Returning to England, Owen continued to stick to his views — notably that money and private property are trustworthy. His philosophy made a deep impression on workers; evolving from his teachings, a series of producers' and consumers' cooperatives developed throughout England, some based on a moneyless system. What survived was the consumer cooperative movement, begun by twenty-eight backers who called themselves Rochdale Pioneers.
Owen, who launched a moral crusade for the working class, inspired the Pioneers but was not directly involved with them. Instead, joining with the leaders of the movement, he formed a Grand National Moral Union in 1833 with a membership of 500,000 workers. This forerunner of modern industrial trade unions called for broad social change, particularly better wages and working conditions, the setting up of cooperatives, and the abolition of money.
For two years, Owen traveled the countryside advocating unionism, but he met failure because he encountered too many obstacles. Not only did government disrupt the movement with anti-union legislation, but local unions failed to control their members, and strikes weakened the movement. Even worse, Owen and his lieutenants quarreled and ended their association.
At the age of sixty-four, Robert Owen, the successful capitalist who disavowed capitalism, realized that his utopian projects had ended in failure. But he did not give up. Instead, he publicized his ideas in tracts and wrote his Autobiography. At the age of eighty-seven, he died, still optimistic. The most romantic of the Utopians, he influenced capitalism by proving that industry could sponsor humanitarian projects and still make profits.
Analysis
Robert Owen, known as the founder of British socialism, first used the words socialist and communist. However, he created a concept of socialism that is quite different from Karl Marx's concept of class warfare. Owen's philosophy passed down to the Fabian Society of Great Britain, whose leaders included George Bernard Shaw, Sidney and Beatrice Webb, and H. G. Wells, and finally down to Britain's Labour Party, a moderate socialist party. The legacy of Robert Owen includes British socialism, the passage of legislation to correct deplorable working conditions, modern trade unions, and consumer cooperatives.
Saint-Simon (1760-1825)
Summary
Count Henri de Rouvroy de Saint-Simon, a French aristocrat, possessed the spirit of democracy and translated his convictions into action by fighting in the American Revolution. Renowned for his pigheadedness, he determined to become a philosopher and launched a survey of human knowledge which, along with an unsuccessful marriage, dissipated his finances and led to a bungled suicide attempt. His search resulted in Saint-Simon's belief in the brotherhood of man, which evolved into an industrial religion.
This half-mad utopian stressed the necessity of work, which led to his conclusion that workers deserve society's greatest rewards, and idlers deserve the least. Reality proved that the opposite situation was true: non-working aristocrats received the greatest share of wealth and did the least work. Saint-Simon proposed to reorganize society along the lines of a factory, with the function of government being economic rather than political. With the aid of scientists, technicians, and capitalists, government should arrange for rewards to be allotted in proportion to each person's social contribution. Rewards should go to active members and not to lazy onlookers. But Saint-Simon offered only theory without working out practical details. After his death, his ideas degenerated into a mystical, hazy religion, with churches in France, England, and Germany.
Analysis
Saint-Simon, while quite impractical, is called the founder of French socialism. Defining a nation as "nothing but a great industrial society," and politics as "the science of production," he took as his motto: "Everything by industry; everything for industry."
Charles Fourier (1772-1837)
Summary
If Saint-Simon was half-mad, then his fellow countryman, Charles Fourier, was altogether crazy. He believed that the earth was geared to life cycles lasting 80,000 years — 40,000 years of "ascending vibrations" and an equal number of "descending vibrations." The advancement of humanity consisted of eight stages. Four stages — Confusion, Savagery, Patriarchism, and Barbarousness — have already passed.
Humanity now looks forward to Guaranteeism and eventually Harmony, the final stage when the sea will become lemonade, peaceable species of animals will evolve, and people will live to 144 years, of which 120 years will be spent in unrestricted sexual delight. Then the seesaw will tip and humanity will work its way backward to Confusion before beginning another life cycle. These eight stages would repeat themselves endlessly.
In spite of his optimistic vision of the future, Fourier saw the practical world as utterly disorganized. As a solution, he proposed to reorganize society into phalanxes, or organized communes, of 1800 persons living under one roof, as in an ultra-modern hotel. Each person would have privacy, and the style of life would vary with one's ability to pay. Since everyone would have to work, there would be farmers, mechanics, and craftworkers. Children would perform dirty work and tend flowers. Residents would labor a few hours each day at whatever job appealed to them. A spirit of competition would exist.
Fourier believed that the phalanx concept would produce profits as high as 30 percent of the investment. Every member would share profits, which would be divided on the basis of 5/12 to labor, 4/12 to capital, and 3/12 to ability or talent. Everyone would be encouraged to become a part owner.
Surprisingly, the idea spread. In the U.S. alone, there were over forty phalanxes, including Brook Farm, Oneida, New Icaria, and Trumbull. However, while some lasted for several years, none proved permanent.
Analysis
The one factor which utopian socialists shared was idealism: They dreamed of the betterment of humanity. Some of these dreams, particularly Fourier's, were ridiculous, but it takes dreams to stimulate people to progress. Of these utopian dreamers, all dared to be different and to present dreams to scoffers, but Robert Owen's contributions were the most practical and the most lasting. These thinkers were both utopians and socialists — economic reformers who attempted to create an ideal world by changing society. To understand their role, an explanation of several terms is in order:
Utopia: An impractical social, intellectual, or political scheme. "Utopia" also refers to those ideal states which fail because they lack ideal human beings. Utopias are based on what the author thinks ought to be rather than what actually exists. Famous examples include Plato's Republic, Sir Thomas More's Utopia (from which the name comes), Sir Francis Bacon's New Atlantis, and Campanella's City of the Sun.
Socialism: State ownership of the basic means of production. The fundamental objective of socialism is to prevent capitalists and landlords from exploiting workers. Socialists believe that wealth should be distributed equally and that distribution under capitalism is unfair. Their solution is the nationalization of land, forests, minerals, factories, transportation, trade, and banking — with profits distributed by the state to the people rather than to capitalists and landlords.
Under socialism, rent, interest, and a leisure class would not exist. All would work according to ability.
Private property in the form of clothing, household goods, money, shelter, and land would be allowed the individual, but all else would be owned collectively. This is, of course, the modern concept of socialism, which has evolved from the concept of common ownership.
The whole idea of socialism dates to early utopian schemes. As already noted, the term originated with Robert Owen. But, as contrasted with communism, the socialists believe in attaining goals by an evolutionary process through democratic means.
Communism: Redistribution of wealth through revolution and class warfare. Basically, this belief differs from socialism in its method of attaining the same goal.
Utopian Socialists: Reformers who were inspired largely by the ideas of the Age of Enlightenment and the French Revolution, particularly the belief in progress and the perfectibility of humanity. They did not preach class hatred but appealed to the intellectual and capitalistic classes to reform society voluntarily.
Ironically, the term is taken from Karl Marx, who used it scornfully, saying that these reformers were nothing more than impractical idealists. Thus they were named utopian socialists rather than his brand of practical revolutionary socialists. From the utopian socialists came the concept of the welfare state, held by modern socialists of Great Britain and Scandinavia, as well as others.
The last economist to be taken up in this chapter — John Stuart Mill — was not actually a utopian socialist but rather the champion of democratic liberalism, which was a broad-minded view of the principles of laissez faire. However, Mill gradually approached the socialist point of view and, in doing so, he added respectablity to the ideas of the utopian socialists.
John Stuart Mill (1806-73)
Summary
The son of James Mill, a famous economist, philosopher, and champion of laissez faire, John Stuart Mill, a child prodigy, learned Greek at the age of three and studied Latin at eight. By the age of twelve, he had read Greek and Roman classics in the original as well as English philosophy and history. He absorbed geometry, algebra, and differential calculus, and wrote books on history. By the age of thirteen, he mastered logic and read major works on economics.
Mill did not write his philosophy of economics, however, until thirty years later. In the meantime, he fell in love with Harriet Taylor, who educated him on the subject of women's rights. Because she was married, their romance remained platonic for twenty years, even though they lived and traveled together. They married after Mrs. Taylor's husband died.
With the publication of his two-volume economic masterpiece, Principles of Political Economy (1848), Mill gained recognition as the greatest economist of his age. The significance of this work is that it dealt a severe blow to the concept of laissez faire. In surveying the field of economics, Mill discovered that laws laid down by classical economists applied to production but not to the distribution of wealth. He argued that, because distribution depended on society's customs and laws, there was no right way to distribute wealth. This profound discovery meant that society could distribute its wealth on the basis of ethics and morality instead of cold, impersonal laws.
In contrast to the despair of Malthus and Ricardo, Mill envisioned hope. He believed that through education, workers would realize the impact of the Malthusian doctrine and would voluntarily regulate population. He maintained that workers should form cooperatives and unions to seek higher wages.
Opposed to government regulation and recognizing communism's threat to individualism, he believed legislation was necessary to protect women and children who worked in factories.
Consequently, by favoring government intervention to remedy injustice, Mill modifed the doctrine of laissez faire. He called for taxes on inheritance and rent. The success of his book led to Mill's publication of a cheap, one-volume edition, priced to reach the working class.
Analysis
John Stuart Mill, founder of utilitarianism, is known for contributing to political science and ethics. His essay "On Liberty," a manifesto against despotism, is perhaps the finest piece written on individualism. A peaceful and reasonable man, Mill treasured his wife and the pursuit of knowledge. He later called himself a socialist, although his philosophy placed him somewhere between capitalism and socialism. He was one of the first spokespersons favoring equal rights and education for women, the subject of his "Enfranchisement of Women" and The Subjection of Women (1869).
Glossary
Founder of British Socialism Robert Owen.
Founder of French Socialism Saint-Simon.
Utopia A name which classifies any social, intellectual, or political scheme which is impractical at the time when it is conceived. Also, a reference to ideal states peopled by perfect human beings.
Socialism State ownership of the means of production, which is obtained through peaceful evolution without loss of personal liberty; the nationalization of all land and minerals, public transportation, trade, and banking, as well as factories — with the profits going to the people as a whole rather than to capitalists or landlords.
Utopian Socialists Reformers inspired by the Age of Enlightenment and the French Revolution who believed in progress and human perfectibility. Because these theorists wished to reform society by voluntary means, they earned the scorn of Karl Marx, who dismissed them as visionary idealists and labeled them "utopian socialists."
In 1848, the threat of revolution was everywhere. The French endured a weak, dissolute king before fomenting riots; the Belgians likewise found no strength in royal leadership. Uprisings in Italy, Germany, Czechoslovakia, and Austria imitated the unrest of the French. The songs of workers and the poems of romanticists echoed the volatile rumblings of internal discontent. Yet, despite all their zeal and furor, these stirrings failed because they were spontaneous, undisciplined, and disconnected.
From this fierce, bloody clamor, however, a new voice made itself heard — the voice of militant workers who comprised the Communist League. Their initial efforts proved insufficient against the reaction of European governments, but they presaged a turn of events in world economics which would make itself felt for years to come, for amid this turmoil appeared The Communist Manifesto, written by Karl Marx, with the collaboration of Friedrich Engels.
Marx (1818-83), born in Germany, the second son of a liberal, middle-class Jewish family, pursued a college education, but to his father's dismay, he rejected the study of law. At universities in Bonn and Berlin, he dedicated himself to philosophy and came under the influence of Hegel's ideas. He found his ambition to teach blocked by authorities who rejected his liberal views, particularly his belief in constitutional government and atheism.
Marx turned to journalism and edited the Rheinische Zeitung, a radical newspaper which was suppressed because of his attacks on law and the Tsar of Russia. At this time, he began studying politics and economics. Married to the beautiful Jenny von Westphalen, daughter of a Prussian aristocrat and his former next-door neighbor, he continued his journalistic career in Paris, Brussels, again in Paris, then in Germany. However, the pattern of his life changed little — radical views always led to expulsion. Hunger was never far from the Marx household.
In Paris, in 1844, Marx formed an immediate and lifelong association with Friedrich Engels (1820-95). The son of a wealthy German textile manufacturer, Engels lived a double life by associating with capitalists while devoting himself to socialism. In Brussels, the two collaborated to produce The Communist Manifesto, which became the program of the Communist League, a loose organization of discontented workers who desired fundamental political and economic changes. The League eventually died and was replaced by the International Workingmen's Association, which underwent several phases of reorganization as its members tried to reach a consensus.
Wherever he went, Marx, a quarrelsome and intolerant activist, organized workers' movements and edited communist papers. Eventually, he fled to England to spend the remainder of his life in London. There, he and his family and a faithful servant spent a miserable existence of abject poverty and near-starvation. Jenny and two of their five children died, and to add to his misery, Marx suffered from chronic boils.
Despite everything, Marx remained devoted to his family. His only steady income was derived from his reports on European political affairs to the New York Tribune, but, at times, Marx couldn't send his reports to New York because he lacked money for postage. After selling the family silver and valuables, he pawned his shoes and overcoat to survive. What kept his family going was Engels' generous financial aid; later, Marx came into a small inheritance from an old friend. Undoubtedly, these years of extreme poverty account for much of Marx's bitterness.
Marx worked in the British Museum library from ten to seven each day. He pored over books and manuscripts on economics, gathering and cataloging enormous amounts of data which formed the basis of his Das Kapital. This meticulous book required eighteen years of preparation, with the main part — Volume I — published in 1867, after two years of editing.
Marx endured not only poverty but also disappointment. His later years were filled with bickering over the validity of his interpretations among a motley assortment of dissidents. At one point near the end of his life, disgusted with feuding, Marx declared, "I am not a Marxist." At his death, only Volume I of his masterpiece had been published. Engels published Volume II in 1885 and Volume III in 1894; the final volume appeared in 1910, making a total of 2500 pages filled with minute, tedious points of economic theory.
As Marx did not make a systematic presentation of his philosophy, it is necessary to discover his basic concepts from a study of The Communist Manifesto and Das Kapital, each of which was written for a different purpose. Marx developed the principle of dialectical materialism from the dialectical method of Hegel, a German philosopher who believed that change occurs as the result of a blend of opposing forces. The given idea, or thesis, when challenged by an opposing idea, or antithesis, results in a new concept, or synthesis, which is somewhat closer to the truth than the initial two ideas. Accepting this fundamental premise, Marx went further. He substituted realism for Hegel's idealism and used it to explain world history. By stressing the reality of materialism, Marx evolved his economic interpretation of history. Marx's writings interpret history in terms of a class struggle for survival, which determines everything else in human affairs. The history of humanity, according to Marx, is primarily the story of one class' exploitation of another. Applying the theory of dialectical materialism, Marx determined that the inevitable next step was a revolt of the overwhelming majority of workers, who would overthrow the ruling capitalists and establish a dictatorship of the proletariat, or workers. This economic cataclysm would lead to communal ownership and a return to a classless society.
While The Communist Manifesto states the revolutionary aims of communism and maintains that capitalism must inevitably destroy itself, Das Kapital is Marx's analysis of the means of destruction. It is a critique of political economy which attempts to explain economics in coldly analytical and scientific terms. To Marx, his scientific arguments comprise irrefutable evidence prognosticating the doom of capitalism.
Marx sets the scene for his attack on capitalism by describing a capitalistic world of perfect competition — where the market is free, without monopolies, unions, or special advantages for anyone. Every product sells for its correct price or value. Agreeing with Adam Smith and David Ricardo on the definition of value, Marx states that the value of a product is the amount of labor which goes into making it. The worker wishes to sell labor-power; the capitalist wants a profit.
But how can there be profit if everything sells for an exact value?
It would be simple for profits to arise if there are monopolies to set excessive prices, or if capitalists pay less for labor than it is worth. Marx demonstrates that in its most perfect form capitalism is unworkable. Therefore capitalism, with its monopolies and imperfections, has no chance for survival.
Das Kapital explains that profits arise from one product or commodity which is distinctive — labor. Because capitalists control all access to the means of production, the worker must sell labor-power to the capitalist for its exact worth. Its value is what it takes to keep the laborer alive.
Marx concludes that labor actually produces more for the capitalist by working extra hours. The surplus value of labor gives rise to the capitalist's profits. In short, while the worker receives only a daily wage equal to subsistence requirements, actual production for a workday results in extra units of products. The value is translated into profits for the capitalist, who steals what is rightfully the worker's.
How can such a theft occur? Simple, answers Marx. It results when the capitalist monopolizes the means of production and forces the laborer to work a full day in order to remain employed. Since the typical factory work-week in England during Marx's time averaged slightly more than eighty hours, his concept of surplus value was not as farfetched as it seems today.
In Marx's view, the capitalist strives to obtain more surplus value by expanding production, thereby increasing profits. However, other capitalists compete in the same fashion, hiring more people and bidding against other capitalists, consequently driving up wages. This situation serves to decrease profits. Marx rejects Ricardo's notions because he believes that workers are too enlightened to continue increasing their offspring. At the same time he scornfully rejects the Malthusian Doctrine, labeling it "a libel on the human race." Instead, Marx sees the capitalist providing a solution through the adoption of labor-saving machinery. By substituting technology, the capitalist forces workers out of jobs, thus increasing the labor supply and decreasing wages.
However, the "solution" does not really solve the capitalist's problem, for as the capitalist adds equipment, the cost of each device inhibits the realization of any surplus value from them. Therefore, the capitalist defeats the purpose of the purchase but must continue modernizing because competitors are continually adding machines to increase production. Consequently, the percentage of profit steadily falls until the point is reached where production is no longer profitable. Bankruptcies result and small firms go out of business.
If workers lose their jobs, labor is forced to accept cuts in wages. Machines are traded, human labor is rehired by the remaining firms, and, for awhile, surplus value and profits return. Not for long, however, as this is a vicious cycle. Capitalists ultimately dig their own graves, for on one hand, the working class, increasingly dissatisfied with its misery, grows larger. On the other hand, the capitalistic class grows smaller as larger capitalists gobble up smaller and weaker competitors. When finally only a few powerful capitalists remain, the time comes for the proletariat to rise and sweep away capitalism, which has, in a sense, destroyed itself.
Marx predicted trends which capitalism would follow. Surprisingly, most of them have come true. These predictions he called the "laws of motion":
1.As the economy expands, profits fall, both within the business cycle and outside it.
2.As profits fall, business seeks new survival techniques by innovating, inventing, and experimenting.
3.Business runs in cycles of depression and boom.
4.Huge firms dominate the business scene and suppress smaller firms.
5.Finally, the working class overcomes factory owners and capitalism disappears.
Analysis
Some of Marx's predictions have indeed come true. Others are not so clear-cut. For example, profits do tend to fall within a business cycle, but they do not fall as steadily outside the business cycle. Some have risen instead. Most significantly, even though indicators reflect Marxist philosophy, capitalism continues to thrive in the United States, Japan, and Great Britain, even if it has partly disappeared in Western Europe.
Russia, the communist bloc countries, and China are another matter. During the most intensive rule of communism, capitalism has remained suppressed except for a trickle of imports from the West, such as Coca-Cola, drilling equipment, medicines, and computers. However, with the 1989 thaw in Cold War tensions, capitalism was one of the first aspects of Western democracy to penetrate the Iron Curtain as McDonald's brought "burgers and fries" to Moscow.
Obviously, Marx's vision of the future has proved too inflexible. Like the laws of gravity, he expected the weakening of capitalism to fall into place without the slightest deviation. However, he failed to predict many mitigating factors, such as improvements in the lives of workers. Further, in no case where communism has triumphed has the revolution taken place in an industrialized nation at the hands of the workers themselves. Russia, China, and Cuba were all primarily agrarian economies when the revolutions occurred. The same could be said for the satellite nations of Eastern Europe, except for Czechoslovakia.
Another worthy consideration is the fact that each Communist country was taken over from without and during wartime. These nations did capitulate according to Marx's predictions, but largely from the work of professional revolutionaries. On the other hand, Germany and Italy, which chose fascism over communism during the late 1930s, today exhibit both state capitalism and private capitalism working in partnership.
Non-communist economists find the weakest point in Das Kapital to be the theory of surplus value, for it does not satisfactorily explain prices. Likewise, these economists do not accept labor as the sole measure of value. Yet, economists have not derived an agreed-upon substitute measure of value.
Furthermore, liberals and humanitarians cannot accept Marx's economic interpretation of history. They deny that history evolves purely from economics — to the exclusion of religion, nationalism, and human will. Also, they spurn the Marxian notion that the hero has a subordinate role in the motivation of historical events. On the other hand, until the time of Marx, historians had all but overlooked the effect of economics in human affairs.
Undeniably, with all the flaws in his predictions, Marx made a sizable impact. No communist nation or party fails to pay homage to his teachings. While capitalism has not collapsed as Marx predicted, it has been forced to adapt. Socialism has risen throughout the world since Marx's time — and communism is an unyielding, inexorable variety of socialism.
In the U.S., socialism has been avoided largely as the result of support of competition through government anti-trust legislation and regulation of public utilities. From the impoverished nations of Latin America to the emerging nations of Africa and Asia, the communist banner of Karl Marx continues to wave — proof that his concepts cannot be lightly dismissed. In truth, Marx is entitled to be called the Prophet of the Proletariat.
Here are a few terms to help clarify Marx's philosophy:
Marxism: Karl Marx's version of communism. While a typical Communist may believe that the final goal of communism will come into existence by a number of methods, the Marxist accepts Marx's every word and explanation as the only way. Both forms of communism accept the concept of revolutionary socialism — the attainment of a classless society by violent and bloody revolution, as opposed to the peaceful and democratic method of socialists. In terms of "left" and "right," Marxists are further left than Communists, who are, in turn, to the "left" of Socialists.
Scientific Socialism: Laws evolved by Marx and Engels which explain the economic determination of history, the class struggle, the inevitable downfall of capitalism, and the triumph of the proletariat.
Capitalists: Financial backers of production; also called the "haute bourgeoisie," or high middle class.
Bourgeoisie: The middle class, technically divided between rich capitalists ("haute bourgeoisie") and small shopkeepers, government officials, lawyers, doctors, teachers, and independent farmers. A term generally applied to people with private property. (Bourgeois is the adjective form.)
Proletariat: The workers, or the lowly wage earners.
Anarchism: Rebellion against all forms of government. Anarchists are not content to wait for the withering away of the state. They believe in ending government rule by assassinating public officials. Because they disdain any type of government, anarchists are at the extreme "left" of all political groups.
The early modern theorist of the benefits of anarchism was William Godwin, whose Political Justice (1793) expressed a utopian ideal. The father of anarchism, however, is Pierre Proudhon (1809-65) who quarreled violently with Marx and whose book What Is Property? answered the question in the title by stating that "Property is theft." The anarchist who championed direct action through violence was Mikhail Bakunin, who originally followed Marxism but, in time, became Marx's bitter enemy.
Glossary
Hegelian Dialectics The philosophical concept that in the world of ideas, change occurs as the result of a synthesis, or coming together of opposing forces: a given idea (thesis), when challenged by a new and opposing idea (antithesis), results in a new concept (synthesis) which is somewhat closer to the truth than the initial two ideas.
Dialectical Materialism Karl Marx's application of Hegel's dialectical method to an explanation of all world events.
Historical Materialism Marx's economic interpretation of history, which stresses economics as the basis for all human actions and historical events.
Communism A belief in the achievement of socialism by revolutionary means, particularly by class warfare.
Marxism Communism according to the exact words and predictions of Karl Marx.
Scientific Socialism What Marx and Engels called the ideas contained in The Communist Manifesto and Das Kapital; scientific laws explaining the economic determination of history, class struggle, and the inevitable downfall of capitalism with the eventual triumph of workers over the moneyed class.
Prophet of the Proletariat Karl Marx.
Capitalists The class which provides or controls the money that underwrites the production of goods. Technically, capitalists are the upper class of the bourgeoisie, known as the "haute bourgeoisie," or high middle class, the most hated class under Marxism.
Bourgeoisie The middle class. Technically, it includes the "petite bourgeoisie," or small middle class — the small shopkeepers, government officials, lawyers, doctors, independent farmers, and teachers — and the "haute bourgeoisie." The term is generally used by Marxists to describe the owners of private property. (Bourgeois is the spelling of the adjective form.)
Proletariat Lowly wage earners, or workers.
Anarchism The support of no system of government; the belief that government, controls, and authority are oppressive.
Father of Anarchism Pierre Proudhon.
Karl Marx's prediction that the working class would suffer increasing misery did not come to pass during the Victorian Age (the reign of Queen Victoria, 1837-1901), for wages climbed upward while the working day grew shorter. Even Marx and Engels were forced to admit that the English proletariat was becoming more bourgeois because of the Victorian world's prosperity and optimism. The recognized economists of the day expressed that optimism with little reference to Marx, who was dismissed as a crank. His theories, along with those of Malthus, the utopians, and three of the five Victorian Age economists, were confined to the underworld of economics.
Francis Ysidro Edgeworth (1845-1926)
Edgeworth, a shy, retiring professor and brilliant scholar, became interested in economics because it dealt with quantities. He applied mathematics to economics and derived his Mathematical Psychics (1881). Its thesis stated that every man, based on mathematical formulas, lives for pleasure, leisure time, and material goods. Of course, skilled and talented people are better "pleasure machines" than others; likewise, males are more endowed with sensibility than females. In developing his thesis, Edgeworth justified the divisions of sex and status numerically and denounced the future of trade-unions, which he considered imperfections.
What was unique about Edgeworth was his use of mathematical formulation to prove his contentions. Essentially, he was conservative and defended his philosophy through the use of long, complicated algebraic expressions. He won a conservative following among fellow Victorians, and his book achieved immediate success. While perhaps helpful in focusing attention on the use of scientific inquiry as an aid to economics, much of Edgeworth's work is worthless. His weakness lies in ignoring the human factor, but the fact that he was not ridiculed by his contemporaries gives significant insight into his era.
Frederic Bastiat (1801-50)
In sharp contrast to Edgeworth, the French eccentric Bastiat heaped ridicule on the economic policies of his age. He failed at farming and estate management, but succeeded in adding deft touches of humor to economics. In his Economic Sophisms, he attacked Socialists, defended free trade, and launched his most acerbic barbs for those who selfishly supported a protective tariff. Beneath his wit lay the truth of his criticism — yet, in the Victorian world, he was labeled a crackpot.
Henry George (1839-97)
With Henry George, the underworld of economics gained an American recruit — a rugged but unschooled individual who had been an adventurer, gold prospector, sailor, printer, pamphleteer, journalist for the San Francisco Times and Post, lecturer, bureaucrat, tramp, and politician. At one time, the University of California considered him for the chair of political economy, but he ruined his chances by declaring in a speech that "logical thinking was all that was needed for a study of economics."
Unlike his fellow dwellers in the underworld, during his lifetime he gained popularity — more in England than in the United States. An active proponent for his beliefs, he was almost elected mayor of New York City, barely losing to Tammany Hall's candidate and running ahead of Theodore Roosevelt. Drafted to run a second time in 1897, he died on election eve.
His best known work is Progress and Poverty (1879), a passionate commentary which professes that the true cause of poverty is land rent. To Henry George, it was the height of injustice that landowners should enjoy huge incomes while they contribute nothing to society. Not only does rent work a hardship on the capitalist, it also straps the worker and leads to speculation in land values, as was evident in his time in California. Worst of all, rent is the cause of depression, George claimed.
Part of his naive thesis contains a solution: a single tax on land equal to its rent. By negating rent with one tax, all other taxes could be eliminated. Wages would rise, and capital earnings would increase, for money would circulate more freely with no taxes for the non-landowner to pay. In short, the single tax would be society's magic cure.
Regardless of George's lack of logic, his book became a bestseller; he achieved overnight fame. Progress and Poverty received praise as the worthy successor to Smith's Wealth of Nations. George won an international reputation after a lecture tour to England. The single tax became an obsession with him. However, the official world of economics decried his ideas, so Henry George was exiled to the underworld of economics.
John A. Hobson (1858-40)
Of greater importance than the theories of Edgeworth, Bastiat, and George is the theme of the fourth economic heretic of the age — imperialism. The Victorian Era was a time when Great Britain, France, Germany, Belgium, Portugal, Holland, Italy, and Russia grabbed up colonies and economic concessions in Africa and Asia. The spirit of imperialism swept through the Western world, including the United States. Between the Napoleonic Wars (1803-15) and 1870, the laissez faire doctrine of free trade dominated.
From 1870 onward, however, various factors caused a drastic change in attitude and policy relating to colonial expansion. Notably, as a result of the rise in Europe's population, the desire for military bases, nationalism, and the Industrial Revolution, imperialism became an extremely popular policy with virtually all classes of society; its chief spokesman, Rudyard Kipling, praised its virtues.
Into this setting appeared John A. Hobson, a nervous, stuttering little man who took a critical look at capitalism and imperialism, in particular. He adopted John Ruskin's humanistic viewpoint toward economics, which stressed human values over cold statistics. By coauthoring an economic treatise which suggested that savings might lead to depression and unemployment, he lost favor with orthodox economists and was banished from London University Extension Lectures. As a result, he became a social critic, examining topical questions.
The chief topic of interest to England was Africa, where the Boer War between Dutch colonists and the English in South Africa was brewing. Hobson journeyed to Africa, and his research there convinced him that his warning of the results of oversaving was justified. Returning to England, he quietly prepared a major work, in which the effects of savings and imperialism were combined to form his thesis. He published Imperialism, a Study (1902), a devastating attack on capitalism as well as imperialism.
Hobson, a non-Marxist, went even further than Karl Marx. Whereas Marx predicted that capitalism would destroy itself, Hobson declared that imperialism would become the road to war, leading to the destruction of the world. In his view, capitalism has an insolvable problem: the rich get richer and the poor get poorer. Because of the vast inequality in the distribution of wealth, neither the rich nor the poor can consume enough goods.
Because the rich are few, they can consume only so much. The poor, while large in number, lack the income to purchase more goods. Therefore, the rich — both individuals and corporations — must invest the bulk of their income in savings, which are useless unless spent on further production of goods. Otherwise, purchasing power dries up. But since there is no market for more goods, production leads to a glut on the market.
Here, Hobson injects his comment on imperialism, for the only obvious answer to the problem is the utilization of savings in overseas investment. Foreign investments take off the excess capital, and foreign markets use the excess goods. This problem of excess, then, is the reason for modern imperialism, which is a direct outgrowth of the capitalistic system. But dire consequences lie ahead, he warns. Capitalistic nations each suffering the same glut, race each other to partition the world. With each nation trying to grab the biggest slice, bitter competition and rivalry promote the possibility of war.
Needless to say, Hobson's indictment of capitalism hardly dented the official economic thought of his day. He was dismissed into the same backwater with Bastiat and Henry George. Yet, from one quarter there came a warm response. Lenin, a Russian exile, read Hobson's work and appropriated its thesis, augmenting it and wrapping it in a glittering package — Imperialism, the Highest Stage of Capitalism (1916).
The antithesis of Lenin, Hobson disdained communism; his book analyzed capitalism and imperialism through logic. Hobson avoided class favoritism and refrained from turning thesis into dogma. He was puzzled over periods of history when capitalism showed little interest in imperialism. Further, even though his thesis points to the likelihood of war, he did not maintain that imperialism inevitably leads to war.
On the other hand, Lenin declared that war was a certainty if capitalism and imperialism remained unchecked. He carried Marx's prediction of the doom of capitalism even further, showing that imperialism is the final stage in a downward spiral. For Lenin, imperialism is capitalism's death knell. Not only did Stalin share this view, but hard-line communists today still hold to its truth. During the height of the Cold War, Communist countries charged that all U.S. interest in underdeveloped countries was actually motivated by imperialistic designs, whether that interest was shown by private corporations or the Peace Corps.
The U.S. reply to this charge has been that foreign investment and foreign trade alone do not represent imperialism, for there must be political interference and economic exploitation to justify a claim of imperialism. In point of fact, American foreign policy results from a defense of ideology — to protect less sophisticated nations from the intrusions of socialism. The U.S. differentiates between profit and plunder, noting that the best example of a powerful country looting weaker nations is given by the Soviet Union itself, especially in the cases of Hungary and Afghanistan.
Another aspect to consider in the internationalization of capital is the fact that cheap goods manufactured in Hong Kong, Taiwan, Korea, or Mexico undersell similar products produced by the motherland. Such an intensification of competition ironically threatens American interests. The problem of imperialism has proven that it inevitably lashes back against the nation which created it.
Alfred Marshall (1842-1924)
Summary
Alfred Marshall, a refined academician and the most famous economist of the Victorian Age, was both accepted and respected for his Principles of Economics (1890), a tremendous success that is still used as a textbook. His thesis was equilibrium — the self-adjusting and self-correcting nature of economics; the foundation of his economics was the concept of time. For Marshall, there is a short period and a long period to consider. Both have to be weighed in answering the question of value. With diamonds, for example, in the short-run, it is demand which makes them expensive; in the long-run, it is the cost of production. To determine price, the economist must consider both supply and demand as equally important as two blades of a pair of scissors.
To Marshall, a remarkably compassionate scientist, economics was an engine for the discovery of truth concerning the cause and cure of poverty. He contrived an elaborate system of economics which delighted established thought and which satisfied business. Introductory economics courses in England and the U.S. incorporate his system. Even more important is the fact that his most brilliant pupil, John Maynard Keynes, made a large splash in the world of economic thought.
Yet, brilliant as Marshall was, nothing that he said went far enough. The time which he wrote about is an abstract. His economics, therefore, is a world of theory, and those theories are hopelessly unrelated to reality.
Analysis
Imperialism refers to the extension of authority or control, either directly or indirectly, of one people over another. In this sense, imperialism is as old as history. During the early days of Western civilization, Greece and Rome furnished worthy examples. In modern times, the Age of Discovery ushered in a period when the nation-states of Europe raced to stake out colonies and to monopolize overseas trade. Portugal, Spain, Holland, France, and England formed a keen rivalry which provoked colonial wars in the early part of the eighteenth century and continued through the Napoleonic Era. Then interest weakened as the doctrine of laissez faire replaced that of mercantilism.
A new period of imperialism, referred to as new imperialism, or economic imperialism, took place from 1870-1914. This was Europe's golden age of imperialism, motivated by the effects of the Industrial Revolution and characterized by economic and political domination of underdeveloped nations. Western Europe, which controlled most of world finance, commerce, military might, and intellectual life, extended its power over the peoples of Asia and Africa. The entire continent of Africa was so partitioned that only two nations remained independent by 1944 — Ethiopia and Liberia. Asia was a fertile hunting ground for Europe, and vast but weak China soon became known as a "ripe melon." By 1914, some 283 million whites controlled over 900 million non-Europeans, mostly in Africa and Asia. This staking out of colonies led to bitter rivalry among European nations and was a strong factor leading to the outbreak of World War I.
The basic question raised by Hobson was whether this stage of imperialism is inseparably related to capitalism. In other words, do capitalism and imperialism naturally go together? Communists charge that they do. The U.S. and Western Europe say otherwise. Current developments today differ, for practically every form of imperialistic holding has reverted to the original owners. At the height of imperialism, five-sixths of the world was needy and defenseless. Today, the poor five-sixths are still impoverished, but they are independent and defiantly aggressive, as was evident in South Africa's struggle against apartheid. The formerly rich one-sixth is still rich, but on the defensive. The key question — and the reason for Hobson's importance to economics — is whether the defiantly aggressive majority will be swayed by Marxism.
Glossary
The Victorian Age The period associated with the reign of Queen Victoria of Great Britain, 1837-1901.
Imperialism The extension of authority, or control, of one nation over another.
Economic Imperialism The economic and/or political domination of underdeveloped countries by powerful nations. The period between 1870 and 1914 is known as Europe's "Golden Age of Imperialism."
As the full effects of the Industrial Revolution spread from Europe to America, the free enterprise atmosphere of the United States became a far different thing from the European practice of laissez faire. The game of making money in the United States was rough and savage, devoid of sportsmanship. The gentleman's rapier gave way to the roughneck's brass knuckles.
In the United States, any man could prove his worth through business success, regardless of his ancestry, and money became the passport for entrance into the upper classes. Men such as William H. Vanderbilt, John D. Rockefeller, Jay Gould, Jim Fisk, and J. P. Morgan dedicated themselves to ruining competitors. They gave no quarter. In their public dealings, these robber barons were guided by J. P. Morgan's sentiment: "I owe the public nothing."
From 1865 through the early part of the twentieth century, dishonesty was a virtue, the investor a gullible fool, and the stock market a private casino which the public financed. A practical demonstration was William Rockefeller and Henry Rogers' purchase of Anaconda Copper Company by paper manipulation and without a cent of personal investment — resulting in a $36,000,000 profit. Official economists viewed this scene unperturbed, their thoughts wrapped up with such terms as enterprise, thrift and accumulation, and consumption. At best, they apologized only slightly and shared the common blindness: They were too close to the scene to judge objectively. What was needed was the disinterested, detached view of an outsider, which was ultimately filled by the most aloof of skeptics, Thorstein Veblen (1857-1929).
Veblen, born of immigrant Norwegians in Wisconsin, grew up in a pioneer Norwegian community in Minnesota. His austere childhood reflected the drab farm life. He grew up remote and aloof, an alienated, enigmatic man whose chief pattern of behavior was nonconformist. At the age of seventeen, Veblen's family sent him to study religion at a pious Lutheran college, where he promptly threw the faculty into an uproar when it came his turn to suggest a way of converting the heathens. He titled his method "A Plea for Cannibalism." To add to his apostate behavior, he converted the niece of the college president to agnosticism and, several years later, married her.
Bad luck tagged Veblen. He found no immediate success in his teaching career. His first job lasted a year, and then the academy closed. He enrolled at Johns Hopkins on the expectation of a scholarship, which never materialized. After transferring to Yale, he received a Ph.D. in 1884. Returning home, he read, loafed, and buried himself in political science, economics, sociology, and anthropology. By normal standards, he was lazy and unassertive. He refused to make his bed, and when the dishes were dirty, he hosed them down. His eccentricity extended to his disdain for the telephone. His isolation continued for seven years until at the age of thirty-four, he yielded to family pressure to resume graduate studies.
His appearance at the office of the economics department of Cornell in 1891 must have shocked the conservative department chairman, for Veblen was wearing corduroy pants and a coonskin cap. Still, his learning impressed the older man, and Veblen received a fellowship. The following year, he accompanied the head of the department when the latter moved to the University of Chicago.
At the age of thirty-five, with a salary of $520 a year, Veblen earned a reputation among his students for refusing to take roll and assigning the grade of "C" to all students, although he upgraded the "C" to an "A" when a student needed to qualify for a scholarship. Veblen felt that there were too many students. The fewer he had, the better. Nevertheless, in spite of his rambling, mumbled lectures, his immense knowledge led to an annual salary of $1000 by 1903.
Veblen possessed an unusual fascination for women; he engaged perpetually in affairs. After he made a trip to Europe with one of his lovers, he was forced out of his job, and his wife divorced him. He went to Stanford and then to the University of Missouri, remarried, and finally retired at the age of seventy. He chose to live alone in a small, western-style cabin, where he could meditate without distraction. There, aloof from society, he died.
Even though Veblen was a failure in his personal life, he established a national reputation in the academic world as the result of two major books and a series of essays. His first book, The Theory of the Leisure Class (1899), appeared when Veblen was forty-two. An overnight success, it is his most famous work, due primarily to the fact that readers took it to be a satire of aristocratic foibles. Actually, the book was much more, for Veblen refused to accept the assumptions underlying classical economic thought. While orthodox American economists accepted European teachings, Veblen dug to the root of the economy to discover the nature of his society.
The Theory of the Leisure Class examines the nature of economics and the meaning of leisure. While established economists explained human actions entirely by self-interest and competition, Veblen probed deeper. He doubted that self-interest held society together or that people preferred leisure over work.
Also, he discovered that there was no leisure class among American Indians, the Ainus of Japan, or Australia's bushmen. Everyone in these cultures worked — not for profit, but because of pride in workmanship and a common concern for their children's welfare.
His study of Polynesians, ancient Icelanders, and the shogunate system of feudal Japan revealed a different kind of society. A leisure class existed in each, but it was not an idle class. Instead, its members worked hard at seizing riches through force or cunning and didn't contribute to the actual production of wealth. What was significant was that they prevailed with the approval of their community.
To Veblen, this fact marked a fundamental change in the attitude of the savage toward work. What had once been a source of pride had become degraded by the transfer of approval to the plundering and predatory ways of the leisure class. Classical economists considered the desire for leisure inherent in human nature, but Veblen maintained that what was inherent in human nature was pride in work. As men plundered, seized booty and women, and received admiration for their prowess, approval transferred from the once-honored way of life to the spirit of plunder — and the leisure class gained respect.
As societies progressed, continued Veblen, the leisure class changed its occupation and refined its methods, but its goal remained the same — the accumulation of goods without productive work, but by seizure. Applying his findings to the United States, Veblen wrote: ". . . by heredity human nature still is, and must indefinitely continue to be, savage human nature." Modern plunder did not exist for booty or women, but for the accumulation of money and its lavish display. The savage displayed numerous wives, the barbarian his conquests of war; in the same vein, modern savages displayed wealth.
So Veblen arrived at a thesis: the leisure class advertises its superiority through conspicuous consumption — enjoying leisure more fully by being able to display it before the public. Thus, the modern
U.S. businessman, by seeking and accumulating money and then displaying it — either subtly or conspicuously — is the modern counterpart of a savage heritage. Furthermore, everyone — the worker, the middle-class citizen, and the capitalist — seeks through conspicuous expenditure and even the waste of money to prove status.
Carrying the theme a step further, Veblen explained why a proletariat revolution, as Marx predicted, had not occurred in the United States. It was simply that workers did not seek to overthrow the upper class, but rather strove to join it themselves. This ambition explained the nation's social stability.
Published in 1904, Veblen's The Theory of Business Enterprise established his concept of business at the turn of the century. The book shocked readers, but it failed to make the splash of his earlier work on the leisure class. This time, there was no mistaking the book as satire; consequently, only economists and scholars read it.
Rejecting earlier theories that the capitalist is the driving force behind economic progress, Veblen charged that the businessperson is the saboteur of business. As he explains, machines dominate society, but machines care nothing for profit. Therefore, business people are no longer needed. Eliminated by the machine, they are replaced by technicians and engineers.
Entrepreneurs, however, as members of the leisure class, are still acutely interested in the accumulation of profit. Their only opportunity of gaining profit is to cause breakdowns in production so that values fluctuate. Being on the inside, businesspeople then make a profit during the resulting confusion. Thus, the entrepreneur cunningly builds up credits, loans, and artificially high capitalizations. Unfortunately, in the process, the efficiency of production remains continually off-balance.
Looking to the future, Veblen predicted the end of the capitalist — not through the action of Marx's proletariat, but by a tougher force: the machine. The recurring business crisis brought about by the entrepreneur would show to all the inability of the system to remain in balance. As the alternative, Veblen hoped for the day when a corps of engineers would take over the running of the economy, along the lines of a huge, well-ordered production machine. And if this didn't come to pass, then eventually the plundering spirit of Big Business would increase until the system gave way to fascism.
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