The capitalist and his case. (1925)

From the April 1925 issue of the Socialist Standard

The Socialist argues that in the typical capitalist industry of the twentieth century, the proprietor or proprietors have degenerated into mere receivers of dividends, and are therefore no longer a necessary part of the organisation for producing and distributing wealth. This does not involve any condemnation on “moral” grounds either of the system or of the capitalist class, nor does it prevent us from recognising the great historical role played in the past by the revolutionary capitalists when they struggled to clear Europe of the encumbrance of decrepit Feudalism. But the capitalists, like their Feudal predecessors, have overstayed their welcome, and the duty falls upon the workers of preparing for further progress by removing the encumbrances of this age and generation.

There is no lack of capitalist apologists willing, and in their own opinion able, to justify the system and the privileged position of those who benefit by it. Let us then examine some of the more familiar arguments.

First of all, there are those who tell us that the capitalist works just like any member of the working class and that his income is as much “earned” as are the worker’s wages. If this were true, it would not justify the enormous inequality between the one income and the other, and would not explain how it is that the capitalist is frequently able to live in luxury and yet increase his wealth, while the worker has barely sufficient to live in modest comfort and can usually save nothing at all. In fact, it is not true, except in small concerns and in certain unimportant industries, where the small concern still holds its own. In large-scale industry the shareholder does not work. The ordinary shareholder is not even permitted by law to interfere in the conduct of the limited company in which he invests his money. No one would be more surprised than the investor in railway stock if it were suggested to him that he take his turn along with porters or cleaners on the line. He probably knows and desires to know nothing about the unpleasant processes associated with the running of “his” business. It is absurd on the face of it to suppose that investments made thousands of miles away from the residence of the investor, yield an income because of the work done by the investor. When financial failures and frauds bring into court such men as Bevan, of the City Equitable, no surprise is felt when a managing director declares that he is ignorant of managerial duties and pays someone else—a member of the working class—to perform them in his name. This brings us to a special type of work concerned with organising production. Our apologist says that, while it may be true the capitalists do not nowadays actually work alongside their employees, they still provide the brains and directive ability.

This claim is, of course, as false as the other. Granted that some men have organising powers approaching genius, and that some of these men happen to belong to the employing class, it is a sheer physical impossibility for, say, the late Hugo Stinnes to organise and direct literally hundreds, of concerns of the most varied nature operating in all parts of Central Europe and with world interconnections employing a million and a half hands. To master all the technical processes of one of the industries would more than tax the powers of any man. Moreover, if so much depended on the brains of the proprietor, his removal by death would—but does not—bring chaos. It does not, because salaried officials (members of the working class) can and do master the specialised work of direction just as they do any other trade. So plain is this that one of the most noted defenders of capitalism, the Austrian economist, Bohm-Bawerk, readily admits it. In his “Capital and Interest” (Macmillan, 1890, page 1) he writes about interest on invested money in the following terms :—

  “It owes its existence to no personal activity of the capitalist and flows in to him even where he has not moved a finger in its making.”

He further asked, but never answered, the question, 

  “Whence and why does the capitalist without personally exerting himself obtain this endless flow of wealth?”

When it is argued that the capitalist owes his superior position to his superior brains, we would also like to ask one question : If it is his brains and not his property which make him privileged, and in view of the fact that his brains will remain at his service, why does the property owner so strenuously resist attempts to take his property from him? The apologist often assures us that even under Socialism we could not keep the brainy capitalist down in the ranks of the common herd, but his determination not to take the risk gives the lie to his words. A recent illustration will help to drive home the absurdity of this position. A New Yorker named Suydam was left 50,000 dollars by his father fifty years ago. Last year he died worth 1,000,000 dollars, and for the whole fifty years Mr. Suydam lived in a lunatic asylum, mentally unable to direct his own or anyone else’s affairs. Whence then this increase of 950,000 dollars? Labour, directive ability, of course. But whose labour and whose directive ability? Not Mr. Suydam’s, but those of the workers employed in concerns in which Suydam, Senior, had invested the money.

Then we are told that the capitalist “saves,” and thus makes future production possible. In answer, we cannot do better than quote Sir W. Ashley, a Conservative historian and economist of note :—

  “Senior, in 1835, introduced the term “abstinence,” as more fitly expressing the source of capital. . . . He characterised abstinence as implying “self-denial,” and declared that “to abstain from the enjoyment which is in our power” is “among the most painful exertions of the human will.” Phrases like these have occasioned no little mirth; it is hard to discover self-denial or parsimony as the world understands those words, in the processes by which modern capital is most largely accumulated.”—(Economic Organisation of England, p. 157.)

Under Socialism provision would naturally be made by society as a whole for future developments of plant, etc., instead of, as now, handsomely rewarding a favoured few because they cannot consume or waste the whole of the proceeds of their robbery of the wealth producers.

The greatest and most impudent stand-by of the capitalist economist is the “risk,” which needs to be paid for. The very real risks from industrial accident run by miners, and railwaymen and others count for nothing in this argument. They were in the past permitted to occur without any penalty for negligence or liability for compensation resting on the employer, until it was found that this was really an expensive method, despite its appearance of cheapness. Throw-outs on the industrial scrap heap simply became burdens on the Poor Law, and in the long run prevention was cheaper than indifference. Thus do our masters make a virtue of their meanness and boast of their humanity when their pocket induces some capitalist reform. But the capitalist is supposed to run the risk of losing his capital, and this is said to justify his being paid his profits. Now what is the basis of this argument? The Socialist replies that it is merely a man-made law which protects capitalist private property, and we propose, of course, to terminate such laws when we control the machinery of government. The capitalist, on the other hand, says, or at least believes, that we are here concerned with some law or vital principle of nature in accordance with which risks are rewarded. This is nonsense. The man who jumps off Waterloo Bridge runs the risk of being drowned. Does he for that reason anticipate being rewarded by Nature? If he selected the Monument he would run the risk (so great as to be almost certainty) of breaking his neck. Would he expect some compensation commensurate with the risk? And to come nearer to the actual conditions of industry, compare two possessors of £10,000; one of whom invests his money in some safe stock, Government Loan, for instance, while the other keeps his at home. The latter would run great risk from burglary, while the former would run no appreciable risk of loss at all. Yet at the end of a year the man who risked nothing would be wealthier by the amount of the interest, and the man who risked much would be no better off. Capitalist practice disposes of the risk theory.

We are also told that the capitalist advances capital to the worker over the period which passes before the product of the latter’s labour is completed, and thus the capitalist aids production and earns his reward. But here again capitalist usage refutes the argument. It is customary for weekly, monthly and even many yearly contracts to be so framed that the workers do not receive their pay until after they have put in their agreed amount of work. In truth then it is the worker who advances his service to his employer. And, moreover, how does the capitalist himself live in the meantime, except on the food, clothing, etc., produced by the labour of other workers?

A defence of private property of which we still occasionally hear is that it is a “Divine” institution and must not be touched. We might be more ready to believe that those who use this, do so sincerely, if they demonstrated their confidence in their “omnipotent God” by trusting him to look after his own. Instead they behave just like any non-believer and employ policemen, soldiers and sailors to protect their property for them. We are compelled therefore to assume that this relic of a day when religious “dope” was more effective than now, is intended to deceive the unwary.

A whole tribe of defenders of private property concentrate on the alleged social virtues which with culture and learning are the monopoly of a leisured ruling class. The argument fails for three reasons, if for no others. In the first place the monotonous series of disclosures in the law courts of the filthy intrigues and low standards of the “upper ten” do not bear out the assumption that leisure to cultivate necessarily results in cultivation of social virtues. In the second place neither learning nor artistic achievement and appreciation are by any means confined to the wealthy, in spite of certain decided advantages they enjoy. And lastly there is no such thing as an hereditary and exclusive ruling class. Every revolution in industrial processes brings some new section of property owner to the fore and the blue-blooded and effete aristocrat of one century is invariably the descendant at a few removes of the upstart new-rich of the century before. What education and surroundings can do for the few we propose to make possible for the many.

These and other futilities produced by the profound thought of professors of economics are the kind of thing they offer in the name of economic science. The stagnation of economic thought is due largely to the necessity felt by university lecturers of pleasing those, whether Governments or private companies, who endow these “educational” establishments. The stagnation was foreseen by Marx, whose work they all agree to decry (the only thing they can agree upon), and their capitalist bias was admitted in a letter to “The Times" (March 11th) by E. J. P. Benn, a publisher of economic works. He writes of Cannan, Mallock, H. D. Henderson, etc., as “writers whose object is the defence . . . of the existing order of things.”

Their inability is well illustrated by the consequences of the recent war. All the economists of Allied and Central powers were quite unable to forecast in even the most elementary way the effect of war on prices, production, currency and trade. Even now, seven years after the Peace, when the gold standard is returning to Europe, they still have not made up their minds whether it was ever necessary to depart from it. They have not even been able to agree on an explanation for the rise of prices. The capitalists who imagine that social progress will cease at the strange medley of commands issuing from the professors are in truth relying on a broken reed.

Edgar Hardcastle

Cooking the Books: Iron asteroids and golden meteorites (2020)

The Cooking the Books column from the April 2020 issue of the Socialist Standard

‘Iron asteroid that can make us billionaires’, read the headline in the Times (6 March), explaining:

  ‘Somewhere far away hurtling through space is a giant ball thought to be made from enough metal to make everyone on Earth a billionaire. (…) American scientists have said that the body, probably once the core of a planet, contains iron worth £8,000 quadrillion. A quadrillion is one followed by 15 zeros. Shared among the world’s nearly eight billion people, this would amount to about £1 billion each.’

Actually, the asteroid is currently worth nothing as its iron is not available for human use, but even if it were to be brought to Earth it would be worth nothing like that amount.

This is because the value of items of wealth produced as commodities, i.e., for sale, is determined by the average amount of labour that has to be expended under average conditions to produce it from start to finish; or, more accurately, to reproduce it, as, if this average falls for newly produced items, then it falls too for all previously produced ones.

In his pamphlet Producers and Parasites John Keracher pointed out:

  ‘Gold as dug out of the mine has a value the same as other metals have a value and for the same reason. They are all repositories of human labor. More labor is required to get an ounce of gold than an ounce of iron. If gold were as plentiful as iron or coal, requiring the same amount of labour to produce as these two commoner minerals, gold would be just as cheap.’

Eugen von Boehm-Bawerk, a nineteenth-century Austrian economist, tried to refute the Marxian labour theory of value by invoking the example of a ‘gold lump which falls down on the parcel of a landed proprietor as meteor’. This lump of gold, he claimed, would have value, the same as that of other lumps of gold of the same weight, without having been the product of any human labour.

Louis Boudin replied in his The Theoretical System of Karl Marx:

  ‘Its value, like that of all commodities, is the socially necessary labor that must be spent on its reproduction. The clouds not being in the habit of showering gold on us, and the necessarily prevailing method of obtaining gold being by spending labor on its production (…), this gold, if wasted as suggested by Boehm-Bawerk, could not be obtained again from the clouds, but would have to be produced by labor’ (p. 110).

On the other hand, if golden meteorites should become a regular occurrence, the value of gold would fall, from the cost of mining it to the cost of collecting the meteorites. This is what would happen to the value of iron if the asteroid could somehow be brought to Earth. The cost of producing iron would fall to the cost of chipping it off the grounded asteroid. This would be considerably less than the value of iron today and so considerably reduce the worth of the asteroid.

So, everyone on Earth would not become a billionaire. That assumes that the value of the asteroid would be shared evenly amongst the world’s population, which of course it wouldn’t be under capitalism as the asteroid would be the private property of some rich individual, corporation or state. But it would also be impossible because capitalism is based on there being a propertyless class obliged to work for wages and, if we were all billionaires, who would do the work of keeping society going?

Marx's Labour theory of value (1980)

From the April 1980 issue of the Socialist Standard

Take the theory of water motion. We pipe water, we regulate its flow differently in ordinary wells, in artesians, springs, etc. Is the theory of the flow of water explained by listing the specific bores, drills, pumps, and pipes? No. There is an abstract physical theory of the flow of all water, the science of hydraulics, and this abstract theory ignores the individual forms of the motion of water, describes no particular form of water whatever, and describes no actual phenomenon exactly as it takes place. But its theory describes them and its laws govern them and unless we have this abstract theory we have no means of understanding anything. And this despite the fact that water is abstractly described and yet, in practice, it is always concretely availed of.
    We ask how and where does profit come from? From surplus-value. And that? From labour-time. And how does it flow? Through pipings composed of constant and variable capital. And how is it sprinkled or flushed throughout the economic system? As an average rate of profit. But the law of the composition and flow of value, like that of the composition and flow of water, is the same throughout. If you cannot correlate all the forms of conducting and utilising water exactly in conformity with the governing theory of hydraulics, that unfortunately is the nature of the world we live in and no one can transcend it, not even Böhm-Bawerk.
     That no science is capable of application to every permutation and combination of circumstance, under the exact application of theory, is the weakness of man's mind, of his perception of the world. Is that a reason for repudiating science? Then all political economy (and all knowledge) is equally threatened. We abstract from a hundred appearances to get one common explicatory factor.

[from Elements of Marxian Economic Theory and its Criticism by William J. Blake]

Karl Marx and his critics: Do profits grow on thistles? (1928)

Book Review from the January 1928 issue of the Socialist Standard

“The Economic Theory of the Leisure Class," by N. Bukharin, (Martin Lawrence, 7/6 net.)

Since the days when Marx analysed the Capitalist system of producing and distributing wealth, laid bare the secret of value, and demonstrated how surplus value is obtained, the agents of the master class have been engaged in numberless attempts to “explain” why the Capitalist is entitled to his profits. A legion of Professors of Political Economy have entered the lists against Marx, with disastrous results to themselves. Journalists and publicity writers have tried their hands where the experts have failed, with even more lamentable results.

One of the most boomed of the Marxian critics, whose general work on Economics ranks, perhaps, higher in Capitalist estimation than that of any other economist of modern times, was Böhm-Bawerk, head of the “Austrian” School of Economics. He was not only a Professor of Economics, but also Austrian Minister of Finance for some time. Thus, to his theoretical knowledge lie added experience of practical affairs, and this would lead one to expect in him a most formidable opponent. Many years ago he loudly proclaimed the discovery of a “great contradiction” between the first and third volumes of “Capital," but the “discovery’" caused hardly more than a flutter before it died.

His two best-known works are his “Theories of Interest,” where he claims to show the failure of all the attempts to explain interest by previous economists, and his “Positive Theory of Capital,” in which he sets out to state the source and reason of interest.

To reach this explanation it was necessary to state a law of value which, incidentally, would expose the hollowness of Marx's theory on the same subject. Here, however, the famous Professor was unable to do anything better than come to England and borrow the late Stanley Jevons's theory of “Final Utility,” published in 1871. A few minor alterations were made, and the title changed to “Marginal Utility,” and then the theory was announced as a brand-new solution of the tantalising problem of value. It is this theory of value that Bukharin criticises in the volume under review.

According to the Marginal Utility theory, value is determined, not by the ordinary utility of any article, but by the utility of the article sold by ”marginal” pair of buyers and sellers that effect a sale in a given market. This is explained as follows. Sellers come into the market, each with a different price in his mind that he is prepared to accept rather than not sell at all. Buyers also come into the market, each with a different price in his mind that he will pay rather than go without the article. It is clear that if the highest price of the buyers is less than the lowest price of the sellers, no sale will take place. Also, if the highest price of the sellers is below the lowest price of the buyers, it is clear that all the articles will be sold. In practice, it is assumed that the lowest selling price will be below the highest buying price, and the actual point of contact will lie somewhere between these two figures. This point of contact forms the ”marginal” price and determines the price of all the other articles of the same kind and quality in that market. In this theory the different prices demanded are taken as representing the different degrees of utility the articles have for the different buyers. Therefore the price at which the actual sale takes place—the "marginal” price—expresses the "marginal” utility of the articles and so determines their value.

It is easy to see that here there is complete confusion between value and price, a confusion that runs throughout the whole of Böhm-Bawerk’s writings; whilst two other points in the theory strike the reader at a first glance. One is that we are here given our old friend, "Supply and Demand," in a slightly different dress, as the explanation of price, for the “marginal" pair are the same couple who effect a sale under the theory of Supply and Demand. The other point is that value, according to this theory, is entirely a question of individual estimates, or, to use the technical term, it is subjectively determined.

On the first point, it is plain as a pikestaff that this “marginal" theory has no connection with the facts. As far as the vast majority of the articles produced for sale are concerned, the prices are fixed beforehand and there is no question of bargaining at all. One does not go into a modern store and start arguing what price one shall pay for an article. The price is there already "marked in plain figures" for the customer to see. Moreover, it would be absurd to suppose that the “marginal” utility or "subjective valuation" of a given article will be alike at different places at the same time. But the prices are the same. And there still remains the criticism that was used against the older theory, namely: When Supply and Demand equal each other, what then determines the price? When the prices of the "marginal” buyer and seller are equal, what determines that price? This question is not even mentioned, let alone an answer attempted, by the Austrian School.

On the second point, that value is a “subjective" question, it is evident that as each individual’s “subjective" estimate will be different from the others, we have here no actual basis of general value at all. Such an “explanation" is a good illustration of the mental bankruptcy of the apologists of the Capitalist class. But it is on the question of interest that this bankruptcy is most clearly seen, and for good reasons.

Capitalists' profits form the danger zone of orthodox economics. It is useless to deny, however “subjectively,” that profits exist. So they must be "explained.” But how? Every apologist answers differently, until Böhm-Bawerk feels impelled to write a large volume to show that they all are wrong. Then what is his explanation? Truly wonderful.

The Capitalist has resources and can buy raw materials, machinery and other plant necessary for the production of articles for sale at some future time. The worker has only his labour-power to sell, and as he is without resources he cannot wait till that  "future time" when the articles will be sold. Moreover, in common with other people, the worker places a greater value upon a present satisfaction or utility than on a future one. The difference between the present and the future valuations is the source of the Capitalist’s interest, and the justification for that interest is found in the time the Capitalist waits before receiving it. An illustration may make this point clear. For the sake of simplicity we will only deal with the worker’s part in production, leaving on one side the question of raw material, plant, etc.

Let us assume that it takes a month from the beginning of the manufacture to the selling of a given article, and that the article sells for 20s. As the worker cannot wait for a month, he would consider the present value of a smaller sum—say 15s.—as equal to the future value (a month hence) of 20s. So the Capitalist, who is a thought-reader, advances the worker 15s. to-day for work that will produce 20s. a month after. There is, of course, no robbery, as the worker is quite ready—nay anxious—to take the 15s. to-day rather than wait a month for 20s. If the worker could wait the month, he would receive the 20s., and interest and profit would vanish!

Why does he not wait? Because he has no resources, says Böhm-Bawerk. Exactly. But why has he no resources? Here Böhm-Bawerk becomes suddenly shy and offers no explanation. The answer is simple. It is because he is forcibly prevented from obtaining any resources by the power in the hands of the Capitalist class.

It is not a question of the worker’s "subjective” valuation of either present or future utilities at all. It is the fact that the only alternative he has to accepting the Capitalist’s terms is starvation. As the worker is forcibly restrained from any access to raw materials or machinery and tools to work upon that material, he is unable to accumulate any resources and must therefore sell his services day by day. It is the difference between the value the worker produces and that value that he receives, that forms the source of surplus value. Interest and Profit are parts of this surplus value, and hence are the result of the robbery of the worker by the Capitalist.

These and several other questions, such as the “abstinence” of the Capitalist, and whether he “advances" the wages of the worker, are dealt with very fully by Bukharin in this volume. The book, however, is one for the student rather than for popular reading. German writers, as is well known, are very fond of cumbersome words and long and involved sentences. Böhm-Bawerk’s writings follow the national model, and Bukharin, apparently, enjoys using the same sort of phraseology, with the result that the book presents a somewhat fearsome appearance to the lay reader. As a technical criticism of the Austrian School, the book can be fully recommended to all who refuse to he frightened by the terminology used.

Jack Fitzgerald