Difference between revisions of "History of Economy"
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Economics is likely the most critical, relevant and influential societal characteristic there is. Virtually every aspect of our lives, often without conscious recognition, has a relationship to the historical development and present practice of economic thought on one level or another, molding our most basic social institutions, core beliefs and values. In fact, the very essence of how we as a society think about our relationship to each other and the habitat that supports us is, in large part, a direct result of the economic theories and practices we perpetuate.
Thoughtful review of historical religious & moral philosophies, governmental development, political parties, legal statutes and other social contracts and beliefs that comprise a given social system and its culture, reveal the deep impact economic assumptions have and continue to have in shaping of the “zeitgeist” of a time.
Slavery, classism, xenophobia, racism, sexism, subjugation and many other divisive & exploitative notions still common to human cultural history will be found to have kernels of origin or perpetuation in many generally accepted economic philosophies to one degree or another. History is fairly clear with respect to how the social condition is groomed by the prevailing economic assumptions of a given period and this broad sociological consideration is sadly not given much gravity in the world today when thinking about why the world is the way it is and why we think the way we do.
As a preliminary point, a point which will reemerge later in this essay, there has commonly been a duality noted in most modern economic thought where the “capitalist free market”, meaning the “free” actions of independent producers, laborer and traders, working in aggregate to buy, sell and employ, is to be contrasted to that of the “state”, meaning a unified system of delegated power that has the capacity to set legal policy and economic mandates that can inhibit the actions of the “free market” through interference. Most economic debates today revolved around this duality on one level or another with the “laissez-faire” interests, or those who wish to have a completely non-regulated market economy, constantly at war with the “statists”, or those who think some kind of centralized government control and decision making over economic planning and policy is best.
The Zeitgeist Movement takes neither side, even though many who hear TZM's proposals have a knee-jerk reaction to assume the latter association (“statism”). As with many traditionalized belief systems, polarized perspectives and defenses are common and the idea that there is no other possible frame of reference with respect to how an economic system can be developed and administered, is to close oneself off dogmatically to many relevant and emerging considerations.
The following, brief treatment is about the historical development of economics. We will trace the general history of economic thought from roughly the 17th century onward, highlighting the core influences that gave birth to the modern, “free market capitalist” system. However, as will be expanded upon more so in part III, a different perspective will also be alluded to. We will call this the “mechanistic” view. The mechanistic perspective of economic factoring takes a different look at the causal, scientific realities of human existence and our habitat and builds a model of economic theory from the standpoint of strategic reason, not historical tradition.
The bottom line is that modern economic thought is really not modern at all and the vast majority of assumptions still held as 'given', such as “property”, “money”, “classism”, theories of “value”, “capital” and other concepts that run through virtually all contextually relevant historical arguments, are really outdated in their underlying premises. Rapid development in the industrial, informational and human sciences, which have gone largely ignored by the established economic tradition, are posing critical reconsiderations and new relationships which simply do not exist in the traditional models.
With respect to the ever mutating “schools” of thought that have brought the economic debate to where it rests today, the academic, often formulaic traditionalized evolution of established economic theory (and practice) appears to have developed a self-referring frame of reference.
In other words, the most common “mainstream” economic considerations discussed/accepted today; those most propagated in the prestigious academic schools and governmental conferences, will be found to derive their importance from the mere fact that they have been considered important for so long. As a metaphor, it is similar to viewing the engine of an automobile and assuming the overall structure of that engine is immutable and only variation among existing component parts is possible, as opposed to the radical idea of redesigning the entire engine structure from the ground up, perhaps based upon new technology and information that serves the utility more efficiently and successfully.
“Modern” economic thought and practice is an old engine with generations of imminent “experts” working to administer old components parts, refusing to accept the possibility that the entire engine is outdated and perhaps increasingly detrimental. They continue to publish arguments, theories and equations that reinforce the false importance of that old engine (old “frame of reference”), ignoring new advents in science, technology and public health that contradict their traditionalism. It is no different than the long history of other “established” ideas, such as abject human slavery, where the society at large really didn't question the practice, and considered such established structures, imposed and codified, as “natural” to the human condition.
Taking an historical perspective, Europe of the Middle Ages is generally a decent ideological starting point as the most central ideas characteristic of modern capitalism, which later spread across the world, appear to have taken hold during this period. It is from the 17th century onward that we find most of the influential philosophers highly regarded today in traditional history books of economics. While historians have found that the basic gestures of “property” and the act of “trading for profit” go back to the second millennium BC, its core developmental foundation and institutionalization appears to rests around the late feudal/early mercantilist periods.
Rather than discuss the various differences between the socioeconomic systems that preceded modern capitalism, it is more worthwhile to note the general similarities. In this broad context, the capitalist system appears to be a manifest evolution of what are mostly deeply ingrained historical assumptions of human nature and human social relations.
Firstly, it will be noticed throughout this evolution that a class divide has been recognized and employed to one degree or another. People have generally been divided into two groups - those that produce for minimal reward and those who gain from that production. From ancient Egyptian slavery, to the peasant farmer toiling in subsistence for his lord in medieval feudalism, to the codified oppression of the market merchants by the state monopolies of mercantilism, the theme of inequality has been very clear and consistent.
A second feature held in common to these dominant Western socioeconomic philosophies is that of a basic disregard (or perhaps ignorance) of critical relationships between the human species and its governing, supportive habitat. While certain exceptions can be found with indigenous tribes such as with pre-colonial, Native American societies, Western economic thought has been almost devoid of such considerations, absent the more recent and mounting ecological problems which have forced some public/government response and a very general interest in “reform”.
A third and final broad feature to note is the general dismissal of the social recognition of a person's wellbeing on the level of human need and hence public health. Advancements in the human sciences, which occurred largely after the core doctrines of economic thought were traditionally codified, have found that human wants and human needs are not the same and the deprivation of the latter can create many negative consequences not only for the individual but for the society itself. Anti-social, “criminal” and violent behavior, for example, have been found sourced to many forms of social deprivation rooted in the socioeconomic tradition. Put more generally, the system ignores such social consequences by design, relegating these outcomes as mere “externalities” in most cases.
This reality was further compounded in the 18th century where the “socially Darwinistic” undertone of the “labor-for-reward” premise increasingly reduced the human being to an object that was to be defined and qualified by his or her contribution to the system of labor. If the average person is unable to obtain labor or engage successfully in the market economy, there exists no real safeguard with respect to one's survival or wellbeing, except for “interference” coming from the “state” in the form of “welfare”. In the modern day, this reality is of great controversy where the claim of “socialism” has become a knee-jerk condemnation reaction whenever governmental policy attempts to provide direct support for a citizenry without full use of the market mechanism.
Dawn of Market Capitalism
Medieval Feudalism (roughly from the 9th to 16th centuries) was the dominant socioeconomic system that essentially preceded “free market capitalism” in Western Europe, with what was later to be called “mercantilism” serving as what could be considered a transition stage.
Feudalism was based on a system of mutual obligations and services going up and down a set social hierarchy, with the entire social system resting essentially on an agricultural foundation. Medieval society was mostly an agrarian society and the social hierarchy was based essentially on peoples’ ties to land. The basic economic institutions were the “guilds” and if someone wanted to produce or sell a good or service, they would generally join a guild. A great deal could be stated in detail about this extensive period of history and as with most history it is subject to various interpretations and debate. However, for the sake of this essay, we will only present a very general overview with respect to the economic transition to market capitalism.
As agricultural and transport technology improved, the expansion of trade occurred and by the 13th century, with the advent of the four-wheeled wagon, for example, the range of market interaction rapidly increased. Likewise, increased labor specialization, urban concentrations and population growth also occurred. These changes, coupled with the resulting, increasing power of the “merchant capitalists”, as they could be called, slowly weakened the traditional, customary ties that held the feudal social structure together.
Over time, more complex cities began to emerge which were successful in obtaining independence from the feudal lords and increasingly complex systems of exchange, credit and law began to emerge, many of which are found to mirror many basic aspects of modern capitalism. In the customary feudal system, generally the “handicraft” producer was also the seller to the buyer of use. However, as the evolution of the market continued around these new urban centers, the craftsman began to sell at a discount in mass to non-producing merchants who would resell in distant markets for a “profit”- another feature later to be held common to market capitalism.
By the 16th century, the “handicraft” industry common to feudalism had been transformed into a crude mirror of what we know today, with the outsourcing of labor, singular ownership of production, along with many finding themselves more and more in the position of being “employed” rather than producing themselves. Eventually, the logic surrounding monetary profit began to be the core, deciding factor of overall action in a systemic way and the true seeds of capitalism took root.
Mercantilism, which essentially dominated Western European economic policy from the 16th to the late 18th centuries, was characterized by state-driven trade monopolies to ensure a positive “balance of trade”, coupled with many other extensive regulations for production, wages and commerce emerging over time, further increasing the power of the state. Collusion between the state and these emerging industries were common and many wars occurred due to these practices since it was based on trade restrictions between nations that often took the effect of economic warfare.
Adam Smith, who will be discussed later in this essay, wrote an extensive criticism of mercantilism in his classic 1776 text, An Inquiry into the Nature and Causes of the Wealth of Nations. It is here where it could be declared that the ideological birth of “free market” capitalism really took root in theory, with the rejection of what is often called “state” capitalism in modern terms, where the state “interferes” with the “freedom” of the market - a defining feature of mercantilism.
Today, “capitalism”, as a singular term, is generally defined culturally in the theoretical context of “free market” not “state” capitalism, although many will argue in great detail as to which type of system we really have today, among other variations of the term. In reality, there is no pure “free market” or “state” based system in existence but a complex fusion between the two, generally speaking. Again, as noted at the beginning of this essay, the vast majority of economic debates and blame regarding economic unfolding often revolve around these polarized ideas.
Capitalism as we know it in specifics today, including not only its economic theory but powerful political and social effects, emerged in form, as noted, rather slowly over a period of several centuries. It should be stated upfront that there is no complete agreement amongst economic historians/theorists as to what the essential features of capitalism really are. We will, however, reduce its historical characterization (which some will likely find debatable) to four basic features.
- Market-based production/distribution: Commodity production is based around rather complex interrelationships and dependencies that do not involve direct personal interactions between producers and consumers. Supply and demand is mediated by the "market" system.
- Private ownership of production means: This means that society grants to private persons the right to dictate how the raw materials, tools, machinery, and buildings necessary for production can be used.
- Decoupling of ownership and labor: In short, a constant class divide is inherent where on the top level, “capitalists”, by historical definition, own the means of production, but yet have no obligation to contribute to production itself. The capitalist owns everything produced by the laborers, who only own their own labor, by legal authority.
- Self-maximizing incentive assumed: Individualistic, competitive and acquisitive interests are necessary for the successful functioning of capitalism since a constant pressure to consume and expand is needed to avoid recessions, depressions and other negatives. In many ways, this is the “rational” behavioral view held where if all humans acted in a certain assumed way, the system would function without inhibition.
Locke: Evolution of “Property”
A deep philosophical undercurrent to the capitalist system is the notion of “property”. English philosopher John Locke (1632-1704) is a pivotal figure. Also sourced in Adam Smith's more influential Wealth of Nations, Locke not only defines the idea in general, he presents a subtle yet powerful contradiction.
In Chapter V, entitled “property”, of Locke's Second Treatise of Government published in 1689, he poses an argument with respect to the nature of property and its appropriation. He states: “The labour of his body and the work of his hands, we may say, are strictly his. So when he takes something from the state that nature has provided and left it in, he mixes his labour with it, thus joining to it something that is his own; and in that way he makes it his property.” This statement (supporting in gesture what was later to associate with the “labor theory of value”), proposes the logic that since labor is “owned” by the laborer (since he owns himself), any energy expelled through his labor transfers that ownership to the product made.
His philosophical disposition is essentially derived from a Christian perspective, stating: “God gave the world to men in common; but since he gave it to them for their benefit and for the greatest conveniences of life they could get from it, he can’t have meant it always to remain common and uncultivated.”
Given this declaration of the “common” nature of the earth and its fruits to all of humanity before its “cultivation” via appropriation in the form property, he also derives that owners are required to not allow anything to spoil (“Nothing was made by God for man to spoil or destroy.”) and they must leave enough for others (“This appropriation of a plot of land by improving it wasn’t done at the expense of any other man, because there was still enough [and as good] left for others...”).
These values, in simplistic form, seem socially justifiable in general. He makes it clear up until this point that the ownership context is relevant only in so far as the owner's needs and ability to cultivate, or produce. However, in Section 36, he reveals a unique reality, the implications of which Locke likely did not anticipate and, in many ways, nullifies all prior arguments in his defense of private property. He states: “The ‘one thing’ that blocks this is the invention of money, and men’s tacit agreement to put a value on it; this made it possible, with men’s consent, to have larger possessions and to have a right to them.”
Now, in effect, his original premise, summarized in part here, that: “Anyone can through his labour come to own as much as he can use in a beneficial way before it spoils; anything beyond this is more than his share and belongs to others” becomes very difficult to defend as money now not only allows “[men] to have larger possessions”, implicitly voiding in context the idea that “anything beyond this is more than his share and belongs to others”, it also further implies that money can buy labor, which voids the idea that “he [in this case the buyer] mixes his labour with it, thus joining to it something that is his own; and in that way he makes it his property.”
Finally, the proviso “Nothing was made by God for man to spoil or destroy” is nullified with a new association that money, being gold or silver at that time, simply cannot spoil. “That is how money came into use - as a durable thing that men could keep without its spoiling, and that by mutual consent men would take in exchange for the truly useful but perishable supports of life.”
It is here where we find, at least in the medium of literary discourse, the true seed of capitalist ownership justification where the use of money, treated as an abstract commodity in and of itself (in effect, an assumed embodiment of “labor”), allowed an evolution of thought and practice to emerge which increasingly shifted the focus from relevant production (Locke's “cultivation”) to mere ownership mechanics and the pursuit of profit.
Adam Smith (1723-1790) is often credited as one of the most influential economic philosophers in modern history. His work, while naturally based on the philosophical writings of many before him, is often considered a starting point for economic thought in the context of modern capitalism. Reaching maturity at the dawn of the Industrial Revolution, Smith lived at a time where it could be argued that the inherent features of the capitalist “mode of production” were becoming ever more striking, given the introduction of concentrated, centralized production factories and markets.
As noted, in 1776 Smith published his now world famous An Inquiry into the Nature and Causes of the Wealth of Nations. Among many relevant observations, he appears to be the first to recognize the three principal categories of income at the time - (a) profits, (b) rents and (c) wages - and how they related to the main social classes of the period - (a) capitalists, (b) landlords, and (c) laborers. It is worth noting that the role of landlords/rent, which is seldom discussed today in modern economic treatments, was a common point of focus then since the pre-industrial systems where still largely agrarian, highlighting the landlords (which later dissolved into the classification of simply owners in future market theories).
Smith's most noted contribution to the philosophy of capitalism was his general advocation that even though individuals might act in a narrow, selfish manner on their personal behalf or on the behalf of the class or group to which they are a part, and even though conflict, both individual or class based, seemed to be the result of these actions, there was what he called an “invisible hand” that secured a positive social outcome from singular, selfish, non-social intents. This concept was presented both in his works The Theory of Moral Sentiments and The Wealth of Nations.
He stated in the latter: “As every individual, therefore, endeavors as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labors to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it... he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.”This nearly religious ideal had a powerful effect on the post-Smith era, giving a very social vindication for the inherently self-maximizing, anti-social behavior common to capitalist psychology.
This basic philosophy was to develop, in part, as the foundation of “neoclassical” economics beginning in the late nineteenth century.
Smith, knowing quite well the class conflicts inherent to capitalism, goes on to discuss the nature of how some men gain “...superiority over the greater part of their brethren”, reinforcing what was to increasingly be considered a “law of nature” regarding human power and subjugation by further theorists. His view of property was in harmony with John Locke, elaborating on how society itself is manifest around it. He stated “Civil government, so far as it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all.”
Property, as an institution, also requires a means to justify respective value. To this end, various “theories of value” have been and continue to be postulated. Often sourced in origin back to Aristotle's Politics, Smith's contribution is still widely referenced as a pivotal influence. In effect, Smith builds upon Locke's “mixing labor” premise of production/ownership and extends from there, creating a “labor theory of value”.
He states “Labour was the first price, the original purchase money that was paid for all things. It was not by gold or by silver, but by labour, that all the wealth of the world was originally purchased; and its value, to those who possess it, and who want to exchange it for some new productions, is precisely equal to the quantity of labour which it can enable them to purchase or command.” Many chapters of Book I of Wealth of Nations work to explain the nature of prices/values respective to his denoted income/class categories of “wages”, “rents”, and “profits”. However, it will be found that his logic is rather circular in specifics as the price assessments are found to originate merely from other price assessments in a chain with no real starting point, other than the loose distinction of applied labor, which has, of course, no intrinsic, static monetary qualification. This problem of ambiguity in both the dominant “labor” and “utility” theories of value common to capitalist market theory will be addressed in detail later in this essay.
Overall, Smith’s economic theory supported “laissez-faire” capitalism as the highest mode of socioeconomic operation, stating that: it was a “system of natural liberty” and “Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men.” This later concept, as will be argued in the essay, Value System Disorder, is a rather naive assumption of human behavior and, in effect, a contradiction in terms.
Malthus and Ricardo
Thomas Malthus (1766-1834) and David Ricardo (1772-1823) were two well acknowledged, leading theorists of political economy of the early 19th century. They were “friendly rivals” by some comparison but from the broad view of history they shared virtually the same perspective, closely tied to Adam Smith's.
The late Industrial Revolution in Europe and America was a period of extensive conflict between laborers and capitalist owners. Numerous revolts and strikes in response to abhorrent and abusive working conditions for not only men, but also women and children, were common. This gave rapid rise to the now common labor unions and a general battle between “workers and owners” has continued ever since. To emphasize the extent of this class warfare, in England, the Combination Act of 1799 was imposed which basically outlawed any combination of workers to group together for power in order to, in effect, exert influence or inhibit the interests of their employers.
Historian Paul Mantoux, writing of this period, commented on "the absolute and uncontrolled power of the capitalist. In this, the heroic age of great undertakings, it was acknowledged, admitted and even proclaimed with brutal candor. It was the employer’s own business, he did as he chose and did not consider that any other justification of his conduct was necessary. He owed his employees wages and once those were paid the men had no further claim on him.” It was in the midst of all this that Malthus and Ricardo invariably contextualized their economic and social views.
Beginning with Malthus, his classic work An Essay on the Principle of Population orients around essentially two assumptions. The first is that the class structure of wealthy proprietors and poor laborers would inevitably reemerge no matter what reforms where attempted. He considered it a law of nature. The second idea, something of a corollary to first, was simply that poverty and suffering and hence economic divides were inevitable consequences of natural law.
His thesis on population rests upon the very simple assumption that “Population, when unchecked, increases in a geometrical ratio. Subsistence increases only in an arithmetical ratio.” Therefore, if the standard of living of everyone in society were increased, the vast majority would respond by increasing the amount of children they have. In turn, population outpacing subsistence would very soon push the population back to poverty. It was only through “moral restraint”, a social quality that he implies to belong to the more upstanding upper class, that this problem is checked by behavior. Evidently, the difference between the wealthy and the poor was the high moral character of the former and the base morality of the latter.
Again, as noted prior in this essay, the intuitive cultural condition has had a great deal to do with the prevailing premises of thought that have guided economic operations into the modern day. While many today might dismiss Malthus and these clearly outdated ideas, the seeds were deeply planted in the economic doctrines, values and class relationships that occurred during and after his time. In fact, those of a more “conservative” mindset still commonly cite variations of his population theory when dealing with economically less-developed countries.
Malthus, along with Locke and Smith, also held deeply Christian convictions in their frames of reference, whether directly extracted from scripture or based on personal interpretation. Malthus frames his “moral restraint” with the implication that a true Christian would righteously denounce such base vices and also accept the inevitable misery necessary to keep population from outstripping resource subsistence. Likewise, just as there is enormous debate today with respect to laws pertaining to the notion and use of “welfare” or “public aid” programs” to help the poor, Malthus, naturally, was a big proponent of the abolition of what were then called the “poor laws”, as was David Ricardo.
Moving on to Ricardo, he essentially accepted Malthus’ population theory and conclusions regarding the nature and causes of poverty, but disagreed with certain economic theories, such as elements of Malthus' theory of value, theory of gluts and certain class assumptions. Since most of these disagreements in detail are superfluous to this broad discussion at hand (and arguably outdated in general), Ricardo's most notable contributions to economic thought will be the point of focus.
In 1821, Ricardo finished the third edition of his influential Principles of Political Economy and Taxation. In the preface, he states his interest: "The produce of the earth...all that is derived from its surface by the united application of labour, machinery, and capital, is divided among three classes of the community, namely, the proprietor of the land, the owner of the stock of capital necessary for its cultivation, and the laborers by whose industry it is cultivated. To determine the laws which regulate this distribution is the principal problem in political economy."
While critical of certain aspects of Adam Smith's labor theory of value, he still supported the basic distinction, stating: “Possessing utility, commodities derive their exchangeable value from two sources: from their scarcity, and from the quantity of labour required to obtain them.” In common with Smith, he elaborates: “If the quantity of labour realized in commodities regulates their exchangeable value every increase of the quantity of labour must augment the value of that commodity on which it is exercised, as every diminution must lower it.”
Consequently, Ricardo viewed society and the class divisions of his time from the labor perspective and it logically went that the interests of workers and capitalists were opposed. “If wages should rise,” he often stated, “then... profits would necessarily fall.” Yet, even though this disharmony alludes to an underlying interest of each class to work to gain advantage over the other for their benefit, often resulting in general imbalance in large part due to the power of the capitalist owners to control labor (and set policy), coupled with the advent of mechanization (machine application) which systematically reduced the need for human labor in applied sectors, he alludes to the conviction that the theory of capitalism, if correctly applied, should always create full employment in the long run. On the specific issue of machine application displacing human labor for the advantage of the manufacturer, he states: “The manufacturer...who...can have recourse to a machine which shall...[lower the costs] of production on his commodity, would enjoy peculiar advantages if he could continue to charge the same price for his goods; but he...would be obliged to lower the price of his commodities, or capital would flow to his trade till his profits had sunk to the general level. Thus then is the public benefited by machinery.”
However, as with other aspects of his writing, contradiction is common. While maintaining the basic idea that the general public would benefit from the introduction of labor displacing machinery under the assumption that market prices would cleanly decline and those displaced would always smoothly relocate, in the third edition of his Principles, Ricardo starts chapter 31 by stating: "Ever since I first turned my attention to questions of political economy, I have been of the opinion that...an application of machinery to any branch of production as should have the effect of saving labour was a general good...[but] that the substitution of machinery for human labor is often very injurious to the interests of the class of laborers.”
He later re-qualifies the argument by stating “The statements which I have made will not, I hope, lead to the inference that machinery should not be encouraged. To elucidate the principle, I have been supposing, that improved machinery is suddenly discovered, and extensively used; but the truth is, that these discoveries are gradual, and rather operate in determining the employment of the capital which is saved and accumulated, than in diverting capital from its actual employment.”
His general dismissal of the issue of humans being displaced by machines, later to be called “technological unemployment” will also be found in common with many other economists that followed him, including John Maynard Keynes (1883-1946), who stated, in line with Ricardo's general assumption of “adjustment”: “We are being afflicted with a new disease of which some readers may not yet have heard the name, but of which they will hear a great deal in the years to come - namely, technological unemployment. This means unemployment due to our discovery of means of economizing the use of labour outrunning the pace at which we can find new uses for labour. But this is only a temporary phase of maladjustment. All this means in the long run that mankind is solving its economic problem.”
The subject is brought up here as an accent of focus because it will be revisited in part III of this text, presenting a context of technological application apparently unrealized or disregarded by the major economic theorists of modern history who, again, are often locked into a narrow frame of reference. As a final point regarding Ricardo, he is also credited for his contribution to international “free-trade”, specifically his Theory of Comparative Advantage, along with perpetuation of the basic “invisible hand” ethos of Adam Smith. Ricardo States: "Under a system of perfectly free commerce, each country naturally devotes its capital and labour to such employments as are most beneficial to each. This pursuit of individual advantage is admirably connected with the universal good of the whole. By stimulating industry, by rewarding ingenuity, and by using most efficaciously the peculiar powers bestowed by nature, it distributes labour most effectively and most economically: while, by increasing the general mass of productions, it diffuses general benefit, and binds together, by one common tie of interest and intercourse, the universal society of nations throughout the civilized world."
Theories of Value and Behavior
Up until this point, the broad contributions of four major historical figures and inevitably the central characteristics inherent to the capitalist philosophy have been briefly discussed. It will be noticed that underlying these views rest assumptions of human behavior, social (class) relationships, coupled with a “metaphysical” market logic where everything will work out just fine if certain values and a generally “selfish” perspective is taken by the players of the market game, along with little “restriction” of the market itself.
As a brief aside, nowhere in the writings of these thinkers, nor in the vast majority of works produced by later theorists in favor of free market capitalism, is the actual structure and process of production and distribution discussed. There is an explicit disconnect between “industry” and “business”, with the former related to the technical/scientific process of true economic unfolding; with the latter only pertaining to the codified market dynamics and pursuit of profit. As will be discussed more so in a moment, a central problem inherent to the capitalist mode of production is how advancements in the “industrial approach”, which can allow for increased problem resolution and the furthering of prosperity, have been blocked by the traditional, seemingly immutable tenets of the “business approach”. The latter has governed the actions of the former, to the disadvantage of the former's potential.
This kind of disconnect or truncated frame of reference is also to be found in other areas of focus, such as the dominant theories of labor, value and human behavior which inevitably serve to justify the institution of capitalism. As noted prior, the “labor theory of value”, made popular in general by its implications via Locke, Smith and Ricardo, is a generalized proposal stating that the value of a commodity is related to the labor needed to produce or obtain that commodity. As acceptable as this idea is in general from an intuitive perspective, there are many levels of ambiguity when it comes to quantification. Many historical objections have persisted, such as how different types of labor having differing skills and wage rates could not be properly combined, along with how to factor in natural resources and “working” investment capital itself.
The growth of “capital goods” in the 20th century, such as machine automation of labor, also present challenges for the rather simplified labor theories' concept of labor derived value since, after a certain point, the labor value inherent to production machines, which today often function to produce more machines with diminishing human effort over time, presents an ever diluted transfer of value in this context. It has been suggested by some economists today, focusing on the rapidly advancing fields of information and technological sciences, that the use of machine automation, coupled with artificial intelligence, could very well move humans out of the traditional labor force almost entirely. Suddenly, capital has become labor, so to speak.
This ambiguity extends also to competing theories of value postulated by economists, including most notably what is called the utility theory of value. While the labor theory basically takes the perspective of labor or production, the utility theory takes what we could call the “market perspective”, meaning that value is derived not from labor but by the purpose (or utility) derived by its use (use value) by the consumer, as perceived by the consumer.
French Economist Jean-Baptiste Say (1737-1832) is notable with respect to utility theory. A self-proclaimed disciple of Adam Smith, he differed with Smith on this issue of value, stating: “After having shown...the improvement which the science of political economy owes to Dr. Smith, it will not, perhaps, be useless to indicate...some of the points on which he erred...To the labour of man alone he ascribes the power of producing values. This is an error.” He goes on to explain how the “exchange value” (price), of any good or service depends entirely on its “use value” (utility). He states: ”The value that mankind attaches to objects originates in the use it can make of them...[To the] inherent fitness or capability of certain things to satisfy the various wants of mankind, I shall take leave to affix the name utility... The utility of things is the ground-work of their value, and their value constitutes wealth... Although price is the measure of the value of things, and their value the measure of their utility, it would be absurd to draw the inference, that, by forcibly raising their price, their utility can be augmented. Exchangeable value, or price, is an index of the recognized utility of a thing.
The utility theory of value is different from the labor theory not only in its derivation of value, but also in its implication regarding a kind of subjective rationalization with respect to human decisions in the market. Utilitarianism, which has become deeply characteristic of the microeconomic assumptions put forward by neoclassical economists today, is often modeled in complex mathematical formulas in an effort to explain how humans in the market “maximize their utility”, specifically around the idea of increasing happiness and reducing suffering.
Underlying these ideas of human behavior, as with most of economic theory itself, are, again, traditionalized assumptions. Economist Nassau Senior (1790–1864) supported a common theme reoccurring today that human wants were infinite: “What we mean to state is, that no person feels his whole wants to be adequately supplied; that every person has some unsatisfied desires which he believes that additional wealth would gratify.” Such declarations of human nature are constant in such treatments, with notions of greed, fear and other hedonistic reflex mechanisms which assume, among other things, that material acquisition, wealth and gain are inherent to happiness.
Today, the dominant and largely accepted microeconomic perspective is that all human behavior is reducible to rational, strategic attempts to maximize either profits or gain and to avoid pain or loss. Ever expansive utilitarian arguments of this nature continue to be used to morally justify competitive, market capitalism. One example of this is the notion of “voluntarism” and the suggestion that all acts in the market are never coerced and therefore everyone is free to make their own decisions for their own gain or loss. This idea is extremely common today, as though such “free exchanges” existed in a void with no other synergistic pressures; as though the pressures of survival in a system with clear tendencies toward basic class warfare and strategic scarcity would not generate an inherent coercion to force laborers to submit to capitalist exploitation.
Overall, the utilitarian (hedonistic, and competitive and “forever dissatisfied”) model of human nature is likely the most common defense of the capitalist system today. It is, in many ways, both a psychological theory of how people behave and an ethical theory of how they ought to behave, arguably supporting a retroactive logic that often puts market theory before human behavioral reality, conforming the latter to the former.
In reality, when the utilitarian perspective is fully considered, two serious problems emerge. First, it is virtually impossible to find predictability in such “pleasure and pain” boundaries after a certain degree on the social level. There is no empirical means of comparing the intensity of one individual’s sense of pleasure with those of another individual, beyond the very most basic assumption of wanting “gain” over “loss”. While the utility theory of value might be logical in a purely abstract, generalized view, without quantification, the mechanics of such emotional dynamics are, in reality, susceptible to severe variation.
The entire life experience of a person, compared to another person, might find some very basic common ground with respect to their personal conditioning to pleasure and pain responses, but seldom will a parallel concordance be found in any detail. Since individual pleasures are deemed the ultimate “moral” criteria in utilitarianism, there is really no way one can make such judgments between the pleasures of two individuals. Economist Jeremy Bentham, often considered the father of utilitarianism, actually recognized this in passing, writing: “Prejudice apart, the game of push-pin is of equal value with the arts and sciences of music and poetry. If the game of push-pin furnish more pleasure, it is more valuable than either.”
The second problem is the shortsighted nature of the assumed emotional reaction. Human beings have historically expressed the rational interest to suffer in the present in order to gain (or hope to gain) in the future. Altruism, which has undergone extensive philosophical debate, might very well be rooted in forms of “pleasure” obtained by the selfless (painful) acts for the benefit of others. As will be discussed later, the pain/pleasure premise put forward by such arguments, reinforced by an impulsive reaction for gain, has become a socially rewarded pattern. This has generated a mentality where short-term gain is sought after often at the true expense of long-term suffering.
Yet, in abstraction, utilitarianism also offers a bizarre kind of equalizer, since it can be identified with the perspective of “mutual exchange” and hence a way to always see capitalism as a system of social harmony, rather than of warfare. Coming back to the labor theory vs. the utility theory of value, the former clearly shows conflict as the labor theory takes into account the cost-efficiency sought by the capitalist, at the expense of wages for the laborers. The utility theory, on the other hand, removes these ideas overall and states that everyone is seeking the same thing and therefore, structure aside, everyone is equal. In other words, all exchanges become mutually beneficial to everyone in a narrow, absurdly abstract generalized logic. All human actions are reduced to this system of “exchange” and hence all political or social distinctions disappear in theory.
The “Socialist” Uprising
Socialism, like capitalism, has no universally accepted definition in general public conversation but is often technically defined as “an economic system characterized by social ownership of the means of production and co-operative management of the economy.” The root of socialist thought appears to go back to 18th century Europe, with a complex history of “reformers” working to challenge the emerging capitalist system. Gracchus Babeuf (1760-1797) is a notable theorist in this area, with his "Conspiracy of Equals" which attempted to topple the French Government. He stated “Society must be made to operate in such a way that it eradicates once and for all the desire of a man to become richer, or wiser, or more powerful than others.” French Socialist-Anarchist Pierre Joseph Proudhon (1809-1865) is famous for declaring that “Property is Theft” in his pamphlet An Inquiry into the Principle of Right and of Government.
By the early 19th century, socialist ideas were expanding rapidly, commonly in response to perceived moral and ethic problems inherent to capitalism, such as class imbalance and exploitation. The list of influential thinkers is vast and complex, so only three individuals, noting their most relevant contributions, will be discussed here: William Thompson, Karl Marx and Thorstein Veblen.
William Thompson (1775-1833) was a powerful influence on socialist thought. He was in support of the idea of “cooperatives”, made famous by Robert Owen as something of an alternative to the capitalist business model and philosophically took a utilitarian perspective when it came to human behavior. He was very influenced by Bentham but his use/interpretation of utilitarianism was rather different. For instance, he believe that if all members of society were treated equally, rather than engage class warfare and exploitation, they would have equal capacities to experience happiness.
He argued extensively for a kind of market socialism, where egalitarianism and equality prevailed in his famous An Inquiry into the Principles of the Distribution of Wealth Most Conducive to Human Happiness. He made it clear that Capitalism was a system of exploitation and insecurity, stating: “The tendency of the existing arrangement of things as to wealth is to enrich a few at the expense of the mass of producers, to make the poverty of the poor more hopeless.” However, he went on to recognize that even if such a hybrid of capitalism and socialism did emerge, the underlying premise of competition was still a serious problem. He wrote at length about the problems inherent to the nature of market competition, outlining five issues that have been common rhetoric of socialist thought ever since. The first problem was that every “laborer, artisan and trader [viewed] a competitor, a rival in every other...[and each viewed]; a second competition, a second rivalship between...[his or her profession] and the public.” He went on to state it would be “in the interest of all medical men that diseases should exist and prevail, or their trade would be decreased ten, or one hundred, fold.”
The second problem was the inherent oppression of women and distortion of the family, noting that the division of labor and overarching ethic of competitive selfishness further secured the drudgery of women in the household and gender inequality.
The third problem associated with competition was the inherent instability generated in the economy itself, stating: "The third evil here imputed to the very principle of individual competition is, that it must occasionally lead to unprofitable or injudicious modes of individual exertion...every man must judge for himself as to the probability of success in the occupation which he adopts. And what are his means of judging? Every one, doing well in his calling, is interested in concealing his success, lest competition should reduce his gains. What individual can judge whether the market, frequently at a great distance, sometimes in another hemisphere of the globe is overstocked, or likely to be so, with the article which inclination may lead him to fabricate?...and should any error of judgment...lead him into an uncalled for, and, therefore, unprofitable line of exertion, what is the consequence? A mere error of judgment...may end in severe distress, if not in ruin. Cases of this sort seem to be unavoidable under the scheme of individual competition in its best form.”
The fourth problem noted is how the selfish nature of the competitive market presented insecurity around core life support consequences, such as security in old age, sickness and from accidents.The fifth problem denoted by Thompson regarding market competition was that it slowed the advancement of knowledge. “Concealment, therefore, of what is new or excellent from competitors, must accompany individual competition...because the strongest personal interest is by it opposed to the principle of benevolence.”
Karl Marx (1818-1883), along with many others, was influenced by Thompson's work and is likely one of the most well known economic philosophers today. With his name often used in a derogatory manner to gesture the perils of Soviet communism or “totalitarianism”, Marx is also likely the most misunderstood of all popularized economists. While most famous in the general public mind for presenting treatises on Socialist-Communist ideas, Marx actually spent most of his time on the subject of Capitalism and its operations.
His contribution to understanding Capitalism is more vast than many realize, with many common economic terms and phrases used today in conversations about capitalism actually finding their root in Marx's literary treatments. His perspective was largely historical, and featured particularly detailed scholarship about the evolution of economic thought. Due to the immense size of his work, only a few influential issues will be addressed here.
One issue to denote was his awareness of how the capitalist characteristic of “exchange” was principled as the ultimate basis for social relationships. He stated in his Grundrisse: “Indeed, insofar as the commodity or labour is conceived of only as exchange value, and the relation in which the various commodities are brought into connection with one another is conceived of as the exchange of these exchange values...then the individuals...are simply and only conceived of as exchangers. As far as the formal character is concerned, there is absolutely no distinction between them...As subjects of exchange, their relation is therefore that of equality.”
“Although individual A feels a need for the commodity of individual B, he does not appropriate it by force, nor vice versa, but rather they recognize one another reciprocally as proprietors...No one seizes hold of another’s by force. Each divests himself of his property voluntarily.”
Again, as noted prior with respect to the reoccurring theme of human relations and class assumptions (or denials), Marx emphasized what could be argued as three core delusions: the delusion of freedom, equality and social harmony, as reduced to an extremely narrow association around the idea of “mutually beneficial exchange”, which was to be the only real economic relationship by which the whole of society is to be assessed.
“It is in the character of the money relation - as far as it is developed in its purity to this point, and without regard to more highly developed relations of production - that all inherent contradictions of bourgeois society appear extinguished in money relations as conceived in a simple form; and bourgeois democracy even more than bourgeois economists takes refuge in this aspect...in order to construct apologetics for the existing economic relations.
His work Capital: A Critique of Political Economy, Marx extensively analyzes many factors of the capitalist system, namely the nature of commodities themselves, the dynamics between value, use value, exchange value, labor theory and utility, along with a deep investigation of what “capital” means, how the system evolved and ultimately the nature of roles within the model. An important theme to denote is his view regarding “surplus value”, which, in gesture of Ricardo's “labor theory of value”, is the assumed value appropriated by the capitalist in the form of profit, which is in excess of the value (cost) inherent to labor/production itself.
He stated with respect to dismissing this “Surplus” origin in exchange: “Turn and twist then as we may, the fact remains unaltered. If equivalents are exchanged, no surplus-value results, and if non-equivalents are exchanged, still no surplus-value results. Circulation, or the exchange of commodities, begets no value.” He then argues, in short, differentiating between “labor” and “labor power”, with the latter consisting of both a “use value” and an “exchange value”, that a worker is only compensated for meeting his needs for subsistence, which is represented in his wages, while everything past that value is a “surplus”, which theoretically translates into the “profit” made by the capitalist, finalized by the price “mark up” in market exchange.
This point, which he further extends in context & dynamics inherent to the circulation/application of different forms of capital (capital defined still as a means of production but in this case mostly in its monetary form), poses the conclusion that an exploitation of the workers was inherent to the creation of “surplus value” or “profit”. In other words, by implication, this was a form of basic inequality built into the capitalist system and as long as one small group of “owners” controlled the surplus value created by the working class, there will always be rich and poor, wealth and poverty.
Marx further extends this idea to a reassessment of “property”, which was essentially now the legal foundation of “capital” itself, explicitly allowing for the coercive expropriation of “surplus labor” (that part of labor which generates the surplus value) stating: “At first the rights of property seemed to us to be based on a man’s own labour. At least, some such assumption was necessary since only commodity-owners with equal rights confronted each other, and the sole means by which a man could become possessed of the commodities of others, was by alienating (giving up) his own commodities; and these could be replaced by labour alone. Now, however, property turns out to be the right, on the part of the capitalist, to appropriate the unpaid labour (surplus labor) of others or its product, and to be the impossibility on the part of the labourer, of appropriating his own product. The separation of property from labour has become the necessary consequence of a law that apparently originated in their identity.”
Marx develops these kinds of arguments extensively in his writing, including the idea that working class labor cannot be “voluntary” in this system - only coercive - since the ultimate decision to apply labor for a wage was in the hands of the capitalist. He stated, “The worker therefore only feels himself outside his work, and in his work feels outside himself. He is at home when he is not working, and when he is working he is not at home. His labour is therefore not voluntary but coerced; it is forced labour. It is therefore not the satisfaction of a need; it is merely a means to satisfy needs external to it.”In the end, it was this complex, multifaceted degradation, exploitation and dehumanization of the average worker that bothered him so and pushed him toward reform. He even invented a phrase - “The Law of the Increasing Misery” - to describe how the general working population's happiness was inverse to the accumulation of wealth for the capitalist class.
In the end, Marx was convinced that pressures inherent to the system would push the working class to revolt against the capitalist class, allowing for a new “socialist” mode of production where, in part, the working class operated for their own benefit.
Thorstein Veblen (1857-1929) will be the final so-called “socialist” whose influential ideas regarding the development and flaws of capitalism will be explored here. Like Marx, he had the advantage of time with respect to the digestion of economic history. Veblen taught economics at a number of universities during his time, prolifically producing literature on various social issues.
Veblen was very critical of the neoclassical economic assumptions, specifically regarding the applied utilitarian ideas of “human nature”, seeing the idea that all human economic behavior was to be reduced to a hedonistic interplay of self-maximization and preservation as absurdly simplistic. He took what we could call an “evolutionary” view of human history, with change defined by the social institutions that took hold or were surpassed. He stated with respect to the current (what he deemed “materialistic”) state of the time:
“Like all human culture this material civilization is a scheme of institutions - institutional fabric and institutional growth...The growth of culture is a cumulative sequence of habituation, and the ways and means of it are the habitual response of human nature to exigencies that vary incontinently, cumulatively, but with something of a consistent sequence in the cumulative variations that so go forward - incontinently, because each new move creates a new situation which induces a further new variation in the habitual manner of response; cumulatively, because each new situation is a variation of what has gone before it and embodies as causal factors all that has been effected by what went before; consistently, because the underlying traits of human nature (propensities, aptitudes, and what not) by force of which the response takes place, and on the ground of which the habituation takes effect, remain substantially unchanged.”
Veblen challenged the basic foundation of the capitalist mode of production by questioning many of the factors that had been essentially “given” or deemed empirical by the centuries of economic debate. The now ingrained institutions of “wages”, “rents”, “property”, “interest”, “labor” were disturbed in their supposed simplicity by a view that none of them could be held as intellectually viable, outside of the purely categorical association with extreme limits of application. He joked about how “a gang of Aleutian Islanders slushing about in the wrack and surf with rakes and magical incantations for the capture of shell-fish are held, in point of taxonomic reality, to be engaged in a feat of hedonistic equilibration in rent, wages, and interest. And that is all there is to it.”
He saw production and industry itself as a social process where lines were deeply blurred, as it invariably involved the sharing of knowledge (usufruct) and skills. In many ways, he viewed such categorical characteristics of capitalism to be inherent to capitalism alone and not representative of physical reality, hence a vast contrivance. He found that the dominant neoclassical theory existed, in part, to obscure the fundamental class-warfare and hostility inherent, to further secure the interests of what he called the “vested interests” or “absentee owners” (aka capitalists).
He rejected the idea that private property was a “natural right”, as assumed by Locke, Smith and the others, often joking about the absurdity of thought that leads the “absentee owners” to claim “ownership” of commodities produced, in reality, by the labor of the “common worker”, highlighting the absurdity of the long held principle that from labor, comes property. He went further to express the inherent social nature of production and how the true nature of skill and knowledge accumulation completely voided the assumption of property rights in and of itself, stating:
“This natural-rights theory of property makes the creative effort of an isolated, self-sufficing individual the basis of ownership vested in him. In so doing it overlooks the fact that there is no isolated, self-sufficing individual...Production takes place only in society - only through the co-operation of an industrial community. This industrial community may be large or small...but it always comprises a group large enough to contain and transmit the traditions, tools, technical knowledge, and usages without which there can be no industrial organization and no economic relation of individuals to one another or to their environment...There can be no production without technical knowledge; hence no accumulation and no wealth to be owned, in severalty or otherwise. And there is no technical knowledge apart from an industrial community. Since there is no individual production and no individual productivity, the natural-rights preconception...reduces itself to absurdity, even under the logic of its own assumptions.
As with Marx, he saw no other way to distinguish the two major classes of society than between those who work and those who exploit that work with the profit making portion of capitalism (the “business”) completely separate from production itself (“industry”). He makes a clear distinction between business and industry and refers to the former as functioning as a vehicle of “sabotage” for industry. He saw a complete contradiction between the ethical intent of the general community to produce efficiently and with high service, and the laws of private property that had the power to direct industry for the sake of profit alone, reducing that efficiency and intent. The term “sabotage” in this context was defined by Veblen as the “conscientious withdrawal of efficiency.”He states: “The industrial plant is increasingly running idle or half idle, running increasingly short of its productive capacity. Workmen are being laid off...And all the while these people are in great need of all sorts of goods and services which these idle plants and idle workmen are fit to produce. But for reasons of business expediency it is impossible to let these idle plants and idle workmen go to work—that is to say for reasons of insufficient profit to the business men interested, or in other words, for the reasons of insufficient income to the vested interests.”
Furthermore, Veblen, as opposed to the vast majority of people in the modern day who condemn acts of “corruption” on ethical grounds, did not see any of the problems of abuse and exploitation as an issue of “morality” or “ethics”. He saw the problems as inherent, built into the nature of capitalism itself. He states: “It is not that these captains of Big Business whose duty it is to administer this salutary modicum of sabotage on production are naughty. It is not that they aim to shorten human life or augment human discomfort by contriving an increase of privation among their fellow men... The question is not whether this traffic in privation is humane, but whether it is sound business management.”
With respect to the nature of Government, Veblen's view was very clear: Government by its very political construct existed to protect the existing social order and class structure, reinforcing private property laws and by direct extension reinforcing the disproportionate ownership (ruling) class. “Legislation, police surveillance, the administration of justice, the military and diplomatic service, all are chiefly concerned with business relations, pecuniary interests, and they have little more than an incidental bearing on other human interests”, he stated.
The idea of democracy was also deeply violated by capitalist power in his view, stating “constitutional government is a business government.” Veblen, while aware of the phenomenon of “lobbying” and the “buying” of politicians commonly seen today as a form of “corruption”, did not see this as the real nature of the problem. Rather, government control by business was not an anomaly. It was simply what government had manifested to be by design. By its very nature, as an institutionalized means for social control, government would always protect the “rich” against the “poor”. Since the “poor” always greatly outnumbered the “rich”, a rigid legal structure favoring the wealthy (“propertied interests”) had to exist to keep the class separation and benefit to the capitalist interests intact.
Likewise, he also recognized how the capitalist-state government very much needed to keep social values in line with their interests - what Veblen called a “pecuniary culture”. Therefore, the predatory, selfish and competitive habits typical of “success” in the underlying social warfare inherent to the capitalist system naturally reinforced those values by default. To be giving and vulnerable was of little use to “success” in this context, as the ruthless and strategically competitive were icons of social reward.
In a broad assessment, Veblen worked to critically analyze the core structure and values of the capitalist model, posing what could be argued as some profoundly sociologically advanced conclusions with respect to its inherent contradictions, technical inefficiency and value disorders. His work is very much encouraged for review by all interested in the history of economic thought, specifically for those skeptical of the premise of the free market.
In Conclusion: Capitalism as “Social Pathology”
The history of economic thought is, in many ways, the history of human social relationships, with the pattern of certain mere assumptions gaining prominence to the effect of being considered sacrosanct and immutable over time. This element of traditionalism, culminating from values and belief systems of earlier periods, has been a core theme in this short review of economic history. The central point being that the attributes taken as “given” to the dominant theories of economy today are actually not based on direct physical support, such as would be needed to find validation via the method of science, but rather based on the mere perpetuation of an established ideological framework which has evolved to intricately self-refer to its internal logic, justifying its own existence by its own standards.
Today, it is not what embodies the capitalist ideology in specifics that is most problematic, but rather what it omits by extension. Just as early religions saw the world as flat and had to adjust their rhetoric once it was proven round by science, the tradition of market economics is faced with similar trials. Considering the simplicity of the agrarian and eventually primitive approaches to industrial production, there was little awareness or needed concern about its possible negative consequences over time on not only the habitat (ecological) level, but also on the human level (public health).
Likewise, the market system, with its very old assumptions regarding possibility, also ignores (or even fights) the powerful breakthroughs in science and technology that express capacities to solve problems and create elevated prosperity. In fact, as will be explored in the essay Market Efficiency vs. Technical Efficiency, such progressive actions and harmonious recognitions regarding the habitat and human well-being reveals that market capitalism literally cannot facilitate these solutions, since its very mechanics disallow or work against such possibilities by default.
Generally speaking, the resolution of problems and hence increasing of efficiency is, in many ways, anathema to the market's operation. Solving problems in general means no more ability to gain income from the “servicing” of those problems. New efficiencies almost always mean a reduction of labor and energy needs and while that may seem positive with respect to true earthly efficiency, it also often means a loss of jobs and reduction of monetary circulation upon its application.
It is here where the capitalist model begins to take the role of a social pathogen, not only with respect to what it ignores, disallows or fights against by design, but also with respect to what it reinforces and perpetuates. If we go back to Locke's statement about how the nature of money, given its tacit consent by the community, was to essentially serve as a community in and of itself, it is easy to see how this once mere “medium of exchange” has evolved into its present sociological form, where the entire basis of the market serves, in fact, not with the intent to create and assist with human survival, health and prosperity, but to now merely facilitate the act of profit and profit alone.
Adam Smith never would have fathomed that in the present day, the most lucrative, rewarded fields would be not the production of life supporting/improving goods, but rather the act of moving money around – hence the “work” of financial institutions such as banks, “Wall St.” and investment firms – firms that literally create nothing, but hold immense wealth and influence.Today, the only real value theory in place is what could be called the “money sequence of value”. Money has taken on a life of its own with respect to the reinforced psychology moving it. It has no direct purpose in intent but to work to manifest more money out of less money (investment).
This “money seeking money” phenomenon has not only created a value system disorder where this interest in monetary gain trumps everything, leaving truly relevant environmental and public health issues secondary and “external” to the focus of economy, its constant propensity to “multiply” and “expand” truly has a cancerous quality where this idea of needed “growth”, rather than steady-state balance, continues its pathological effect on many levels.
Much could be said about the debt system and how virtually all the countries on the planet earth are now indebted to themselves to the extent where we, the human species, actually do not have the money in circulation to pay ourselves back from what we have borrowed out of thin air. The need for more and more “credit” to fuel the “market” is constant today due to this imbalance, which means, like cancer, we are dealing with an intent of infinite expansion and consumption. This simply cannot work on a finite planet.
Furthermore, the scarcity-driven, competitive ethos inherent to the model continues to perpetuate divisive class warfare that keeps not only the world at war with itself via empire imperialism and protectionism, but also within the general population. Today, most walk around afraid of each other since exploitation and abuse is the dominant, rewarded ethos. All humans have adapted in this culture, unnecessarily, to see each other as threats to one's own survival in increasingly abstract “economic” contexts. For example, when two people walk into a job interview, seeking life support, they are not interested in the wellbeing of the other, since only one will gain the job. In fact, empathic sensitivities are negative pressures in this system of advantage and go completely unrewarded by the financial mechanism.
Likewise, the assumption that “fairness” could ever exist in such a competitive environment, particularly when the nature of “winning” and “losing” means a loss of life support or survival, is a deeply naïve ideal. The legal statutes in existence that work to stop monopoly laws and financial “corruption” exist because there is literally no built in safeguard for such so-called “corruption” in this model. As implied by Smith and Veblen in this essay, the “state” is really a manifestation of the economic premise and not the other way around. The use of state power for legislation to ensure the security and prosperity of one class over another, is not a distortion of the capitalist system, it is a core feature of the free market competitive ethic.
Many in the libertarian, laissez-faire, Austrian school, Chicago school and other neoclassical offshoots constantly tend to talk about how “state interference” is the problem today, such as with having protectionist import/export polices or the favoring of certain industries by the state. It is assumed that somehow the market can be “free” to operate without the manifestation of monopoly or the “corruptions” inherent to what has been deemed today “crony capitalism”, even though the entire basis of strategy is competitive or, in more direct terms, “warring”. Again, to assume the State would not be used as a tool for differential advantage – a tool for business – is absurd.
In the end, these overtly and unnecessarily selfish values have been at the root of human conflict since their inception and, as noted, the historical notion of human warfare on the class level is seen by most as “given”, “natural” or “immutable”. In the existing social model, extracted from an inherently scarcity-driven, xenophobic and racist frame of reference, there is no such thing as peace or balance. It simply isn't possible in the capitalist model. Likewise, the illusion of equality between people in the so-called “democratic” societies also persists, assuming that somehow political equality can manifest out of the explicit, economic inequality inherent to this mode of production and human relations.
Early in this essay the distinction between the “historical” and “mechanistic” view of economic logic was mentioned in passing. The importance of the “mechanistic” (scientific) perspective, which will be explored in later essays, is critical with respect to understanding how deeply out of date and flawed the market economy really is. When we take the known laws of nature, both on the human and habitat levels, and start to calculate what our options and possibilities are, technically, without the baggage of such historical assumptions, a very different train of thought emerges. In the view of TZM, this is the new worldview by which humanity needs to align in order to solve its current, mounting sociological and ecological problems, along with opening the door to enormous possibilities for future prosperity.
- Source: The Cancer Stage of Capitalism, John McMurtry, Pluto Press, 1999, p.viii
- A less generalized definition of the “free-market” is as follows: “An economic system in which prices and wages are determined by unrestricted competition between businesses, without government regulation or fear of monopolies.” (http://dictionary.reference.com/browse/free+market)
- As will be described in later essays, TZM's often false categorization of being “statist” is rooted in its general opposition to market principles, which it finds to be unsustainable and often counterproductive. “Statism”, which can take many forms, such as communist, fascist or socialist, advocates a “central authority” to decide how the economic/political process is to unfold, with little to no relevant influence occurring via the general population. TZM supports an open decision making process in general, under the imposition of basic, proven laws of scientific sustainability and efficiency.
- The notion of an “externality”, which will be noted later in this essay, is a case in point. Most environmental and social costs systemic to the market approach, along with arguably the loss of efficiency and hence prosperity, are dismissed in the theoretical equation of the market, among many other relevant issues.
- Economic philosopher John McMurtry stated generally on this issue: “This tendency prevails from the Continental Rationalists on. Leibniz, Spinoza, Descartes, Berkeley, Kant and Hegel, for example, more or less entirely presupposed the social regime of their day and its constituent forms as in some way the expression of the divine Mind, which they see it as their rational duty only to accept or to justify.” The Cancer Stage of Capitalism, Pluto Press, 1999, p.7
- Aristotle (384 BC– 322 BC), while credited with extensive scientific, logical and philosophical contribution, was also in favor of slavery, justifying the reality with what could be argued as bias, not reason. He stated: “But is there any one thus intended by nature to be a slave, and for whom such a condition is expedient and right, or rather is not all slavery a violation of nature? There is no difficulty in answering this question, on grounds both of reason and of fact. For that some should rule and others be ruled is a thing not only necessary, but expedient; from the hour of their birth, some are marked out for subjection, others for rule.” Politics, Book I, Chapters III through VII
- The term “Middle Ages” generally refers to the period of European history that lasted from the 5th until the 15th centuries.
- For a detailed study of the medieval economic system and society, the following work is suggested: The Agrarian Life of the Middle Ages, J.H. Chapman and Eileen E. Powers, eds., 2d ed., The Cambridge Economic History of Europe, vol. 1 London, Cambridge University Press, 1966
- Reference: Macroeconomics from the beginning: The General Theory, Ancient Markets, and the Rate of Interest, David Warburton Paris, Recherches et Publications, 2003 p.49
- The “Emergent” consideration of economic development appears to be a relatively new concept, introduced most popularly by Thorstein Veblen in the early 20th century. Suggested reading on the subject of economic evolution: The Evolution of Institutional Economics: Agency, Structure and Darwinism in American Institutionalism, Geoffrey M. Hodgson, London, Routledge, 2004
- The distinction of “classes” in specific categories is without exact meaning, historically. The point here is the ongoing presence of a clearly dominant class, whether that of ancient nobility, for example, or the modern financial oligarchy.
- Reference: The Historical Encyclopedia of World Slavery, Junius P. Rodriguez, Vol I, Section E
- Reference: Mediaeval Feudalism, Carl Stephenson, Cornell University Press, 1956
- Reference: A History of Economic Theory and Method, Robert B. Ekelund; Robert F. Hébert, New York: McGraw–Hill, 1975
- Reference: Defending Mother Earth: Native American Perspectives on Environmental Justice, Jace Weaver, Orbis Books, 1996
- To list the ecological problems now facing humanity, from climate destabilization, to pollution, to resource depletion, to loss of biodiversity and other invariably public health threats, would be too extensive to detail here. In the view of TZM, these issues are largely a result of the Capitalist premise and its accepted approaches and values .
- Consumption patterns in modern society have shown an arbitrary nature with respect to “Human Wants”, such as the powerful shift in values which occurred in the early 20th century with the application of modern Western advertising. “Human Needs”, however, are basic necessities, largely shared by all humans, which maintain physical and psychological health.
- See the essay Defining Public Health.
- “Social Darwinism” is a very general ideology that seeks to apply biological concepts of Darwinism or of “survival of the fittest” type theory to sociology and politics. Historian Richard Hofstadter popularized the term in the United States in 1944. The intuition of this concept, however, appears long before Darwin's time in philosophical thought.
- Reference: Mediaeval Feudalism, Carl Stephenson, Cornell University Press, 1956
- Reference: The Economy of Early Renaissance Europe, 1300–1460, Harry A. Miskimin, Englewood Cliffs, NJ: Prentice-Hall, 1969, p.20
- Reference: Studies in the Development of Capitalism, Maurice H. Dobb, London, Routledge and Kegan Paul, 1946, Chapter 4
- Reference: The Concise Encyclopedia of Economics, David R. Henderson, Liberty Fund, Inc, 2002, “Mercantilism”
- A positive balance of trade is also known as a “trade surplus” and it consists of exporting more than is imported in monetary value. This act by the State is often called “Protectionism” today.
- Reference: The Growth of Economic Thought, Henry William Spiegel, Duke University Press, 3rd Ed, 1991, pp.93-118.
- Reference: An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith, 1776, Book IV: Of Systems of Political Economy
- Murray Rothbard, a featured economist of the modern "Austrian School", summarized the "Statist" perspective and criticism: "Mercantilism, which reached its height in the Europe of the seventeenth and eighteenth centuries, was a system of statism which employed economic fallacy to build up a structure of imperial state power, as well as special subsidy and monopolistic privilege to individuals or groups favored by the state. Thus, mercantilism held exports should be encouraged by the government and imports discouraged.” (Mercantilism: A Lesson for Our Times?, Murray Rothbard, Freeman, 1963)
- As argued in the essay Value System Disorder, this is a false duality and moot with respect to the underlying problems commonly attributed to the polarized debate.
- From here on in this essay, we will use the term “capitalism” in its most common cultural form, implying the “free market” theoretical context.
- While a “capitalist” can be considered a person in favor of this approach to economy, a more accurate definition denotes “a person who has capital, especially extensive capital, invested in business enterprises.” [http://dictionary.reference.com/browse/capitalist] In other words, this is a person who owns or invests capital for a return or profit, but yet has no obligation to contribute to actual production or labor in any way.
- A corollary to this are the various “rational choice” and “utility theories” common to free market microeconomic theory which attempts to quantify human actions around various behavioral models. (more on this later in the essay)
- Source: Second Treatise of Government, John Locke, 1689, Chapter V, Section 27
- Ibid, Chapter V, Section 34, 1689
- Ibid, Chapter V, Section 31, 1689
- Ibid, Chapter V, Section 33, 1689
- Locke States: “Nature did well in setting limits to private property through limits to how much men can work and limits to how much they need. No man’s labour could tame or appropriate all the land; no man’s enjoyment could consume more than a small part; so that it was impossible for any man in this way to infringe on the right of another, or acquire a property to the disadvantage of his neighbor...” (Second Treatise of Government, John Locke, Chapter V, Section 36, 1689)
- Ibid, Chapter V, Section 36, 1689
- Ibid, Chapter V, Section 31, 1689
- Ibid, Chapter V, Section 27, 1689
- Ibid, Chapter V, Section 31, 1689
- Ibid, Chapter V, Section 47, 1689
- The Stock Market and increasing power of the investment/financial powers around the world in the 21st century reflects this culmination well. It appears that the mere act of ownership and trade via money alone, without any need for production cultivation and human service, has become the most profitable industry in the world today.
- The Industrial Revolution occurred from about 1760 to some time between 1820 and 1840 starting in Europe, according to various historians, and was essentially the transition/application to new, technology based manufacturing processes.
- “The rich only select from the heap what is most precious and agreeable. They consume little more than the poor, and in spite of their natural selfishness and rapacity, though they mean only their own conveniency, though the sole end which they propose from the labours of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species.” [The Theory of Moral Sentiments par. IV.I.10, 1790]
- Source: An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith, 1776, par. IV.2.9
- There is no static definition of “neoclassical economics”. However, a general, culturally common summary includes the broad interest in “free”, unregulated markets, focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits by cost-constrained firms.
- Source: An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith, 1776, par. V.1.2
- Ibid., par. IV.9.51
- This power of capitalist interests to engage and, in many ways, become the government to serve their own competitive advantage will also be discussed in the essay: “Value System Disorder”
- Source: The Industrial Revolution in the Eighteenth Century, Paul Mantoux, Harcourt Brace Jovanovich, New York, 1927, p.417
- He states: “No possible sacrifices of the rich, particularly in money, could for any time prevent the recurrence of distress among the lower members of society, whoever they were” (An Essay on the Principle of Population, Thomas Malthus, 1798, Chapter 5)
- He states: "It has appeared, that from the inevitable laws of our nature some human beings must suffer from want. These are the unhappy persons who, in the great lottery of life, have drawn a blank.” (An Essay on the Principle of Population, Thomas Malthus, 1798, Chapter 10)
- Source: An Essay on the Principle of Population, Thomas Malthus, 1798, Chapter 1
- From his 2nd edition of An Essay on the Principle of Population, 1836, Principles of Political Economy, vol. 1, p.14. New York, Augustus M. Kelley, 1964.
- It is worth noting that the Malthusian Population Theory is actually very inaccurate with respect to factors pertaining to population growth, based on statistical understandings today. Apart from the effect technology has played in expanding production capacity and efficiency exponentially, particularly with respect to food production, the generalization that higher standards of living increase population proportionally is not supported by regional comparison. Poor countries statistically reproduce faster today than wealthy countries. The issue appears to be a cultural, religious and educational phenomenon, not a rigid “law of nature” as Malthus concluded.
- Reference: Abolishment of Welfare: An Idea Becomes a Cause (http://www.nytimes.com/1994/04/22/us/abolishment-of-welfare-an-idea-becomes-a-cause.html)
- Source: The Principles of Political Economy and Taxation, David Ricardo, 1821, Dent Edition, 1962, p.272.
- Ibid., p.5
- Ibid., p.7
- Ibid., p.64
- Ibid., p.53
- Ibid., pp.263-264
- Ibid., p.267
- Source: Economic Possibilities for Our Grandchildren, John Maynard Keynes, 1931
- Source: The Principles of Political Economy and Taxation, David Ricardo, 1821, Dent Edition, 1962, p.81
- “Capital goods” are generally defined as: Any tangible assets that an organization uses to produce goods or services such as office buildings, equipment and machinery. Consumer goods are the end result of this production process. (http://www.investopedia.com/terms/c/capitalgoods.asp#axzz2Gxg1RmR6)
- Reference: The End of Work: The Decline of the Global Labor Force and the Dawn of the Post-Market Era, Jeremy Rifkin, Putnam Publishing Group, 1995
- Source: A Treatise on Political Economy, Jean-Baptiste Say, Philadelphia: Lippincott, 1863, p.xi (Translation is from the fourth French edition, published in 1821)
- Ibid, p.62
- Jeremy Bentham, a notable proponent of "Classic Utilitarianism", stated: “Nature has placed mankind under the governance of two sovereign masters, pain and pleasure. It is for them alone to point out what we ought to do… By the principle of utility is meant that principle which approves or disapproves of every action whatsoever according to the tendency it appears to have to augment or diminish the happiness of the party whose interest is in question: or, what is the same thing in other words to promote or to oppose that happiness. I say of every action whatsoever, and therefore not only of every action of a private individual, but of every measure of government.” (An Introduction to the Principles of Morals and Legislation, Jeremy Bentham, 1789, Dover Philosophical Classics, 2009. p.1)
- An Outline of the Science of Political Economy, Nassau Senior, 1836, London, Allen and U., 1938, p.27
- More on this issue will be discussed in the essay Structural Classicism.
- Rationale of Reward, Jeremy Bentham Book 3, Chapter 1
- Source: Britannica.com (http://www.britannica.com/EBchecked/topic/551569/socialism)
- Source: The Defense of Gracchus Babeuf before the High Court of Vendôme, University of Massachusetts Press, 1967, p.57
- Reference: An Inquiry into the Principles of the Distribution of Wealth Most Conducive to Human Happiness, William Thompson, London, William S. Orr, 1850, p.17
- Ibid, p.xxix
- Ibid, p.259
- Ibid, pp.260-261
- Ibid, pp.261-263
- Ibid, p.263
- Ibid, p.267
- Source: Grundrisse, Karl Marx, tr. Martin Nicolaus, Reprint Vintage Books, New York, 1973 p.241
- Ibid, p.243
- Ibid, pp.240-241
- Source: Capital, Karl Marx, Foreign Languages reprint , Moscow, 1961, vol. 3, p.163
- Ibid, p.176
- Ibid, vol. 1, pp.583–584
- Source: Economic and Philosophic Manuscripts of 1844, Karl Marx, Moscow, Progress, 1959, p.69
- Reference: “Why Economics Is Not an Evolutionary Science,” Place of Science in Modern Civilization and Other Essays, Thorstein Veblen, pp.73-74
- Source: “The Limitations of Marginal Utility,” The Place of Science in Modern Civilization and Other Essays, Thorstein Veblen, New York, Russell and Russell, 1961, p.241-242
- Source: “Professor Clark’s Economics”, Place of Science in Modern Civilization, Thorstein Veblen, p.193
- Reference: Absentee Ownership and Business Enterprise in Recent Times, Thorstein Veblen, Augustus M. Kelley, New York, 1964, p.407
- Reference: “The Beginnings of Ownership”, Essays in Our Changing Order, Thorstein Veblen, p.32
- Ibid, pp.33-34
- Reference: “The Instinct of Workmanship and the Irksomeness of Labor”, Essays in Our Changing Order, Thorstein Veblen, pp.188-190
- Source: The Engineers and the Price System, Thorstein Veblen, New York, Augustus M. Kelley, 1965, p.1
- Ibid, p.12
- Source: Absentee Ownership and Business Enterprise in Recent Times, Thorstein Veblen, New York, Augustus M. Kelley, 1964, pp.220-221
- Source: The Theory of Business Enterprise, Thorstein Veblen, New York, Augustus M. Kelley, 1965, p.269
- Ibid, p.285
- Ibid, pp.286-287
- Ibid, pp.404-405
- Reference: The Theory of the Leisure Class, Thorstein Veblen, New York, Augustus M. Kelley, 1965, pp.229-230
- A simple example of this is the amount of funding and employment that has been generated from the serving of cancer. If cures for cancer where to actually emerge, the downsizing of these massive medical institutions would naturally result. This means that the solving of problems can result in the loss of livelihood for many who worked to service those problems. This creates a perverse reinforcement to keep things the same – avoiding change in general.
- This phrase was put forward by John McMurtry in his work The Cancer Stage of Capitalism, Pluto Press, 1999
- The creation of money out of debt, coupled with its multiplication via the Fractional Reserve lending system, a near universal practice of the central banks of the world, continues to seek infinite growth by its very mechanics.
- It is worth pointing out that “market discipline”, or the corrective nature of the market by which all business are supposed to be susceptible, only really applies to the lower classes today. As noted historically by the “too big to fail” rhetoric and recent (~2008) bank bailouts amounting to well over 20 trillion dollars, the wealthy sectors are protected by the gesture of so-called given “Socialism”, not Capitalism.
- This essay belong to Zeitgeist Movement Defined: Realizing a New Train of Thought