The story currently being peddled by the folks at Bloomberg [ht: ja] is that the American middle-class is currently suffering, as the enormous wealth they managed to accumulate during the past few years is now dwindling. And that crisis—the end of their “once-in-a-generation wealth boom”—is what they will take into the midterm elections.
There is a kernel of truth in that story but it is overshadowed by all that it leaves out.
The small sliver of truth?
Yes, as we can see in this chart, the average real wealth (in July 2022 dollars) of the middle 40 percent of Americans did in fact increase from January 2017 (when Donald Trump first took office) until March of 2022; now it has begun to fall and is projected to continue declining (according to data provided by Realtime Inequality).*
That should come as no surprise. It is the result of years of cheap money, which has fueled increases in the value of the two major components of middle-class wealth: house prices and the stock market. Now, while the price of real estate continues to rise (as anyone knows who has attempted to purchase a house in recent months), the stock market has taken a tumble (with the Fed policy of increasing interest-rates, on top of disruptions in global supply chains and the war in Ukraine).
So, yes, middle-class wealth is falling. But that’s only part of the what is going on out there, beyond Bloomberg’s narrow lens.
Another important part of the story, which I discussed on Wednesday, is the plight of the bottom 50 percent of American workers. Yes, their average wealth also increased during the same period but not by much more than a rounding error: a total of $13.8 thousand for each person. Their average wealth at the most recent peak reached $12 thousand, and not it too is beginning to fall.
What else is left out of the Bloomberg story? Well, it only refers to the absolute level of middle-class wealth.
As is clear from the chart above, the average wealth of the middle-class (the blue line) is much closer to that of the bottom 50 percent (the green line) than it is to the wealth of the top 1 percent (the brown line): $366.5 thousand compared to $11.9 thousand and $17.5 million, respectively. That doesn’t look like much of a bonanza to me, certainly not in relative terms.
Indeed, the third major part of the missing story has to do with the changes over time in the shares of wealth owned by each of the the classes.
The fact is, the middle-class share of total wealth has been steadily declining since the mid-1980s (falling from 35.7 percent to 28.9 percent), while that of the entire bottom 50 percent has also decreased (from a minuscule 2 percent to a barely perceptible 1.2 percent). Meanwhile, the share of wealth owned by the top 1 percent has soared dramatically (from 21.8 percent to 34.6 percent).
If we add those three elements to Bloomberg’s story, we end up with a very different narrative about the U.S. economy. American workers—both poor and middle-class—have been losing out to those at the top for decades now.
Yes, along the way, there have been minor peaks and troughs in their accumulation of wealth (just as has been the case for those at the top) but the long-term trajectory is clear: a growing gulf between those at the top and everyone else. Under both Democratic and Republican administrations.
It’s a problem that will not be solved in this midterm election, not with the candidates and campaigns we’re seeing from both political parties.
It’s a fundamental problem with American capitalism. But that, alas, does not fit into the Bloomberg story either.
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*The middle 40 percent is the population whose wealth falls between the 50th and 90th percentiles.
This was supposed to be the great reset. As the U.S. economy recovered from the Pandemic Depression, millions of jobs were being created, unemployment was falling, and the balance of power between workers and capitalists would shift toward wage-earners and against their employers.
That, at least, was the promise (or, for capitalists, the fear).
But greedflation has delivered exactly the opposite: workers’ real wages are barely rising while corporate profits are soaring. There’s been no reset at all. That’s exactly what was happening before the coronavirus pandemic hit, and that trend has only continued during the recovery. It should come as no surprise then that the already grotesque levels of inequality in the United States continue to worsen.
And who are the beneficiaries? According to a recent study by the Institute for Policy Studies, it’s the Chief Executive Officers of American corporations who have managed to capture a large share of the resulting surplus.
Especially the CEOs of the largest low-wage employers in the United States. While median worker pay increased by 17 percent last year, CEO compensation rose by 31 percent. The result was that the ratio of CEO to average worker pay rose by 11 percent, to 670 to 1!*
American workers are struggling with rising prices, having risked their lives and livelihoods throughout the pandemic. Now, they’re forced to watch as their corporate employers, who have benefited from federal contracts and used their profits to buyback stocks, reward their CEOs with lucrative contracts and massive bonuses—far exceeding the small amount some workers have been able to claw back.
Who’s at the top? Amazon leads the list. Its new CEO, Andy Jassy, raked in $212.7 million last year, which amounts to 6,474 times the pay of Amazon’s median 2021 worker. Then there’s Estee Lauder’s CEO, Fabrizio Fred, who managed to secure a 258-percent pay increase in 2021—leading to compensation that amounted to 1,965 times that of the average worker. Third on the list was the CEO of Penn National Gaming, Jay Snowden, whose $65.9 million payout was 1,942 times that of the gambler’s typical worker’s wage.
So, how did they manage to capture so much surplus and distribute it to their CEOs? Like the other firms in the study, they all took the low road, paying their employees a pittance (in the low $30,000s for the median worker). And they’ve mostly succeeded in opposing and undermining union-organizing efforts.** But Amazon is the only one of the three to secure large federal contracts (over $10 billion between 1 October 2019 and 1 May 2022), like other low-wage corporations (such as Maximus, at $12.3 billion and TE Connectivity, at $3.3 billion), which means the taxes paid by ordinary Americans and being used to support such an inequitable corporate order.***
The report also highlights the extent of stock buybacks—which serve to inflate the value of a company’s shares and thus the value of executives’ stock-based compensation—among firms where median worker pay did not keep pace with inflation in 2021. Thus, for example, Lowe’s, the home-improvement chain, spent more than $13 billion in purchasing its own stock while median worker compensation fell by 7.6 percent to $22,697. Similarly, both Target and Best Buy increased workers’ pay by less than the rate of inflation but still spent millions of dollars in stock buybacks ($7.2 billion and $3.5 billion, respectively). In each case, a windfall to stock owners—including the CEOs—came at the expense of raises for the employees. For example, if the funds Lowe’s used to buyback its own stock had been divided among the company’s 325,000 employees, each worker would have received a $40,000 bonus.
Clearly, this economic order needs a fundamental reset.
And most Americans agree. According to a recent survey by Just Capital (pdf), more than eight in 10 respondents (83%) agree that the growing gap between CEO compensation and worker pay is a problem in the United States today. Moreover, according to the authors,
The message from the public is clear: responsibility lies with corporate leaders – including chief executives – to address income inequality in America today. Closing the gap requires action at the highest and lowest rungs of the corporate ladder.
The IPS suggests a range of options for doing something about the problem, including giving corporations with narrow pay ratios preferential treatment in government contracting, an excessive CEO pay tax, and a ban on stock buybacks (in addition to a wide variety of CEO pay reforms). If enacted, all such changes would serve to nudge such corporations out of the low road of poor worker pay and high CEO compensation and reduce the now-obscene level of inequality in the U.S. economy.
But giving employees a say in how those corporations are managed and operated would do even more to change the balance of power, within those firms and the entire economy, between workers and capitalists. The workers would then be able to participate in deciding how much surplus there would be and how it would be utilized—not only for their benefit but for the society as a whole.**** Employees would then become or participate in choosing the corporate leaders, including chief executives, who could actually go a long way toward solving the problem of inequality in America today.
That, in my view, is a reset of the U.S. economy worth imagining and enacting.
———
*Forty-nine of the 300 firms analyzed by the Economic Policy Institute had ratios above 1000-1. And, in 106 companies in their sample, median worker did not keep pace with the 4.7 percent average U.S. inflation rate in 2021.
**Amazon has spent millions of dollars in fighting union campaigns and, to date, have lost only one battle, in a Staten Island warehouse. (That’s in the United States. Some Amazon warehouses in Europe are unionized, with strikes being most frequent in Germany, Italy, Poland, France and Spain.) None of Estee Lauder’s U.S. workers have union representation, and less than 20 percent of Penn’s employees are unionized.
***Of the 300 companies in the IPS study, 119 — 40 percent — received federal contracts, totaling $37.2 billion. Their average CEO-worker pay ratio was 571-to-1 in 2021.
****Even Thomas Piketty now defends the idea of workplace democracy or co-determination, since workers “sometimes, they are more serious and committed long-run investors than many of the short-term financial investors that we see. And so getting them to be involved in defining the long-run investment strategy of the company can be good.”
Dr. Marianne Schulze, LL.M. is an independent legal consultant and human rights expert based in Vienna, Austria.* Many years ago, Marianne was a student in one of my classes, Economics for Non-Economists, at the University of Notre Dame. Last year, she wrote a response to my blog, which for a variety of reasons could not be included in the symposium that appeared in Rethinking Marxism. However, I am pleased to publish it here as a guest post.
The “Journal of Unsung Social Theories Irreconcilable with Contemporary Economics” (JUSTICE) was going to be the follow-up to a course on “Economics for Non-Economists,” which Professor Ruccio taught at the University of Notre Dame to a rather eclectic group of students. The course itself and the ensuing discussion over a journal and its title serve as an apt prelude as well as yet another variation on the theme of David’s blog of “occasional links and commentary on economics, culture, and society.”
“Economics for Non-Economists” is by its very title a testament to David’s teaching ethos as well as his continuous efforts to relate what economics is —and what it could be—and how enmeshed the field is with other approaches to and descriptions of being part of a larger system. The blog then is a logical —if not to say natural—continuation of David’s ethos and poise. To discuss the blog is to praise his ability to stay firm, yet open-minded, to embrace a good challenge and yet never waiver from certain tenets. There is that unique mix of quietude and calm derived from deep knowledge, and there is also the fierce passion fed by a distinct level of certainty as well as urgency in avoiding calamities designed by the dominating understanding of economics.
And then there is of course a sprinkle of Italian passion (the only fault with that being that it adds anchovies to the mix). That passion is deeply informed, incredibly caring about others—both in the sense of people as well as professional fields. It is that kind of passion that demands engagement, that excites and as such is contagious. That appears to be in stark contrast to the seeming sense of insulation in which a growing number of undergraduates appear to approach studying. It speaks volumes about David’s perseverance that he maintained his style of teaching and never wavered from loving it, against all odds. “Still, he persisted!”
Given the challenges posed by the changes in the student body’s attitudes there was a growing need for an outlet, for kindling that informed passion about situating economics within lived lives and experience. And thus the blog has a certain logic to it: to re-direct the insight(s), to relay the sense of urgency and the need for multiple perspectives through alternative means.
To appraise David’s blog—also as a form of online teaching—in human rights terms is to talk about accessibility. Not in terms of the standard technical issues such as universal design but more in the sense of imparting knowledge in a way that invites in those who are not (yet) literate in the terminology and theories and make them feel comfortable (in spite of knowing nothing—and I mean nothing—about economics). To be aware and be comfortable with showing that awareness, that students come to learning and to insights in very different ways. To be keenly aware of how the diversity of biographies and “walks of life” affect perceptions and expectations. To try and maximize that social aspect of accessibility through deep awareness of barriers built on exploitation, discrimination, othering, and exclusion.
Writing about David’s blog from a human rights perspective also warrants mentioning that soccer is not only one of the fundamentals of society but that being invested in Manchester United is part and parcel of a human right. Yes, there is a right to sport. And, yes, it has some origins in the labour movement and its insistence on leisure time (Article 24 Universal Declaration of Human Rights). While reciting human rights provisions, it may also be important to note that driving cars of a certain brand designed in the South of Germany renown for being useless in snow (the author’s driving license is Austrian) in the hills of Vermont is that part of legal capacity that Pat Deegan has aptly termed “dignity of risk.” The fact that David likes to refer to those hills as “mountains” could be as much a lack of utilizing the right to health and having an eye-check as a use of freedom of speech that leans heavily on alternate realities as an art-form.
One of the art-forms that David has perfected is that of dusting a good old black-board into a white landscape. Well before Vermont skiing was added to his equilibrium and therewith a source of sustenance for “occasional links and commentary on economics, culture, and society,” David’s hands dusted away any speck of black within the hour. It seemed like pure magic. The sheer passion of delivery turned those boards into. . .well, whiteboards.
That passion appears to also feed the immense resilience that David has shown teaching in an academic landscape increasingly hostile to his academic and pedagogical outlook. And it has fed and continues to sustain David’s dedication to the blog rightly celebrated in the symposium. There is another aspect that stands out and warrants mention as well as deep admiration: David’s ability to walk the tightrope between showing personal introspection and a critical habit as a professional. The willingness of making himself ever so slightly vulnerable as a professor is only one of the aspects that sets David’s teaching apart from others but I believe the one that has— indirectly—caused the most ire. The cliché that vulnerability is strength is particularly true in teaching. And while I have certainly picked up some incredibly important insights into the makings and sustainability of the machinations of neoliberal economic thought, it is that delivery of convictions with a personal edge that has left an indelible impression.
In a capitalist world it is the currency of convictions that will endure and, thus, “occasional links and commentary on economics, culture, and society” sets a benchmark that will find both more readers and also like-minded bloggers.
*She also passionately dislikes anchovies and is working to meet DFR’s blueberry-harvesting expectations.
You don’t have to read Marx to understand the lack of power workers have under capitalism. But you do have to read beyond mainstream economists and economic pundits. You might turn, for example, to the business school.
Yes, I know, that’s a strange assertion. But let me explain.
The usual argument these days is that workers have acquired a lot more power because of the scarcity of labor. When labor is scarce (basically, when the quantity supplied of labor is less than the quantity demanded), workers can fetch higher wages and be pickier about the jobs they’re willing to accept. That, of course, drives employers crazy and, as usual, mainstream economists and commentators just echo those concerns.
So, is it true? Well, look at the data they cite:
The blue line represents the number of job openings, while the red line is the number of unemployed workers. And, look, way over on the right-hand side of the chart the blue line is slightly higher than than the red line! (Numerically, there were 10.1 million job openings recorded at the end of June and 9.5 million unemployed workers.In other words, for every available 100 jobs, there are only 94 unemployed people available.) And that scares the bejesus out of employers and those who always take the side of employers: they might have to pay workers more to take the terrible, low-paying jobs they are offering.
The result is an increase in workers’ power, as Ben Popken explains:
A pandemic-tightened labor market has given willing and able workers more of an upper hand with their employers for the first time in generations. . .
Worker power is the ability of an employee to command higher wages and benefits and set terms about their working conditions.
Not so fast! Yes, some workers might benefit from the current tight labor market but certainly not all of them, especially at the bottom of the economic pyramid.
Moreover, as Julie Battilana and Tiziana Casciaro remind us, while “it’s understandable” that some claim that workers have more power now than they did during the worst months of the pandemic, it’s still the case that “power remains highly unbalanced in most American workplaces.”
In non-unionized, hierarchical organizations, it is still concentrated in the hands of top executives and shareholders who control all company decisions and priorities, from pay levels to hiring (and firing), and company strategy and policies. Workers continue to have no representation on most corporate boards of directors and have no or very little say over any of these decisions even though they affect their work lives and livelihoods. This lack of control has detrimental effects on worker health and well-being: It has been associated with job dissatisfaction, greater mental strain and damaged physical health. The philosopher Elizabeth Anderson has written that American “workplaces are small tyrannies,” resembling dictatorships more than democracies.
In other words, workers have two positions within capitalism: they sell their ability to work in markets for labor power and then, after those exchanges are concluded, they leave the market and enter another realm, where they perform labor. And inside the enterprises where they work, they have no power at all. There, in the realm of production, their employers—the corporate boards of directors or capitalists—have all the power. That’s why capitalists enterprises are dictatorships, not democracies.
And if workers did have power inside the enterprises—if, for example, the enterprises were organized instead as worker-owned cooperatives?
giving workers more power means giving them the right to collectively validate or reject important decisions that affect their work lives, including the choice of the CEO, how profits are shared, what strategies to pursue and what to prioritize in the face of a health crisis like the pandemic.
And if employers and mainstream economists don’t attempt “to reduce the extreme power imbalance that so clearly puts workers at a disadvantage”? Then, Battilana and Casciaro warn, workers might take matters into their hands:
when the distribution of rewards in an economic system is so unequal as to appear blatantly unfair, those with less power are more likely to upend the current system entirely.
That, of course, would mean the end of capitalism. . .
I am pleased to announce that my entry on “capitalism” has been included in the print version of the third edition of Keywords for American Cultural Studies, edited by Bruce Burgett and Glenn Hendler.
The new essay is a revised version of the entry that appeared in the second and first editions of their keywords collection.
In this post, I continue the draft of sections of my forthcoming book, “Marxian Economics: An Introduction.” The first five posts (here, here, here, here, and here) will serve as the basis for Chapter 1, Marxian Economics Today. The next six (here, here, here, here, here, and here) are for Chapter 2, Marxian Economics Versus Mainstream Economics. This post (following on four previous ones, here, here, here, andhere) is for Chapter 3, Toward a Critique of Political Economy.
The necessary disclosure: these are merely drafts of sections of the book, some rougher or more preliminary than others. I expect them all to be extensively revised and rewritten when I prepare the final book manuscript.
Finally, because of a contractual commitment (which limits the amount of the draft of the book I am allowed to publish on this blog), this will be the last book-related post for a few months.
Toward Marx’s Critique of Political Economy
There is no necessary trajectory to Marx’s writings, no reason his earlier writings had to lead to or culminate in Capital. However, as we look back from the vantage point of his critique of political economy, we can see the ways his thinking changed and how the elements of that critique emerged.
In this section, we take a quick look at some of Marx’s key texts prior to writing Capital: the Economic and Philosophic Manuscripts of 1844, the Theses on Feuerbach, the German Ideology, the Grundrisse, and A Contribution to the Critique of Political Economy. Together, they will give us a sense of how Marx’s ideas developed over time.
We will also see two themes emerge over the course of these texts: the role of critique and a focus on social context. First, Marx doesn’t start (in these texts or, for that matter, in Capital) with a given approach or set of first principles. Instead, his method is to engage with ideas and problems that were “out there,” in the intellectual and social worlds he inhabited, and to formulate a critique, thereby giving rise to new ways of posing issues and answering questions. Second, Marx’s concern is always with social and historical specificity, as against looking for or finding what others would consider to be given and universal. Thus, for example, Marx eschews any notion of a transhistorical or transcultural “human nature.” Instead, in his view, different human natures are both the condition and consequence of particular social and historical circumstances. Much the same holds for his method of engaging economic issues.
Once Marx left Germany and found his way to Paris, he met Engels for the first time (thus initiating, following on their previous correspondence, a life-long collaboration) and also began what he considered to be a “conscientious critical study of political economy,” the mainstream economics of his day. The result was a series of three manuscripts (often referred to as the Economic and Philosophic Manuscripts of 1844 or the Paris Manuscripts, which were written between April and August 1844 but only finally published, to considerable interest, in 1932).* What readers will find in the manuscripts is, having “proceeded from the premises of political economy” (meaning “its language and laws,” the assumption of “private property, the separation of labor, capital and land, and of wages, profit of capital and rent of land,” and so on), Marx arrives at conclusions and formulates new terms that run directly counter to those of Smith, Ricardo, and the other classical political economists. In particular, Marx argues that, under capitalism, as workers become reduced to commodities, what they produce confronts them as “something alien.” Therefore, their labor (using terms borrowed from Feuerbach’s critique of Hegel) becomes “alienated” or “estranged.”
it is clear that the more the worker spends himself, the more powerful becomes the alien world of objects which he creates over and against himself, the poorer he himself – his inner world – becomes, the less belongs to him as his own. It is the same in religion. The more man puts into God, the less he retains in himself. The worker puts his life into the object; but now his life no longer belongs to him but to the object. Hence, the greater this activity, the more the worker lacks objects. Whatever the product of his labor is, he is not.
He then demonstrates that the taken-for-granted assumptions of classical political economy—private property, wages, and so on—are themselves the products of estranged labor. Thus, the distinctions made by the mainstream economists of Marx’s time—between profit and rent, between both and wages, and so on—are rooted not in the nature of things, but in particular social and historical circumstances. They are, in other words, peculiar to capitalism.**
As we saw in a previous section, Marx then (in 1845) developed a critique of Feuerbach. Over the course of his eleven short theses, Marx rejects the idea of a single anthropology (the “essence of man” or human nature) and focuses, instead, on the ensemble of “social relations,” the “historical process,” and “social humanity.” The result is social practice, that is, the goal of not just interpreting the world, but of changing it.
The next year, Marx coauthored with Engels a long set of manuscripts (like the 1844 manuscripts, only published in 1932) in which they challenge the one-sided criticisms of Hegel by Bruno Bauer, other Young Hegelians, and the post-Hegelian philosopher Max Stirner. There, in their attack on German philosophy for having been obsessed with religion (and therefore self-consciousness or the realm of ideas), Marx and Engels announce for the first time what they call the “materialist conception of history,” with an alternative starting-point: “real individuals, their activity and the material conditions under which they live, both those which they find already existing and those produced by their activity.” This focus on social production means Marx and Engels can transform consciousness itself into a “social product,” which develops historically and changes according to particular forms of society or social relationships.***
Later, once Marx had settled in London, he spent much of his time in the British Museum (a national public museum, which contained both natural history objects and a massive library) studying the texts of the classical political economists. The result were a set of notebooks, called the Grundrisse (literally outlines or plans), which are often considered to be first draft of Capital.**** While the topics Marx covered are wide-ranging, from value and labor to precapitalist forms of economic and social organization and the preconditions for communism, what is of interest here is his announcement of where he thinks the critique of political economy should start: with “socially determined individual production.”
Why is this important? Because it represents Marx’s break from the notion of natural production, and therefore from the mainstream economics of his day (as of our own). In classical political economy (as in neoclassical economics), capitalism and other economies are considered to be natural, because they are finally reduced to and can be explained by certain given or exogenous factors, such as population, technology, and resources (to which neoclassical economists add given preferences). Also, they take individuals as their point of departure (the most famous example being Robinson Crusoe, a story that is repeated even today in mainstream economic textbooks).
Marx’s alternative view is that economics should start with social individuals, “individuals producing in society,” not given individuals outside of particular historical and social contexts. Moreover, the focus should be on “social production”—different, socially determined ways of producing goods and services—not on any kind of production in general (which students today will recognize in the technical apparatus of isocost and isoquant curves).
Marx also demonstrates his debt to Hegel, in discussing the relationship among production, distribution, exchange, and consumption. Where the classical political economists posit that the goal of production is consumption, and many of the critics worry about distribution, Marx sees them in terms of a “dialectical unity.” In its most general form,
A definite production thus determines a definite consumption, distribution and exchange as well as definite relations between these different moments. Admittedly, however, in its one-sided form, production is itself determined by the other moments.
It’s a distinction that shows up today in the debate about distribution (through free markets) versusu redistribution (through government programs). What the participants in that debate forget about is the initial distribution related to production (and all that entails for consumption, distribution, and exchange), that is, society produces itself through its initial distribution. It’s that initial distribution that is taken as given in mainstream economics, then as now.
Marx also announces his break from existing ways of carrying out economic analysis, whether starting from abstract first principles (and deducing the rules that govern reality) or from empirical reality (whereby certain “laws” are extracted). Instead, he argues, the method he proposes is a movement from the abstract to the concrete. In other words, economic analysis is itself a process of production—one that starts from relatively abstract notions and, adding more and more determinations or circumstances, arrives at a relatively concrete notion (“the way in which thought appropriates the concrete, [which] reproduces it as the concrete in the mind”). It is not a question of bridging the gap between thought and reality (in terms of some kind of validity criterion) but of producing within thought a particular conception of economic and social reality. The implication, of course, is that different economic theories will lead to different, incommensurable conceptions of capitalism and other economic systems.
Finally, in 1859, Marx published A Contribution to the Critique of Political Economy. There, he designates his break from the philosophies of both Hegel and Feuerbach with what has become one of his most famous expressions:
It is not the consciousness of men that determines their existence, but their social existence that determines their consciousness.
This is Marx’s critique of both Hegel’s notion of the Absolute Spirit and of Feuerbach’s alienated consciousness. It’s not an issue of individual consciousness or virtue within existing social order but the conflict-ridden social order itself. Another way of putting this in terms of contemporary debates is: you can’t just have a semblance of freedom (which often means blaming the victims) but you need real freedom, that is, economic and social change that makes the exercise of freedom possible. It’s the same idea that has motivated many working-class political movements, from the nineteenth century onwards, which have demanded an end to poverty and access to decent housing, healthcare, and so on for the majority of people by identifying and seeking to eliminate the economic obstacles to what they consider to be fundamental human rights.
Marx then appends a quotation from Dante Alighieri’s Divine Comedy, which can also serve as a warning to readers as we embark, starting in the next chapter, on a detailed study of Marx’s critique of political economy:
Qui si convien lasciare ogni sospetto Ogni vilta convien che qui sia morta.*****
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*The Economic and Philosophic Manuscripts of 1844 was first published in Germany by the Institute of Marxism-Leninism in Moscow in 1932, in the language of the original. In English, this work first appeared in 1959, published by the Foreign Languages Publishing House in Moscow, translated by Martin Milligan.
**Marx also presents in those manuscripts his critique of “piecemeal social reformers,” including the French socialist Pierre-Joseph Proudhon, “who either want to raise wages and in this way to improve the situation of the working class, or regard equality of wages,” for not going far enough, because they accept the existence of private property and estranged labor. In this sense, they want to improve, but not eliminate and move beyond, capitalism. And, in the third manuscript, Marx credits Hegel with understanding the importance of labor as the source of alienation; but then criticizes Hegelian philosophy for focusing entirely on “abstractly mental labor” (as a question only of “self-consciousness”) and therefore overlooks (just like the classical political economists) economic and political alienation.
***They also announce what, at least at this stage, what they mean by “communism”: “not a state of affairs which is to be established, an ideal to which reality [will] have to adjust itself. We call communism the real movement which abolishes the present state of things. The conditions of this movement result from the premises now in existence.”
****The seven notebooks were written during the winter of 1857–58 but were only published in 1939. The first English-language translation (by Martin Nicolaus) appeared in 1973. The publication of the Grundrisse was important not only for readers of Capital (and much discussion has ensued about the overlaps and differences between the two), but also for other fields, especially for the new field of cultural studies (in the work of, among others, Stuart Hall and the famous Center for Contemporary Cultural Studies at the University of Birmingham).
*****The lines are from Canto III of “Inferno” (as Virgil’s reply to Dante, who has just read the inscription over the Gates of Hell). The translation is: “Here one must leave behind all hesitation; here every cowardice must meet its death.”
In this post, I continue the draft of sections of my forthcoming book, “Marxian Economics: An Introduction.” The first five posts (here, here, here, here, and here) will serve as the basis for Chapter 1, Marxian Economics Today. The next six (here, here, here, here, here, and here) are for Chapter 2, Marxian Economics Versus Mainstream Economics. This post (following on three previous ones, here, here, and here) is for Chapter 3, Toward a Critique of Political Economy.
The necessary disclosure: these are merely drafts of sections of the book, some rougher or more preliminary than others. I expect them all to be extensively revised and rewritten when I prepare the final book manuscript.
Capitalism
As we’ve seen in previous sections, we have to understand three major theoretical and political currents—classical political economy, Hegel’s philosophy, and utopian socialism—in order to understand the path Marx traversed in his writings prior to working on Capital. We also have to keep in mind the larger context, the development of capitalism in the nineteenth century.
It was during the “age of capital,” as the illustrious British historian Eric Hobsbawm aptly called it, that Marx formulated his critique of political economy. By the time he landed in London (in 1849), where (after leaving Germany and spending short periods in first Paris and then Brussels) he would remain based for the rest of his life, England had become the epicenter of capitalism.
Today, we think of capitalism as encompassing the entire world.* That certainly wasn’t the case in the first half of the nineteenth century, when most economic and social life around the globe was organized along decidedly noncapitalist lines. In England, however, by the end of the first Industrial Revolution, capitalism was well established, especially in the burgeoning cities (such as London, Liverpool, Manchester, and Birmingham). More or more, both consumer goods and producer goods (from textiles to machinery) were being produced in capitalist factories. In other words, they had become capitalist commodities, created by laborers who received a wage working for the capitalists who owned the mills and workshops.**
Elsewhere, the transition to capitalism, while less advanced than in England, was also taking place and leaving its mark on the existing social order. For example, the conditions and consequences of capitalism were quite evident in France and Belgium, much more so than in Germany; while the United States, as it slid toward civil war, was also creating a hothouse for capitalist industry, especially in the northeast. In all those places, enormous fortunes (accumulated through local and global trade, owning large estates, lending money, putting slaves to work, and so on) were utilized to purchase the ability to labor of workers (many of them former feudal serfs, self-sufficient farmers, artisans, and slaves) as well new technologies and machinery (from the power loom and cotton gin through steam power and iron-making to new modes of transportation, such as canals and railroads).
The age of capital was nothing less than a project for remaking the world, in every dimension. It was a revolution in industrial production that, as Engels wrote in his classic study of The Condition of the Working Class in England, was changing the whole of civil society—from politics and culture to class structure and the organization of work.
Then as now, the captains of industry and supporters of capitalism were confident about their project. It promised to create general prosperity and to universalize the bourgeois individual guided solely by self-interest and rational calculation. And, in many ways, it succeeded. The development of capitalism created gigantic factories, titanic temples of industrial production, and colossal cities, occupied by an escalating number of native and immigrant workers. Traditional ways of life and meaning were cast aside and new habits acquired, with an eye (at least among the middle and upper classes) to accumulate individual wealth and extol the virtues of free and expanding markets.
But, by the same token (and no different from today), the new capitalist order was itself fragile—subject to fits and starts and periodic downturns, and characterized by obscene levels of inequality and widespread misery. The bulk of the population experienced a decline in their living standards, with wages that didn’t keep pace with the prices of necessary consumer goods, plus poor sanitation, inadequate housing, and precarious access to clean water. Moreover, their jobs and skills were threatened by the combination of technological change, embodied in the new factory machinery, and the more detailed divisions of labor that could be instituted once they were collected to labor in one place. In many instances, workers became mere appendages of the machines they once managed. That meant more profits for their employers but, in relative terms, less for their wages.
It should come as no surprise, then, that the capitalist project was contested wherever it took hold. Many readers will have heard of the Luddites, a radical faction of English textile workers that attempted to destroy factory machinery as a form of protest. To be clear, they were not hostile to machinery per se, but were angry with manufacturers who introduced the machines in what they called “a fraudulent and deceitful manner” to get around standard labor practices. This period also saw the resurgence of other labor organizations, especially trade unions (such as Robert Owen’s short-lived Grand National Consolidated Trades Union) and the demand for more democracy (a working-class suffrage movement led by the Chartists)—which, in their growing influence, led to the repeal of laws that had made any sort of strike action illegal.
The development of capitalism led to even more widespread political upheavals, culminating in 1848, during what Hobsbawm refers to as the “springtime of the peoples.” That year was painted with the colors of revolution across continental Europe (except England and Russia) and beyond. Government after government was overthrown and, in the end, over 50 countries—from Sweden to Colombia—were affected. The revolutions were informed by diverse ideologies, including various forms of liberal democracy and socialism, their banners carried by the new social classes created by capitalism, including members of the grand bourgeoisie, their intellectuals, and the middle classes to the masses of rural landless laborers, urban artisans, and industrial workers. In the end, while the revolutions eventually failed and the old regimes restored started in 1849 (Marx argued, in various speeches and newspaper articles, the revolutions were betrayed by many of the liberal intellectuals, who sought an accommodation with the monarchs and governments on their own terms), it was clear that all that was considered solid was melting into thin air.***
It was in the maelstrom of this age of capital—of the widening and deepening of capitalism and of the revolutionary upheavals it provoked—that Marx pursued his “ruthless criticism of everything existing.”
In the next section, we look at some of his best-known texts of that period, prior to the writing of Capital.
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*That’s certainly how mainstream economists and many others think of capitalism, as characterizing the entire economy in pretty much all places around the globe. As we will see in a later chapter, what they forget or overlook is that many parts of contemporary society, in rich and poor countries alike, include various forms of noncapitalism. Consider for the moment one prominent example: how many households, where of course a great deal of labor is performed on a daily basis, are based on a capitalist mode of production?
**As we will see later in this book, not every commodity is a capitalist commodity. Goods and services can be bought and sold in markets without the existence of capitalism. It all depends on how they are produced. Thus, there can be communist commodities, slave commodities, feudal commodities, and so forth. The mistake mainstream economists make is to presume that markets are synonymous with capitalism.
***This is a paraphrase from one of the most famous texts of 1848, The Manifesto of the Communist Party, which Marx and Engels were commissioned to write by the Commiunist League and originally published in London just as the revolutions of 1848 began to erupt:”All that is solid melts into air, all that is holy is profaned, and man is at last compelled to face with sober senses his real conditions of life, and his relations with his kind.” We will discuss the Communist Manifesto in more detail in chapter 9.
In this post, I continue the draft of sections of my forthcoming book, “Marxian Economics: An Introduction.” The first five posts (here, here, here, here, and here) will serve as the basis for chapter 1, Marxian Economics Today. The text of this post is for Chapter 2, Marxian Economics Versus Mainstream Economics (following on from the previous posts, here, here, here, here, and here).
Classical Political Economy
Marxian economists have been quite critical of contemporary mainstream economics. As we saw in Chapter 1, and will continue to explore in the remainder of this book, Marxian economists have challenged the general approach as well as all of the major conclusions of both neoclassical and Keynesian economics.
But what about Marx, who wrote his critique of political economy, let’s remember, before neoclassical and Keynesian economics even existed?
Marx, writing in the middle of the nineteenth century, trained his critical eye on the mainstream economic theory of his day. He read Adam Smith’s Wealth of Nations and David Ricardo’s Principles of Political Economy and Taxation, as well as the writings of other classical political economists, such as Thomas Robert Malthus, Jean-Baptiste Say, and John Stuart Mill.
Marx’s critique of political economy can rightly be seen as both an extension of and break from the work of those late-eighteenth-century and early-nineteen-century mainstream economists. So, in order to understand why and how Marx proceeded in the way he did, we need to have a basic understanding of classical political economy.
Before we begin, however, we have to recognize that Marx’s interpretation of the classical economists was very different from the way they are referred to within contemporary mainstream economics. Today, within non-Marxian economics, the classicals are reduced to a few summary ideas. They include the following: a labor theory of value (which mainstream economists reject, in favor of utility), the invisible hand (which, as it turns out, Smith mentioned only three times in his writings, once in the Wealth of Nations), and comparative advantage (but not the rest of Ricardo’s theory, especially his theory of conflict over the distribution of income).
We therefore need a good bit more in order to make sense of Marx’s critique of political economy.
Adam Smith
Let’s start with Adam Smith, the so-called father of modern economics. The author of, first, the Theory of Moral Sentiments and, then, the Wealth of Nations, Smith asserted that people have a natural “propensity to truck, barter, and exchange one thing for another.” In other words, according to Smith, the ability and willingness to participate in markets were natural, and not social and historical, aspects of all humanity.
That’s not unlike contemporary mainstream economists’ insistence on presuming the existence of markets, and thus writing down supply and demand functions (or drawing them on a graph), without any further evidence or argumentation. They’re presumed to be natural.
Smith then proceeds by showing that the division of labor (such as with his most famous example, of the pin factory) has two effects: First, it leads to increases in productivity, and therefore an increase in production. Second, the extension of the division of labor within factories propels a division of labor within capitalism as a whole, as firms specialize in the production of some goods, which they can then trade with other producers in markets. In turn, the expansion of markets leads to more division of labor and higher productivity, thus increasing the wealth of nations.
Again, the parallel with contemporary mainstream economics is quite evident, which is recognized in the “classical” portion of the name for neoclassical economic theory. Using Gross Domestic Product as their measure of the wealth of nations, contemporary mainstream economists celebrate capitalism because higher productivity results in more output, which is then traded on markets. This is the basis of contemporary mainstream economists’ definition of development as an increase in GDP per capita, that is, more output per person in the population.
However, unlike contemporary mainstream economists, Smith analyzed the value of commodities in terms of the amount of labor it took to produce them. With increasing productivity, more goods and services could be produced and sold in markets, each containing less labor—and therefore available at lower prices to consumers. The nation’s wealth would therefore grow, especially as the number of workers grew.
Still, Smith worried about whether capitalist growth would persist in an uninterrupted fashion. The division of a nation’s production into “natural” rates of wages, profits, and rent to workers, capitalists, and landlords was not sufficient. What if, Smith asked, a large portion of capitalists’ profits was used to hire more “unproductive” labor, that is, the labor of household servants and others that did not contribute to increasing productivity? Purchasing labor involved in what we now call conspicuous consumption represented, for Smith, a slowing of the accumulation of additional capital. Therefore, it created a problem, an obstacle to future capitalist growth.
David Ricardo
David Ricardo picked up where Smith left off. He extended the celebration of capitalist markets to international trade. His argument was that if nations specialized in the production of commodities for which they had a relative advantage, and traded them for goods from other countries (his most famous example was British cloth and Portuguese wine), both countries would benefit. Their wealth would increase.*
That’s the only reason Ricardo’s work is cited by contemporary mainstream economists. However ironically, they ignore the fact that Ricardo made his argument based on the labor theory of value—just as they never mention Ricardo’s concern that conflicts over the distribution of income might slow capitalist growth.
In particular, Ricardo was worried that, as capitalism developed, the profits received by capitalists would be squeezed from two directions: an increase in workers’ wages and a rise in rent payments to landlords. Lower profits would mean less capital accumulation and slower growth—and, in the limit, capitalism would grind to a halt.
We can see how this might happen in the chart above. At a certain point (a level of population P, which is the pool of workers), total output (the red line) would be divided into workers’ wages, capitalists’ profits, and landlords’ rent).
It is easy to see that, at any point in time, if the wage rate paid to workers increased (which would mean an increase in the slope of the blue line), that would cut into profits (the vertical distance between the blue and green lines would decrease). That’s the major reason Ricardo supported free trade (and thus a repeal of the so-called Corn Laws): so that cheaper wheat could be imported from abroad, thus lessening the upward pressure on workers’ wage demands.
Even if the rate paid to workers remained the same over time (and thus the total amount of wages rose at a constant rate, with an increase in population), capitalists’ profits would be squeezed from the other direction, by an increase in the rents paid to the class of landlords (the vertical distance between the green and red lines). Basically, as agricultural production was moved to less and less fertile land, the rents on more productive land would rise, siphoning off a larger and larger portion of profits.
At a certain point (e.g., at a level of population P*), the entire output would be divided between workers’ wages and landlords’ rent, and nothing would be left in the form of capitalists’ profits. As a result, capitalists would be forced to stop investing and capitalist growth would cease.
Other Classicals
The Reverend Thomas Malthus was, if anything, more pessimistic than Ricardo. But he foresaw capitalism’s problems coming from the other direction, from the working masses. In his Essay on the Principle of Population, he argued that population would likely grow faster than the expansion in food production, especially in times of plenty. With such an increase in the supply of workers and a rise in the price of available food, workers’ real wages would inevitably fall and poverty would rise. The only solution was for capitalists and landlords to hire all the additional labor, and for workers’ wages to be restored to their “natural” level.
If Malthus focused on the up-and-down cycles of population and wages, and both Smith and Ricardo the potential limits to capitalist growth, the French classical economist Jean-Baptiste Say emphasized the inherent stability of capitalism. Why? Say’s argument was that the production of commodities causes incomes to be paid to suppliers of the capital, labor, and land used in producing these goods and services. And because the sale price of those commodities was the sum of the payments of wages, rents, and profit, the incomes generated during the production of commodities would be used to purchase all the commodities brought to market. Moreover, entrepreneurs were rewarded for correctly assessing the needs reflected in markets and the means to satisfy those needs. The result is what was later coined as Say’s Law: “supply creates its own demand.”
Finally, it was John Stuart Mill who added utilitarianism to classical political economy. Extending the work of Jeremy Bentham, especially the “greatest-happiness principle” (which holds that one must always act so as to produce the greatest aggregate happiness among all sentient beings), Mill argued that the greatest happiness and the least pain could be achieved on the basis of free markets, competition, and private property—with the proviso that everyone should be afforded an equal opportunity, however unequal the actual results might turn out to be. In particular, Mill defended the profits of capitalists as a just recompense for their savings, risk, and economic supervision.*
Marx’s Critique of Mainstream Economics
That, in a nutshell, is the mainstream economic theory Marx confronted while sitting in the British Museum in the middle of the nineteenth century. Marx both lauded the classical political economists for their efforts—especially Ricardo, who in his view “gave to classical political economy its final shape” (Critique of Political Economy)—and engaged in a “ruthless criticism” of their theory.
In this sense, Marx took the classical political economists quite seriously. Even as he broke from their work in a decisive manner, many of the themes of Marx’s critique of political economy stem directly from the issues the classicals attempted to tackle. That’s why the overview provided in previous sections of this chapter is so crucial to understanding Marxian economics.
Still, the question remains, how does Marx’s critique of the mainstream economics of his day transfer over to contemporary mainstream economists? As we will see, although neoclassical and Keynesian economists reject the labor theory of value and other crucial elements of classical political economy, both the basic assumptions and conclusions of their approach are so similar to those of the classicals as to make it a relatively short step from Marx’s critique of the mainstream economic theory of his day to that of our own.
However, before we look at that theoretical encounter, in the next chapter, we will see how Marx’s critical engagement with classical political economy emerged over the course of his writings before, in the mid-1860s, he sits down to write the three volumes of his most famous book, Capital.
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*Mill did defend various redistributive tax measures, in order to limit intergenerational inequalities that would otherwise constrain equality of opportunity. Moreover, he argued in a later edition of his Principles of Political Economy in favor of economic democracy: “the association of the labourers themselves on terms of equality, collectively owning the capital with which they carry on their operations, and working under managers elected and removable by themselves” (Principles of Political Economy, with some of their Applications to Social Philosophy, IV.7.21).
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