Capitalism-and-Its-Critics-A-History-From-the

As Marx scanned old editions of The Economist in the British Museum reading room, the country was preparing to celebrate its status as the “workshop of the world”—a phrase Benjamin Disraeli coined—by hosting a vast expo in London’s Hyde Park, “The Great Exhibition of the Works of Industry of all Nations,” which would have thirteen thousand exhibits. They included James Naysmyth’s steam hammer, Cyrus McCormick’s mechanical reaper, and Goodyear’s vulcanized rubber. Although it wasn’t technically an exhibit, the event also featured the world’s first public pay toilet.

Continental Europe was still well behind Britain in industrializing, but it was moving in the same direction. In the United States, capitalist enterprise was rapidly spreading across the continent. The recent accession to the Union of Texas and California, together with the creation of the New Mexico Territory, meant that a single goods market now stretched from the Atlantic to the Pacific. Following the discovery of gold in 1848 at Sutter’s Mill, east of Sacramento, the great California gold rush had begun. With slavery having been abolished in the British Empire, the French Empire, and much of Latin America, the continued use of enslaved labor in the American South looked increasingly like an aberration. Even outside the US, forced labor hadn’t disappeared, of course. To meet their labor needs, European colonies in the Caribbean, Latin America, and South Africa imported large numbers of indentured workers, often from Asia, who worked long hours in oppressive conditions. Overall, though, plantation capitalism was giving way to industrial capitalism as the principal form of economic organization.

Marx and Engels recognized the significance of these developments. Writing about the Great Exhibition in the Political-Economic Review, they noted jointly that “the bourgeoisie of the world has erected in the modern Rome its Pantheon, where, with self-satisfied pride, it exhibits the gods which it has made for itself.”9 In another article, Marx wrote: “Thanks to the gold of California and to the tireless energy of the Yankees, both coasts of the Pacific will soon be as thickly populated, as industrialized and as open to trade as the coast from Boston to New Orleans is now.”10 Toward the end of 1850, Marx and Engels acknowledged the nonarrival of the economic crisis they had been expecting, writing: “Given this general prosperity, wherein the productive forces of bourgeois society are developing as luxuriantly as it is possible for them to do within bourgeois relationships, a real revolution is out of the question.” The article went on to say a new revolution could come about only “as a result of a new crisis,” before adding, as if to reassure their readers, “but it will come, just as surely as the revolution itself.”11

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Meanwhile, from his seat, G7, in the British Museum reading room, Marx intensified his study of the “productive forces.” Initially, he considered writing a multivolume book on political economy, but he didn’t end up publishing anything until 1859, when a Berlin publisher put out A Contribution to the Critique of Political Economy, a dense and uncompleted work that Marx regarded as merely a preliminary investigation. Eight years later he published his magnum opus, Capital: A Critique of Political Economy. After his death, in 1883, it emerged that he had written a great deal besides these two books. In 1885 and 1894 Engels published two more volumes of Capital based on notes that Marx had compiled in the 1860s. In 1905 Karl Kautsky, a German socialist theoretician, published Theories of Surplus Value, a mammoth manuscript that Marx had worked on in 1862– 63, which is sometimes regarded as volume IV of Capital. In 1939 and 1941, a Soviet press released the Grundrisse, another long manuscript drawn from notebooks that Marx kept in the late 1850s. Much of this mountain of material went over the same ground repeatedly. Marx was forever reworking and rethinking his theories.

The fact it took him eight years to publish two books—the Critique and Capital—can be attributed to several factors: his perfectionism, his intermittent poor health, and a lack of money that forced him to spend a lot of time writing journalism. Between 1852 and 1862, he was a European correspondent of the New-York Daily Tribune, a liberal newspaper founded by the journalist and social reformer Horace Greeley and edited by Charles Dana, a former resident of the Fourierist community at Brook Farm in West Roxbury, Massachusetts. Dana met Marx in Cologne in 1848. He was so impressed by him that he invited him to write for the Tribune, which supported the abolition of slavery and was anti–free trade. The paper published more than four hundred articles from Marx, some of which he coauthored with Engels. According to Dana, Marx became one of the bestpaid contributors to the Tribune, which suggests that his claims of poverty may have been somewhat overstated.12

Marx came to resent having to write journalism because it distracted him from his studies. “The continual newspaper muck annoys me,” he wrote to a friend in 1853.13 “It takes a lot of time, disperses my efforts, and in the final analysis is nothing.” That was a harsh judgment on a considerable body of work, which covered everything from British politics to Louis Napoleon to the Indian Rebellion of 1857. Marx’s first articles about India were published in 1853, when the East India Company’s charter was coming up for renewal by the British Parliament. Decades earlier, the firm’s trading monopoly with the subcontinent had finally been revoked after protests by other British exporters and importers, but it still controlled great expanses of the subcontinent, including some of its biggest cities.

Marx wrote scathingly about British motivations in India. “The aristocracy wanted to conquer it, the moneyocracy to plunder it, and the millocracy to undersell it,” he said in an August 1853 article.14 Echoing William Bolts, Adam Smith, and other critics of the East India Company, he said it had furnished the areas it ruled with “no supply at all of public works, an abominable system of taxation, and a no less abominable state of justice and law.”15 But even as Marx criticized the greed and hypocrisy of the British colonialists, he argued that their presence was ultimately a progressive force. “England has to fulfill a double mission in India: one destructive, the other regenerating,” he commented, “the annihilation of old Asiatic society, and the laying [of] the material foundations of Western society in Asia.”16

In his engrossing 2016 biography of Marx, the English historian Gareth Stedman-Jones pointed out that he inherited from other Eurocentric thinkers, including Hegel and James Mill, a misleading “image of Asia as stationary, and without a history.”17 Indeed, Marx went further than his predecessors and identified an “Asiatic” mode of production based on “Oriental despotism” and isolated village communities that “restrained the human mind within the smallest possible compass, making it the unresisting tool of superstition.”18 From his perspective, which was ultimately that of the European Enlightenment, countries like India and China wouldn’t make any progress until they were exposed to Western science and production methods. Marx acknowledged that the rise of British industry had had “devastating effects” on India’s producers, including its hand weavers and hand spinners. But he also said the railroads that the British were starting to construct would become “truly the forerunner of modern industry.” As other examples of modernizing developments, he pointed to the creation of a large internal market, the establishment of a professional army, and the emergence of a new class of Indians “imbued with European science.”19

None of this should be taken to mean that Marx was a defender of British colonialism. Even as he pointed out its modernizing aspects, he made clear that the exploitation and wealth extraction on which it rested were preventing ordinary Indians from enjoying the benefits of economic and technological progress. “The Indians will not reap the fruits of the new elements of society scattered among them by the British bourgeoisie,” he wrote, “till in Great Britain itself the now ruling classes shall have been supplanted by the industrial proletariat, or till the Hindoos themselves shall have grown strong enough to throw off the English yoke altogether.” But in any case, he added, “we may safely expect to see, at a more or less remote period, the regeneration of that great and interesting country.”20

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When Marx wasn’t writing for the Tribune or incapacitated by his ailments, he concentrated on his critique of economic orthodoxy. As I discussed in the Introduction, in 1857 a financial panic started in New York with the failure of the Ohio Life Insurance and Trust Company and quickly spread to the United Kingdom. It spurred Marx on. In a frenetic burst of activity between October 1857 and March 1858, he compiled the seven notebooks that make up the Grundrisse.21 Many of the subjects they covered Marx would take up again in Capital, but they also contained a good deal of material that can’t be found elsewhere, including a succinct characterization of industrial capitalism as a “permanently revolutionary” system that is constantly “tearing down all obstacles that impede the development of productive forces.”22

Some of the most striking passages concerned automation. Marx distinguished between mechanization in a system based on wage labor and the profit motive, where science “appears, in the machine, as something alien and exterior to the worker,” and mechanization in a future society where the machines are “the property of associated workers” and where a reduction in working hours, as productivity rises, would mean that “all members of society can develop their artistic, scientific, etc, education, thanks to the free time now available to all.”23 The enemy wasn’t technology itself but the capitalist system in which it was embedded.

In terms of economic theory, the biggest innovation in the Grundrisse was Marx’s claim to have discovered a “law” of declining profitability that held the key to the long-term dynamics of capitalism. In January 1858 he wrote to Engels, “I have overthrown the whole doctrine of profits as it previously existed.”24

Fragmented, discursive, and running to more than eight hundred pages, the Grundrisse wasn’t intended for publication. By early 1859, Marx had completed the shorter manuscript that was published in Berlin as A Contribution to the Critique of Political Economy. These days, it is remembered principally for its preface, in which Marx said that the basic “relations of production” are what “constitutes the economic structure of society, the real foundation, on which arises a legal and political superstructure and to which correspond definite forms of social consciousness.”25 This was the famous taxonomy of base and superstructure, with the former shaping the latter. “The mode of production of material life conditions the general process of social, political and intellectual life,” Marx wrote. “It is not the consciousness of men that determines their existence, but their social existence that determines their consciousness.”26

Some of the other material in the Critique, which included lengthy discussions of the nature of commodities and money, was rather dense. Even Engels complained that the book was “very abstract.”27 To Marx’s disappointment, leftist publications in Germany virtually ignored it. He immediately set to work on a second volume, but it was never to appear. For more than a year, he became engrossed in a bitter dispute with Karl Vogt, a leader of the left in the Frankfurt Assembly, whom he accused of being in the pay of Louis Napoleon. He considered moving back to Germany, where Ferdinand Lassalle, one of his old comrades from the 1848 revolution, wanted him to coedit a new workers’ newspaper. That idea came to nothing, and Marx eventually returned to his original idea of a multivolume work on economics.28

In pursuing this project, which generated no income, Marx had to rely heavily on the charity of Engels because his journalistic work was drying up. In 1862 the Tribune, which was by then primarily concerned with the American Civil War, ended its association with him. Fortunately for Marx and his family, Engels was prospering. In 1850, when the disappointments of the failed revolutions were fresh, he had returned to Manchester and rejoined Ermen and Engels. With the Victorian boom continuing, the firm bought a second mill. As a junior partner, Engels received a generous salary plus a share of the firm’s profits. He kept two houses—one for himself and one for Lizzy—and regularly mailed cash to Marx. (For security reasons, he would cut the notes in half and send each half separately.) According to the biographer Tristram Hunt, he was at times “allocating over half his annual income to the Marx family.” Over the years, Hunt says, the total remittances came to somewhere between £3,000 and £4000 (or \$450,000 and \$600,000 in today’s terms).29

If Marx had quibbles about subsisting on the profits generated by Lancashire cotton workers, he didn’t mention them in his letters to Engels. In January 1857, shortly after Jenny received an inheritance that enabled the family to move from its cramped Soho flat to a house in Kentish Town, he complained: “So here I am without any prospects and with growing domestic liabilities, completely stranded in a house into which I have put what little cash I possessed and where it is impossible to scrape along from day to day as we did in Dean Street … I thought I had tasted the bitterest dregs in life. Mais non!”30 With help from Engels and a bequest from his own side of the family, Marx and Jenny eventually moved to a bigger house in a new development off Haverstock Hill. Marx had a study overlooking a park, but the move didn’t cure his money worries or his ailments, which included painful boils on the nether regions of his anatomy. “Of all types of work, the purely theoretical is the most unsuitable when you have this devilish mess in your body,” he complained to Engels.31 In another letter, he declared: “At all events, I hope the bourgeoisie will remember my carbuncles until their dying day.”32

Slowly but surely, he did make progress on his mammoth economics project, which had now been reconceived as a work of four volumes, three theoretical and one historical. In March 1865 he signed a contract with a Hamburg publisher, Meissner and Behre. “There are still three chapters to write to complete the theoretical part,” he wrote to Engels a few months later.33 In February of the following year, he told Engels that the manuscript was “ready” but added that it was “gigantic” and “not fit for publishing for anyone but myself, not even for you.”34 By November 1866, he had done enough cutting to send off a manuscript containing most of the first volume, which was devoted to economic production and value. In April 1867, after Engels mailed him thirty-five pounds to make the trip, he sailed to Hamburg and dropped off the rest of the manuscript. Five months later, the first print run of the first volume of Capital appeared in German.35

In a preface, Marx said his goal was “to reveal the economic law of motion of modern society.”36 To illustrate his analysis, he said, he would focus on Britain, the “locus classicus” of the “capitalist mode of production.”37 If German readers thought things weren’t so bad in their kingdoms since industrial capitalism hadn’t developed very far there, they should think again, he noted. The key issue wasn’t whether the “social antagonisms that spring from the natural laws of capitalist production” had reached a higher or lower stage of development. “It is a question of these laws themselves, of these tendencies winning their way through and working themselves out with iron necessity. The country that is more developed industrially only shows to the less developed the image of its own future.”38

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The first (and arguably most fundamental) regularity that Marx identified was what I will refer to as his Law of Surplus Value: the only source of new economic value is workers’ labor, and capitalists exploit workers by paying them less than the value they produce. Marx inherited this claim from Hodgskin, Thompson, and other British socialists, but he presented its genesis as a conundrum. Under slavery and feudalism, the exploitative nature of the employer-worker relationship was out in the open, but in a capitalist system, workers agree to sell their capacity to work—their “labor power.” Moreover, competition ensures that all commodities, including labor power itself, are sold at their true market value. Marx regarded these two elements—wage labor and competition—as defining features of the capitalist mode of production. But how, then, does exploitation arise? Marx summed up the puzzle this way: “Our friend, Moneybags, who is as yet only an embryo capitalist, must buy his commodities at their value, must sell them at their value, and yet at the end of the process must withdraw more value from circulation than he threw into it at starting  … These are the conditions of the problem.”39

In writing about exploitation in the 1840s, Engels had adopted the same approach that Thompson and Hodgskin had taken, pointing to an asymmetry in bargaining power. If capitalists fail to reach a wage agreement with their employees, they can survive for a time on their accumulated profits. But if workers can’t find employment, they quickly become destitute. Employers’ leverage enables them to pay workers low wages and keep for themselves some of the revenues they produce. Marx wasn’t content with this explanation, and he devoted much of the first half of Capital to expanding it.

His account of capitalist exploitation rested on two pillars: the labor theory of value, which he inherited from Smith and Ricardo; and the ability of employers to determine the length of the workday. Since labor power is a marketable commodity, its exchange value—i.e., the wage rate—will be determined, “as in the case of every other commodity, by the labour-time necessary for the production, and consequently also the reproduction, of this specific article,” Marx wrote.40 In plain language, workers are paid just enough money to provide them with a basic diet and shelter, so they can turn up for work the next day. If the cost of daily subsistence for an adult male worker was three shillings, he will be paid three shillings a day. Taking this example further, Marx assumed that the worker created market value at a rate of half a shilling an hour, so it would take him six hours to create enough value to cover the cost of his subsistence.41 In most factories the actual workday for adult male workers lasted about twelve hours, which meant that workers spent about half their day creating value that accrued entirely to their employers. Marx called this part of the workday “surplus labor” and the value that the workers created during those hours “surplus value.”

Here was the solution to the conundrum facing Moneybags. Even if he had to lay out an additional two shillings per worker each day for raw materials and wear and tear on his machinery, he would reap a daily profit of a shilling on each worker he employed, assuming the workday was twelve hours. “The trick has at last worked: money has been transformed into capital,” Marx wrote. “Every condition of the problem is satisfied, while the laws governing the exchange of commodities have not been violated in any way.”42 Echoing Voltaire’s Dr. Pangloss, Marx quipped: “Everything is for the best in the best of all possible worlds.”43

To illustrate his Law of Surplus Value, Marx created an algebraic framework that was far ahead of its time. Nearly seventy years before John Maynard Keynes invented modern macroeconomics in his book The General Theory of Employment, Interest, and Money, Marx provided a coherent way to analyze economic aggregates, such as profits and wages and output. After explaining how value is created, he divided it into three separate components: C, which he called “constant capital,” stood for the cost of raw materials and wear and tear to machinery; V, which Marx referred to as “variable capital,” stood for the cost of labor power; and S represented surplus value.44 Armed with data on these quantities, it is possible to track the total output that an economy produces (C + V + S); as well as the rate of profit (S / (C + V)); the rate of surplus value (S / V), which Marx referred to as the “rate of exploitation”; and the labor share in income (V / (C + S + V)). These days, virtually all governments rely on the Keynesian system of national accounting, and so the Marxian aggregates aren’t used much, but they, too, provide an overall picture of the economy. As the Japanese economist Shigeto Tsuru pointed out in 1942, it is a relatively simple matter, in algebraic terms, to show how they relate to their Keynesian counterparts.45

Marx’s second regularity was his Law of Accumulation, which he expounded in chapter 25 of Capital: Volume I. It may be more accurate to call it the Laws of Accumulation, because it contains several different elements. The basic idea is that competition forces capitalists to keep reinvesting the profits they generate in new plants and equipment: they can never rest. “Accumulate, accumulate! That is Moses and the prophets,”46 Marx declared. If a business owner disobeys the Law of Accumulation, his firm will fall behind its competitors and may be forced out of business. To avoid this fate, capitalists constantly accumulate more capital, which generates more output and profit, which finances further investments, and so on.

But what happens to workers’ living standards as the scale and capital intensity of production rises? In The Communist Manifesto, Marx and Engels insisted that the living standards and misery of the proletariat only get worse. In modern terminology, this can be regarded as a law of absolute immiseration. By the mid-1860s, however, Marx was obliged to acknowledge that in Britain, the most-advanced capitalist country, workers’ wages were rising. In a growing capitalist economy, he pointed out, where businesses and markets are expanding, the workers’ “surplus product”—the output they produce over and above that necessary to ensure them a subsistence standard of living—is generally increasing, and so is the demand for labor. In these circumstances, Marx conceded, “the requirements of accumulating capital may exceed the growth in labour power or in the number of workers; the demand for workers may outstrip the supply, and thus wages may rise.”47 When this happens, workers “can extend the circle of their enjoyments, make additions to their consumption fund of clothes, furniture, etc., and lay by a small reserve fund of money.”48

Contrary to popular perception, then, Marx didn’t hold that increases in workers’ living standards were incompatible with capitalism. He did hold that wage increases never got “so far as to threaten the system itself.”49 If rising wages start to eat into profits, capitalists will rethink their expansion plans and shift to retrenchment. In these circumstances, Marx explained, demand for labor drops back, and the “price of labour falls again to a level corresponding with capital’s requirements  … whether this level is below, the same as, or above that which was normal before the rise of wages took place.”50

Marx also highlighted another important factor that kept wage growth in check: the existence of an “industrial reserve army” of jobless workers. Marx, following Engels, regarded the constant presence of workers who are desperate for employment as another fundamental feature of industrial capitalism. Indeed, he described the tendency for pauperism to rise when unemployment was high and the ranks of the reserve army had been swelled as “the absolute general law of capitalist accumulation.”51 But the reserve army’s disciplinary role wasn’t confined to economic slumps, Marx insisted. It played a vital role throughout the economic cycle. “During the periods of stagnation and average prosperity, it weighs down the active army of workers; during the periods of over-production and feverish activity, it puts a curb on their pretensions” The presence of the reserve army “is therefore the background against which the law of the demand and supply of labour does its work. It confines the field of action of this law to the limits absolutely convenient to capital’s drive to exploit and dominate the workers.”52