Most Marxists and anti-Marxists alike probably fail to realise that the highest praise for capitalism is to be found in Marx and Engels, Manifesto of the Communist Party (1848), that readily recognised that the capitalist system promoted urbanisation, industrialisation, technical progress, economic growth and prosperity on an unprecedented scale:
“The bourgeoisie, during its rule
of scarce one hundred years, has created more massive and more colossal
productive forces than have all preceding generations together. Subjection of
Nature's forces to man, machinery, application of chemistry to industry and
agriculture, steam-navigation, railways, electric telegraphs, clearing of whole
continents for cultivation, canalisation of rivers, whole populations conjured
out of the ground—what earlier century had even a presentiment (of) such
productive forces . . . The bourgeoisie, by the rapid improvement of all
instruments of production, by the immensely facilitated means of communication,
draws all, even the most barbarian, nations into civilisation.”
At the same time Marx viewed
capitalism as a form of systematic labour exploitation. Primitive societies
were not exploitative because they exchanged goods roughly embodying the same
amount of labour. Slavery was less exploitative than it seemed, for slaves’
consumption allowed them to recover some of their own labour that looked
entirely unpaid. Feudalism was openly exploitative, for the amount of work
performed by labourers for themselves and for their feudal masters was clearly
stipulated and visible; whereas capitalism does not look exploitative at all,
since all labour is paid for, but workers perform more work than is embodied in
their means of consumption and a surplus of unpaid labour is appropriated by
capitalists.
Marx neglects altogether
entrepreneurship, uncertainty and risk and their rewards: on that basis a
positive share of profits is sufficient to infer exploitation, without the unnecessary
detour of his labour theory of value.
The replacement and growth of
fixed capital would be necessary in any mode of production (including
socialism, Pareto 1890): exploitation should be restricted at most to
capitalists’ consumption. But Marx regarded all profits, consumed or
re-invested, as equally exploitative as originating in “primitive accumulation”
ultimately rooted in theft, robbery, war, conquest and other forms of violence.
Inequality of wealth and incomes was
recognised as a defining feature of capitalism. Its redeeming feature was the
financing of investment and growth: “Accumulate, accumulate! This is Moses and
the Prophets” (Capital, Vol,I, ch.24).
Marx modelled intersectoral flows
and equilibrium conditions for a stationary and a growing economy in his
schemes of simple and enlarged reproduction (with two vertically integrated
sectors producing consumption and investment goods respectively). However he
exaggerated the instability of a capitalist system by assuming that profits necessarily
would have to be reinvested in the same sector in which they originated, while in
any capitalist economy re-investment is never subject to such an arbitrary
restriction (Lange 1970 amplified unreasonably this presumed instability of the
system maintaining this undue sectoral restriction in a multi-sector model).
Marx regarded capitalism as a
totally chaotic and anarchic system, naturally generating unemployed labour and
under-utilisation of other resources, as well as costly fluctuations and
economic crises. However he neglected automatic processes of economic adjustment,
operating imperfectly, often either too fast or too slowly, but typical of the
operation of markets in a capitalist system.
These automatic processes are: in
the short-term, for a given level of production, the Walrasian adjustment of
prices to any positive or negative excess demand; in the medium-term, when
production levels can vary, the Marshallian adjustment of enterprise output to
price relatively to its marginal cost; as well as the transmission to other
sectors of the inputs requirements corresponding to their output change
(activating what Goodwin 1949 calls “the multiplier as matrix”). In the longer
term, when productive capacity can vary, there is a gradual adjustment of the actual
capital stock to the level desired by enterprises in consideration of the
demand level they experience - an upwards adjustment via investment in new
capital or downwards through the non-replacement of excess capital. These
adjustment processes are rooted in the maximisation of profit on the part of
enterprises operating in a system of markets, whose owners appropriate profit
to their own advantage. And we need to stress that these adjustment mechanisms
auto-regulate production, prices, intersectoral transactions and productive
capacity but naturally they do not regulate themselves
as institutions (in a process that would amount to “autopoiesis”); thus
their creation, regulation and guarantee remain fundamental functions of the
state even in a fully de-centralised market economy.
Goodwin (1947, 1951a and 1953) likens the adjustment mechanisms
operated by markets to homeostatic mechanisms, such as for instance a
thermostat, that records the actual temperature, compares it to a pre-fixed
desired temperature and automatically activates heating or cooling systems in order
to reduce the difference between actual and desired temperatures (see also
Leijonhuvfud 1970).
This kind of logic is less cogent and much more controversial in the
case of financial markets. Financial intermediation creates value by modifying
the size, time horizon and riskiness of assets demand and supply, but their
continuous operation is associated to phenomena of both euphoria and panic.
Financial markets contribute to economic growth at the cost of a greater
vulnerability and potential instability. Keynes believed that financial
investment should be indissoluble like marriage (or better, we should say that investment
divorce should be equally costly and traumatic). Derivative products, whose
value depends on the value of underlying assets, which they amplify and
multiply, can contribute to the increase of total risk instead of its
distribution among a large number of agents. This is why Buiter (2009) proposed
to reserve derivatives transactions to agents who could justify them on the
basis of an underlying insurable interest.
The alternative to markets seen as automatic thermostats is the manual
regulation of temperature or of equivalent processes; manual control – in
economic terms – corresponds to central planning. The desirability of
self-regulating market mechanisms with respect to central planning depends on
the speed of reaction of the system, on its tendency to reduce or to amplify
the possible divergence between objectives and reality, from the stability or
otherwise of such processes. There can be circumstances in which manual control
(planning) is preferable to the automatic control (markets). My favourite
example, which I used to inflict on my students, is taken from Star Wars:
when Luke Skywalker is trying to strike at the heart of the Empire with a
single shot, he disactivates the automatic aiming mechanism and choses to do it
manually. But he is justified by exceptional circumstances: there is only one
target, which he can either hit or miss without intermediate degrees of
success, and ... the Force is with him.
The automatic adjustment processes discussed here, built into a market
system, in spite of their imperfections have made the capitalist system more
flexible, at the same time exposing it to the risk of possible episodes of much
greater unemployment, instability and stagnation than would have been the case
otherwise.
One of Marx’s main
contributions to political economy is an evolutionary theory (“Darwinist”,
according to Engels in his Speech on Karl Marx’s Tomb) of modes of
production, understood in the modern sense of economic systems, as institutional setups that regulate the
production and exchange of economic goods.
For Marx labour acting
over nature leads to the development of production forces (natural resources,
accumulation of physical and human capital, the state of technical knowledge).
This development leads to the emergence of contradictions between the
productive potential of society and the prevailing production relations (e.g.
rules about ownership, production organisation, etcetera). Production relations
then are modified as a result, in such a way as to eliminate such
contradictions, realising the “law of the necessary correspondence of
production relations to the character of productive forces” (Lange, 1963, ch. 2).
Further
contradictions arise between the economic basis (or production relations) and the superstructure of society, understood as the social relations
and social consciousness (religion, ideology, culture, etc.; Lange gives the
example of the support to capitalism implicit in the protestant ethic), which contribute
to the legitimation of the existing mode of production. Conflicts and
contradictions between the various elements of the system and their resolution
guide its evolution, according to the “Law of the necessary correspondence of
the superstructure with the economic basis”. Productive forces and production
relations define a mode of production, though at any time a mode of production
coexists with residuals of former modes and embrios of the superstructure of
future societies (Lange, 1963).
In his original
approach to the evolution of economic systems, in any case, Marx made three
major errors: he believed that: 1) there would be a final point of arrival for
such an evolutionary course, i.e. full communism (with prevailing free goods,
distribution according to needs, no state, and abundance of economic goods)
without classes and therefore non-antagonistic, under which there would no
longer be conflicts and contradictions; 2) there would be a linear progression
of economic systems, from primitive societies to slavery to feudalism to
capitalism (with a possible diversion represented by the Asiatic mode of
production), followed by socialism and full communism; 3) that system evolution
would be dominated by an extreme form of dialectical materialism, or economic
determinism, with an exclusive role for economic factors. On the contrary we
know today that full communism has always remained an objective never realised;
that in the 1990s socialism was re-transformed back into capitalism, and
moreover into an extreme form of hyper-liberal capitalism; and that economic
factors are only a part, though important, of the multiple causes of system
transformations.
One prediction that Marx
did get right was the progressive relative immiserisation of the proletariat:
while in absolute terms economic progress has raised living standards immensely and reduced poverty beyond the most
optimistic expectations, in relative terms especially in this century the share
of income and wealth of the rich has been increasing at unprecedented rates to
record levels. According to Oxfam
(2016) in 2015 the 62 richest individuals had increased their wealth by 44%
with respect to 2010, matching the same total wealth of the poorest 50% of the
world population, which on the contrary impoverished itself by 41% in the same
period (in 2010 it took the 388 richest individuals to match the wealth of the
poorest 50%). Since 2008, the
wealth of the richest 1% has been growing at an average of 6% a year – much
faster than the 3% growth in the wealth of the remaining 99% of global
population: should that trend continue, by 2030 the top 1% would hold two/thirds
of world wealth, $305tn – up from $140tn today (The Guardian, 13/4/2018).
Reports of the death
of both Marx and God have been grossly exaggerated.
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