Cooking the Books: This year’s Nobel Prize for Economics (2009)

The Cooking the Books column from the December 2009 issue of the Socialist Standard

Every year the Bank of Sweden awards a prize to some economist, often called the Nobel Prize for Economics even though it wasn’t established by the old merchant of death himself. It has in fact only been going since 1968. Usually the prize goes to some obscure economist for work on some obscure aspect of the market economy. Sometimes it goes to a big name such as the Keynesian Paul Samuelson (1970) or the Monetarist Milton Friedman (1976). Even the mad marketeer Baron von Hayek got one, in 1974.

Very occasionally it goes to someone who has done some interesting work, as when in 1998 it went to Amartya Sen who had shown that famines were caused by a collapse in legal access to food (via money or direct production) and not by any actual shortage of food or overpopulation. This year, too, it has gone to someone whose work sounds interesting – Elinor Ostrom whose 1990 book Governing the Commons: The Evolution of Institutions for Collective Action refuted the so-called “Tragedy of the Commons” parable that is often used to try to show that socialism wouldn’t work.

In 1968 an American biologist Garrett Hardin conceived of a parable to explain why, in his view, common ownership was no solution to the environmental crisis and why in fact it would only make matters worse. Called “The Tragedy of the Commons”, his parable went like this: assume a pasture to which all herdsmen have free access to graze their cattle; in these circumstances each herdsman would try to keep as many cattle as possible on the commons and, in the end, its carrying capacity would be exceeded, resulting in environmental degradation.

Hardin’s parable was completely unhistorical. Wherever commons have existed there also existed rules governing their use, sometimes in the form of traditions, sometimes in the form of arrangements for decision-making in common, which precluded such overgrazing and other threats to the long-term sustainability of the system.

One of the conclusions that governments drew from Hardin’s armchair theorising was that in existing cases where producers had rights of access to a “common-pool resource” the solution was either to privatise the resource or to subject the producers to outside control via quotas, fines and other restrictions. Ostrom took the trouble to study various common property arrangements some of which had lasted for centuries, including grazing pastures in Switzerland, forests in Japan, and irrigation systems in Spain and the Philippines.

According to The Times (13 October),

“Based on numerous studies of user-managed fish stocks, pastures, woods, lakes and groundwater basins, she asserts that resource users frequently develop sophisticated mechanisms for decision-making and rule enforcement to handle conflicts of interest”.

In other words, common ownership did not necessarily have to lead to resource depletion as predicted by Hardin and trumpeted by opponents of socialism. The cases Ostrom examined were not socialism as the common owners were private producers. In socialism the producers, the immediate users of the common resources, would not be trying to make an independent living for themselves but would be carrying out a particular function on behalf of the community in a social context where the aim of production would be to satisfy needs on a sustainable basis. But the rules they would draw up for the use of the grazing land, forests, fishing grounds and the like would be similar to those in the cases she studied.

J. K. Galbraith: a radical Keynesian (2006)

From the June 2006 issue of the Socialist Standard

An economist who remained loyal to the end to the discredited view that government intervention can make capitalism work in the interest of the majority.

John Kenneth (‘J.K.’) Galbraith, who has died at the age of 97, was probably – after John Maynard Keynes and Milton Friedman – the most famous economist of the twentieth century. For decades he argued against the dominance of the free market economy in favour of a reformed and humanised capitalism which could be made more equitable and tolerable by government intervention.

A Canadian by birth, he became part of a group of Keynesian supporters at Harvard University in the US that included Paul Samuelson and James Tobin. Galbraith’s career at Harvard led him to become Professor of Economics and something of a radical disciple of the Keynesian belief that poverty and inequality in capitalism – and the related phenomenon of the boom and slump trade cycle – could be reformed away by well-informed and -intentioned governments. From the 1950s onwards he was to write a number of books, all penned in a popular and readable style, which challenged popular misconceptions about society and the economy. In particular, his books The Great Crash: 1929 (1955), The Affluent Society (1958), The New Industrial State (1967), Economics and the Public Purpose (1974) and The Nature of Mass Poverty (1979) established him as a leading commentator on developments within the capitalist economy and a critic of many prevailing orthodoxies.

Galbraith liked to see himself as a rebel and an outsider, which was true up to a point. For a short time in the early 1960s, though, he served as the US Ambassador to India under John F. Kennedy, and was later an advisor to L.B.Johnson and other Western politicians (including, in a critical and somewhat ad hoc capacity, current UK Chancellor Gordon Brown). His pre-occupations were with aspects of the capitalist system that critical thinkers found most dysfunctional: its tendency to promote economic growth (in terms of capital accumulation) at all costs; its inability to address profound issues of wealth inequality; and the tendency for the concentration of capital and the growth of monopoly, in particular, to undermine the more idealistic free market notions of ‘consumer sovereignty’ within capitalism.

Crises and slumps

Arguably Galbraith’s finest work was his historical account – and critique – of the Wall Street Crash of 1929 and the subsequent prolonged trade depression. In many respects, his work serves as a warning to those who feel that capitalism naturally tends towards an equilibrium state of rising productivity and steady growth. What Galbraith detailed was the circumstances in which arguably the greatest trade depression the world has ever known came to develop and cause such widespread misery.

Although Galbraith over-emphasised the actions of the US government and the Federal Reserve banks, his underlying assessment of the crash was a sound one. He argued that it was caused in large part by the market-driven over-expansion of the producer goods sector of the economy (the sector producing factory machinery, steel, etc for industry) in comparison to the consumer goods sector during the preceding boom years. This had meant in practice that in the competitive drive to accumulate capital, profits were re-invested to expand productive capacity at a disproportionate rate: far more so than was justified given the fall at the time in the share of wages and salaries in National Income. It was this over-expansion of the producer goods sector which led to the production of consumer goods in excess of available market demand and the subsequent downturn in the economy.

Galbraith was affected quite profoundly at an intellectual level by the 1930s slump, as were many others who became attracted to Keynesian economics. Indeed, Galbraith was at the forefront of those who ridiculed the view that, if left to its own devices, the capitalist market economy would naturally tend towards an equilibrium state of steady growth and full employment and that it was somehow government intervention that prevented markets from working properly. Galbraith’s view, which he was to explore in different respects in his published books, was just the opposite.

For Galbraith, the ‘classical’ economists and the so-called monetarists who resurrected some of their views from the 1970s onwards posited an idealised version of the market economy that was as over-simplified as it was driven by a defence of privilege. Galbraith wittily deconstructed many of the economic models on which it rested, highlighting issues such as monopoly, price-fixing, imperfect information and the various possible influences exerted not just by abstract ‘producers’ and ‘consumers’ but by advertisers, suppliers and trade unions too. In the days before corporate scandals such as Enron, he recognised that corporations do not always carry on their activities for the benefit of investors like shareholders, and that the natural growth of large corporations within capitalism sometimes led to practices within organisations which were designed to benefit those who internally controlled them first and foremost.

In many respects, it was in his critique of wider capitalist society that Galbraith was on his strongest ground, recognising imperfections in the system that others willed away. One of his most famous remarks was that “the modern conservative is engaged in one of man’s oldest ever exercises in moral philosophy; that is, the search for a superior moral justification for selfishness”. His withering critique of Arthur Laffer’s theory of how lowering income tax on the rich would increase government revenue, and of the illusory benefits of ‘trickle down economics’ was a prime example. And in arguably his most famous work, The Affluent Society, he took up a critique of the way in which capitalist enterprises try to ensure their expansion by manufacturing artificial ‘wants’ through advertising and other means. While this owed something to an earlier analysis by Thorstein Veblen, it was nevertheless considered subversive and hotly disputed at the time.

Keynesian economics

Whatever insights Galbraith developed into the workings of capitalism and despite his attacks on its most vigorous defenders, he was hampered by two key, related aspects of his approach. First, his unremitting adherence to Keynesian economic theory and second, his inability to be able to countenance anything that went beyond a reform of capitalism.

Galbraith’s view was that where capitalism failed (and he acknowledged that it failed frequently) it was the duty of governments and the ‘public sector’ generally to step in, whether in terms of economic management, regulatory frameworks for corporations, or measures designed to assist the ‘underclass’ of unemployed and unemployables. A consistent thread in all his writings was an overly-optimistic and exaggerated view of the ways in which capitalism can be reformed so as take power and wealth away from the rich and give it to the poor. His views on this had been influenced by his experiences as an economist and civil servant in the wartime Roosevelt administration. Then he had been put in charge of price controls in a period where, due to the central direction needed because of the war effort, the US was the nearest it has ever come to having a ‘command’ style economy. As unemployment and inflation were both low at the time, Galbraith saw this as confirmation of the powers Keynesian ‘demand management’ techniques possessed in dealing with the inefficiency and inequality of unfettered capitalism.

When the economy returned to ‘normal’ in the decades after the war, the supposed benefits of the Keynesian approach soon proved elusive, not just in the US but in other countries too where his advice was sought. And even when the radical Keynesian approach was given explicit government backing and was implemented with some enthusiasm (on the grounds that the patient hadn’t previously been receiving a high enough dosage of the medicine), the results were not encouraging. This was the case across much of Western Europe as well as the US, where prices began to rise alongside increased unemployment.

One of the most notable examples of radical Keynesian failure was in the UK, where in the first two to three years of the Labour government of 1974-9, state regulatory measures generally were increased, a prices and incomes policy was instituted, state borrowing rose to pay for increased government capital expenditure, and the tax system was restructured to disproportionally hit those on the highest incomes. But the result was a near doubling of unemployment and annual price rises at nearly 27 per cent (the latter mainly caused by an over-issue of paper currency not convertible into gold, which became the ubiquitous outcome of the type of lax monetary policy favoured by radical Keynesians).

In this respect, Galbraith is likely to be remembered as an economist who was far more adept at criticising the indefensible than he was at promoting a workable alternative to it. Indeed, it was precisely the failure of his type of Keynesian approach which heralded the return from the 1970s onwards of the free market economic orthodoxy he detested, championed by his sparring partners like Milton Friedman.

Missed opportunity

Unfortunately, the political economist who had a rounded explanation of why the free market does not work, and whose theories indicated why reform of capitalism in the guise of Keynesian economics would be no more successful, was not someone Galbraith was ever attracted towards or studied really seriously: Karl Marx. While Galbraith was capable of making pithy and apposite comments about the Soviet Union – “under capitalism, man exploits man. Under communism, it’s just the opposite” – he never seemed to get too far past the popular prejudice against Marx existing in much of US academia. That so-called ‘Russian communism’ was in reality an extensive and dictatorial form of the type of planned state-run capitalism that he otherwise had a penchant for, in particular seemed to escape him.

In the rather lazy fashion of other American academics he was wont to attribute to Marx views which were distorted interpretations of his theories, such as that capitalism would somehow collapse because of the long-run tendency of the rate of profit to fall, or that the working class in capitalism was condemned to endure conditions of ever increasing misery. This was a shame, because although capitalism is so complex and anarchic that no one individual can attain a perfect insight into it, Marx came a lot nearer than most. The great body of his work still stands the test of time, and far more so than that of either the apologists for the free market or Keynesian interventionists like Galbraith himself.

While Galbraith thought that certain types of capitalism (particularly free-market capitalism) were highly problematic, Marx took a rather different view. This was that it was capitalism itself that was the problem because it was fundamentally based on the pursuit of profit before human needs, was at root anarchic and uncontrollable, and was characterised by class division and an antagonistic system of income distribution that could not be planned or wished away.

It is interesting to look back on the 97 years of Galbraith’s life, and to reflect on the capitalist trade cycle, inflation, the concentration of capital, the nature of commodity production and much more that he addressed. Marx provided a framework that could successfully account for these phenomena while at the same time demonstrating why capitalism can never be reformed so as to run in the interests of the vast majority of its inhabitants. These were insights that Galbraith flirted with but no more, and this was to the detriment of his otherwise urbane and pithy analysis, and most certainly to the detriment of those who lived under the governments he advised.

Dave Perrin

The Importance of Marxism—(continued) (1940)

From the July 1940 issue of the Socialist Standard

Continued from the June 1940 issue.

Thomas Hodgskin was joint honorary secretary of the London Mechanics’ Institute. According to Marx, his writings are outstanding in the realm of economic science. In his work,. “The Natural and Artificial Rights of Property Contrasted,” Hodgskin says: —

  “At present, all the wealth of society goes first into the possession of the capitalist, and even most of the land has been purchased by him; he pays the landowner his rent, the labourer his wages, the tax and tithe gatherer their claims, and keeps a large, indeed the largest, and a continually augmenting share of the annual produce of labour for himself. The capitalist may now be said to be the first owner of all the wealth of the community. . . . The capitalist was originally a labourer, or the descendant of a villein, and he obtained profit on what he was able to save from the produce of his own labour, after he had wrested his liberty from his masters, because he was then able to make them respect his right to use the produce of his own industry. But what he then received, and now receives, under the name of profit, is a portion of the wealth annually created by labour. In fact, the capitalist has obtained the whole of the landlord’s power, and his right to have profit is a right to receive a portion of the produce of the landlord’s slaves.” (PP. 98-99, Steil Edition, published in 1832.)

In another work entitled “Labour Defended Against the Claims of Capital” Hodgskin writes:

   “The capitalists and labourers form the great majority of the nation, so that there is no third power to intervene betwixt them. They must and will decide the dispute of themselves. . . .  I am certain, however, that till the triumph of labour be complete, till productive industry alone be opulent and till idleness alone be poor, till the admirable maxim that he who sows shall reap be solidly established, till the right of property shall be founded on principles of justice and not those of slavery, till man shall be held more in honour than the clod he treads on or the machine he guides—there cannot and there ought not to be either peace on earth or good-will amongst men.” (P. 105, Labour Publishing Co. Ed.)

Like Thompson, however, Hodgskin advocates the establishment of communist colonies with “just exchanges.”

J. F. Bray (1805-1895) is the author of “Labour's Wrongs and Labour’s Remedy” (1839). In this work he uses vitriolic language against what he contends to be the forcible and unjust robbery of the working class. In the opening chapter he writes:

   “Throughout the whole universe, from the most stupendous planet to the individual atom, changes are perpetual—there is nothing at rest— nothing stationary, to affirm therefore that governmental institutions require no reformation—that social systems need no alteration—is just as absurd as to say that the man shall wear the swaddling clothes that befitted his infancy and be pleased in maturity with the rattle which charmed his childhood. . . . What are the working classes of every nation but beasts of burden without hearts and without souls whose doom it is to labour and to die? If they complain of tyranny and dare to resist they are slaughtered like wild beasts. The very marrow of their bones and the life blood of their children is drunk up with incessant toil.” (London School of Economics Ed.)

Bray repudiates any attempt to solve the workers’ problems by reforming Capitalism. His comments in this connection would be very well directed to the Labour Party of to-day.

   "Slavery in nature, if not in name, has ever been, is now, and ever will be, the portion of the working classes in every country where inequality of property exists in connection with the gradation of classes (p. 21) . . . . from this it will follow that the present state of things cannot be remedied unless we change at once our whole social system, for alter our forms of government as we will, no such change can affect the system and no such change can prevent inequality of possessions and the division of society into employers and employed—and therefore as a necessary consequence no such change can remove the evils which this system and this division of society engender." (P. 37.)

The following statements by Bray are humorous as well as fiery:

   “In all civilised communities, as they are called, society is thus divided into idlers and producers, into those who obtain double allowance for doing nothing and those who receive only half-allowance for doing double work." (P. 23.)
   “No other than the present social system could by any possibility create and perpetuate the gross injustice which is now inflicted upon the great body of exchangers—the working class. They form, like their parent earth, a common pasture-ground, on which all crawling and creeping things may feed and fatten." (P. 88.)

Finally, have we not often been confronted with the objection that there will he no incentive to invent things under Socialism? We shall let Bray reply to this point:

    “The inventor will ever receive, in addition to his just pecuniary reward, that which genius only can obtain from us—the tribute of our admiration.” (P. 45.)

Karl Rodbertus (1805-1875) is in many respects a spiritual ancestor of the Nazi “theoreticians," who to-day, prattle so much about “True German Socialism." (Wahrer Sozialismus.) Like the English Utopians, Rodbertus deduced his “Socialism" from the implications of the Ricardian theory of value, but he differed with them in this respect : In his work “Zur Erkenntniss unserer Staatswirtschaftlichen Zustande,” 1842 (On the Explanation of our Economic Position), he maintained that the collective ownership of the means of life was something to be established in five hundred years to come. In the meanwhile, he contended, rent, interest and profit (Rodbertus called all three “Rente”) would still have to exist, but the Prussian State would have to take over the means of life and distribute the products of labour equally among the three classes of the German community. That is to say that for having laboured twelve hours the worker would receive under Rodbertus’s scheme a certificate entitling him to the product of four hours' work, the Junkers and Capitalists receiving the other two thirds. In his “Zweiter Brief an Von Kirchmann" (1850-51, published in English by Swan, Sonnenschein & Co., 1898, under the title of “Overproduction and Crises"), Rodbertus writes:

    “. . . . Present-day society may indeed be well compared to a band of travellers in the desert. Suffering with thirst they find a spring which would suffice to refresh and strengthen them all, but a small number constitute themselves masters of the spring; they grudge giving the majority more than a few drops to quench their thirst; they themselves take long draughts, but the stream flows faster than they are able to drink, and so from satiety and want of good-will they let half of the gushing stream waste itself in the sand.” (PP. 57-58.)

Rodbertus falsely laid claim to be the founder of Scientific Socialism. Engels, however, has aptly categorised him as the “veritable founder of Prussian State Socialism.” In his preface to the second volume of “Capital” Engels says amongst other things:

   “Marx began his economic studies in Paris, in 1843, starting with the prominent Englishmen and Frenchmen. Of German economists he knew only Rau and List, and he did not want any more of them. Neither Marx nor I heard a word of Rodbertus' existence, until we had to criticise in the ‘Neue Rheinische Zeitung,' 1848, the speeches he made as the representative of Berlin and as Minister of Commerce. . . .  On the other hand, Marx showed that he knew even then, without the help of Rodbertus, whence came the 'surplus value of the capitalists,’ and he showed furthermore how it was produced, as may be seen in his ‘Poverty of Philosophy,' 1847, and in his lectures on wage-labour and capital, delivered in Brussels in 1847.” (P. 14, Kerr Ed.)

On page 24 of the same preface Engels continues :

   “Marx stands in the same relation to his predecessors in the theory of surplus-value that Lavoisier maintains to Priestley and Scheele The existence of those parts of the value of products, which we now call surplus-value, had been ascertained long before Marx. It had also been stated with more or less precision that it consisted of that part of the labourer's product for which its appropriator does not give any equivalent. But there the economists halted. Some of them, for instance the classical bourgeois economists investigated, perhaps, the proportion in which the product of labour was divided among the labourer and the owner of the means of production. Others, the Socialists, declared that this division was unjust and looked for utopian means of abolishing this injustice. They remained limited by the economic categories which they found at hand.
    “Now Marx appeared. And he took an entirely different view from all his predecessors. What they had regarded as a solution, he considered a problem. He saw that he had to deal neither with dephlogisticized air, nor with fire-air, but with oxygen. He understood that it was not simply a matter of stating an economic fact, or of pointing out the conflict of this fact with 'eternal justice and true morals,' but of explaining a fact which was destined to revolutionise the entire political economy, and which offered a key for the understanding of the entire capitalist production, provided you knew how to use it."

Marx's “Capital”

In our survey we have ranged over the entire field of political economy prior to Marx. Let us now turn our attention exclusively to the economic writings of Marx himself. We have already indicated (see May Socialist Standard) that the central theme of all political economy is the theory of value. This theory is intended by Marx not merely to solve the riddle of the determinant of prices, but also to reveal the economic law of motion of modern society. Apart from his earlier writings on economics Marx's main works are “Capital," volumes I, II and III, and “Theories of Surplus Value" (three volumes). Only the first volume of "Capital" was published during Marx's lifetime. Volumes II and III were issued by Engels in 1885 and 1894. “Theories of Surplus Value" (Theorien über den Mehrwert—not yet translated into English) were issued by Karl Kautsky, Engels' literary executor. The works published after Marx's death were compiled from his remaining fragmentary manuscripts, and consequently are not so rounded-off as the first volume. Notwithstanding this they remain to this day the most exhaustive scientific analysis of Capitalism that has yet been published.

Solomon Goldstein

(To be continued.)

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

Is Stalin a Marxist? (1952)

From the May 1952 issue of the Socialist Standard

Barbara Ward in “Policy for the West” has examined most of the wishful projects popularised during the last few years by top-level politicians to deal with the “Russian menace.” She is an economist of some note, one among many who, as Marx said, seek to serve the day to day needs of capitalism. In other words, she is concerned to make capitalism work.

Russia, she thinks, will not start a third world war. She doesn't need to, because according to beliefs which the Communists say they derive from Marx, she has only to wait for the breakdown of western capitalism, in the meantime continuing her policy of aggression on the Korean pattern, sowing discord between the western nations wherever possible, and assisting Communist Parties everywhere to achieve power.

But this idea of the breakdown of capitalism in the west—or anywhere else—does not derive from Marx. Such a contingency was never subscribed to by turn. It does not come within the limits of rational thought. Stalin himself, quite obviously, does not think that capitalism will collapse anywhere, or he would not rely on the system to endure while building an industrial empire to rival America. Whatever her ideology may be, Russia's economy is capitalist with the usual set-up of production for profit and a wage-slave class.

Russia's foreign policy is capitalist—grabbing fresh markets, sources of supply of essential materials, and extending her spheres of influence—like the similar policy in the West.

According to Miss Ward containment of Russia is of first importance in the policy of the West. But this must be effected without disrupting the economy of any of the member states, whose armed forces must be sufficiently strong and mobile to deter aggression at any point in the Russian perimeter. They must have a police system that will render each nation proof against spies and saboteurs. And the backward peoples of the Far East must be won for the West by the investment of western capital for their industrialisation.

Lenin once said that imperialism was the highest phase of capitalism. Russia had reached that phase before the outbreak of world war two. During the war she proved herself equal to any of the allies in military strength; and after victory just as rapacious for annexations and reparations.

A nation can only be judged by its policy and its actions, and Russia's policy, including her suspicious peace campaign is based on her needs as a capitalist state. How then, can Miss Ward have been deceived into the belief that Russia is Socialist or, same thing, Communist?

When Charlie Chaplin ((Daily Herald, 25/9/51), was asked if he was a communist he replied, “Communist? I'm a comic! 1 can't understand Karl Marx so how can I be a communist." Nut unlike Miss Ward who accepts the popular notion that Russia is Marxist because Stalin says so, Chaplin sees something of the reality behind the witch-hunt and goes on "Those men down there, they are mad! mad with the lust for blood/ When they talk about communists I don't mind, but I wish they would be honest. They don't hate communists, they simply hate the men who may take their money away from them.''

That is what the Bolsheviks did in 1917. On achieving power they proclaimed themselves the state, nationalised the means of production and distribution without compensation, and acquired almost complete right of exploitation over the Russian workers in industry.

Had Marx lived to-day he would have dissected Soviet capitalism just as ruthlessly as he did its nineteenth century predecessor in Britain. He would have exposed their "democratic ” constitution as a shallow fraud, just as socialists in half-a-dozen countries have been doing ever since its adoption in 1937.

Miss Ward has several chapters on the economic and financial side of the containment policy. The risk of inflation, she says, must be met by increased production and a readiness not to take advantage of the nation's needs by excessive demands for higher wages.

When discussing trade cycles Miss Ward admits that the west has no more guarantee against slumps than it had in the twenties. She does not explain the cause. Apparently the cause is just as much a mystery as it was throughout the 19th century. But she does think that the regularity of the cycles seems to suggest that they are not dependent on "crop failure or technical change.” Nor, to do her credit, does she attempt to revive the theory of sun spots. As for some innate trend in the system that idea she says, came from the communists, who are also responsible for "the innate contradictions of capitalist society” and "the dialectical necessity that produces slump and boom.” Here, of course, was Miss Ward's chance to expose the Communist explanation, expressed by her with a brevity and crudity that divest it of intelligible meaning.

Instead she evades the question of cause by asking “But is there any agreed explanation of the rhythmical nature of the trade cycle?” Replying to her own question, she says there is, and many economists agree with her that it is a question of demand. "The demand for capital goods or for further investment.” But surely investment implies the existence of markets, people with money ready to buy commodities. A few pages previously she had written "Undersupply is not the typical predicament of modern industrial society. It is the insufficiency and the irregularity of demand.”

It would appear that here the lady has inadvertently stumbled on one of those "innate contradictions of capitalist society” i.e., the inability of those who produce all wealth to buy back more than the amount represented by wages and salaries. And the determination of investors not to invest capital unless assured of safe and adequate returns.

Miss Ward aims to kill two birds with one shot. To do so with success they must both be in the line of fire. Hence, to discredit Marxism the Russian set-up is treated by her as either Marxist or derived from Marx. And the failure of Marxism, she alleges, is demonstrated by the concentration camps, bogus trials and mass executions. "It was from the so-called scientific and dialectical socialism of Marx that the idea of complete state ownership as a ‘cure-all’ of economic evils was derived.” Here, she is careful not to impute the statement to Marx. By devious twists anything can be derived: even Russian imperialism as Stalin has shown by his tortuous record on national independence; while his substitution of “work” for “needs” in the Marx and Engels slogan “From each according to his ability, to each according to his needs,” is a complete reversal of the original meaning, and by itself stamps Russia as capitalist and labour-power as a commodity.

In her reckless denunciation of Marx she writes: 

  “Marx himself and Lenin after him did not talk about planning at all, and had no concrete suggestions for controlling the trade cycle or stabilizing world trade. They simply said dogmatically that if the state owned everything, these problems would not arise.”

Marx regarded trade as the capitalist mechanism of appropriation, and division among themselves, of the wealth produced by the workers. He anticipated that knowledge, progressing on rationalist lines would enable them to understand the acquisitive nature of trade, and the repressive function oi the state. Consequently they would organise to abolish both, substituting their own system of common ownership of the means of production and distribution, and establishing democracy on a basis of equality.

By attributing to Marx the statement “that if the state owned everything these problems would not arise,” she displays her ignorance of Marxism and the real function of the state. Irrespective of its origin, the statement itself is absurd. Ownership by the state, i.e. nationalization, either wholly, as in Russia, or in part, is everywhere dependent on trade.

Under the heading “Faith for Freedom,” Miss Ward sets out to vanquish Marxism, using ancient civilizations as a sample of what to expect under communism. She says “It is the tragedy of Marxist communism that it restores the old fetters of fatality and tyranny.” She sees the capitalist epoch since the industrial revolution as a “breath taking experiment in freedom. . . .  A release from the shackles of tyrannical governments.” “We know from man’s long history that the Western experiment of freedom and responsibility is a flash in the pan, a spark in the longest night, an experiment bounded in space and time, and preceded by aeons of collective servitude.” While Communism, she says, “ is to step back into an older environment, to regress,” etc., etc.

There are many pages of eulogies of capitalism and prophetic warnings of man’s debasement by communism. She has visions of mankind under Communism reduced to the “mentality of bees and ants,” controlled by their environment and tyrannical governments. “Behind the concept of the withering away of the state lies not only the loss of freedom, but the loss of rationality and humanity itself.”

The totalitarian form of government is the nearest approach to Miss Ward’s vision of communism, but it is still capitalism. The Bolsheviks saw its possibilities as an alternative after their failure to establish Socialism. Italy and Germany followed the same pattern. While Hitler prophesied that “National Socialism” could serve capitalism for a thousand years, Truman said that an ideology cannot be fought by armed force, forgetting that they had put paid to “National Socialism” by that very means; making nonsense of Hitler's boast by further nonsense.

The difference between East and West from the workers' viewpoint, is that in the West they are free to organise industrially or politically for their own purposes as a class, while in the East they are circumscribed by the state ideology which it is a crime to question.

But the quarrel between East and West is not over democracy. Nor is it a struggle for Socialism; but a struggle for supremacy in a capitalist world. And whichever side wins the workers will still be wage- slaves, submitting in apathy to the growth of the servile state pictured by Miss Ward, or by taking up the thread of human progress, and challenging the right of a privileged class to dictate the destiny of mankind, become responsible for the establishment of Socialism.

The task of utilising and extending all the advantages that have been achieved under capitalism can only be accomplished by those who understand its technical and scientific parts, those who have built it up by hand and brain, and are responsible for the working of the system from day to day, the only useful class; the working-class. That class has only to learn that it can produce and distribute for society far better without the incubus of trade, and without the repressive actions of class government, by their own democratic organisation. Without these encumbrances they could soon be free from the present nightmare of poverty and atom bombs.

F. Foan

Socialism and the Economic "Experts". (1930)

From the March 1930 issue of the Socialist Standard

Many people to whom Socialist teachings seem unanswerable and in every way satisfactory, are still reluctant to accept the Socialist case because they cannot believe that Capitalist theories can be unsound and yet be accepted by so many clever men, economists, financial and industrial experts, professors, scientists, and so on. They ask us how we can be so confident that we are right when so many apparently great economists say that we are wrong.

Our answer is two-fold. We claim in the first place that the only final test of a theory is that it should explain the facts and not be out of keeping with the facts. So, for example, we can quite confidently assert that the various theories which try to prove that permanent unemployment is impossible are shown to be wrong by the facts of permanent unemployment. Secondly, we ask you to remember that great reputations can be, to a large extent, created out of very little substance and that universities and such places, being dependent on the financial support of Capitalist Governments, wealthy companies, etc., do not shower honours on and give prominent posts to men whose ideas clash violently with the accepted ideas of Capitalism.

When we come to examine the theories of the learned men with whom we are especially concerned, the economists, we find that there are one or two facts which alone should justify the abandonment of that attitude of worshipping their declarations as If they were above criticism. Firstly, we observe that these "great” men rarely agree among themselves; secondly, their inability to give useful advice in practical problems is notorious; and thirdly, they themselves on occasion admit the unsatisfactory nature of their whole body of doctrines.

We give below two quotations which illustrate these points. The first is taken from a review, published in the New Statesman, of a recent book by Professor Edwin Cannan, who is one of the most famous of living economists. The book is his "Review of Economic Theory.” The reviewer calls Professor Cannan the "Economic Socrates,” and says :—

  Let no one, then, go to this Review of Economic Theory in the hope of discovering in it new truth of a positive sort. It may help readers to new truth, but only indirectly, through the exposure of old error. This, however, it achieves with signal success. Professor Cannan has no difficulty at all in proving his case that economic theory has been throughout its life, and is still, in a state of deplorable confusion, and that not only do the text-books talk a great deal of utter nonsense, but even the classical practitioners of the art or science are in a terribly muddled condition. His handling of Marshall is as devastating as his handling of Mill; and his comments on Marshall's living disciples are mostly to the effect that they have made the confusion worse. This is a real service; for economics stand in real need of an iconoclast, and an economic Socrates may well be the indispensable forerunner of an economic Plato. (The New Statesman, Oct. 19, 1929.)

Our next quotation is taken from "The Founders of Political Economy,” by Jan St. Lewinski, D.Ec.Sc., Professor of Political Economy in the University of Lublin, Poland. The book was published in 1922 by P. S. King & Son, Ltd. :—

   The Great War has clearly shown of what little use all our economic knowledge has been where most simple theoretical problems had to be solved. When, for instance, the question if after the war the rate of interest will be high or low became acute, writers began to discuss what capital really is, and each gave a different definition and different solutions of the problem. In Germany economic writers of high standing, as, for instance, the Vice-Chancellor and former Professor of Political Economy at the University of Berlin, Helfferich claimed that Germany can wage war indefinitely because “money remains in the country." They imagined that money expended in financing military operations would return in form of war loans, and that this circle could last for centuries. Almost all economists in Germany believed in the truth of this absurd doctrine, and only the University of Breslau, which was a little doubtful about it, organised an inquiry on the subject.
  All the rich economic literature which had been accumulating for more than a century could not afford a solution of a problem which really belongs to the A B C of our science. Could anything illustrate better the deplorable state of political economy? (Page 167.)

The next time somebody tells you that Socialist theory must be unsound because this or the other professor of economics says so, you may reject that the views of these gentlemen on the subject of Socialism would carry more weight if they had first succeeded in reducing to order the chaotic jumble of theories which make up their own department of study.

Edgar Hardcastle

The British Economy: It was all K's fault . . . (1974)

From the April 1974 issue of the Socialist Standard

Professional politicians never confess. When, after years in office, they are thrown out by disgruntled electors they never make frank admission that the mess they leave behind must have been their fault. Instead they blame it on the Opposition, or the trade unions, or the cantankerousness of foreigners or on the bad advice given to them by their advisers, the top civil servants and economists.

In this the politicians differ from the economists because quite a lot of the latter have recently been confessing that they were wrong. The difference, however, is not great because what the economists are doing is to blame it all on Keynes.

For most of them, Keynes was the New Messiah. Did he not show them how capitalism could be managed, how unemployment could be abolished along with crises and depressions? not forgetting that Keynes was supposed to have proved Marx wrong about capitalism.

What most of all created doubts in their minds about Keynes was the way “full employment” policies failed to prevent unemployment rising by hundreds of thousands, first under the last Wilson government and then under the Heath government which came into office in 1970.

Faced with the rise of the registered unemployed to over a million in the spring of 1972, a Financial Times editorial threw Keynes overboard:

  Both the Treasury and the House of Commons Expenditure Committee were united in the assumption that unemployment could be determined by demand management and exchange rate policy at almost any figure the government regarded as prudent. But in so doing they were reflecting an orthodoxy, which may be as out-of-date as the opposite orthodoxy against which Keynes was battling in his lifetime.

(22nd Sep. 1972)

But if the economists abandoned Keynes entirely, what could they put in his place? So the line taken by many of them is to try to re-arrange the pieces and build up variations on the old “Keynesian orthodoxy”.

Cambridge, Oxford and Edinburgh Universities have all joined in an involved controversy about the advice given by The Times to the Chancellor of the Exchequer for the next Budget. It led Professor Little of Oxford to accuse Professor Neild of Cambridge of “Keynesian orthodoxy”, to which Neild wrote a reply (Times 26th Feb.) which contained the following:

   I and a number of my colleagues at Cambridge believe that the orthodox view, to which many of us used to subscribe, is wrong and that its application in policymaking has been a major cause of Britain’s post-war economic troubles.

Professor Little had already concurred with this: “At any time between ten and twenty years ago, I would, if asked, have agreed to sign this part of Professor Neild’s letter” (Times, 6th Feb.).

From all of which we gather that the professional economists went on for years recommending policies which they now confess were “a major cause of Britain’s post-war economic troubles”. It will be noticed, not a word of regret and remorse.

And of course they are still wrong. Capitalism, with or without the advice of orthodox or neo-Keynesians, or Milton Friedman or Galbraith or any other economist, never did operate and never will operate in the interest of the working class.

Edgar Hardcastle

Understanding the British Economy (1988)

Book Review from the October 1988 issue of the Socialist Standard

Understanding the British Economy by Peter Donaldson and John Farquhar (Penguin Books £4.95. 318 pages)

The authors, in their preface, explain that while the book is intended for the general reader they hope that it will be of particular use to students of economics at lower and higher levels. As a source of information the book serves that purpose well. It tells what has happened over a number of years to production, prices, wages, imports and exports, investment, unemployment and so on together with an account of government policies, backed up with a large number of tables and diagrams.

The authors decided that supplying this statistical information is not enough: "This would make very little sense . . .  if there were no explanations of the underlying concepts of economics and no consideration of the economic theories in which they appear". So the book describes, for each problem, the different explanations as to its cause and the remedies put forward by different economists and political parties to solve it.

Economists do not often agree with each other about any economic theory. A rare exception was the body of doctrine put forward by J.M. Keynes. Most economists became Keynesian and in 1944 all the three parties in the wartime government — Tory. Labour and Liberal — agreed on operating a policy of "full employment" after the war. It did not last. The Keynesians had two policies, one for creating full employment, the other for preventing inflation. The first policy was to run a budget deficit, that is for the government to spend more than it raised by taxation and meet the rest out of borrowing. The second policy was to run a budget surplus, that is for the government to raise by taxation more than is spent and to use the surplus to pay off national debt. But what was the Callaghan Labour government to do in the years 1974-7 when unemployment and prices were both shooting up at the same time? They threw Keynes overboard and adopted that other spurious doctrine, so-called "monetarism" On this issue and on others where there are conflicting theories, the student has to decide for him or herself which is correct. not forgetting that they may all be incorrect.

Unemployment and inflation are cases in point. There are two opposite theories, both with a long history. One is that it is high prices which cause mass unemployment. In recent years this has been a constant theme in speeches by Thatcher and her ministers. The remedy, she says, is to get prices down or at least stop them going up. The opposite theory, held by many members of the Labour Party, was stated long ago by Pethick Lawrence, a minister in the Labour government in 1931, when they were faced with a huge rise in unemployment.

   I regard it as indisputable that unemployment, as it has existed in the world in recent years, is due to falling prices and that falling prices are the direct outcome of monetary policy and that unemployment is therefore without doubt a strictly monetary phenomenon.

That government's remedy was to get prices up again; they favoured inflation. The truth is that capitalism periodically produces mass unemployment whether prices are stable (as in the Great Depression 1875-1895) or falling (as in the depression of the 1930s) or rising (as in the depression of 1979-81).

What causes inflation? Why is it that for a century before 1914 prices were stable while in the half- century since 1938 prices have gone up each year and are still going up? The authors describe some of the theories (pages 92-5). One is that if wages go up prices are bound to go up also. The experience of the years 1870 to 1914 shows otherwise. On average wages rose by 42 per cent but prices did not rise at all. They went down by 10 per cent. An inflationary rise of prices is caused by an excess issue of currency (notes and coins). Prices were stable in the 19th century because the Gold Standard prevented an excess issue of currency, as was explained by Marx in Capital Volume I (Chapter III. section 2C).

The authors state (page 93) that the 19th century theory that inflation is caused by "too much money" has been revived in the guise of "monetarism". This is not correct. Gold standard theory and practice dealt with "money", meaning only notes and coins. The modem "monetarists" deal in what they call money supply" which includes bank deposits. All of the several "money supply" indicators published by the Bank of England include bank deposits and in all but one of them the bank deposit element predominates.

Modern "monetarist" theory is based on a fallacious doctrine that the price level is wholly or mainly determined by the banks, through their lending operations. This was stated and accepted by the monetarist Milton Friedman in Free to Choose (1979. p.298). Ironically, since the popular view is that Keynesians and monetarists are in conflict, it was stated and accepted by Keynes in his Monetary Reform (1923. p. 178).

The last time the government used Gold Standard practice to halt inflation was in 1920 when the Bank of England was ordered to operate a policy of restricting the amount of currency in circulation. Millions of pounds of notes were burned, and the total of currency was heavily reduced. The result was that prices fell by 36 per cent between 1920 and 1925.

At any time in the past 50 years the government could have halted inflation by the same method. Instead they have chosen to increase the amount of notes and coin in circulation from £442 million in 1938 to over £14,000 million, an increase far in excess of what might have been called for by the growth of production and population. So that the price level is now about 23 times what it was in 1938 and is still rising. Responsibility for inflation rests with successive governments, Labour and Tory, and with no one else. It suits the interests of borrowers, and as the industrial and commercial capitalists are the chief borrowers, they have never put up really serious opposition to it.

Edgar Hardcastle

Marx and vulgar economics (1987)

From the March 1987 issue of the Socialist Standard

For Marx the social reality that lay behind capitalist production consisted of more than just prices and quantities. The publication of Capital in 1867 was Marx's own unique contribution to this more detailed study of commodity production. The result was the systematic discovery and critique of the laws of capitalism: the economic relationship between capital and labour; the basis on which the product of labour takes the form of a commodity and the underlying contradictions which cause the system repeatedly to pass through periods of boom, crisis and slump. In other words Marx stripped away the surface appearances of capitalist production to show that the central feature of the system was the economic exploitation of the working class during the process of production itself. In so doing he highlighted the parasitical nature of the capitalist class and their ever-increasing historical irrelevance to a point where today the very system of commodity production acts as an obstacle to a more rational organisation and development of society.

Consequently Marx had little time for those economists of his own day who deliberately set out either to defend capitalism or to rectify its inherent contradictions by means of various palliatives or reforms. The footnotes to Capital are strewn with vitriolic comments and side remarks against the leading economists of the 19th century, whether they were "mere sophists and sycophants of the ruling-classes" or the "shallow syncretism" of men like John Stuart Mill.

But it was the "herd of vulgar economic apologists", like Bentham and Malthus, whom Marx particularly singled out to attack. As he wrote in an earlier work:

Their object is rather to represent production in contradiction to distribution ... as subject to eternal laws independent of history, and then to substitute bourgeois relations, in an underhand way. as immutable laws of society in abstracto. (Grundrisse, pp.26-32).

Since his death, what has passed for twentieth century economics has generally followed the vulgar economist trend of the preceding century. There seems to be a Bentham or Malthus born every generation. The so-called leading economists of this century — Keynes, Hayek, Galbraith, Friedman and now Buchanan — have all written works either justifying the principles of the free market or offered "solutions" to capitalism’s periodic upheavals. Divorced from the real world of working-class experience, these economists have only ever concerned themselves with fiscal studies, profits, competition. markets and consumers. They have drifted aimlessly from one crisis to another, unable to understand the very system they purport to defend. Even though they use sophisticated mathematical analysis, statistical data and computer modelling of the economy, it does not make their theories or pronouncements credible, correct or scientific. On the contrary they are in a similar position to the eccentric mysticism of the alchemists during the Middle Ages, forever reformulating the same impotent propositions in an ever more incomprehensible language.

However, the utter failure of twentieth century economics to address the real problems of people’s day-to-day needs throughout the world has not seemed to deter the publication of one new economic theory after another. Each new theory — and there seems to be a pet economic theory for every professor living or dead — is offered up as some universal panacea for the continuing waste, poverty and occasional deliberate under-production that characterises capitalism. Some theories remain unread, just left to gather dust on some academic library shelf, while others have been dissected or watered down to suit the immediate pragmatic or ideological needs of successive governments as they have struggled to administer the economy. In the same way that clothes or pop stars come in and out of fashion so too do the ideas and personalities that abound within the Alice in Wonderland world of vulgar economy. Keynes’ theories, no longer fashionable as a useful political dogma, have been largely abandoned by economists and politicians alike in favour of the more entrenched anti-working-class doctrines of Milton Friedman or Friedrich Hayek.

If it was not for the economic crisis during the 1970s Friedman would most probably have spent the remainder of his life offering advice to capitalists living in and around Chicago; but with the almost universal rejection of Keynes, Friedman and his monetarist doctrines were adopted to fill the void in government economic policy. But monetarism did not help solve the problems facing governments and it certainly had no bearing on the unemployed. But then Friedman has no interest in the working class; they do not pay his salaries or buy his books. The revival of 19th century economic liberalism spearheaded by Hayek is the latest economic fashion. Hardly a day passes without one of the master's disciples claiming on the television or radio, that the whole business of buying and selling will create some form of capitalist Utopia. Indeed Hayek's rise to stardom has been as rapid as Keynes' was during the late 1930s. From power centres such as the Adam Smith Institute, the Institute of Directors and from economics departments such as the LSE and Liverpool University, these market anarchists preach the Hayekian virtues of an “entrepreneur-led and market-driven society".

Although Hayek has been around for a long time the idea that capitalism works in terms of efficient production and distribution of wealth is even older. However, we have just to consider capitalism from an historical perspective in conjunction with our day-to- day struggle to realise that the claim made by Hayek and his disciples is wrong. Capitalism has never worked in our interests, with or without government interference. It is incapable of satisfying human needs while at the same time producing for profit. Throughout their writings the market anarchists seldom mention the millions who die of hunger, nor the increasing concentration of wealth in the hands of a few privileged social parasites. They are also quiet, to the point of dumbness, on the deliberate under-production of foodstuffs to maintain profits as they are about the burning of wheat or fruit because there is no market for it. As the pamphlet A World of Abundance, produced by socialists in Canada, stated:

Socialists are hardened by now to meeting the opinion that the system of production for profit is essentially sane and efficient. The opposite is true; . . . capitalism wastes its wealth and its abilities. The profit motive cannot work efficiently. Capitalism cannot cater for the needs of its people. It produces waste and it produces want and both are profitable only to the minority who hold positions of privilege.

Marx did not write for academics but for the working class. He wanted us to understand the system that to this day enslaves us and to use his works in our continuing class struggle. Hayek will become unfashionable as quickly as he became fashionable; not so Marx, whose relevance will remain until that day when the working class finally capture political power and democratically establish socialism.

Richard Lloyd 

Keynes’s World (A Capitalist Utopia) (2006)

From the October 2006 issue of the Socialist Standard

Maynard Keynes imagined a society that would be centred on the pursuit of enjoyment rather than accumulation, but like other reformists he couldn’t fathom a future without money and commodities.

Markets, profit, money, and private property seem as natural as the air we breathe to most people. Like Adam Smith, they believe that the “propensity to truck, barter, and exchange one thing for another” is an aspect of our human nature. So it is naturally assumed that commodity exchange will continue to exist in the future, and that the only realistic way to overcome the problems we face is through a reform of capitalism. This is the “common sense” of today. And from this perspective, socialists appear to be unrealistic dreamers.

Certainly, socialists do dream of a new form of society, but our conclusion that fundamental social change is necessary is based on an understanding of today’s reality. We know from experience and study that the serious problems which humanity faces, such as poverty and war, arise naturally from the capitalist system itself. History also teaches us that other forms of society have preceded capitalism, so this system is neither eternal nor rooted in “human nature.” And we also have an idea of how to achieve socialism by means of a revolutionary political movement.

The aim of this article, however, is not so much to refute the claim that socialists are unrealistic, as to throw this same criticism back at those who believe capitalism will somehow work out its problems in the future. This reformist view, quite frankly, is a daydream. To concoct their capitalist utopia, reformists have to overlook the nature of capitalism as a class-divided system of production for profit, not to mention the fact that profit stems from surplus value obtained from workers.

The unreality of the reformists’ standpoint becomes clear if we look at any of their depictions of a better future under capitalism. The view of the economist J.M. Keynes seems as good as any to consider, particularly since his stature has been high (at times) among both capitalists and self-styled leftists.

Keynes’s prediction

In a 1930 article entitled “Economic Possibilities For Our Grandchildren,” Keynes predicts a far better world in a hundred years. He does not attach any label to his future society circa 2030, but it is said to be a world where the “economic problem” has been solved. This is defined as the problem of scarcity, which he describes as the central economic problem that has confronted humanity throughout history. Overcoming scarcity will mean that people’s “absolute needs” (as opposed to subjective needs) are fully met.

The solution to the problem of scarcity, Keynes says, is a continuation of the capital accumulation and technical innovation that have been raising the standard of living since the dawn of the “modern age” (capitalism) following centuries of stagnation. He views capital accumulation in material terms, noting that if capital increases at two percent a year, “the capital equipment of the world will have increased by a half in twenty years, and seven and a half times in a hundred years.” He encourages the reader to “think of this in terms of material things — houses, transport, and the like.”

This steady capitalist growth is the basis for Keynes’s bold prediction that the standard of life in “progressive countries” in a hundred years’ time “will be between four and eight times as high as it is to-day,” even adding that it “would not be foolish to contemplate the possibility of a far greater progress still.” Expressed in qualitative terms, he says that once economic scarcity has been overcome, we will be able to “devote our further energies to non-economic purposes.”

What scarcity?

Before further examining Keynes’s solution to “economic scarcity,” it is worth considering whether scarcity, at least as he understands it, is indeed our main problem.

Keynes is hardly alone in raising the problem of scarcity. In a popular university textbook by Harvard professor Gregory Mankiw, who chaired the Council of Economic Advisors under George W. Bush, students are informed on the very first page that, “Scarcity means that society has limited resources and therefore cannot produce all the goods and services people wish to have+a society cannot give every individual the highest standard of living to which he or she might aspire” (Principles of Economics).

Here this problem of scarcity is both an explanation and a justification for why some people have a less than ideal life. But if society’s resources are so limited, how can the rich (like Mankiw himself), and the ultra-rich, justify their own disproportionate consumption? The fact that a single individual, Warren Buffett, has 35 billion dollars on hand to donate to a charity run by another multi-billionaire, suggests that the “scarcity” some of us face does not stem from the limited resources of society.

The fact that the economic scarcity of certain individuals is an artificial condition, related to class divisions, should have been perfectly clear to Keynes. Already a century earlier, the Swiss economist Sismondi had been shocked to see first-hand how miserable workers in England were despite the tremendous advances in the output of production. The artificial nature of “scarcity” under capitalism becomes even clearer during a crisis, when factories remain idle because production is not profitable and commodities rot on shelves for a lack of customers.

Keynes wrote his article at the outset of the Great Depression, so he could not completely ignore the mass unemployment of the time. Yet, in his article, unemployment is dismissed as “growing-pains from over-rapid changes” or a “temporary phase of maladjustment.” He was confident that in the long run things would work out, which is a bit rich coming from a man who reminded us that “in the long run we are all dead.” Today, more than 75 years later, these growing pains continue. The “scarcity” resulting from unemployment seems unlikely to end any time soon.

Keynes’s way of framing the problem in terms of scarcity, and finding the solution in increased production, only makes sense if it is assumed that we are already dealing with a socialist society. That is, in socialism, where there is social ownership of the means of production and the aim of production is to directly meet human needs, any expansion of material production or increase in labour productivity would potentially raise the standard of living for every member of society.

Things are a bit different under capitalism. We know from experience, for example, that the introduction of new technologies or increased productivity will not necessarily result in a shorter working day or improved standard of living. This seemingly illogical state of affairs is not surprising when we consider that technical improvements are only made to gain a competitive advantage that will result in higher profits.

Keynes chooses to ignore the obvious fact that the pursuit of profit underlies technical innovation, making it seem instead as if every increase in production under capitalism will directly raise the standard of living for the population as a whole, bringing us that much closer to the end of scarcity.

Neighbourly thinking

How will we know when economic scarcity has become a thing of the past? Keynes writes: “The course of affairs will simply be that there will be ever larger and larger classes and groups of people from whom problems of economic necessity have been practically removed. The critical difference will be realised when this state of affairs becomes so general that the nature of one’s duty to one’s neighbour is changed.”

He argues that the number of affluent members of society will increase to the point that people’s way of thinking changes. Instead of being “economically purposive” (selfish), people will be generous towards each other. It is not at all clear, however, how “general” this state of affairs will have to be for a magical transformation in consciousness to take place.

The absurdity of Keynes’s dream speaks for itself. Why would a person suddenly begin acting in a neighbourly fashion one day, if the competitive system that had fostered his avarice were still very much in place? Moreover, it takes considerable wealth today for a person to be able devote his or her “energies to non-economic purposes.” And even those able to retire from the business world, to engage in philanthropy and the like, appoint other “economically purposive” characters to manage their affairs. At any rate, few people are satisfied even after their “absolute needs” have been met, and most seek to accumulate a bit more just to be on the safe side. It should be obvious that the general way people think and behave will only fundamentally change once we are free of the insecurity that the competitive capitalist system breeds.

To his credit, Keynes does seem a bit disgusted by the selfish way people act under capitalism in its present form. But in a strange twist of logic, he argues that selfish behaviour will some day set us free from selfishness. In fact, he warns us not to start acting too generous, too soon: “But beware! The time for all this is not yet. For at least another hundred years we must pretend to ourselves and to every one that fair is foul and foul is fair, for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer. For only they can lead us out of the tunnel of economic necessity into daylight.” Apparently, the road to paradise is paved with bad intentions.

“Economic bliss”

Keynes’s depiction of what he jokingly refers to as “economic bliss” is very brief, but he does manage to effectively contrast the stunted nature of present-day life with a far more civilised existence in the future. He notes, for example, that people will begin living for the sake of enjoying the present, rather than endlessly accumulating for tomorrow. Instead of the fawning over the rich, people would value those “who can teach us how to pluck the hour and the day virtuously and well, the delightful people who are capable of taking the direct enjoyment in things.”

Keynes also points out that even after we are free of economic scarcity, many people will have a strong desire to work. He suggests, for instance, “three-hour shifts or a fifteen-hour week” would probably be “quite enough to satisfy the old Adam in most of us!” It is not clear whether this work is actually necessary, or just a way for people to occupy their time, but Keynes is right to suggest that work can be a source of human satisfaction (if taken in the proper dosage), which refutes the idea that no one would bother to work in socialism.

Compared to the joie de vivre that characterizes life in his future world, Keynes says that today’s love of money “as a possession” would seem a “somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease.” And he looks forward to the day when “all kinds of social customs and economic practices” that are “distasteful and unjust” can at last be discarded. Although, true to form, he feels obliged to remind us that such habits are “tremendously useful in promoting the accumulation of capital,” which is his motive force of history.

Many of Keynes’s observations, ironically enough, are applicable to life in socialism, but his clear assumption is that the system of production from the days of economic scarcity remains more or less intact. Even though money will no longer be loved as a possession, it will still be cherished “as a means to the enjoyments and realities of life.” In other words, people will still have to pay for whatever they consume. This naturally means that products are produced as “commodities” for exchange, and therefore the means of production are in the hands of private individuals or groups of individuals. Keynes even admits that there will be people in the future with “intense, unsatisfied purposiveness who will blindly pursue wealth,” although he assures us that we “will no longer be under any obligation to applaud and encourage them.”

In short, Keynes looks to a future where people are generous and enjoy life to the fullest even though production is carried out with profit in mind and money still makes the world go round. To which socialists can only respond: Dream on!

Michael Schauerte