Against Capitalism

David Schweickart

• Publisher: Routledge
• Year: 2018
• ISBN:
  9780429982088
• Edition: 1
• Topic: Social Sciences
• Subtopic: Sociology
• Index: Social Sciences

Capitalism is hegemonic today not because it is the best we fallible humans can do but because it supports, and is supported by, special interests of immense power. This book argues that Economic Democracy, a competitive economy of democratically run enterprises that replaces capitalist financial markets with more suitable institutions, will be more efficient than capitalism, more rational in its growth, more democratic, more egalitarian, and less alienating.Against Capitalism is an ambitious book, drawing on philosophical analysis, economic theory, and considerable empirical evidence to advance its controversial thesis. It examines both conservative and liberal forms of capitalism; it compares Economic Democracy to other models of socialism; and it considers the transition to Economic Democracy from advanced capitalist societies, from economies built on the Soviet model, and from conditions of underdevelopment. The book concludes with some unconventional reflections on historical materialism, ideal communism, and the future of Marxism.

1. Noncomparative justifications

Capitalism – can it be justified? To situate the question, let us ask first, How has it been justified?

As capitalism emerged from a dying feudalism, the concept of self-interest became the focus of attention. Proponents of the rising order were divided as to the intrinsic morality of this “fundamental human passion,” but all agreed that it could be immensely useful to society when suitably harnessed to a free market.¹

Their arguments – or, in any event, capitalism – carried the day. But soon trouble was brewing in another pot. Using the economic categories of Adam Smith and David Ricardo (specifically, the labor theory of value), Karl Marx argued that capitalism is inherently exploitative. Even without monopolies (Smith’s concern) or landowners (Ricardo’s bête noire), free, competitive capitalism exploits the working class, for workers are the source of all value, and yet they are excluded from the economic surplus. Capital, said Marx, is not a thing possessing mysterious productive power but, rather, a social relationship among human beings, a relationship of power. The free market masks the fact that capitalist society is formally homologous to a feudal or even slave society: A ruling class controls the means of production while a dominated class does the work.

The Marxian challenge, particularly when backed by an increasingly militant working class, placed capitalism on the defensive. But the Marxian argument had a theoretical vulnerability: its underlying value theory. Soon, throughout Europe and America, a new economics came into being. Jevons in England, Walras in Switzerland, Menger, Böhm-Bawerk, and Wieser in Austria, and John Bates Clark in the United States proclaimed the obsolescence of the labor theory of value. “Classical” analysis gave way to “marginalist” analysis. Neoclassical economics was born.²

The intellectual victory of neoclassical economics did not prevent the Russian Revolution. Socialism descended from the ideal to the real. For a decade or so, various neoclassical economists tried to prove the economic impossibility of socialism,³ but soon the profession took a different turn. The fact-value distinction was invoked, and economists declared themselves independent (qua economists) of ethical concerns.⁴ Henceforth, justification of capitalism would be left to philosophers, politicians, and economists qua citizens. Economic arguments, of course, remained important: that capitalism is more efficient than socialism or more conducive to economic growth. Human-nature arguments asserting the natural link between innate egoism and free enterprise were still invoked, although with decreasing frequency as socialism spread throughout the world. But another argument became increasingly prominent. With the Russian Revolution deteriorating into Stalinism, vigorous attempts were made to reaffirm the causal connection between capitalism and freedom or, rather, because fascist and other ruthlessly authoritarian capitalist regimes made that causal linkage implausible, the connection was affirmed between socialism and totalitarianism. “Socialism,” declaimed Friedrich von Hayek, “is the road to serfdom.”⁵

How do things stand today? Not altogether settled. Since 1989, the Western media have declared the death of socialism. Francis Fukuyama proclaims the end of history, with liberal capitalism as the telos.⁶ Robert Heilbroner, a prominent economist long sympathetic to the Left, asserts that “less than seventy-five years after it officially began, the contest between capitalism and socialism is over: capitalism has won.”⁷

And yet, deep doubts persist. We look at the world around us. We see so much pain, so much despair. Is this really the fate of the human species? Is this really the best we can do? If this is the end of history, why are we celebrating?

Not only at the level of popular consciousness but also at the theoretical level there is uneasiness, a lack of consensus. Among economists the neoclassical paradigm still reigns. It was disrupted for a while by Keynes (and the Great Depression), but the pieces were reassembled with much Keynesian economics incorporated.⁸ This revised neoclassicism, however, has been under fierce attack since the 1960s. Marxists, neo-Marxists, institutionalists, neo-Ricardians, and neo-Keynesians all reject the neoclassical model; all are suspicious of marginalist categories.⁹ Many, though not all, are critical of capitalism itself.

The turmoil of the 1960s shook political philosophy as well as economics. As a deep-seated questioning of “the system” by angry young people spread, two Harvard philosophers came to capitalism’s defense. John Rawls argued that certain forms of capitalism can be just. (He allowed that certain forms of socialism might also be.) Robert Nozick, critical of Rawls’s liberal, redistributive ethic and of all concessions to socialism, defended a more conservative, “libertarian” version of capitalism.¹⁰ But not all political philosophers have been so sympathetic to capitalism. Paradoxically, given the political tenor of the times, Left political philosophy in the English-speaking world flourished in the 1980s and continues to do so. Although by no means a majority, critics of capitalism are prominent in almost all academic disciplines.

The purpose of a work such as this is not to count hands but to evaluate arguments. If we look at the arguments that have been advanced in defense of capitalism, we see that they fall into two basic categories: comparative arguments and noncomparative arguments. By “comparative” I mean an argument of the form “In light of the viable alternatives, capitalism is best.” The utilitarian argument belongs in this category, as do many liberty-based defenses. Noncomparative arguments assert that capitalism is just, because it satisfies a particular standard of justice. Those who advance such arguments usually claim also that socialism fails to meet the standard, but such a claim is not essential. A noncomparative argument takes the form “X satisfies standard J,” whereas a comparative argument claims that “X better satisfies, or is more likely to satisfy, standard J than does any viable Y.”

It is my view that the comparative arguments for capitalism are by far the more important. They will be the focus of the greater part of this work. Certain noncomparative arguments, however, are also significant, both historically and because they are still frequently invoked, if more often obliquely than directly. They deserve careful attention, not so much because they are difficult to refute (which they are not) but because they are often sources of serious misconceptions that continue to haunt the more sophisticated comparative arguments.

In this chapter we shall analyze several noncomparative arguments. All defend “entitlement” claims. To the Marxian charge that profit is derived from unpaid labor, all reply that the charge is false. All assert that the capitalist is entitled to that profit. On what grounds? “Productive contribution,” say many. “Risk,” say some. “Sacrifice,” say a few. “Liberty,” says Nozick. We shall examine these responses.

Before beginning, some words about the key term. What is this “capitalism” we shall be interrogating? Let us understand capitalism to be a socioeconomic system characterized by three features. First, the means of production are, for the most part, privately owned, either by individuals directly or through the mediation of corporations. Second, the bulk of economic activity is directed toward the production of goods and services for sale on a free market – “free market” meaning that prices are determined largely by supply and demand, without government interference. Third, labor power is a commodity. That is, a large percentage of the work force sells its capacity to labor to those who can provide it with tools, raw materials, and a place to work.

To be capitalist, a society must feature all three sets of institutions: private property,¹¹ a free market, and wage labor. Many past societies, as well as current ones have exhibited one or two of these characteristics, but not all three. For example, a feudal society consisting of self-sufficient estates worked by serfs had private property but neither a free market nor wage labor. A society of small farmers and artisans (colonial New England, say) is not capitalist, for despite the presence of private property and a market, there is little wage labor. On the other hand, all Western industrial nations today are capitalist. The presence of an elaborate welfare apparatus, a number of nationalized industries, or a ruling party self-labeled as “socialist” does not render a society non-capitalist. So long as the bulk of its enterprises are privately owned, are worked by hired labor, and produce goods for sale at largely unregulated prices, a society is capitalist.

With this characterization in mind, let us now consider how such societies have been (noncomparatively) justified.

Marginal product as contribution

John Bates Clark was an early exponent of the claim that capitalist distribution accords with the ethical standard of productive contribution, that is, of the claim that capitalism is just because it returns to each individual the value he produces. “The indictment that hangs over society,” Clark writes, “is that of ‘exploited labor’.” But the charge is false, for it can be shown that “the natural effect of competition is … to give to each producer the amount of wealth that he specifically brings into existence.”¹² Hayek agrees. For Hayek, the fundamental issue is “whether it is desirable that people should enjoy advantages in proportion to the benefits which their fellows derive from their activity or whether the distribution of advantages should be based on other men’s views of their merit.” The first alternative, he insists, is that of a free (capitalist) society.¹³ Nozick disagrees, citing “inheritance, gifts for arbitrary reasons and charity” as countervailing considerations, but he allows that “distribution according to benefit is a major patterned strand in a free capitalist society.”¹⁴

But is it? That is what we shall investigate in this and the next three sections of this chapter. Specifically, we wish to inquire whether or not property income – income derived from ownership of the means of production – can be legitimized by the canon that “justice consists in the treatment of people according to their actual contribution to their group.”¹⁵

According to Milton Friedman and most other neoclassical economists, the essential principle of capitalist distribution is “to each according to what he and the instruments he owns produces.”¹⁶ But this principle presents a problem. Because it is characteristic of capitalism that the owners of the means of production often are distinct from those who operate those means, Friedman’s claim presupposes that one can distinguish, in a precise, quantitative manner, between the contribution of the instrument and that of the operator. How might this be done? Notice that we cannot simply define the contribution of each to be what the market returns to each, for that begs the question. We know what the market returns. What we want to know is whether or not such returns really reflect contributions.

Marx provides one way of thinking about the problem. For Marx, the value of the instrument is simply passed on to the final product, while new value is created by living labor. If a $100 machine produces 1,000 items during its normal lifetime, it contributes ten cents to the value of each item. Because the machine itself is the product of labor, that ten cents – and all the rest of the commodity’s value – is ultimately reducible to labor.

This answer is unacceptable to the neoclassical tradition, which much prefers Clark’s alternative. The modern version of Clark’s solution begins with a concept, adds a couple of definitions, and then invokes a mathematical theorem – a simple theorem, but perhaps the most ideologically significant mathematical result in history. The basic concept is that of a production function, a technical function that specifies for a given technology the maximum productive output for each and every combination of relevant technical inputs. Suppose, for example, that corn is the joint product of labor and land, the units of each being homogeneous in quality.¹⁷ The production function can be represented as z = P(x, y), where z is the maximum number of bushels of corn that can be produced by x laborers working y acres of land (using the specified technology). Now the question is this: Given that both labor and land are required for the production of corn, what is the distinct productive contribution of each factor?

The key to the answer is the notion of marginal product. The marginal product of a particular technical input is defined to be the extra output that resulted from the addition of the last unit of that input, all other inputs held constant. For example, the marginal product of labor, given ten workers and five acres of land, is the difference between what ten workers and nine workers would produce on those five acres, that is, P(10, 5) – P(9, 5). The marginal product of land in the same case is P(10, 5) – P(10, 4).

It is a standard result of elementary calculus that when a function P(x,y) is differentiable and x and y are large, P(x, y) – P(x − 1, y) is closely approximated by P_x(x, y) (the partial derivative of P with respect to x), and P(x, y) − P(x, y − 1) by P_y(x, y) (the partial derivative of P with respect to y).¹⁸ Applying this result to our economic model, we can say that the marginal product of a technical input is closely approximated by the partial derivative of the production function with respect to that input (when the quantities involved are large).

So far, nothing has been proved. We have merely defined some terms. But now consider a curious mathematical result first demonstrated by the great eighteenth-century mathematician Leonhard Euler. If P(x, y) is a “well-behaved” function,¹⁹ then P(x,y) = xP_x(x, y) + yP_y(x,y). This equation, interpreted to our context, states that the output of x laborers working y acres of land is equal to the sum of two quantities, the first being the number of laborers multiplied by the marginal product of labor, and the second being the number of acres multiplied by the marginal product of land. Thus, if we define the contribution of each worker to be the marginal product of labor [i.e., P_x(x, y)], and if we define the contribution of each acre to be the marginal product of land [i.e., P_y(x, y)], then the total contribution of labor, xP_x(x, y), plus the total contribution of land, yP_y (x, y), is precisely equal to the total output, P(x, y). This gives us a “n...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• Preface
• 1 Noncomparative justifications
• 2 Terms of comparison
• 3 Capitalism or socialism?: efficiency
• 4 Capitalism or socialism?: growth
• 5 Capitalism or socialism?: liberty, equality, democracy, autonomy
• 6 Modern liberalism
• 7 Transitions
• 8 Other socialisms
• 9 Marxian reflections
• Bibliography
• Index
• About the Book and Author