Wednesday, March 02, 2011

Capitalism Defined, Part III: Tales of Rage and (False) Hope

A lifetime separated Smith's Wealth of Nations from Karl Marx's earliest major writings, the Economic and Philosophical Manuscripts of 1844. The two authors' views were also a world apart. Smith wrote in defense of an economic order that was still in its infancy, and a class still struggling for dominance against landed nobles and monopolists. Marx wrote after the new capitalist order had spread across half of Europe, and after its immiserating effects were becoming clear, at least in the new industrial cities of Britain, France, and Germany. Thus, where Smith was merely critical of merchants and manufacturers, Marx wrote of them with barely suppressed rage. His anger abated over time, as he and his colleague, Friedrich Engels, began to identify a revolutionary alternative to bourgeois rule and developed the belief that this alternative would inevitably triumph.

For Marx, as for Smith, capital was definable in terms of things - provisions, raw materials, tools, and machines - that one could use to produce new goods. Unlike Smith, Marx argued that there was a deeper and more important definition of capital, as "accumulated labor," and in particular accumulated wage labor (Economic and Philosophical Manuscripts, 98). Capital could not exist without wage labor because capitalism was essentially a social relationship, in which the bourgeoisie used capital and commerce to commodify people and goods and convert them into fungible "exchange values." Over time, capital could only reproduce itself by radically restructuring prior social relationships, eliminating independent craftsmen and petty-bourgeois shopkeepers and turning workers into a vast, de-skilled industrial army - the proletariat. (Wage Labor and Capital, 207-08, 210-11)

Adam Smith had suggested in Wealth of Nations that employers drove down wages whenever they could, but he also insisted that mechanization, the division of labor, and capital accumulation would ultimately lead to greater employment and rising prosperity. Marx strenuously disagreed. The division of labor, he argued, destroyed the value of craftsmen's skills and created a market for unskilled workers, who were easier to hire and fire. Meanwhile, the greater productivity offered by machinery allowed capitalists to lay off workers when competition and falling profits obliged them to do so. Capital accumulation and industrialization thus created "powerful industrial armies" whose generals, paradoxically, won their battles by cashiering their own men. These new armies could, however, ultimately rebel against their generals, once they discovered their common interest: eliminating the state system and the capitalist cash nexus that kept them in bondage. In their most famous pamphlet, The Communist Manifesto, Marx and Engels predicted that this rebellion would inevitably occur, after the proletariat discovered its potential strength and that they had "nothing to lose but their chains."

Much popular criticism of Marx today focuses on the failure of the communist states he inspired to deliver a classless, a more humane, or even a better way of life to their people. Instead, their command economies and elimination of "bourgeois" civil liberties gave their leaders power that (to paraphrase George Orwell) the most despotic emperors could scarcely imagine. Marx was more successful as an analyst of capitalism. With the benefit of decades of hindsight, Marx was able to observe that industrial capitalism had a historical momentum that its creators could not easily control, and which led capitalist societies in directions they didn't want to go: toward depressions, mass unemployment, and organized labor unrest. He believed that these crises would inevitably destroy capitalism; the bourgeoisie could delay them by opening new foreign markets and discovering new, cheap sources of raw materials overseas, but they could not ultimately prevent an immiserated, trans-national proletariat from seizing its destiny.

We might in closing note that capitalists who had read Marx could and did find ways to prevent this final crisis from occurring. These included the creation of social insurance programs (by Wilhelmine Germany, British Liberals, and Progressives in the U.S.), the use of Keynesian government spending to counteract business cycles, and the taming of Labor by incorporating large labor unions into national economic planning. These mechanisms, coupled with a fair amount of old-fashioned political repression, kept Marxian communism out of most of the world's industrial states in the 20th century. They are techniques that, since 1991, American and European capitalists have been trying hard to unlearn. More the fools.

[All citations above are to The Marx-Engels Reader, ed. Robert Tucker (New York, 1978), second edition.]


Susan M. Frey said...

Another great nugget to read here -- Actually I read this post a few times over to absorb it (but I'm thick that way). Contrasting Smith and Marx is helpful to me. Your comment on "historical momentum" has sent my mind in several different directions. I need to read more of Marx's influence on various disciplines. Thanks for providing that spark.

Dave Nichols said...

You're quite welcome, Susan. Glad to oblige.