In this series of posts we are blogging on Richard Overy's new book, The Twilight Years: The Paradox of Britain Between the Wars (New York: Viking/Penguin, 2009), in which he documents the pervasive pessimistic outlook that gripped Britain for over twenty years. People everywhere in the twenties and thirties believed that Western civilization was going to come to an end, and Britain, the beacon of light for civilization itself, was going to disappear, Atlantis-like, sunk in the ceaseless repetitive tides of history.
What were the signs of the coming collapse of civilization? Clearly, the pointless and senseless World War was one sign. Civilization was crumbing from within as the West went to war with itself. But another sign that the end was nigh was the prophesied death and expected collapse of the capitalist system. The recitation of the last rites over capitalism came most frequently and stridently from the intellectual socialists of the day: particularly Beatrice and Sydney Webb, and George Bernard Shaw.
Underlying the conviction that capitalism was about to collapse lay the particular eschatology of Karl Marx which argued that the internal and inherent contradictions within any capitalist system would ultimately lead to its destruction.
Marx's jeremiad was grounded in his nutty view of the labour theory of value. The idea was that the value (and therefore the correct or just price) of any particular good was the cost of the labour to produce it in the first place. But capitalists wanted to make a profit over and above the actual costs of production, which to Marx was theft. Profit was exploitation in Marx's economic lexicon—specifically the exploitation of labour. By charging more for a good than it cost to produce, labour was kept in a state of impoverishment. They could never afford to buy goods and services produced under the capitalist system: they could not afford them because they were priced above what they earned. Moreover, the more machines (that is, capital) employed, and the less labour, the poorer workers became, while the richer became richer. In the end, the workers would rise up and violently destroy capitalism and the civilization upon which it had been built.
Jay Richards “runs the numbers” on Marx's nutty labour theory of value:
Of course, labor often adds value to a produce, as long as that labor creates what someone wants. But you can't define economic value in terms of labor. Someone can dig a ditch in a field until his hands are bloody and raw, and then fill it back in again, without making anything that anyone wants. In that case there is a lot of labor, but no economic value . . . .
This may have been Marx's biggest blunder. I say this because Marx's prophecy that capitalism would destroy itself hinged on his labor theory of value. According to Marx, when a factory owner hires a worker to build a chair and then sells the chair for more than it cost to produce, the owner has taken more than the good is actually worth. He's taken its “surplus value”. Such profit is basically theft, since, on Marx's terms, the chair is worth exactly what it cost to produce it. So the factory owner has gotten more than it's really worth. This is why Marx speaks of capitalists “exploiting” workers, even if the workers have chosen to work for the salary they are given.
Without his definition of value, however, Marx's argument collapses. The workers have received what they agreed to. The factory owner has wisely combined their labor with his resources. He then markets and sells the chairs for more than they cost to produce but not more than others will freely pay. He's rewarded with profit for his entrepreneurial effort. There's no injustice here, no exploitation, no contradiction that will inevitably lead to class warfare and revolution.” Jay W. Richards, Money, Greed and God: Why Capitalism is the Solution and Not the Problem, (New York: Harper/Collins Publishers, 2009), pp. 66,67
All predictions and rife expectations of the collapse of the economic order in the UK during the Inter-War years were grounded to one extent or another upon Marx's labour theory of value.
The labour theory of value is still subscribed to widely in our modern world. One common manifestation is the ideological resistance to government privatising or selling off state owned businesses or services. Out trots the labour theory of value. The introduction of the profit motivation of the capitalist into something like managing prisons, or schools, or utilities will result in exploitation, not only of staff, but also of consumers of those services. They would need to pay an exploitative price we are told. And, if the consumers were actually willing to pay the price, it only serves to “prove” that labour is being exploited and underpaid. The workers should have been paid more in the first place. Strip profit out, and businesses can be run far more efficiently, and staff get much higher rewards. And consumers get told what they are to buy, when, how, and for what price. The long term result: everyone is "employed", but there is nothing attractive or useful to buy. Meanwhile, the bread-lines lengthen by the day. The "black market" flourishes. And so it came to pass in the Soviet Union, the great experimental workshop of Marxist economics.
But, according to Marx's labour theory of value, capitalism is morally bankrupt, is inherently diseased, and will collapse and die—just like any other organism that has a cancer eating away at its vitals. This notion that capitalism was decaying from within became widely accepted in Britain in the Inter-War years. Capitalism was grounded in exploitation, theft, and selfishness—and as such it would drive the world into anarchy and barbarism because, in the end, the exploited working classes would not tolerate it. These ideas gained much wider credence as a result of the crash of 1929 and the Great Depression which followed, giving them an apparent empirical weight.
What solution did the economists offer? There were some who argued for the introduction of a communist economic system as quickly as possible. The majority of economists, however, argued for a mixed economy, where the worst excesses of capitalism could be curbed and controlled by central planning and by targeted State intervention.
The most popular solution suggested for the crisis which was capable of uniting individuals across the political divide, was planning. The belief that a planned economy was the necessary successor to the free market was widespread across Europe, from Stalin's Soviet Union to Mussolini's Italy. For the British left, planning was something which would make the tradition from capitalism to socialism possible and secure a measure of social justice without the need for a violent revolutionary politics. In her reflection on the diseases of the capitalist system broadcast by the BBC in 1932 Beatrice Webb pointed out that 'planlessness' was in her view 'the most intractable disease' suffered by contemporary capitalism, but also the one illness that capitalism could do nothing to cure.” (Overy, p.76,77. Emphasis, ours.)Her solution was to turn to the public service (that is, government bureaucracies, to “plan the life of the community”. The idea was that capitalists could not do the planning: the conflict of interest was impossible to overcome. But “public servants” would be disinterested, and therefore, be able to plan for the greater good of the whole public.
Belief in the efficacy of planning came to be shared by both progressives and classical-liberals. In the case of the latter, whilst being fundamentally sympathetic to market forces and economic individualism, they argued that the worst excesses of capitalism and its inner contradictions could be assuaged by rational planning.
The mixed-economy model is the one which emerged post-World War Two. In part, the planned and state directed war-economy set Britain up for moving in this direction. We need to be clear, however, that this “solution” was promulgated out of deep and widely held beliefs that the economic model of minimal state interference was fatally flawed and immoral. Neither belief was correct. The mixed-economy model exists as the solution to a falsely diagnosed problem.
The alleged internal contradictions of an economy built upon universal private ownership of both capital and labour were fabrications. The crisis was a fiction. In classical economic systems based upon the rectitude and sovereignty of property rights, the Great Depression was a normal, expected correction. Government interference and overriding of sovereign property rights only served to make it many times worse.
The “solutions” which were finally adopted to a non-existent problem, and which are with us to this day, have wreaked a terrible cost, which is rising progressively as the decades pass. The parallels in our day of the reaction to the credit crisis of 2007-8 are eerie. In this most recent case, the “crisis” was amplified way and above a normal market correction by the distortions and excesses spawned by decades of government largesse, or planning. Once again, there have been many prophecies and pronouncements of the end of free-market economics. But the reality is that free-market, sovereign property economics died a long long time ago. But, as before, the proffered solution is more centralisation of government power to plan, tax, regulate, direct, and control how people deploy their own sovereign capital and labour. As always in such cases the cure is many, many times worse than the purported disease.
When pagan societies become fearful, dreading the future, believing that the end is nigh they are usually not disappointed. But the damage comes not from their fears but from their misdirected and ill conceived diagnoses and solutions. In effect, things do become much worse, but not for the reasons they expected. They become worse because their so-called solutions carry extremely damaging unintended consequences.
The consequences of the mixed planned-economy under which we now labour are ubiquitous and relentless: they have pushed us into a miasma of increasingly despotic smothering nannying government. They have also sufficiently undermined and therefore distorted the price setting power of the free consumer so that when inevitable corrections occur, they become so bad and so severe that entire collapse is a serious possibility--as the recent global credit crisis demonstrates.
It is deeply ironic that the “solution” to a non-existent, incorrectly diagnosed problem in the thirties led to the mixed-economy model throughout the West, which is really creeping state ownership and direction of an increasingly centrally planned economy. In the long run, this makes economic decrepitude, if not outright collapse inevitable.
When gilded idols are finally broken, maybe people will be “foolish” enough to return to the God of their fathers and to the sovereign rights of property ownership, which He commands.
No comments:
Post a Comment