In the 12 months following the collapse of Lehman Brothers in 2008, the best-selling book around the world was not Harry Potter or 50 Shades of Grey, but in fact a very short book written in 1848.As the world contemplated the potential collapse of global capitalism, people turned in droves for a crash course in the world’s first every theory of economic collapse – the Communist Manifesto.
“Society has conjured such gigantic means of production and exchange, like the sorcerer who is no longer able to control the powers of the nether world whom he has called up by his spells.”
Karl Marx and Friedrich Engels, 1848
Perhaps it is the eloquent expose of the exploitation of the working class by the privileged, wife-swapping, bourgeoisie.
Perhaps it is the eeriness of its death knell for capitalism.
Or perhaps it is simply the thunderous tone with which its lead author, Karl Marx, issued his proletariat call to arms.
One thing we can say for sure is that The Communist Manifesto did not hide from the complex, evolutionary nature of the European socio-political landscape.
In one of its most cited lines, Marx and Engels state: “the history of all hitherto existing society is the history of class struggle”.
It is not just the class struggle between the workingmen of Europe and the bourgeoisie capitalists they refer to, but rather a long evolution of conflict – between the State and private merchants, between feudal lords and peasant farmers, between guilds and industrialists.
The bourgeoisie itself is shown to have evolved over time by constantly revolutionizing its modes of production.
Indeed, a central premise of the Young Hegelians, to which Marx belonged in his earlier years, was that change was the rule of life in which every idea and every force irrepressibly bred its opposite and that history was the expression of this flux of conflicting ideas and forces.
In any case, the central thesis of Marx and Engels is that there is an inherent, self-destructive flaw in capitalism.
To sustain profits against competition, capitalists must exploit workers by commoditising labour and capturing part of the value of labour as profit.
They went even further to say the only way out of this downward spiral was via the abolition of private property.
The tipping point in this complex class struggle would come when the proletariat became large enough and oppressed enough to take up arms against the ruling classes – indeed, this was already happening across Europe as the Manifesto went to press.
Marx’s argument is best understood in the context of the Labour Theory of Value which was the key premise of the “Fundamental Laws” set down by classical economists, Adam Smith and David Ricardo.
This says that the value of any good is equal to its cost of production and, ergo, its primary input, labour.
As an example, compare a $6 haircut with a $7.50 shoeshine.
The wage rate is $10 an hour and a haircut takes half an hour ($5 in direct labour) plus a dollar of imputed cost in the use of the scissors, which cost $20 and are thrown way after every 20 haircuts.
In contrast, the shoeshine takes just 15 minutes ($2.50 in direct labour), and requires one-fifth of a $25 tin of polish.
Marx and Engels argued that all value is ultimately attributable to labour.
So, in this example, the $6 for a haircut reflects a total of 36 minutes of labour along the supply chain at $10 per hour.
More generally, they argued that, without labour, it was impossible to draw any value from materials or machinery at all – all profits generated by capitalists therefore was undeserved and unsustainable.
Rather than just point to the potential for socio-economic crisis, the Manifesto is a full-blown prognosis of crisis.
It posits that all profits from production are continuously subject to decay.
If the market allows any initial surplus in excess of the labour cost of production, this will be competed away as Adam Smith’s free market model showed.
But with the rise of machinery and large factories, competing capitalists, could only sustain profits by extracting more of the value of production from labour.
They did this, according to Marx, by replacing current workers with fewer, lower-cost workers through mechanization, which reduced the need for skilled craftsmen and reduced the worker to no more than a dispensable coal-shoveller or lever-puller.
Consider this for a moment in the more eloquent prose of Marx:
“Owing to the extensive use of machinery and division of labour, the work of the proletarians has lost all individual character and, consequently, all charm of the workman. He becomes an appendage of the machine, and it is only the most simple, most monotonous, and most easily acquired knack, that is required of him. Hence, the cost of production of a workman is restricted, almost entirely, to the means of subsistence that he requires for his maintenance and for the propagation of his race … In proportion therefore, as the repulsiveness of the work increases, so the wage decreases.”
The tragedy of the bourgeoisie, according to Marx and Engels, was that through their lust for greater capital accumulation, they were in fact themselves creating the oppressed working class, and dangerous underclasses, that would inevitably rise up and depose them.
Looking back, we can say the genius of Marx is that he, among other things:
1/ first introduced us to the notion of business cycles virtually absent from the literature prior to this time;
2/ highlighted the propensity for companies to grow into much bigger corporations; and
3/ drew attention to the social impacts of technology, including the potential to displace and commoditize labour.
But as we know, capitalism did not die after 1848, and the crisis did not usher in new Marxist regimes across Europe.
Views are divided on why this was so.
Some say that communism was rejected as too radical, particularly the idea of abolishing private property.
Others argue that, by 1850, the Industrial Revolution had instilled hope among workers of being lifted out of subsistence by hard work and ingenuity.
Some say this was encouraged by social reforms, a broad-based rise in real wages and a reduction in the average working week in manufacturing from over 62 hours to around 54 hours.
Economist Richard Heilbroner has argued that while Marx gave society a prognosis of revolution, he left no blueprint for an alternative world, void of class and property rights.
Who would determine how the means of production would be put to use and how the spoils would be divided?
It would be another sixty years before this question would be picked up by Vladimir Ilyich Ulyanov/Lenin.
(nb. In the interests of balance we will find a suitable neo-classical text to review next week!)
Ross Barry