Eco 368

History of Economic Thought
The Critics of Capitalism

So far, you have encountered only one critic of capitalism (William Godwin in Part II on the Classical Economics). In this third part we will take up several such critics --people who have examined capitalism and found it wanting. It is often the case, you will find, that these critics, even the most severe, have found capitalism to be the best social system that human society has been able to generate. But they remain critics, nevertheless, dissatisfied with the notion that this is the best that humans can do. Among these critics we find several types but the most prominent are those we can call "utopian socialists" and various sorts of "Marxists" --starting with Karl Marx and continuing with various individuals who drew on his work.

The Utopian Critics

The "utopians" are so-called because of their propensity to dream up what they saw as better worlds, better ways to organize society and, in many cases, then attempt to implement those dreams through various projects. "Utopia," of course, means "no place," a "utopia" by definition doesn't exist, it is a fantasy blueprint of a new social order.

For a separate overview of a few of these folks, read chapter five in Heilbronner's Worldly Philosophers. A glance at the cepa web-page on "Utopians and Socialists" will suggest that the people dealt with below weilded wider influence than Heilbronner suggests, but his chapter is still useful.

"Utopias" and the "utopian thinking" that generated them have been around for a very long time. Prior to the rise of capitalism probably the most famous utopia was Plato's Republic, conceived in ancient Greece. In his utopia, which he elaborated in a book-length work, The Republic Plato laid out a complete plan for what he imagined to be the ideal social and political organization of society.

After came others, each reacting critically to the world they knew: Cicero of Rome with his De Republica, St.Augustine with his City of God and Sir Thomas Moore with his Utopia (1516) [NB: Moore was the first to use the term "utopia"], Bacon's New Atlantis (1624), Campanella's City of the Sun (1637), Bellamy's Looking Backward, William Morris' News from Nowhere (1890), H.G.Wells' A Modern Utopia (1905) and others. The preoccupations of these writers varied considerably, but all felt dissatisfaction with the world as they found it and tried to imagine better alternatives. As an intellectual exercise and political form, you can see that "utopian thinking" has a very long and illustrious history. That capitalism as the new and dominant social system of modern times should give rise, as other social systems had before it, to utopian schemes was almost inevitable.

For our purposes, we will examine briefly three of the best-known utopians who arose to challenge capitalism as a way of life: Robert Owen in the United Kingdom and Saint-Simon and Charles Fourier in France.

Robert Owen (1771-1858) was a Welsh industrialist and social reformer. His criticisms of capitalism grew out of his experience in and with the business practices of his day and led him to both experiment with alternative institutions and to write about his ideas in an attempt to influence policy makers into making the reforms he felt necessary on a much broader scale. Owen saw both the advantages of industrialization in speeding up the growth in wealth and its negative effects on human beings. He was generally opposed to the way in which competition in capitalist system pitted everyone against everyone else, valuing an egotism and dishonesty that destroyed human relationships, but he was particularly outraged at how the pursuit of gain led business to mercilessly exploit workers, including small children. In his Observations on the Effect of the Manufacturing System (1815) [pdf file], written after a tour of many English factories, Owen both blasts such exploitation and recommends reforms to overcome it.

His first major writing was A New View of Society, or, Essays on the Principle of the Formation of Human Character, and the Appliction of the Principle to Practice,(1813-16) [pdf file] . In these essays he is quite explicit about seeking through reform a rennovation of "moral and religious principles of the world." In that work he lays out his basic principle: that in dealing with both adults and children one can so change their environment and the ways they are dealt with as to bring about fundamental changes in their behavior. By educating children they can understand that their own happiness is bound up in the happiness of others. By changing the way such things as crime, religious sectarianism, licenciousness and interpersonal conflict are dealt with, adults can acquire new ways of acting that will improve both their lives and the lives of all in a community. All of this within the framework of a capitalist, work-ordered society.

Through his purchase in 1797 and subsequent rennovation of the New Lanark cotton mills in Scotland, Owen set about putting into action his ideas about how industrialization need not necessarily be accompanied by the widespread poverty and misery, on the job and off, that had so far accompanied it.

Owen's had notions of how industrialization could be cured of capitalism at all levels, both micro and macro. At the micro level --that of the place of production and of the community around it-- Owen conceived and sought a transformation of the organization of work and of private life. Given his his factories at New Lanark he could, and did, experiment directly at this level. Among those reforms he implemented were: reduced working hours, education for children and no factory labor before ten years of age. Non-punitive ways of dealing with theft and other soures of conflict in the community. Many details of his efforts are laid out in a history of his experience at New Lanark in the second essay of his New View mentioned above. His success in these efforts made him and his mills famous. Not only would various social reformers visit his factories and take up his theories but even some capitalists came and observed his strange behavior. The New Lanark mills closed in 1968 but still stand and can be visited along with the rest of the village which is being restored as an historic site. There is a web site with a drawing of the main mill building and many photographs of the mill and waterfall whose power drove the cottin machines.

Later the success of his ventures and the wealth they produced made it possible for him to launch utopian projects from scratch in the United States: at New Harmony, Indiana in 1824 and Queenwood, Hampshire in 1839.

Given the success of his experience at New Lanark, it is not surprising that despite other failures his vision came to generalize that solution to the whole world:

More immediately, at the macro level, Owen was convinced that the major cause of poverty was tendency of rapid mechanization throughout the economy to create unemployment, to throw people out of work without offering them any new employment. The reduction in employment caused a reduction in consumption demand, a shrinkage in markets and even less opportunity to create jobs and income.

In the short term he thought government should provide public employment at good,useful jobs for those who could not get them in the private sector. His first writings on this came during the period of rapidly increasing unemployment that followed the end of the Napoleonic Wars. In a Report to the Committee for the Relief of the Manufacturing and Labouring Poor, (1817) [pdf file] he recommended the creation of a network of villages of between 500 and 1,500 people to work co-operatively producing their own food and whatever else might be found useful. These villages, not surprisingly were to be modelled more or less on the community at New Lanark. They would govern themselves, through a system of direct democracy, and would like New Lanark organize to meet all the basic needs of the hitherto unemployed. These ideas were considerably elaborated in his Report to the County of Lanark in 1820 [pdf file].

But in the long run the key, Owen believed, to overcoming this was to to value goods not by money but by the labor time required for their production. A fully employed labor force, working a certain aggregate number of hours would therefore produce a collective product of a given labor value. If the workers were paid according to their work, therefore, there would always be sufficient effective demand to absorb the output, eliminating unemployment caused by a lack of demand. Owen even tried out such a scheme --the National Equitable Labour Exchange in which goods were valued and labor rewarded in terms of labour time.

Despite his success in his New Lanark mills, Owen's other utopian schemes, from the National Equitable Labour Exchange to New Harmony all failed. And those failures led him to turn from his personal efforts to build utopian communities and to influence the state to take up his ideas, to the budding labor movement that was more receptive to his ideas. As his vision of networked co-operative communities had stretched out to embrace the world, so did his new vision of worker unity through trade unions. In the 1830s he formed the "Grand National Moral Union of Productive and Useful Classes" --a nation-wide labor union federation that embraced dozens of unions and hundreds of thousands of workers. It was not, however, the "precursor of the industrial trade-unions of our day" as Heilbronner claims, but rather the precursor of a much more comprehensive approach to labor organization: the Industrial Workers of the World --an early 20th Century worker organization that sought to embrace all workers regardless of craft or industry or location. Unlike the latter IWW which was destroyed in through systematic government repression, the Grand National seems to have failed mainly through internal dissension among unions and between labor "leaders" and the rank and file.

Despite this new failure, Owen's efforts, however, continued to the end of his life and those efforts inspired a whole series of followers who took up his ideas and dreams. Perhaps, in the long run, the most important of these was his dream of co-operation. Owen's efforts gave rise to what is now called "the co-operative movement" that from the ruins of his utopias plucked the essential element of co-operation and applied it in more limited ways: to consumer and productive co-operatives where people would ban together and pool resources either to convert their wages into consumer goods at lower, often wholesale prices, or to jointly pool their income and credit to construct their own housing, or to collectively sell their product --as in the great grain farmer co-operatives of western Canada. Here in Austin the Wheatsville food co-op and even the University co-op are fruits of this movement.

Claude Henri de Rouvroy de Saint-Simon (1760-1825) was born into the French aristocracy to a family that claimed direct descent from Charlemagne. He began his career in the military, served in the early 1780s with the French forces that helped in the American Revolution and returned to France to participate in the revolution there in 1789. Not surprisingly, despite his renunciation of his title, he wound up in one of the Terror's prisons and was not released until Robespierre fell from power in 1794. The trauma of the revolution, both to society in general and to Saint-Simon personally launched him on a search for alternative structures for society, structures through which such trauma could be avoid and yet society could progress.

From that point on he devoted himself and his substantial financial resources to studying the rapidly changing world around him and the philosophical and scientific thought then current in intellectual and political circles. After drawing a wide circle of intellectuals to his "salon" and studying mathematics and physics in the shadow of the Ecole Polytechnique, he traveled to England and Switzerland where he wrote out, for the first time, his thoughts on social reorganization.

His essay took the form of published Letters from an Inhabitant of Geneva (1803) in which he argued that to avoid the chaos of revolution and to encourage the fastest possible improvement in everyone's welfare society should be reformed by placing the most enlightened in charge. Saint-Simon's letters addressed what he called the three classes of society: first, "scientists, artists, and men of liberal ideas," second, property owners outside the first class and third, "the rest of humanity." The first class he called upon to lead society into the future. The second class he called upon to either join the first or be destroyed as the French nobility had been during the revolution. And to the third he suggested following the lead of the first so that as the first speeds learning and general enlightenment people in general will be better educated and less subject to the domination of others. He called, in other words, for replacing the rule of the rich with the rule of the most enlightened, an intellectual meritocracy.

In the course of these letters, Saint-Simon not only explained why scientists, mathematicians and artists should be accorded the right to govern, but, within the context of post-revolutionary anti-clericalism, he also made a detailed proposal for the form of that government: a new kind of church that would replace all existing religions. The enlightened should govern, he argued, because they could "predict," i.e., they generated and had the most useful knowledge in all domains of life, and therefore deserved the most respect. The new church, he claimed, was revealed to him by God who told him that existing priests and churches had forgotten God's mandate for humans to seek understanding, and that through that search lay the path to God.

It is undoubtedly because of the details of Saint-Simon's blueprint for his church that even as his proposal appealed to some (especially intellectuals), others began to think him mad. According to Saint-Simon, God told him that he had thrown Robespierre into hell, and placed Issac Newton at His side, to "control enlightenment and command the inhabitants of all planets." God's new church would be ruled by a "Council of Newton" and the "founder of this religion" (obviously Saint-Simon) would have a right to preside over the Council and be called the "Captain of the Newtonian Guard."

To modern sensibilities one of the most striking, and offensive, things about Saint-Simon's analysis was the explicit and extreme racism of its Eurocentrism. The peoples of Europe, he declared, "are the children of Abel." While Asia and Africa "are inhabited by the descendants of Cain." And what evidence does this man who so reveres science and who is often called the father of social science offer? "Just observe," he writes, "how bloodthirsty these Africans are. Look at the indolence of the Asians."

As the post-revolutionary campaigns against the established church waned, Saint-Simon muted his "religious" proposals and for many years pushed them into the background of his ideas. Their front-stage place was taken over by his preoccupation with science and a growing conviction that the most competent managers of the application of science to industry and thus to the welfare of humankind were "industrials" by which he mean "farmers, merchants and manufacturers."

It is because of his work on the development of science, and his arguments as to how a generalized science of human society should be developed, that Saint-Simon is sometimes called the "father of social science." Not only did Saint-Simon author such works as Introduction to the Scientific Studies of the 19th Century (1807-8) but he drew into his orbit the man who would be known as the "father of postivism" and the "first sociologist," Auguste Compte.

Like Adam Smith whom he studied, Saint-Simon was dedicated to the promulgation of a work-based society. In his Declaration of Principles of 1817 that he published in his journal L'Industrie, Saint-Simon began: "We regard society as the ensemble and union of men engaged in useful work. We can conceive of no other kind of society."

The enemy of the organization of society around work was idleness. And here again, Saint-Simon shared Smith's (and other economists') abhorance of idleness. This was no small problem because for Saint-Simon idleness was a part of human nature. In his his Principles he wrote: "Man is lazy by nature." Eight years later, in some notes on Physiology Applied to the Improvement of Social Institutions, he was still ranting against the sins of laziness:

Therefore for Saint-Simon there were two sorts of men: those who overcame their natural laziness and undertook productive labor and those who did not and were parasites on society. His condemnations of the latter were aimed first and foremost at the old landed and idle nobility:

Given the importance of work and the discouragement of idleness, Saint-Simon thought that dealing with these issues was a central issue for government:

If the role of government was to "encourage all classes to do work" then the rule of rich, idle nobles and bourgeoisie was the last thing to be desired, and Saint-Simon's principal objection against existing society was the influence of these groups. Instead, society should be ruled by those with the greatest knowledge and skill in organizing work: the "industrials" and their rule should be primarily that of the administration of production rather than the ruling of men.

Having left his Church to the side, Saint-Simon in the late teens and early 1820s argued that the way for industry to come to power was via a clear popular understanding of the principles of economics and via the election of pro-industry representatives to a House of Commons. Saint-Simon's fascination with the relative success of capitalism in England had led him to propose a parliamentary form of government not only for France, but ultimately for all of Europe [NB: a goal only recently achieved]. Rejecting insurrection and revolution as destructive of not only liberty but industry itself, he argued that the accretion of industry's power in Parliament provided a way to control the state budget and reorient it to favor business. In his essay on The Political History of Industry (1818), he traced the growth of industry and its gradual rise to a position where it could challenge the old ruling classes, act in its own interests and through them help the rest of society.

This theme persisted and in 1825 we find him writing in On Social Organization (1825) about how state action could be reoriented toward the support of work, of industry and through it of all workers:

Such thoughts clearly have some kinship with Robert Owens' views on the education of working class children and the re-education of working class adults. Neither Owens nor Saint-Simon predicted that the average waged worker would rise to a level of intellectual competence that would give them the right to govern directly, but they did think that education would improve their standard of living, their ability to work, and their ability to participate in both industry and politics.

In fact, when Saint-Simon wrote a Letter in 1821 directly to the 25 million strong French working class, he was quite explicit about advising them to "subordinate" themselves to their betters -though "betters" was no longer defined by birth but by degree of scientific and "administrative" (managerial) knowledge. He suggested that they openly declare their support for the accession of the business elite ("the heads of the most important houses of agriculture, manufacture and commerce") to power and that they entreat the King to free that elite from taxation and give free reign to industrial investment.

Although he shifted his emphasis to the promotion of science and industry, and to its accession to power via parliamentary institutions, Saint-Simon didn't completely abandon his vision of the transformation of religion and the transcendence of what he viewed as religious superstition and sectarianism. But instead of proposing to replace Christianity and other existing religions by a Chuch of Newton, he shifted his rhetorical approach and began to call for a crafting of a New Christianity that would, as his earlier "Letter from Geneva" suggested, amount to a return to the original intention of God and also to the practices of the early "primitive Christian church" -as it existed before it became bureaucratized, heretical and separated from the faithful. But now that intention is articulated somewhat differently. Saint-Simon declares:

Not surprisingly, Saint-Simon argued that "The men who are to be the founders of the New Christianity and the leaders of the new Church, must be all those who are the most capable of contributing to the advancement of the well-being of the poorest class." We have already seen who he believed those men to be: the industrials.

Although we do not have the time to explore the history of Saint-Simon's influence, I would like to point to two elements. First, his immediate followers actually sought to institutionalize his ideas in a new church and elaborated an elaborate but short-lived set of roles, garb and rituals for it. Second, the basic thrust -that of according recognition, respect and power to an intellectual and managerial elite-has had a much longer lived influence. Saint-Simon has been called the "father of technocracy" and many of those traits of modern ideology and of industrial and governmental rhetoric that preach popular deference to "experts" can be properly seen as a legacy of Saint-Simon's ideas. If he were alive today he might well be calling for the leaders of high-tech industry, men like Bill Gates or Michael Dell, to be the heads of his Church as well as central secular policy makers.

Karl Marx and the Critique of "Capital"

Karl Heinrich Marx (1818-1883), born, reared and educated to the university level in Germany, driven into exile for his political writings first from Germany, then from France and from Belgium, he finally settled in England to become the most penetrating and influential critic of capitalism and of economics of all time.

Trained in German speculative philosophy (especially Kant and Hegel) while a university student, Marx studied the political theory of French socialists while in exile in France and later, in England, studied the entire history of English and continental political economy.

Marx became interested in "economics" while still in Germany (he studied and wrote about the criminalization of traditional peasant practices of gathering wood in forests) but he undertook the serious study of economics only in the 1840s after meeting Frederick Engels who would become his life-long friend and partner in writing and political activity.

Marx on Capitalism and Work

His studies of the classical economists led Marx to conclude that writers like Smith and Ricardo had been completely correct to adopt a "labor theory of value" for analyzing capitalism because it was (and is) as they perceived a kind of social order in which labor was the key to the production of wealth and indeed the entire organization of society. Also like Smith, at least, Marx recognized that the severity of the work imposed within the developing manufacturing division of labor was destructive of the human beings forced to do it. But whereas Smith, and those who shared this understanding (like Robert Owen who sought to alleviate the harmful effects) never the less accepted capitalism as a necessary organization of society around work, Marx drew on his Hegelian intellectual roots to develop a much more profound critique of work under capitalism.

That critique was laid out in his Economic and Philosophical Manuscripts written in 1844. In the section (that you must read) called "Estranged Labour" [pdf file] Marx develops a theory of the ways in which labor, because it is forced under capitalism and workers have no control over what they do, is "alienated" and destructive of both the individual spirit and of social relationships. The implication of this analysis is that the only way work can become un-alienated is for the "forced" character of work to be removed so that workers control the process and subordinate it to their needs. While Marx could see that work had always been imposed in class societies, e.g., the Romans made their slaves work for them, only in capitalism, he argued, did such imposition become limitless and unending.

When he wrote his major work Capital in the 1860s, Marx would not only demonstrate through a history of the rise of capitalism how work became the vehicle by which capitalists came to be the dominant force in society, but also how once its creation, the working class, got itself organized it would fight first to limit the capitalist imposition of work [pdf file] and then to achieve an absolute reduction of work [pdf file] and its liberation from life sentences to hard labor. If work, Marx argued, was the key social institution of capitalism then the promulgation of that system required not merely a now and then imposition of work to meet some particular ends but an ever expanding imposition. And the vehicle of such an ever-expanding imposition he recognized, along with the classical political economists, was the investment of profit in putting ever more people to work. (Here he provided a theoretical grounding for Godwin's intuition that workers should not be thankful to those who create jobs, but resentful of an expansion in the means of their subordination.) But unlike the classicals for whom profits remained something of a mystery (remember how Smith had no theory to explain it and Ricardo saw it merely as a residual that would gradually decline) Marx developed a theory of profits using his own "labor theory of value."

Marx, from Value to Surplus Value

Although Marx agreed with the classics about the need for a labor theory of value, given the centrality of the imposition of work within capitalism, his elaboration of that theory was much more thorough and allowed him to construct a theory of profits. The essentials of this theory were these:

1. Capitalism organized society by putting people to work to produce commodities that were then sold for a profit and those profits were then used to reproduce the system and enlarge the imposition of work.

2. It made sense to think of value in capitalism in terms of "abstract labor", i.e., labor in general, abstracted from its particular forms, because for the capitalists, bent on reorganizing society around the imposition of work, it was an entirely secondary issue of the kind of work they imposed and the kind of commodities that work produced. Therefore the "value" of commodities can be measured by the average amount of labor time required to produce them. Money, and therefore price, were expressions of value although in the workings of markets the prices of commodities were not always equal to their values. Another way to see why it makes sense to measure the value of commodities by the average amount of labor time required to produce them is that because the "value" to capital of commodities is that their production provides it with the means of putting people to work and commodities that require more time to produce provide more opportunity for the imposition of work and thus for the promulgation of capital's organization of society.

3. The key commodity in capitalism was "labor power," the ability and willingness to work, that people were forced to sell to capitalists. (We saw some of the historical processes of creating this situation in chapters 27 and 28 of Capital, Volume I that you read in the first section of the course.) The value of labor power, he argued in Chapter 6 of Capital, is determined the same as that of other commodities, by the labor time required to produce it, i.e., the labor time required to produce the means of subsistence (consumer goods). The labor of procreation, rearing, training, etc. would also be necessary but unclocked and unwaged that labor entered only indirectly (through the "family wage") into the costs of capitalist production.

4. Assuming that workers are always paid the full value of their labor power, i.e., that they receive in wages enough to reproduce themselves as a class (the classical economic definition of "subsistence"), then as long as the capitalists are able to make workers work more than the time required to produce the necessary means of subsistence (the value of their wages), there will be a surplus, i.e., profit. In Marx's jargon if the socially necessary labor time required to produce the goods required for the reproduction of the labor force = V but the amount of actual work imposed on workers (T) is greater than this, then there will be a surplus T - V = S. Or, put differently, the total labor time will equal V + S. In labor terms S = surplus labor, labor above and beyond that required to reproduce the labor force. In value terms S = surplus value, value above and beyond capitalist investment.

5. The strategic objective of capitalists therefore, in order to maximize their social control and its expansion, is the enlargement of the surplus value they extract from workers. For this they have historically, Marx argued, followed two main strategies: those of absolute and relative surplus value. In the case of an absolute surplus value strategy, capitalists have sought to extend the length of work time (the working day in Marx's time, the working week these days) in order, by increasing T and holding V constant, to increase S. In the case of the relative surplus value strategy, capitalists have sought to use new technologies to raise productivity thus lowering the value of V and thus increasing the share of S in T. Success in both strategies raise the ratio S/V or what Marx called the rate of exploitation. They also tend to raise the rate of profit, S/(C + V) where C are the other costs of investment beyond labor, i.e., plant and equipment, raw materials, the means of production in general.

6. For Marx, the "normal" operations of capital involved successful profit making (successful generation of surplus value) and the reinvestment of that profit, what the classicals, and Marx after them, called "accumulation." Because relative surplus value strategies of substituting machinery for labor were becoming more and more prevalent with industrialization (as his predecessors such as Owen had recognized) the displacement of waged workers into a "reserve army" of the unwaged and formally unemployed was an integral part of accumulation and the "expanded reproduction" of capitalism.

With this theory in hand Marx could and did critique every important economic theory and theorist that he came across. His major work Capital is subtitled "A critique of political economy" because it laid out a theory that showed how "political economy" was the "scientific brain of capital," the strategic thought of the capitalist class. Marx's "critique" revealed both the degree to which that thought was successful in grasping the nature of the system and the ways it tended to hide its exploitative nature and accept it as "natural."

The implication of Marx's analysis, of the capitalist tendency to impose work endlessly, of the alienated character of that work and the way it undermined what made humans human, suggested to him that workers resistance to the imposition of work and their efforts to reduce that imposition were not merely transitory phenomena but were inevitable and would endlessly re-emerge no matter how often they were repressed or mollified. Capitalism, therefore, was not merely a class society as everyone from the mercantilists on had recognized, but the relations of class were fundamentally antagonistic and that antagonism could only end with the end of capitalism. Therefore, unlike Smith or Owen or Saint-Simon who believed that workers could be reconciled to accept the rule of capitalists, Marx argued that class struggle could only end with the transcendence of capitalism. And the historical subject of that transcendence, he argued, was the mass of people who suffered and resented the endless imposition of work: the working class or proletariat. Capital, he argued, had created in the mass of people that it forced to work for it, its own gravediggers. The growth process of capitalism, therefore, was endlessly fraught with antagonistic conflict and recurrent crisis.

Economic Crisis and Revolution

For Marx, the endless antagonistic conflicts of class conflict in capitalism and the recurrent crises that plagued its history were inextricably related. As I have discussed elsewhere, many Marxists have interpreted Marx's analyses of economic crises in the manner of economists and have, unfortunately, in the process, missed this close relationship. Here I want to treat briefly only three aspects of Marx's work on crises and in the process display an alternative intepretation.

The first aspect Marx took over from Malthus: the recognition of the possibility of "general gluts" due to inadequate aggregate demand. But unlike Malthus (and more like Ricardo, and John Maynard Keynes almost a century later) Marx saw clearly how the demand for producer goods complements the demand for consumer goods in constituting aggregate demand. Therefore, what he retained from Malthus' understanding was the tendency for the dynamics of capitalist development to hold down the growth of the wage and thus the growth of consumer demand. Marx reinterpreted that dynamic, however, seeing not uncontrolled population growth as the cause, but rather contradiction between the wage minimizing behavior of capitalists on the one hand and their profit maximizing efforts to expand production and markets on the other. In other words, Marx was an "underconsumptionist" only in the sense that he saw in the weakness of the working class and the strength of the capitalists a tendency for production to outstrip consumption demand.

The closely related second aspect of his thinking on crisis concerns the pattern of power relations between labor and capital manifested in the "business cycle." In periods of rapid growth (the upswing or boom part of the cycle) Marx saw how rising investment could lead to the demand for labor outstripping the growth in the supply of labor and thus in wage increases as labor markets tightened and workers gained more power vis a vis their employers. If wages rose faster than productivity the result would be a fall in profits, a reduction in investment and thus a downturn in production brought on by the consequent contraction in aggregate demand. In other words, the felicitous conditions within which labor was able to to benefit would lead to a crisis for business, first in the decline in the rate of profit and then in a contraction in the scope of its operations.

However, business' own response to this crisis --the reduction in investment and consequent downturn-- also provided it with a solution: layoffs and rising unemployment would bring about a drop in wages and a restoration in profits. That is to say, business would convert its own crisis into a crisis for the workers through which it would regain the upper hand. With the restoration of profits would come renewed investment, rising aggregate demand and a new round of growth.

Marx was both pessimistic and optimistic in his views of such "cycles." On the one hand he saw how the downturn would destroy any gains made by workers through their wage struggles during the upturn. On the other hand, he argued (against Weston among others) that the wage struggle was not useless because it would raise wages higher during the upturn and prevent them from falling during the downturn than would be the case in the absense of struggle. Moreover, such struggles, he argued, were "schools of class struggle" in which workers learned how to organize themselves and to fight --experiences that would prepare them for revolution (see below). And one possibility of revolution, Marx saw, lay in the harsh conditions imposed on workers during the downturn, the high unemployment, falling wages and all the ills they entailed (reduced consumption, even starvation, increased succeptability to disease, etc.). Again and again in the 19th Century revolutionary uprisings occurred in such periods. For Marx, therefore, there was no guaranteed "cyclicity" to the business cycle, no guarantee that the capitalists would in fact be successful in turning their crisis into a crisis for the working class such that business regained the upper hand. On the contrary, there was always the danger for business, and the opportunity for workers of turning the downturn into revolution and the end of the system.

The third aspect of Marx's thinking about crisis, like the first, concerned long run tendencies. As workers' struggles against the length of the working day bore fruit through the 10 hours and then the 8 hours movement, business responded to its losses on the terrain of time through an ever greater offensive on the terrain of technology. In the terms of Marx's theoretical language, a defeat of the strategy of absolute surplus value could be countered by a victory of the strategy of relative surplus value. By introducing productivity raising new ways of organizing production, business could reduce its costs of production and thus defend or even enlarge the rate of exploitation and its rate of profit.

The primary form of such productivity raising technological innovations, however, was the introduction of machinery and that carried an inherent contradiction that threatened the future of capitalist control over society. The productivity increases that came with machinery were three-fold and often related. First, the redesign of a machine might simply make it more effective so that the same worker, working with the redesigned machine, might produce more in a given period of work. Second, the introduction of new machines often involved the reorganization of production in ways that deprived workers of control over their work and subordinated them to the rhythm of the machines. The assembly line is a well-known example of this as the speed of the line determines the intensity of work and business keeps the line running fast enough to prevent workers from taking even short breaks between tasks. Third, and most importantly for this aspect of crisis theory, new machines frequently replace some elements of production previously executed by workers and thus result in layoffs and the growth of the "reserve army."

Herein lay the contradiction. On the one hand, capitalism organizes society by putting everyone to work and therefore its ability to achieve and maintain its dominance depends upon its being able to find waged jobs for the vast majority of people. On the other, the relative surplus value strategy of raising productivity via the introduction of machines destroys the jobs business needs. As workers successes at defeating business' absolute surplus value strategy of imposing more work via longer hours led to a shift to the relative surplus value strategy of technological change, this contradiction intensified. In industry after industry, Marx saw a repetition of this pattern and thus a spreading of the difficulties of imposing work.

Marx labeled this long-run tendency toward the displacement of labor and the undermining of the fundamental means of capitalist social organization the "tendency of the rate of profit to fall." This title, which has misled many Marxists into a misinterpretation of its meaning, derives from his analysis of the relative surplus value strategy. As mentioned above, Marx analyzed the relative surpus value of substituting machines for workers using his value theory. Such a rise in what we would call the capital-labor ration (K/L> he called a rise in the "organic composition of capital" (C/V) where C stands for the value invested in machinery and raw materials and V for the value invested in labor. Now, the impact of a rise in c/v on the rate of profit defined in value terms [s/(c+v)] can be evaluated. Marx argued that as the increase in c/v brought a rise in productivity the per-unit value of the means of consumption would fall, and in the long run, because there is no theoretical limit to this process, v would tend to zero. In that case s/(c+v) would tend to s/c. But with no theoretical upper limit to the rise in c the future of s/c depends on what happens with s. Unfortunately, the amount of surplus value depends on the number of workers employed and the length of their working time. With a very real upper limit on work time (24 hrs a day, but practically a much lower limit) and with the rise of c/v displacing labor, s can be seen to be very much limited. With s limited and c unlimited, the ratio s/c must fall. Thus "the tendency of the rate of profit to fall." [For Paul Sweezy's Marxist critique of this aspect of Marx's theory, and my rebuttal, see my article "Karl Marx: Economist or Revolutionary?".]

The capitalist solutions to this contradiction between the need for jobs and the tendency to eliminate them have been two-fold, one of which was already obvious in Marx's day and one of which came later. The former was the creation of new industries. As long as new industries arose to provide opportunities to impose more work, many, perhaps most of those displaced by machines could find work elsewhere (but not all, Marx's "reserve army" included not only the "floating" or "frictional" unemployed moving between jobs, but also the "stagnant" or "structurally" unemployed unable to find new waged work. The second solution was the colonization of the time and lives of those displaced. Such was fate of children and women excluded from the labor force by machines (or labor laws) who found themselves re-encarcerated within schools or families and subject to the imposition of the unwaged work of producing and reproducing the labor force itself.

With the history of the 17th - 19th Centuries as his frame of reference, Marx tended to think that the transcendence capitalism would come through crisis and revolution. The English Revolution of the 1640s, the American Revolution of 1776-1812, the French Revolution of 1789, the French Revolution of 1830, the almost European-wide revolutions of 1848, the Paris uprising of 1870, the anti-colonial revolutions in the Caribbean and Asia, were all examples of how revolutionary upheavals had not only brought the capitalist class to power but might also be the means to destroy it. This expectation ran throughout much of his intellectual and political life, from the 1848 crafting of the Communist Manifesto through the final summary chapter of Capital (1867) to his studies of the Civil War in France after the rising and repression of the Paris Commune.

Given his vision of a limited number of capitalists imposing work on a ever larger mass of humanity Marx did hold out the hope that ultimately it might be far easier and less violent for workers to overthrow the capitalists than it had been for the capitalists, who had to draw on the strength and anger of the "lower classes" to overthrow the earlier, pre-capitalist feudal power structures. Later in Marx's life, as workers began to achieve the right to vote, Marx and Engels, who outlived him by many years, would wonder whether an entirely peaceful path to the transcendence of capitalism through the election to parliament of worker representatives would be possible. (A transition to power such as the one Saint-Simon had envisaged for the capitalist class.)

The Critique of Imperialism: Hobson and Lenin

Among the economists we have examined, all the way back to the mercantilists the international dimension of capitalism, foreign trade and investment, was taken for granted. Debate raged over the best ways to succeed in this dimension but no one questioned its desireability. The mercantilists wanted export outlets (and investments where they facilitated more trade) and the classicals attacked only their methods (state policies to restrict money or trade {imports} flows). Smith critiqued colonialism only when it reduced the opporunities for trade and never doubted the desireability of ever more trade and investment.

Even in Marx's analysis of the rise and development of capitalism although he was acutely aware of the phenomenon of colonialism and the growth of national imperialism, he saw both as aspects of capitalist accumulation --understood both as growth and as the accumulation of the classes-- and therefore as "normal." As early as the Communist Manifesto Marx saw that capitalism was an ever increasingly global phenomenon:

He paid particular attention to the British colonization of Ireland and the way the British incorporated the exploitation of Irish labor into the expansion of English capitalism. The Irish were put to work in Ireland, and their work taxed (remember William Petty's prescription for how to tax the Irish) and they were imported bodily into England as "scabs" to be pitted against striking English workers. Nationality and ethnicity were used to maintain control over the a divided working class:

He also studied British imperialism in India, the role of the East Indies Company, and the ways in which Indian labor was exploited and Indian markets monopolized by the English. But in all of his writings on these various manifestations of "imperialism" there is no separate theory. But because capital, from its earliest times, was international Marx felt no urgent need for a separate theory to critique its international dimension beyond his more general critique of capitalism itself.

By the end of the 19th Century, however, the expansion of the imperial ambitions and colonizing activities of capitalists in different countries led to two kinds of critique: first, moral and humanitarian objections to the often racist subordination of people in one part of the world to those in other areas and second, an argument that such conflicts tended to produce wars, not merely wars of colonial conquest but wars between competing colonial powers.

The objections of the first sort came from those who rejected imperialist claims to moral and racial superiority and the need to shoulder "the white man's burden" of civilizing the world. The objections of the second sort stemmed from the close relationship between business power and state power. While business had come to dominate society partly through the mobilization of the state in its interests, that state was the nation-state that had been crafted along with it. In the 19th Century there were no supra-national insitutions that could be used for such purposes, as we have seen. So just as within countries, when the interests of capitalists differed and they turned to the state to support one position or another, so too at the international level British capitalists mobilized the British state to support their interests in foreign raw materials, labor and markets while German capitalists mobilized the German state(s) to support their interests, and so on.

Such conflicts between capitalists of one country and those of another, by involving their respective nation-states, led to war between nations, the slaughter of workers mobilized as soldiers. This was not just theory. England entered the Crimean War (1854-1856) on the side of Turkey against Russia to to defend its Mediterranean trade routes. In 1887 Britain annexed the Dutch Transvaal and Orange Free State in Southern Africa and fought the first Boer War (1880-1881) to keep them. The Boer's however revolted and secured limited self-government. In 1882 the British invaded Egypt to secure control of the Suez Canal, again to control trade routes. In 1899 British imperial desires for control of newly discovered diamond and gold mines led to the invasion of the Dutch Transvaal and the Second Boer War. Between 1880 and 1900 the British Empire expanded to occupy some 4 million square miles. To the critics of such phenomena the need for an explicit theory of imperialism that could explain all this and point the way beyond it was clear.

One of those who developed such a theory was John Atkinson Hobson (1858-1940). Drawing both on what he learned in a visit to South Africa and on the logic of his earlier work with A.F. Mummery The Physiology of Industry (1889) Hobson crafted a theoretical explanation for imperialism. In The Physiology Hobson and Mummery had followed Malthus, and to some degree Marx, and argued that that "gluts" or downturns in the business cycle were due to oversavings or underconsumption. Like Marx, they saw a contradiction between the relentless drive to growth in production and output and constraints on consumption. But whereas Marx had located the constraint in capitalist efforts to hold down wages for the sake of profits that would be used for investment and the imposition of work, Hobson and Mummery followed Malthus in ascribing it to the impossibility of consumption demand growing as fast as output because of two things: a dramatically unequal distribution of income that placed vast amounts of money in the hands of the rich and the proclivity of those same rich to save substantial portions of that their income. Basically, they argued that the rich had the power to satisfy their greed by keeping the working class poor and that that poverty limited consumption demand.

Moreover, and here too they followed Marx, they saw that the processes of competition through which capitalists fought each other in their quest for ever more riches led to rising industrial concentration as the more successful capitalists destroyed or absorbed the weaker and took over a larger share of production and monopolized markets. Such processes, they felt, explained the rapid expansion of industrial and financial cartels around the turn of the century. The growing concentration of economic power gave the successful capitalists not only more economic power directly but more resources to influence state policies in their behalf. Monopoly power meant greater profits but greater profits and more savings meant less consumption demand and worse problems.

Although Hobson and Mummery's work was preoccupied with business cycles, their analysis provided the basis of a theory of imperialism as well. In 1902 Hobson published his Imperialism, A Study [pdf file] that laid out just such a theory. The "taproot" of imperialism, Hobson argued, lay precisely in the failure of consumption demand to keep up with production. Because it did not, businesses sought foreign markets for the goods they produced but could not sell at home. Because it did not, business had limited opportunities to expand its investments at home without depressing profits and therefore sought investment opportunities abroad. These contradictions developed even faster, Hobson, claimed because of that same power of the rich cited before; a power that caused a skewed distribution of income toward those with more money than they could consume and the growing power of industrial concentration and monopoly that constricted output and thus investment in the search for higher prices and higher profits.

This analysis proved, Hobson maintained, that all arguments as to the inevitability of imperialism were unfounded and either the self-justifying sophisms of those who profit from imperialism (remember Adam Smith on the self-serving arguments of the mercantilists?) or the illusions of their dupes. Because the source of inadequate consumption demand and oversavings lay in the unequal distribution of income all one had to do to end imperialism (and periodic business downturns) was redistribute income. Hobson's radical solution was simple: a social reform that would take unearned income from the rich and give it to the poor either directly or through government programs that enhanced public consumption. The increased demand would provide ample markets as investment and production expanded. Supply would find its demand. Unemployment and poverty would be things of the past and with the root of imperialism chopped through, the tree itself would die a quick death. Hobson's solution, needlesstosay, was unpopular with both capitalists and the political architects of empire. He received a much better reception from the trade union movement fighting for higher wages, and from those "socialists" who wanted to use the state to achieve such redistributions of income and power. Hobson saw these as "as complementary forces arrayed against Imperialism."

Hobson's analysis was quickly taken up by Marxists, the two most famous of which in the early 20th Century were Russian Bolsheviks: Nicolai Bukharin (1888-1938) who wrote Imperialism and World Economy and Vladimir Ilich Lenin (1870-1924) who wrote Imperialism:The Highest Stage of Capitalism (1916). Although Bukharins book is better, Lenin's is far more famous. It is better known, of course, because of Lenin's central position in the Bolshevik Party, because of his central role in shaping early Soviet policies and because of his central position in the "Marxist-Leninist" ideology of the Soviet state.

In writing his Imperialism while in Switzerland in 1916, Lenin made, he explained, "use of the principal English work on imperialism, the book by J.A.Hobson, with all the care that, in my opinion, that work deserves." To Hobson's theory of an ever more concentrated and monopolistic capitalism needed to seek out new markets for surplus commodities and to seek out new investment outlets for surplus capital, Lenin added three things. First, he pointed to the need by capitalists to seek out new sources of cheap raw materials. Second, writing in the midst of World War I, he dramatically emphasized how the competition among imperialist powers leads to war. Third, unlike Hobson, Lenin rejected the notion that social reform could lead to nationally self-sufficient capitalist development and the abandonment of imperialism. Before the outbreak of WWI his position on this was theoretical, based on his understanding of the capitalist drive to expansion. After the social democratic parties of the Second International failed to prevent the war Lenin considered his theory proven. The only way to eliminate imperialism, he argued, was to overthrow capitalism.

When revolution broke out in Russia the next year (1917), Lenin acted on the basis of his theory. Exhausted by war with Germany and exploitation at home, Russian workers rose in revolt in February 1917 and overthrew Czar. The Russian workers took control, organizing worker committees in the factories, soldier committees in the military (they elected their officers) and "soviets" or collective local governments in the cities. At the same time social democratic forces moved to establish a new provisional, but still capitalist, government under Karensky (1881-1970). Lenin and the Bolsheviks, considering the revolution only half completed, organized themselves and seized power in October of that same year.

In the midst of a civil war --in which counter-revolutionary "white" forces were backed by Western capitalist powers (including the US government that sent troops)-- Lenin led a series of policy changes designed to move the now Soviet economy beyond capitalism. Just what that meant, and whether he succeeded or failed has been debated ever since. But one thing is certain: the Bolsheviks moved not to disband the Czarist empire that had extended Russian power far into Europe and Asia but to consolidate it with themselves in command. And in the years that followed, up to and following World War II, the leadership of the Soviet Union continued the same practices, including most noticeably the virtual annexation of the countries of Eastern Europe after the defeat of Germany in 1945. The ideological rhetoric of "revolution" had replaced that of "white man's burden" and "Manifest Destiny" but empire remained very much on the agenda for the Soviet state.