The Socialist and Related Thinkers

The Socialists and Related Thinkers

J. C. L. Simonde de Sismondi (1773-1842) was one of the first to protest against the abstract and unreal thinking of the classical economists. Although he began his career as an ardent advocate of classical doctrines, he became keenly aware of the terrible human costs of industrialism and protested strongly against the complacent trust his contemporaries put in the opera­tion of natural economic laws. Nowhere is this better portrayed than in Sismondi's explanation of the process of distribution.

Both in his travels and in his studies of history Sismondi saw repeated over and over again the same economic process. Every­where, as a result of the competitive nature of economic activity, society was separating into antagonistic classes: those who owned land and capital and those who worked—the rich and the poor. The middle classes were gradually disappearing, leaving only the propertyless masses and the great capitalists. The gravitation of all property into the hands of a relatively few individuals mate­rially affected the distribution of income. The wage-earner with­out property was utterly and completely dependent upon the sale of his labor for a livelihood. Since the numbers of workmen were far in excess of the demand for their services they were forced to accept the first wage offered them. It was Sismondi's conten­tion that the independent artisan could estimate the need for his produce and his probable income and hence limit his expenses and his family accordingly. But under the existing system the workmen worked in a world controlled by others. Their incentive to foresight was lost. The size of families and the workmen's ex­penses fluctuated with the capitalist's demand for labor. Uncertainty, poverty, and misery became the inevitable lot of the working class. In spite of this, the capitalist and the landlord focused their attention on what Sismondi called the net product rather than the gross product. For example, while a plot of land might be fertile enough to produce abundantly, the financial in­terest of the landowner might be better served by limiting pro­duction, thus reducing not only the amount of produce available but also the opportunities for employment of workmen.

The actual process of distribution suggested by Sismondi be­gan with the existence of an annual national revenue which consisted of rents and profits on the one hand and wages on the other. The claims of capital and land to a return were past claims based upon labor expended upon them in the year previous. The claim of labor to wages was a future claim, realized only as a result of opportunity for employment. Although these forms of income were in opposition to each other in the present, they were derived from the same source—labor. Sismondi believed that the revenues of one year were exchanged for the production of the next. In other words, the purchasing power of one year consisted of the wages, rents, interest, and profits paid in the previous year. When equilibrium was maintained, that is, when revenue and pro­duction exactly balanced, stability and prosperity were enjoyed by all. If, however, the owners of land and capital spend their income for consumption goods rather than for more capital; or if they consume too little so as to provide a disproportionately large amount for capital, the balance will be upset. If the amount of revenue allocated to the purchase of capital equipment could be increased slightly each year, the circular process of revenue, pro­duction, revenue, production could be raised to successively higher planes, increasing the standard of living year by year. However, one of Sismondi's emphases was that the failure of revenue to be distributed proportionately among rent, profits, and wages caused general overproduction of necessities for which there was inadequate income, while the unlimited desire for luxuries by the rich absorbed more and more of the consumers' power to purchase.

Thus according to Sismondi the real cause of the inequalities in distribution of income was first, the ownership of land and capi­tal by a relatively few persons and the lack of any property at all by the working class, and second, the ruthlessness of economic competition under a regime of laissez-faire. To correct these ills, Sismondi advocated a vague and indecisive plan for the return of ownership to artisans and small capitalists with rejection of the doctrine of laissez-faire and a return to state paternalism. While these represented final goals, his intermediate objectives were the right of unions to organize, limitations on hours of labor and the work of women and children, and finally the "profes­sional guarantee" which made the employer responsible for pro­viding maintenance for the workman during illness, old age, and lock-out.

The importance of Sismondi's ideas in the history of economic thought lies first of all in the fact that he called people's atten­tion to the human aspects of business activity, in a time when the classical economists were concerned only with economic mat­ters and trusted implicitly in the natural benevolence of economic laws to safeguard the welfare of man. Of even greater significance was the influence which Sismondi's ideas exerted upon the im­portant economic movements of the 19th century. Most of the latter can trace either their intellectual content or their inspira­tion back to the views expressed by this earliest critic of classical doctrine. Such development as the humanitarian reaction against the impersonal and coldly economic doctrines of Smith and Ricardo, the closer adherence to historical facts, the attack upon wealthy property owners for their complacency in the midst of human suffering and poverty, and the increasing demand for state intervention in economic matters were all foreshadowed by Sismondi. Very few of his contemporaries except the Socialists openly espoused his ideas, but as the years passed a much greater number came to acknowledge him as the source of their in­spiration.

While the ideas of John Stuart Mill on distribution follow the general pattern of classical doctrine, he was influenced by the critical and humanitarian views of Sismondi and the Saint-Simonians. For example, he held to the classical doctrine that production was governed by economic laws which were in a real sense natural laws. With distribution he believed it was different. The factors governing that process were man-made and subject to human control. He said, "The laws and conditions of the produc­tion of wealth partake of the character of physical truths. There is nothing optional or arbitrary in them. ... It is not so with the distribution of wealth. This is a matter of human institution solely. The things once there, mankind, individually or collec­tively, can do with them as they like." Mill stood between the full

-grown power of classical dogma and the vigor and strength of newly born socialist thought. His writings show the prepon­derant character of the former, but the latter is responsible for a host of modifications which Mill felt it necessary to make in order to give his ideas a more humanitarian and social outlook. The classical element in Mill's ideas of distribution represents a synthesis of ideas expounded by Ricardo and Nassau Senior. His division of income was traditional, consisting of rent, interest and profits, and wages. Rent he analyzed as the differential pay­ment arising because of the higher costs of production on less fertile land. Mill was the first to use the term "unearned advan­tage" as a synonym for rent, meaning of course the same thing as the modern term "unearned increment." Assuming that an in­crease in rent and the value of land would arise from natural causes, he advocated a periodic revaluation of land leading to the levying of a tax which would absorb the increase. Profits and interest, however, which Mill treats together, are derived from three sources: abstinence, stored up labor, and the productivity of labor. Mill never really distinguished these three sources, his only clear contention being that profits depended on wages. When wages rose profits fell, and vice versa. Capital, Mill believed, con­sisted principally of advances to laborers, hence the productivity of labor would determine whether the surplus over and above the advances would be large or small. This return was presum­ably a payment for abstinence.

As to wages, Mill accepted with modifications the wages-fund theory. Wages he believed were determined by the amount of capital available out of which wages could be paid. In a sense the capital available was a demand for labor; the number of laborers available was the supply. Thus if the supply was large, wages declined; if the supply small, wages were high. The fund available for wages might of course increase from year to year, but in any given year the amount distributed as wages could not exceed the amount in the fund. Hence the way to raise wages was to limit the population. He said, "Only when in addition to just institutions, the increase in mankind shall be under deliberate guidance of judicious foresight, can the conquests made from the powers of nature . . . become the common property of the species."

The relative proportions of income which were distributed as rent, profits and interest, and wages, Mill believed, were affected by historical processes. The increases in population inevitably created a greater demand for living space and agricultural prod­uce, hence rents tend to rise; but there was a corresponding tend­ency for the productivity of labor to increase, causing a fall in the price of manufactured goods which reduced profits to a minimum.

Mill was not merely an economist. He was also a philosopher and a student of politics. It is not strange, therefore, that he goes beyond the limits of economics to deal with the problem of dis­tribution. As he saw it, the goal of mankind is to increase the sum total of human happiness. This could be done through the exercise of man's mental powers. "Poverty," he says, "like most social evils, exists because men follow their brute instincts, with­out due consideration. But society is possible precisely because man is not necessarily a brute." Since Mill had already indicated his belief that distribution was subject to man-made laws rather than natural laws he urged certain reforms in order to bring about more equitable distribution.

Each of the innovations advocated by Mill deserves attention. He encouraged-both the co-operative movement and the reor­ganization of industry so as to include a plan of profit sharing. He suggested the repeal of laws against combinations, so that workmen would be free to join trade unions. That such a move on Mill's part seemed contradictory to his belief in the wages-fund theory has been denied. Rather than supporting a plan to raise wages, Mill was merely extending the principles of laissez-faire to workmen as they had been extended to employers. Trade unions he thought would die because of their failure to influence the wage rates. Whatever may be the truth of this argument, Mill clearly withdrew his support of the wages-fund theory when its fallacies were pointed out by Thornton and Longe. Mill advo­cated the use of preventive measures to check the growth of population in the interest of increasing the standard of living of the wage-earners. Complementary to these measures, however, should be set the education of the working class, which would result in a desire for higher standards of living to be achieved in part by family limitation. A land policy by the state was also suggested. In colonies and at home the government might strive to set up small independent landowners. Finally, positive legislation to protect the workingman from poverty and exploitation was not only necessary but quite within the function of government. Mill was not enthusiastic about minimum wage legislation, how­ever, since he felt the security of such laws might result in irre­sponsibility toward the size and economic security of one's family. Inheritance taxes were an important item, since the perpetuation of inequalities in the distribution of wealth might thereby be checked. Mill, however, saw little chance for a solution to the problem of distribution aside from the radical change from a dynamic society to a static society. The possibility of such a de­velopment was fostered by Ricardo's theory of the diminution and final disappearance of profit as a natural consequence of economic development. Mill translated this idea into a belief in a completely stagnant economy. Much as he disliked the pros­pect of such a society he felt it necessary in order to eliminate the competitive struggle for wealth, which produced the inequali­ties and poverty characteristic of the population.

Amidst the firmament of economic thought John Stuart Mill stands like the Colossus of Rhodes straddling the sea, his one foot in the classical tradition of the past, his other in the social and moral idealism which marked the future of economic thought. The accumulated store of socialistic ideas which caused Mill to criticise and modify classical ideas at so many points completely captivated Johann Karl Rodbertus (1805-1875), a wealthy German landowner. Rodbertus was elected to the Prussian na­tional assembly after the revolution of 1848. Disagreement over attempts to discriminate among various classes of voters caused him to resign in protest and advocate non-participation in future elections. He was a nationalist, a monarchist, and a socialist at one and the same time. The all-prevailing will of the state seemed to him to be the most significant aspect of political organization. Consequently, although he agreed with the economic principles of Socialism he had no confidence in the socialists' political pro­gram. The rise of a strong socialistically minded German em­peror seemed to him to be the ideal method of establishing a socialist state.

Rodbertus' economic ideas, expressed most completely in To­ward Knowledge of Our Economic Condition, and Letters, can be traced largely to Adam Smith and Saint-Simon. This does not exclude, of course, a real measure of originality on the part of Rodbertus himself. From Smith was taken the concept of division of labor, which as Rodbertus saw it was the most important social­izing force in history. It brought the most divergent interests into harmony and created larger and larger units of mankind into a community of labor. A society which had been brought together by specialization had three functions according to Rodbertus: 1) the adjustment of production to need; 2) the maintenance of pro­duction at a point which would utilize all available resources; and 3) the equitable distribution of income among those who produce it. It is the last function which is pertinent to our discussion, and it is rather significant that Rodbertus should have singled out dis­tribution of wealth and income as one of the three most important social functions.

Rodbertus rebelled against the classical idea that these func­tions would be carried out automatically and in the best con­ceivable fashion if men were free to pursue individually their own economic interest. The kind of society men would have was the result of their own decisions, he said; certainly it was illogical to assume that the society which permitted its institutions to grow haphazardly without plan or design would be better suited to human needs than one which was consciously directed. The goal of any system of distribution, said Rodbertus, was to assure to everyone the product of his labor. In this he differed not at all from the classical school. In the way this goal was to be achieved he differed from them altogether.

Classical doctrine said that the process of exchange, controlled as it was by the market forces of supply and demand, assured to each factor in production the market value of its contribution to production. Rodbertus maintained that while the theory was excellent, it did not agree with the process of distribution in practice. Since the value of all commodities was created solely by labor, the charges levied upon the product by the landlord and the capitalist were unjust. Raw materials and land were the gifts of nature; intellectual effort was inexhaustible and re­quired no expenditure of time; thus only manual labor which required time and energy could be considered as productive. Like Adam Smith, whom he quoted, Rodbertus believed that labor was the only true source of economic goods. He never contended that labor was the only source of value, but he did believe that the ideal toward which the community should strive was an equality between the exchange value of an article and the amount of labor necessary to produce it. In the process existing at the time Rodbertus claimed that the owners of land and capital were able to control exchange so as to reap a benefit for themselves although they contributed nothing toward production. This con- . trol was made possible through socially supported rights of private property to exact payment when used in production. Hence so­ciety was really to blame for poor distribution, since as long as goods were produced and made available for use no thought was given to the justice of the rewards paid to such widely diverse elements as the continuous labor of the unskilled worker and the lazy indifference of the landlord and capitalist. The unearned return taken by the latter two, Rodbertus called rent.

Were this condition of maldistribution a temporary affair which would work itself out naturally as some of the classical economists claimed, Rodbertus would have been less concerned; but he believed the contrary. Wages were paid only in such quantity as to enable the workers to subsist and reproduce them­selves. This, as Ricardo had pointed out, was the natural or normal price of labor to which all wages tended to gravitate. The amount of the product which went to labor remained con­stant, but the productivity of labor was always increasing; thus the share of labor was a constantly diminishing proportion of the whole product of labor. As a result it was perfectly true that the economic position of the worker became more degraded relative to that of other social classes.

The logical conclusion to Rodbertus' analysis was a program for the suppression of private property and unearned income. Instead of private ownership the state should own the land and capital, and labor should be rewarded according to its produc­tivity. Labor time expended in production should be accepted as the real estimate of the exchange value of an article. The method by which this new program of distribution was to be accomplished, as Rodbertus suggests, was by the gradual establishment of state socialism which would compromise the issue to the extent of allow­ing private enterprise and private property to exist. Rodbertus was possessed by a sense of the inevitableness of history which would bring in the higher economic society based upon socialistic principles, and by a fear of the wild and uncontrolled action of the selfish masses in the face of the exceedingly complex problem of differentiating between the legitimate returns and rightful ownership resulting from labor and the exploitive charges made upon production by owners of land and capital used in produc­tion. The confidence which he expressed in the benevolence of the state was really an expression of the lack of confidence he felt in mass action. His immediate proposal for a period of transi­tion was a plan similar to schemes of Owen and Proudhon. The state would supply to each employer a quantity of coupons equal to the labor value of the things produced and offered for sale. This process being followed in every enterprise, the employer and his employees together would be able to keep the equivalent of the article they produced. Periodic revision of the scale of pay­ment would be made to take account of any increases in produc­tion or changes in proportion of the total product created by the workers as contrasted to the employer. This compromise between the forces of private property and those of labor was intended to be only temporary, and it could be accomplished only through the instrumentality of the state. Hence in the classification of economic doctrine, Rodbertus, frequently called the founder of scientific socialism, must be counted among the state socialists. Emphasis upon the injustice of payments made to the owners of land and capital is characteristic of all socialistic writings. Only labor has a legitimate claim upon the final product. Saint-Simon, Proudhon, Lassalle all follow much the same analysis. It was Proudhon who coined the famous phrase, "Property is theft." He considered labor alone as productive. Since land and capital were useless without labor, the demand by the owner of land or capital for payment was based on the false assumption that land and capital were productive in themselves. Hence any payment to landlord or capitalist was theft from the rightful earnings of labor. In the programs of reform or revolution sub­mitted by these authors one would find a marked difference, but they explain their dissatisfaction with the existing order in much the same terms.

Although his ideas differ but little from those of other socialists, special mention must be made of Karl Marx (1818-1883). In terms of popularity, as well as in the profound effect upon socialist thinking of the 19th and 20th centuries, the doctrines of Marx stand supreme. It is doubtful whether any other non-religious works have been responsible for so much blind devotion, so much critical discussion, and so much emotional condemna­tion as the writings of Marx. Born of a moderately wealthy Ger­man Jewish family which followed the Protestant faith, he married into the lesser nobility. Educated to be a college pro­fessor, he forsook his career to become a leader of the revolu­tionary movement in Germany. He was forced on two occasions to flee the country because of his activities. Following his last departure he settled in London to devote the remaining years of his life (about thirty) to research and writing.

The initial chapter of Marx's great work Capital indicates his adherence to the classical tradition especially as it was presented by Ricardo. Indeed Marx, instead of disproving classical eco­nomic ideas, simply carried them to their logical conclusion. An­nual income is divided into three classes—ground rent, profits, wages; these are the return on land, capital, and labor respec­tively. As a result of these three kinds of income there exist in so­ciety three primary social classes: the landlords, the capitalists, and the laboring class. What is the process of distribution of income to each of these classes, and what determines the share each shall receive? Marx said that there were really only two sources of income, namely, value and surplus value, both created by labor. Out of the former, labor was paid; out of the latter, rent and profits were paid. We have already noted that surplus value arose, according to Marx, because the capitalist paid only the wages of subsistence, while he was able to sell the product of labor in the market at a price determined by the laws of supply and demand. The difference was surplus value, claimed by the capitalist by his right to the product of labor as owner of the fixed capital such as machinery, and of variable capital out of which he paid wages. The capitalist's desire to augment surplus value was achieved in two ways: either through the exercise of superior bargaining power which enabled him to prolong the working day beyond the labor time necessary for the workman to produce the equivalent value of his subsistence, or by reducing the labor time necessary for the workman to produce his sus­tenance. The latter was accomplished through the increased use of machinery or the perfection of industrial organization.

In calculating cost of production the capitalist figured the pay­ment of rent as a cost. This did not change the fact in Marx's mind that rent was an unearned charge upon the value produced by labor, as was profit. Essentially Marx followed the Ricardian explanation of rent with minor variations. Rent was for the most part a differential between the cost of production and the selling price of farm produce appearing on land which was more fertile than the average land under cultivation. He rejected the theory held by earlier economists that rent was interest on capital in­vested in the land. Instead he placed major emphasis upon the idea that rent was a monopoly price exacted by the private owner of the land because of the limited amount of land available for use. Under certain circumstances the landowner by his monopo­listic power was able to extract from the capitalist the total amount of the surplus value as rent, leaving him only enough to pay other necessary costs of production.

Marx believed, as Rodbertus had suggested earlier, that this process in history resulted in the increasing poverty and misery of the wage-earner. Moreover the power of competition tended to reduce the number but to increase the power of capitalists and landowners, the losers dropping down into the laboring class. The remaining landowners and capitalists, having nearly identi­cal interests, merged into a single capitalist class. Thus the process which Adam Smith believed would result in greater economic well-being for all men, Marx said would result in degradation of most men, the tremendous wealth and power of a few, and intense class conflict. It is important to note that as far as Marx was concerned the process was beyond human control. Legisla­tion might slow the process and relieve the distress of increasing poverty, but the course of events was inherent within the process itself. The outgrowth of this economic process which took the value produced by labor and distributed it as rent and profits to the non-productive landlord and capitalist was a continuous class struggle.

Whether Marx believed that the victory of the working class through revolution was inevitable is debatable. He most certainly believed that the class struggle was the basis motivating force in history. This is stated in the opening lines of the Com­munist Manifesto, "The history of all hitherto existing society is the history of class struggles." As a result of the class struggle the numerically important but impoverished working class, organized by the economic system itself, would eventually abolish private ownership of land and capital, the source of their impoverish­ment, and set up a socialistic community in which the means of production were owned by all the people.

Criticism of the Marxian ideas of distribution has come from within the circle of Marx's own followers as well as from his chief opponents. The surplus value source of profit has been dis­carded along with the labor theory of value. If land and capital are useless without labor, it is just as true that labor is useless without land and capital. The question is merely whether the present arrangement which makes it necessary to pay the owner of land and capital for the right to use these factors in produc­tion is socially efficient and just, or whether profit and rent when paid the owners who perform no essential social service represents what later authors have called unearned increment. The source of the criticism of Marxian ideas lies in the pattern of distribution in modern industrial society. The lot of the wage-earners has not steadily grown worse, as Marx said it would. Marx's fol­lowers have sought to interpret him to mean that in spite of an absolute rise in the standard of living of the working class the lot of the working man is relatively worse as compared to the rapid increases in wealth of the capitalist. Finally, the evolution of capitalism has not as yet caused the complete separation of society into capitalists and wage-earners by the annihilation of the middle class. The character of the middle class has changed. While Marx lived, the middle class was composed of the inde­pendent owners of small tracts of land and small business enter­prises. This group is declining in importance both numerically and in the amount of business activity it carries on, but a new middle class has grown up consisting of highly skilled technicians, professional people, office personnel, and salesmen. More dependent upon the continued operation of capitalist business enter­prise than their predecessors, the members of the new middle class—like the members of the old—act as a stabilizing force in society, resisting radical change but ultimately assenting to pro­gressive changes in government and economics.