Karl Rodbertus – State Socialism

Scientific Socialism Definition

1. State Socialism:

a) Karl Rodbertus

Karl Rodbertus (1805-1875) has probably exerted more direct influence upon economic thought than any other Socialistic writer, unless it be Marx. This is especially true in Germany, where such men as Wagner admit his influence; but it may be seen even in the thought of American economists. His chief economic writings are: Zur Erkemitniss unserer staatswis-senschaftlichen Zustdnde (Our Economic Condition), 1842, which contains his leading views; Sociale Briefe an von Kirchman (Social Letters), 1850-1851; Zur Beleuchtang der sociale Frage (Light upon the Social Question), 1875; and Der normal Arbeitstag (The Normal Labor Day), 1871. The last essay contains his plans for immediate reform.

Rodbertus' economic thought may be analyzed as proceeding from two main ideas: a labor theory of productivity, and a belief in a decreasing wage share. The second idea is connected with the so-called iron law of wages, that is, a subsistence theory. Putting these two main ideas together, he emphasizes the prob­lem of distributive justice, and evolves a notable theory of crises.

In the first place, then, he believed that labor produces all economic goods, — either directly, or indirectly through tools and machinery. Only those goods are economic which are pro­duced by labor, others being "natural." More than that, manual labor is meant. Intellectual labor is very important; but it is not costly, and is to be regarded as a free gift of nature, like land. It will be observed that this does not necessarily mean a labor theory of value: Rodbertus says labor creates products; he does not say values. Economic goods, however, all have value, and he thought that labor was the best measure of value. Sim­ply, he does not say that labor actually does determine value. But he believed that labor ought to be the basis of value, and that it would be so in a properly organized society, — one in which production would correspond to social needs.

The "law" of a decreasing wage share (Gesetz der fallenden Lohnquole) was formulated by Rodbertus as early as 1837. By it he meant that the proportion of the national income re­ceived by laborers continually decreases. The total amount paid in wages may increase, but rent and interest take an increasing percentage of the aggregate income. In formulating this law, Rodbertus was probably influenced by Sismondi, and it appears to be a simple deduction from the subsistence theory of wages of the Classical economists, narrowly, and erroneously, interpreted. The argument is that if production is continually increasing, while labor as a commodity merely gets enough to cover cost, its proportional share decreases.

The national income, consisting of goods that are of direct importance to life, is divided by Rodbertus into two parts or shares: wages and rent. Rent, in its turn, falls into two parts: land rent and capital rent. The existence of rent is said to be due to two facts: (1) the economic fact that there is a surplus produced by laborers over their subsistence, and (2) the juristic fact that private property in land and capital enables the owners to exploit labor, and retain that surplus. In these ideas, again, Rodbertus is clearly following the thought of Sismondi, Proud-hon, and the Saint-Simonians.

From the two main ideas thus briefly sketched, Rodbertus concluded that the great mass of mankind is unjustly shut out from a participation in the income which it creates, a condition that is inimical to culture. Indeed, his great service is to have brought out sharply the question of distributive justice. With more economic learning and statistical data than his predeces­sors, coupled with a forceful presentation of the issue, he drove-home the fact that there is a problem in the poverty of the masses, which partly, at least, concerns economics as a science. Rodbertus' famous theory of crises is also derived from his theory of a decreasing wage share. Very briefly stated, it is that, as the great mass of wage earners have a diminished purchasing power, consumption fails to keep pace with production. A contraction of production ensues, with unemployment and a further decrease in purchasing power, leading to an intensifica­tion of the crisis. The similarity of this idea to Sismondi's theory of overproduction will be observed, and it is open to the same criticism. Moreover, if we are to assume that an increase in labor's share, or wages, would remedy the matter, it appears that the validity of the theory depends upon an assumption that capitalists in general are receiving more than a return necessary to secure the activity of capital; otherwise wages could only be increased at the expense of capital and a conse­quent restriction of production. Thus the theory rests upon the exploitation idea.

Poverty and crises are to be done away with, and distributive justice to be attained, by an ultimate socialization of property. This, however, should be an evolutionary process. History, Rodbertus thinks, shows three great stages. The earliest is the period of heathen antiquity, in which human beings are owned, and labor is thus exploited by the rent receivers. In the second, or Christian-Germanic stage, land and capital are private prop­erty for the use of which the owners demand an unearned rent. This is the existing condition. In the future, a Christian-Social stage is to come, in which land and capital will be nationalized, and private property be allowed only according to service or desert. This stage might be expected in five centuries, per­haps.

Although his "stages" do not exactly correspond to any his­torical periods, and cannot be accepted in a rigid sense, Rod­bertus deserves credit for careful historical study and for a broad conception of the relativity of social institutions. He was no mere radical revolutionary.

As to immediate and practical remedies, Rodbertus chiefly proposed various regulations of the labor contract, with the idea of increasing labor's share in the national income. He advocated the legal establishment of a "normal" working day. Moreover, the determination of a normal amount of work to be performed by an average worker in a given time, was favored by him. This average production would serve as a standard of value, according to which each laborer would be credited. Prices, too, would be fixed, and be measured in a labor currency in a manner quite similar to Owen's scheme. By such devices, the transition to his third stage would be hastened.

Of course, Rodbertus attacks Smith's system with its com­petitive basis. His most fundamental critical idea lies in the opposition of a social demand to the "effective demand" of the economists; or, just to put it in another way, he emphasizes utility rather than exchange value, — an idea in developing which, Sismondi preceded him. Rodbertus, however, fits it into the garb of Socialism. The "effective demand," he says, is a property demand. Property-owners determine production, di­recting it so as to secure the largest net profits rather than the largest amount of essentials. Luxuries are produced, while the most intense wants go unsatisfied.

Among other points, Rodbertus criticizes the Classicists on historical grounds for assuming the existence of an original state in which men were equal in property and political rights. His­tory, he thought, always shows inequality, and exploitation of the weak by the strong. And in a similar vein, a distinction is drawn between capital as a logical functional concept and capital as an historical fact.

Naturally the wages-fund theory is rejected, as, according to his assumptions, Rodbertus could not believe that wages are paid out of capital.

Passing over his criticism of Bastiat's interest theory, this resume of his chief economic criticisms may be concluded with a note concerning his theory of rent. Ricardo's doctrine, he thinks, is overturned by his fancied proof that rent would exist even if all land were equally productive. Differences in pro­ductivity merely explain differences in rent, he argues, not the origin of rent.

His own theory, which is probably suggested by certain passages in the Wealth of Nations, is a notable illustration of the inconsistencies which so abound in the strictly economic thought of Socialistic writers. Starting from the idea that the price of all products corresponds naturally to their labor cost, and that the prices of manufactures and raw materials are thus on a similar basis, even though land ownership is a legal monopoly; he con­cludes that landowners get a larger return than capitalists, in that the latter must pay for raw materials, while land is a free gift of nature. Landowners, as such, having no expenses for raw material, secure a larger net return, which is land rent. Or to put it another way, land itself is the landowner's raw material, and he can normally demand enough for its use to cover the customary gain of the capital engaged in producing raw materi­als required in other industries. The whole idea reminds one of the Physiocrats' surplus and Smith's notion that in agriculture "nature" labors with man in a peculiar way. It involves a failure to see that in economic society land values are themselves capitalized.

But, one asks, what then of the differences among different manufacturing industries in this regard? Does the manufacturer of rails or girders secure a lower net return than the producer of iron and steel, just as the latter is assumed to secure less than the owner of the iron mine or land? Not if the labor-cost theory is to be maintained, for this reasoning makes land ownership an element in value! Yet this conclusion would follow from his rent theory. His rent theory is inconsistent with his theory of labor cost; and leads to conclusions that are contradicted by the facts of equalized "profits" in competitive industry.