good by labour on the land. The tanner, joiner, etc. who shape the raw material derived from land work merely earn their own keep in the form of wages; they make nothing new. All they do, says Quesnay, is to "add" not to "create". The agriculturist's work is a work of creation; the industrial workers perform only a work of addition, of transformation, or of transport.

Thus the class of landowners (consisting in those days chiefly of tenant farmers as contrasted with the landowning nobility) appear to Quesnay to be the only "productive" class. The land owners, on the other hand, form an "owning" or "distributive" class, while the industrialists and craftsmen comprise a "sterile" class.

These three classes are considered to be the "active" classes of the population, whilst the wage earners make up a fourth, a "passive" class, with no economic activity of its own.

Agriculture cannot continue to be prosperous, adds Quesnay, unless grain realises high prices, for only then can agriculture provide a large "net product"* and thus become able to provide large incomes for the landowning class, the manufacturers, and the working class, and in this way diffuse general prosperity. It was essential, therefore, to do away with all restriction upon the export of grain—Quesnay completely rejected the mercantilist theory of the balance of trade. The demand for free trade was an inevitable result of his views.

The Physiocratic system also gave a picture of the formation of value and of price. In certain connections Quesnay emphasized the nature of value as utility but with his doctrine of net product, value and price and derived from cost. In his view the transformative labour of industry added to goods only so much value as this labour itself consumed—only an amount of value therefore equivalent to its own cost. It follows from this that for Quesnay wages represent nothing other than the cost of replacement of the labour power that has been expended. Wages are merely the equivalent of subsistence.

Bob Ambridge

* Quesnay uses the term "Produit Nett" as signifying the surplus of the raw produce of the earth left after defraying the cost of its production.

Notes on Economic History (2) (1960)

From the December 1960 issue of the Socialist Standard

The Mercantile System

This was the beginning of the modern era. A new form of economic practice was developing, and new theories made their appearance in the form known as Mercantilism. This term (introduced by Adam Smith) is, however, a little misleading for its advocates were quite as concerned with industrial development as with the exchange of merchandise.

The term "Mercantile system" is loosely used to denote all the principles applied by the governments and traders of those days—though it is a fact that these principles have a general conformity. Mercantilism was a growth of its time. It was a system of political absolutism and centralization in favour of the burghers and mobile capital, to the detriment of the lords of the soil. To throw light on this we must glance at the economic process of this period.

The economic organisation of the Middle Ages was disrupted mainly by those political changes which led in Western Europe to the formation of the national states (France, Spain, Portugal and England); and in Germany, later in, to the formation of territorial princedoms. As a result, the Mediaeval economy, with its urban units, was replaced by larger units of different kind—the unified national economic areas. Political concentration in these areas resulted in money and wealth becoming elements of political power in a way very different from of old.

The idea of money as the nerve of the State was in many respects new. The State, which had been constituional (in the Feudalist sense) became absolute; a State army replaced the Feudal militia; and the centralisation of the administration established a paid civil service, judiciary, etc., where Feudal methods of self government had previously prevailed. The result was that military and civil concerns, taxation, and the processes of State credit, tended more and more to be carried on upon a monetary basis instead of by the payments in kind of the earlier economy. Money acquired a significance that was quite new.

These changes were accompanied by the economic upheavals that followed the discovery of America (1492) and the opening of the sea route to the East Indies (1498). New possibilities of world trade came into being, giving power to those traders situated on Western seaboards (the Spanish, the Portuguese, the Dutch and the English) but weakening those cut off from the new commerce. Trade, and the money standing behind trade, became important as sources of wealth and political power.

The effects of these displacements of wealth was reinforced by a new process. Soon after the discovery of the New World a vast amount of gold and silver began to move from Spain across Europe. As a result, the purchasing power of these metals fell enormously, with a consequent tremendous rise in prices. It is true that the rise in prices began about 1510, whereas the increase in gold and silver began to make itself felt about 1520. This was the result of famine, plague, and other causes, but nonetheless, the superabundance of gold was a factor, and a major one, in the rise of prices. The influx of gold played a great part in undermining the foundations of the old feudal economy, for it favoured the diffusion of the means of credit, and laid the ground for the development of the capitalist system.

All these circumstances tended to emphasize the importance of money, to stress the importance of commercial wealth as compared with the wealth that changed hands in kind during the feudal period. Thus, whereas in earlier times there had been the endeavour to check the growth of a monetary economy, the opinion now was that money, of not the only source of wealth, was certainly of decisive importance.

The primary aim of the mercantilists was to achieve a favourable balance of trade. When exports exceed imports, when the value of the goods sold to buyers abroad exceeds the value of the goods purchased from such buyers, the amount of money entering a country will exceed the amount of money leaving it. Then the balance of trade is said to be favourable to the country in which money thus accumulates. To achieve this favourable balance (which was the desire of the mercantilists) it was necessary to stimulate export trade. With that end in view, it was essential to foster industries that created commodities for export and, on the other hand, to check as far as possible the import of commodities.

But if home industry was to be fostered, special attention had to be paid to internal communications. It was necessary to abolish or reduce tolls and the like, and to break down the barriers erected by the urban economy of the Guilds. Good roads had to be built, canals dug, internal communications facilitated, home markets established. Customs policy was, therefore, of supreme importance in the mercantile system. The champions of that system wanted to abolish export duties, and if necessary stimulate exports by subsidies; at the same time they aimed at reducing imports by a high import tariff, or by actual prohibition. Instances are in France, the unified import tariff in 1664, and the development towards such a tariff in England after 1692. As corollaries to the restriction of imports, there had to be freedom for the import of raw materials needed by home industries and prohibition of the export of such materials.

Bob Ambridge 

Notes on Economic History (1) (1960)

From the November 1960 issue of the Socialist Standard

Economics before Mercantilism

The object of these notes is to provide a general introductory guide for those who would like to know more about the subject of Political Economy. They cover the period from early times to Marx and set out the main developments and theories that arose during that time, using as a key the Materialist Conception of History.

Engels in his preface to the 1888 edition of the Communist Manifesto says: "The 'manifesto' being our joint production, I consider myself bound to state that the fundamental proposition which forms its nucleus belongs to Marx. That proposition is: that in every historical epoch the prevailing mode of economic production and exchange, and the social organisation necessarily following from it, form the basis upon which is built up, and from which alone can be explained, the political and intellectual history of that epoch."

That proposition is, in short, the Materialist Conception of History.

By the term economics is meant throughout these notes the study of the production and distribution of wealth. Such a study must take into consideration historical, geographical and many other factors, always bearing in mind that behind the abstractions are real people, who combine, deliberately or otherwise, to produce and distribute wealth.

Neither in classical antiquity, nor yet in the Middle Ages, did there arise any finished systems of economic thought. In those epochs, when men's thoughts were concerned with the heroic and supernatural, the economics of life was regarded as of little importance. Only when, as today, life is dominated by the forces of competition and struggle, is civilised life dominated by economic considerations to the extent we know it today. Even in those earlier ages, however, economic thought such as it was showed signs that it had arisen out of earlier forms of society, and developed and evolved with these societies.

It is an error to picture the course of economic development as though mankind has passed simply from a primitive form of society to a slave-owning form, then to a Feudal one, and finally to a Capitalist economy. At all times there have been lesser economic groups that formed integral parts of the larger, nation-wide or world-wide complexes.

During the primitive period of man, in the Stone Age, the exchange of things went on, and there are proofs of the existence of some form of primitive trading as far back as the Bronze Age, since the constituents of bronze (tin and copper) are not generally found together. At the beginning of historical times, in Babylon, Persia, Carthage, Egypt, Greece and Rome, there was a well-developed form of trade, with industry carried on for export, together with monetary systems and credit.

The beginnings of economic science itself go back to Plato and Aristotle. Plato (347 B.C.) and Aristotle (322 B.C.). made some contributions to economic science, but as far as economics is concerned, mention need only be made of Aristotle's remarks on money, interest and taxation. Aristotle saw the essential nature of money as this: "That it is an intermediary in the exchange of utilities, thus acting as a medium of exchange." To him, however, it is sterile; "it brings forth no children." It cannot of itself produce any goods; therefore interest is wicked. This teaching was to have a great influence in the later Feudal period.

The economic thought of the Middle Ages was dominated by the teachings of Thomas Aquinas (1274), who derived from Aristotle and the Roman civil and canon law the concept of a "just price." Aquinas held that there were two kinds of justice:

1. Distributive justice.
2. Compensatory justice, or the justice of exchange.

In the matter of price, justice is found in the equality of mutual benefit in an exchange. What determines income is not the supply and demand of labour, but a normal outlook, the customary and average mutual adjustments between the individuals who exercise functions. To quote Aquinas, "Wherever a good is to be found, its essence is due measure." Thus we get the idea of income that is "suitable" or "proper" to a man's position in society. Interest on money, or usury, is frowned upon. "Money is a medium of exchange, its use is in its consumption." Consequently, for the use of borrowed money it is wrong, or at least improper, to expect anything beyond simple repayment. Aquinas does make exception in the case of tenancy, hire and credit for goods supplied. In later years, missed opportunities for gain, and loss incurred by or injury to the lender, became good grounds for demanding interest.

The prohibition of interest or usury is basically designed for an economy based on land as property, that is Feudal society, which endeavoured to keep money, and those ideas that flow from an economy based on money, under control.

Economic ideas, and the practical application of them, show a gradual growth and conflict as the old Feudal society begins to decline. The development which economic science made after this period are bound up with the growth of towns and the increasing power of the traders. The early stage of these developments is generally known as the Mercantile period and this will be dealt with in our next issue.

Bob Ambridge