1.1 Economics and Class Division
Economics is a social science. It is concerned with how a society should be organized. People living in a society are divided into two broad classes: the rich and the poor. History of economics or economic thought has two major traditions. One line of thought speaks for the rich, while the other seeks to further the interest of the poor (see in this connection Hunt and Lautzenheiser 2014). The former culminated in neoclassical economics, while the latter found its fullest form in the writings of Karl Marx. The objective of this book is to give you an overview of neoclassical and Marxian economics and make an evaluation of the two in the light of the current global economic scenario. Most of the societies today, including ours, are capitalist societies, which we shall define shortly. Both these schools of thought tell us how a capitalist society works and whether it is good or bad. We shall present to you the visions of these two schools of thought of capitalist societies and evaluate them on the basis of the current experiences in the capitalist world. We shall also compare the economic performances of major capitalist countries to those of major socialist countries and assess Marx’s and neoclassical economics’ positions in the light of this comparison.
1.2 Capitalist, Socialist and Communist Societies
A capitalist society is one where the wage mode of production is the dominant mode of production. Wage mode of production is defined as a method of production under which production is carried out with hired labour or hired workers. In a capitalist society, most of the producers produce most of the goods with hired labour. In such a society, people are divided into two classes. There are people who do not own any material means of production consisting of natural resources, machinery and equipment and constructions (such as factory sheds, office buildings, etc.). They have to sell their labour for wages to survive. These people constitute the class of workers or, to use Marx’s terminology, the class of ‘have-nots’. The people who own the material means of production hire labour to utilize their material means of production to produce goods and services. These people are called capitalists or ‘haves’. These two classes of people are locked in a bitter struggle with one another to grab a larger share of the goods and services produced in a society. Economics is used as a weapon in this struggle. Economics today is accordingly divided into two major schools of thought: neoclassical economics and Marxian economics. The ‘haves’ have hired economists to develop neoclassical economics. It extols the virtues of capitalism and suggests policies that help the capitalists increase their command over the goods and services produced. To be precise, it shows that a capitalist society, if left to itself, will automatically bring about full employment of all the workers and full utilization of the productive capacities of all the production units (i.e., the organizations that produce goods and services. These organizations are referred to as firms in economics). It also shows that a capitalist economy on its own will produce all the different goods and services in optimum quantities and distribute the produced goods and services among people in an optimum manner. Hence, it recommends the policy of free market or laissez-faire. Under this policy, the government should not interfere with the economic activities of individuals and firms and allow a capitalist economy to operate on its own. We have explained in the next section why and how this policy helps the capitalists to expand their business empire and to grab most of the goods and services produced in the society. Marxian economics, on the other hand, regards a capitalist economy as highly unjust. It shows a capitalist society as one, where capitalists derive their income only by exploiting the workers. It also shows that the inherent structure and dynamics of a capitalist society make it highly unstable and extremely prone to severe crises. Thereby, it points to the necessity of changing a capitalist society into a humane, just and stable society. It recommends a socialist society, where all means of production are owned not by individuals, but collectively by the people as a whole. In a socialist society, everyone is a worker and all the individuals together collectively own all the means of production. Everyone works for the society as a whole, and the produced goods and services are distributed among the individuals in accordance with their contributions of labour to social production. In fact, Marxian economics states that there will be a mass uprising of the workers against capitalist exploitation, and this will overthrow capitalism and establish socialism. Marxian economics is also of the view that a socialist society will eventually evolve into a superior form called a communist society. It is a society where all the individuals are treated as equal. They collectively own all the means of production and all of them contribute to production in accordance with their abilities, but the produced goods and services are distributed among the individuals in accordance with their needs. The objective of this book is to give an overview of both neoclassical and Marxian economics and to show that current empirical evidences the world over lend overwhelming support to Marxian economics.
1.3 Capitalism and Democracy
A capitalist society is characterized by multi-party democracy, where every adult citizen has one vote irrespective of whether he is rich or poor. More than one political party compete for power and the one that gets majority of the votes forms the government and exercises state power. Thus, democracy grants political equality to people of a capitalist society. At the same time, a capitalist society evinces extreme inequality in the distribution of wealth and income. In such a society in the twenty-first century, just a few giant capitalists own most of the country’s wealth and earn the bulk of the country’s income, while the rest of the people, who constitute more than 99 per cent of the population, live in considerable poverty and misery. Obviously, the coexistence of extreme economic inequality and political equality granted by democracy is a puzzle. Let us elaborate. In the kind of democracy a capitalist country has, it is optimal for all political parties to work for the majority of the people. It is rational for them to confiscate all the wealth and surplus income of the giant capitalists and distribute them among the masses. Logically, the political parties should nationalize all the large corporations and run them for the benefit of the masses. However, political parties never behave the way described above. They, in fact, do just the opposite, that is, they take away the properties of the poor and give them away to the giant capitalists free of cost and adopt policies that help the giant capitalists expand their business empires. It is extremely important to know why the political equality granted by democracy does not pose a threat to the enormous wealth and the vast business empires of the giant capitalists and, thereby, to capitalism. One cannot comprehend how a capitalist economy works without resolving this puzzle. In what follows, we seek to resolve this paradox.
In a democracy, political parties require enormous amounts of funds for their survival and to compete with one another. They need a vast nationwide network of workers to campaign for them. They need services of the media to make their programmes and policies known to the people. All these require enormous amounts of money. The giant capitalists, with most of the country’s wealth and income in their command, have the resources to provide the political parties with the requisite amount of fund. In their turn, the giant capitalists have to protect their enormous wealth from the masses. They need state power for this purpose. Hence, they form, fund and run the political parties just like their other business enterprises. Through these political parties, the giant capitalists usurp state power. The political parties, accordingly, work for them. They help the giant capitalists expand their business empire both legally and illegally. They enact laws to give the giant capitalists a free hand in running the economy, keep taxes on the giant capitalists at the minimum possible level, seek to collect as much taxes as possible from the masses and spend the bulk of the tax revenue for the benefit of the giant capitalists in a way desired by the giant capitalists. They legalize private property and keep the enormous wealth and the business empires of the giant capitalists secure from the workers and the masses. They also formulate laws that empower the government to take away land and other properties of the poor and give them away to the giant capitalists in the name of development. Illegally, the political parties allow the giant capitalists to evade taxes and other rules and regulations.
Capitalism sets the two classes of people, namely, capitalists and workers against one another. The giant capitalists control the workers using not only the state power but also other means. They invest on a large scale in R&D to invent labour-displacing technologies and continuously incorporate them in production to reduce their dependence on labour. They do this to create large-scale unemployment so that workers lose their bargaining strength and make their labour available to the capitalists at the minimum possible price. In Chap. 3, we have presented Marxian economics, which shows, among other things, how capitalists earn profit by exploiting workers and how the incorporation of labour-saving technological changes makes exploitation more intense and augments the amount of profit earned by the capitalists.
Capitalists buy two things from the workers: their labour and their saving. Using state power, giant capitalists devise devious ways of robbing the workers of a part of their savings and securing the rest of the workers’ savings at the minimum price much to the suffering of the workers. In Chap. 5, we have shown how the giant capitalists accomplish this while explaining the major economic crisis that occurred in the US in recent years.
Given the conflicting interests of the capitalists and workers and the extremely uneven strengths of the two classes of people, most of the workers live in considerable poverty and misery. To obfuscate the real cause of the poverty and misery of the masses, the giant capitalists facilitate spread of religion by funding and promoting religious institutions. They also fund and promote neoclassical economics. Religion attributes poverty and misery of man to his misdeeds in his present and past incarnations and exhorts him to live a peaceful, honest and hardworking life dedicated to the worship of God. Neoclassical economics, on the other hand, yields the result that, if the government leaves a capitalist economy to itself, it will bring about full employment of all the workers and full utilization of productive capacities in all the firms. It will also on its own make the allocation of productive resources across different sectors of production efficient or optimum. This means that a capitalist economy has a mechanism that makes sure that all the different goods are produced in optimum quantities and they get distributed among people in an optimum manner. These results imply that the government in a capitalist country need not bother about unemployment or how productive resources get allocated across different sectors of production. Such a society will remove unemployment on its own and establish an optimal allocation of resources. Obviously, if the government in a capitalist economy follows the recommendation of neoclassical economics, it will leave the economy to itself. In that case, the giant capitalists with most of the income and wealth of the country in their command will grab most of the produced goods and services to meet their own needs leaving very little for the rest of the population and manage and run the economy in their interest. In fact, governments in capitalist countries follow the recommendation of neoclassical economics. We have discussed neoclassical economics in Chap. 2.
Capitalist economies are crisis-prone. Crises occur regularly in such economies. Giant capitalists create these crises in their interest. We have shown in Chap. 5 how the giant capitalists perpetrated the devastating economic crisis in the US in 2008 and how this crisis helped the giant capitalists expand their business empire and increase their bargaining strength manifold vis-à-vis workers. There is a general view shared by both Marx and another famous economist John Maynard Keynes that economic crises in capitalist economies are caused by impersonal market forces and not by a person or a group of persons in a planned manner. Keynes developed theories that yielded policies that the government should adopt to lift a capitalist economy out of a crisis. These policies are referred to as stabilization measures. In Chap. 4, we have discussed Keynes’ theory and how his stabilization measures lift an economy out of a crisis. In Chap. 5, we have shown how the US Government and Fed designed the stabilization measures so that the US economy did not get out of the crisis fully, but remained in a state of recession indefinitely. We have argued that such a state was conducive to the giant capitalists.
1.4 Socialism: A Move to Form a Humane Society
Capitalism was imperialist right from its birth. By the time World War I had begun, the giant capitalists of Western Europe and the US through their hold over state powers conquered and colonized almost the whole of the rest of the world. However, at that time, the giant capitalists were a divided lot. They were divided on the basis of their nationalities. They fought with one another two devastating worl...