UNIT 5 CAPITALIST ECONOMY AND ITS

CRITIQUE
Structure
5.1

Introduction

5.2

Before 1917

5.3

5.4
5.5

5.2.1

Developments in Italy

5.2.2

New Groups: Lawyers and Notaries

5.2.3

Humanism

5.2.4

New Education

After 1917:
5.3.1

Early Bolshevik Theories

5.3.2

Changing Assumptions

Summary
Glossary

5.1 INTRODUCTION
A number of prominent thinkers in Europe evolved a socialist critique of capitalism
that has been important to how Europeans (and others) thought about industrialization.
The critique decried capitalism as exploitative and unjust, and sought alternative
means of economic and social organization for future industrial development. The
heavy stress on the exploitative nature of capitalist industrialization and the quest for
different models distinguished the socialist critique from classical political economists
who found weaknesses in capitalism. David Ricardo for instance, showed that tension
and conflict were inherent aspects of capitalism: the result of increases in rent which
followed naturally from initial increases in production, labour and population. Thomas
Robert Malthus showed that population increases that followed from capitalist
development developed exponentially, and gradually led to immiserization and
catastrophe. Neither, however, offered a solution to these problems other than an
expansion of capitalism (in Ricardo), or capitulation to short-lived disasters (in
Malthus). Socialist critics of capitalism sought to go beyond this. Before the October
Revolution of 1917 in Russia, much of this thought came from social activists and
philosophers who obtained prominence as innovative writers and as eminent figures
in the First and Second International. They seldom wielded great political or
administrative authority, although the Social Democratic Party in Germany (SPD),
the French Socialist Party (SFIO) and the British Labour Party had gained influence
in the parliamentary politics of their respective countries by 1917. After 1917, socialist
thought assumed a different form. It not only evolved a critique of capitalism, but
suggested alternatives, based on the experiences of the Soviet state and (after 1945),
of socialist economies in Eastern Europe.

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The October Revolution, though, was not the only factor which was decisive to the
character of socialist evaluations of capitalism. Growth of the working class
movement in 19th century Europe, and popular awareness about the problems of
capitalist industrialization encouraged socialists. Socialist Parties also came to power
in Western and Central Europe after 1918 - giving their own version of what could
be done with capitalist industrialization to strip it of its worst aspect. Equally important,
the nature of the socialist critique of economic aspects of capitalist industrialization

adapted to different economic and social ideas. Hence, whereas much of the early
socialist critique was either outrightly focused on justice or dealt with the labour
theory of value (which was popular with classical economists), later evaluations
were less wedded to labour-value theory. Thinkers approached the problem of
what could be done with capitalism inspired by ideas from neo-classical economics,
as in the work of the Polish economist Oscar Lange, who was preoccupied with the
way prices worked. Again, in early socialism itself, some were more moral and
religious (as in the case of Christian Socialism), whereas other trends were wholly
indifferent to religion or outrightly hostile to it.

Capitalist Economy
and its Critique

5.2 BEFORE 1917

Before 1917, various thinkers looked to innovative forms of social organization, or
methods of regulating capitalism, to achieve changes in prevailing structures. They
were often inspired by philosophical notions about the intolerability of the prevailing
commercialization of everyday life - which, for instance, partly lay at the heart of the
work of writers such as Thomas More (in his Utopia), or Jean-Jaques Rousseau
(who deplored the unnatural character of contemporary society). There is no
hard and fast link here, though, and it is better to think of socialist ideas in the
immediate context of their time.

5.2.1

Early Critics

Among socialist critics of capitalism as an economic phenomenon, many fixed on its

unjust character, and sought remedies in various forms of social action. Several
utopian socialists fell into this category. Robert Owen (1771-1858), a leading textile
manufacturer, focused on the existence of poverty in conditions of abundance. He
explained it as the result of competition among capitalists, which led to technical
innovation, sudden falls in the demand for labour, decline in general consumption
and contraction of production. The degeneration in human life and human character
which this spiral caused, according to Owen, could only be set right by a more just
link between wages (and prices), where the amount of labour spent on the object
would be regularly taken into consideration. Also, he advocated a more wholesome
approach to social organization. And he wanted the development of idyllic
communities where profit would be near-equally shared, work-allocation proceed
according to capability and strict limits be established for ownership of property.
Such communities, he argued, represented a satisfying existence and would be a
model for social organization. With this end in mind, he ran his New Lanark cotton
mills on humane principles, and fostered cooperative communities such as New
Harmony in Indiana (USA). The followers of Ricardo such as Charles Hall (17451825), Thomas Hodgskin (1789-1869), John Gray (1794-1850) and John Francis
Bray (1809-1895), expressed similar preferences (for the encouragement of
cooperative activity). The sources of their ideas were different from Owens.
Following David Ricardos theories, they saw capitalism generating a rent increase
spiral that would lead to impoverishment of the working class. The solution, they
argued was a brake on competitive capitalism. For this they suggested cooperative
bodies for exchange and production (Gray), and even development of communal
property ownership (Bray). Such initiatives would balance the relentless pressures
of capitalist competition.
In France, the unsystematic activist Charles Fourier also advocated workers
cooperatives to stem the ascendancy of capitalism. Louis Blanc (1813-1882), wanted
encouragement of producer cooperative, to replace capitalist enterprise, but

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Modern World :
Essential Components

demanded that such cooperatives should be formed through state intervention and
state sponsored industrialization. Prudhon (1809-1868), took a slightly different line
in his What is Property (it is theft): i.e. that state action should be encouraged to
restore the right of the small proprietor, whose position should be preserved through
the imposition of serious disabilities (in the form of taxes) on those who sought to
extend their property. Such a regulatory role for the state was also sought by Sismonde
de Sismondi (1773-1842), a convinced supporter of Adam Smith in his early work
(Commercial Wealth). After travel and lengthy research, he evolved a solid critique
of capitalism, and argued that it was naturally susceptible to crises and to injustice
(New Principles of Political Economy), arguing that the only solution was some
form of state regulation. Sismondi linked crisis, misery and injustice in capitalist society
to the dispossession of the independent producer by the large capitalist enterprise,
the subsequent dependence of labour on capital. The suffering of labour, he
contended, proceeded logically from the striving of capitalists to increase production,
as the quest for profit dictated. This led the economy into glut and depression.
Competition and technical sophistication, according to Sismondi, merely intensified
this tendency to cyclical crises; and in the crises, even if the capitalist lost, his position
was hardly as bad as that of labour. Solutions to this abominable situation did not lie,
according to Sismondi, in communism (which suppressed private interest). It could
only lie in state intervention that restored the position of the small producer.

5.2.2

Christian Socialists

Christian Socialists in France, who were morally outraged by the degradation of

labour in prevailing circumstances, took up similar arguments. Abbe Felicite Robert
de Lamennais (1782-1854), advocated increased Trade Union activity and diffusion
of property to contain the moral horror. Pierre Guillaume Frederic Le Play (18061862), the leader of the Christian Socialist movement in France, who founded the
Society for Social Economy in 1863, worked for social and legal reforms which
would introduce an element of family into the contemporary community. Le Play
was an apostle of solidarism which would link classes and diminished the violent
fluctuations in income and welfare. His position, and the position of Lamennais,
echoed some of the sentiments of Count Saint Simon, who considered unemployment
unnatural, and spoke for Christian Humanism as a means to contain untrammeled
exploitation and restore harmony to industrialization. Such a spirit, he argued, though,
should manifest itself not by cooperativism, but through decisive action by an elite of
engineers, philosophers and scientists. Although targeted at the middle classes, and
seldom critical of property, Saint Simons ideas had a socialist ring, since he was
clearly dissatisfied with capitalism and wanted a deep study of society to set its evils
right. His notions influenced a series of publicists and activists whose writings had a
social edge: Thomas Carlyle, Michael Chevalier, John Stuart Mill and Leon Walras.
Saint Simonian ideas were also popular among capitalists who had a social mission
(such as the French bankers, the Pereires) and social reformers.

5.2.3

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Critique in Germany: Marx and Engels

In Germany, Saint Simons ideas had followers in Young Hegelians - enthusiasts of

G.W.F. Hegels early revolutionary zeal. These included Johann Karl Rodbertus
(1805-1875), who wanted state provision for the working class, and a gradual
collapse of private property. Ludwig Feurerbach (another Young Hegelian and
socialist sympathizer), though, was less at ease with the religious edge to Saint
Simonianism, since he considered the preoccupation with religion the prime factor
that prevented an out and out focus on the problems of material prosperity.

The most influential socialists in Germany in the mid-19th century did not follow
such positions. Important was Ferdinand Lasalle (1825-1864), who founded many
workers cooperatives to allow workers access to profit. And yet more decisive in
the German socialist movement were Karl Marx and Friedrich Engels, who, like the
French thinkers Louis Blanc and Auguste Blanqui, and the British activist Hyndman,
and unlike most of the advocates of cooperativism, had little respect for private
property.

Capitalist Economy
and its Critique

Marx and Engels and the major leaders of the Second International represented a
distinct and unusual path in socialist thought. Here, Marx, not only associated
capitalism with exploitation but also with alienation, a shortcoming which even affected
those who benefited most from capitalism that is the bourgeoisie. He also argued
that the collapse of capitalism was inevitable, that the dominant class of the future
was the proletariat (that is the urban working class), who would not only inherit the
structures provided by industrial capitalism, but would divert them from its exploitative
course. Marxs analysis provided a sense of assurance that capitalism was bound to
fade away. His socialism was, he argued, scientific, i.e. based on the laws of the
history of social development. Working out of the assumption that social relations
constitute the core of economic structure and economic activity, Marx argued that a
particular social set up created an economic dispensation with which it developed
tensions over time. This led gradually to change. Capitalism, like feudalism before
it, was bound to change.
Marxs primary work (Capital), was distinguished, though, not by such broad
philosophical positions, (albeit that they remained fundamental to his arguments).
He was able to demonstrate exploitation of workers within capitalism with a degree
of theoretical rigour that other theoreticians seldom brought to the subject. Working
out from the standard notion (shared by Smith, Ricardo and others), that all value of
economic activity could be reduced to labour inputs, Marx fixed on the surplus that
prices included, after wages and costs had been paid, and argued that the
appropriation of this by the capitalist represented the scale of capitalist exploitation.
Unlike liberals, he did not regard that entrepreneurial functions could also be judged
in labour inputs. Surplus value, moreover, according to Marx, came to be rendered
in money and capital - an end in itself, independent of the production process and
productive of rewards. Competition among capitalists, however, and consequent
fall in rates of profit in industry led to increasing exploitation and a steep rise in
contradictions between capital and labour. This, according to Marx, would lead
unavoidably to the breakdown of capitalism.
Marx did not, it should be noted, indicate how contradictions would be resolved.
His scientific socialism provided a critique of capitalism but did not provide a
forceful reference for how labour should operate under capitalism - except that it
should be made more aware of its rights and interests. This marked him off from
utopians - just as he claimed that utopians lacked a proper sense of what made
(and would make) capitalism intolerable. This led them to half-baked palliatives.
The attitude led to a break not only with utopians but also with the Anarchist,
Michael Bakunin. Bakunin, who stood by his own distinct perspective to socialist
ideas, which argued against capitalisms concentration and its use of the centralized
state, wanted a syndicalist approach to labour strategy: i.e. avoidance of
participation in the activities of the state as it existed since it would be contaminating
to labour. Marx clearly found such an approach one more utopian fixation.

5.2.4 Changing Assumptions

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Modern World :
Essential Components

Later German socialists, (primarily Karl Kautsky and Hilferding), followed many of
Marxs assumptions closely, and showed the way in which the exploitative process
under capitalism had become refined over the mid and late 19th century to establish
the authority of finance capitalism (i.e. investors and bankers) over industrial
capitalism. Lenin showed the way imperial expansion reinforced capitalist production
in Europe. The rhetoric of such writing was redolent of a strong critique of capitalism
and imperialism, and focused an attack on large-scale private property, together
with the state which legitimized it, as the main villains of the drama of exploitation
under capitalism.
The main departure from such perspectives came from Bernstein, in Germany. He
accepted almost all the standard analysis of capitalism and imperialism that Marxists
produced. But he considered that as capitalism developed, the extent of exploitation
of the working class would decrease: that a greater degree of cooperation between
capitalist and proletariat would emerge and capitalism acquire a robust quality which
would be resistant to collapse. Such assumptions were accepted by the Fabian
Socialists in Britain. This was the group that formed around Sidney and Beatrice
Webb, and its ideas were circulated in Sidney Webbs Facts for Socialists (1884)
and Fabian Essays on Socialism (1889). The writer George Bernard Shaw and
other leading intellectuals were members of the group. They advocated close work
by socialists with political parties and trade unions, and argued that socialist aims
could be achieved through such political means.
Much of this argument followed from the increasingly self-evident preoccupation,
among advocates of capitalism, with the idea that market mechanisms were not
perfect: that these mechanisms may need guidance. Such a change implied that
capitalism was not immutable and intransigent, and went against Marxs idea that it
would be. Social policy (concerning hours of work and unemployment) in France,
Britain and Germany in the late nineteenth century indicated this mutability in
capitalism. So did the great authority that Trade Unions came to demonstrate in
Britain and France by 1900. At a theoretical level, non-socialists began to look at
economic exchange carefully and question the perfection of market mechanisms.
This followed from the move among some, to question the idea that economic activity
could be studied purely in terms of its labour inputs (including the entrepreneurs) as in the case of the liberal economist Jean Baptiste Say. Working from notions that
equally important was examination of economic activity in terms of the utility of
production and market response to production (till now a subordinate focus of
attention). Using historical evidence (from the French and German Historical Schools),
as well as speculations about how consumers chose their products (by the marginal
utility school of William Stanley Jevons (1835-82), Carl Menger (1840-1921) Leon
Walras (1834-1910) and others), a position emerged among non-socialist economists
that the market could not be left alone. Once this was accepted, and once concessions
were made to workers demands, moderate socialism of the non-Marxist variety
did not differ excessively from the standard orthodoxy among capitalist or liberal
economists. For the less revolutionary, the situation showed the way to reconciliation
with capitalism.

5.3 AFTER 1917

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The situation seriously changed owing to the First World War, the October Revolution
of 1917, the Depression of 1929 and the Second World War. The World Wars and
the Depression undermined the economy of the European states so decisively that
capitalism itself came into question. Alternative means of economic organization

became popular. The Bolshevik Revolution in Russia (i.e. the seizure of power by
the Bolshevik fraction of the Russian Social Democratic Workers Party in October
1917, and its success in the Civil War that followed) provided an example that
attracted attention.

5.3.1

Capitalist Economy
and its Critique

Early Bolshevik Theories

For Bolshevik socialism was not only critical of capitalism, it rejected revisionism
and it showed ways of going beyond capitalism through means other than
cooperativism and piecemeal state regulation. Among the Bolsheviks, a serious
economist, Nikolai Bukharin, dismissed liberal notions of the utility school as
unworthy of the attention of those concerned with more than the activities of the
rentier or leisured class. More fundamentally, the Bolshevik leader V.I. Lenin, argued,
contrary to many socialists, that the state could provide a means for managing the
economy for the benefit of society, once and for all overcoming exploitation and the
conditions that led all society into a state of alienation from the fruits of its labour.
The state could, Lenin contended, restore socially wholesome priorities to society
on a large scale. Hitherto, this had not been a path socialists took, even if they
supported state intervention in economic affairs. For a dominant role for the state in
such matters meant handing major powers over to great landowners and great
capitalists (who exercised hegemony in governments in France, Germany and Britain
until then). Lenin took the line, in his State and Revolution that previous critics of
large scale state control had been thinking of such cases where the state was run by
the ruling class. The situation changed when the proletariat and socialists took over
the state.
Nationalization and abolition of private property became the cornerstones of this
perspective. Planning also became crucial to it: the notion that it was possible,
statistically, to evolve a plan of the economy and its potentials, and thereafter to
plan targets for it. Such ideas were evolved by various Soviet economists, and
became a major ingredient in the socialist critique of capitalism. S. Preobrazhensky,
for instance, pointed out that with such enormous controls and powers, the state
could achieve capital accumulation itself, in the way capitalists had done it in the
early stages of the industrial revolution. Through manipulation of prices, resources
could be diverted from agriculture to other economic ends if necessary. The rigour
with which this could be followed up was stressed by the leading Planner of the
late 1920s and 1930s, S. Strumilin, a great supporter of targets. The Planned
Economy of the 1930s in the Soviet Union showed how this could work, achieving
great increases in industrial production and revolutionizing the countrys economy.
In all this, rigorous standards of welfare were preserved, and strict curbs enforced
concerning the accumulation of wealth.
With great sophistication, and with scant respect for labour theory of value (which
most Soviet economists accepted), various economists outside the USSR argued
for the preferability of a Planned Economy. This was true of the Polish economist
Oscar Lange (1904-1959?), who, in his On the Economic Theory of Socialism
(1938), argued that the Planned Economy could be more efficient than a capitalist
economy, if adequate attention was paid to the price mechanism. His popularity
was as great outside Soviet socialist circles (who regarded him with some care) as
that of Michael Kalecki, another Polish economist who worked with concepts such
as class conflict and integrated these with important work on business cycles.

5.3.2 Changing Assumptions

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Modern World :
Essential Components

Absorption of the underlying principles of this new socialist onslaught on capitalism

into liberal economic notions in post Depression Europe, and the ascendancy of
J.M. Keynes ideas, gradually led to the decline of the importance of the new socialist
perspective in post-1945 Europe. Keynes followed up the marginal utility school,
and its concessions concerning the imperfections of the market, to argue for a degree
of management of the economy in notions not far off those of Lange. In economies
which were not socialist, therefore, due accommodation came to be made for the
socialist challenge. Thereafter, the insights such as those of Friedrich von Hayek
(1889-1992), the LSE-Freiberg-Salzburg economist, concerning the distortion that
Planning invoked in the function of prices in the market assumed a degree of popularity
in European circles. And this, together with the influence in Europe of the Chicago
monetarists (M. Friedman and others), led to a gradual decrease in interest in the
socialist challenge in late 20th century Europe. A few Keynesians, such as Nicholas
Kaldor and Joan Robinson (the Cambridge Keynesians) continued to have some
interest in the Soviet legacy. Otherwise, the crisis of the Eastern European economies
in the 1970s and 1980s gave foundation to scepticism concerning socialist ideas.
Wild uncertainties in the market in the developing world, however, and the major
social implications of such uncertainties, have ensured a persistent interest in socialist
perspectives. Trade has compelled Europeans to take account of the perspective.
Socialism is thrust on Europe by the world, as it were, even if Europeans have little
interest in it.

5.4 SUMMARY
It has become customary, in recent times, following the collapse of socialist projects
in the Soviet Union, China and Eastern Europe, to argue that socialism seldom
established a powerful critique of the efficaciousness of capitalism as a system of
production. Socialist thinkers, runs the rhetorical assertion, are focused on distribution,
not production. Standard histories such as Eric Rolls A History of Economic
Thought, or W.W. Rostows Theorists of Economic Growth from David Hume
to the Present reinforce the position through neglect of any socialist thought after
Marx. Standard socialist accounts such as G.D.H. Coles History of Socialist
Thought, moreover, do not seriously revise the perspective. A respect for Marx
and earlier socialists is evinced in non-socialist history in that they were the first to
argue vigorously that distribution in capitalism would be so problem-ridded and
capitalism so dissatisfying that society would want to overthrow it. It is assumed
that time and social policy solved this problem. If there is attention to the challenge
of planning (Soviet style) in Europe, it is quickly assimilated into the notion that
whatever needed to be added to capitalism to set it right by this route was achieved
by Keynesian policy in Europe. Soviet specialists may object, but this has seldom
made an impact in European accounts of the socialist critique of capitalism.

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Is this a fair representation of the socialist critique and its status in Europe at various
times ? Probably to an extent - since socialists rarely wrote about how to get richer
unless it was through greater justice. But as standard respect for Marx indicates,
distribution and production cannot wholly be delinked. A social path to prosperity is
viable only as long as it is tolerable. This has meant that concerns with inequality
have led to interventions in Europe about how to rework production patterns on
many occasions in European history. Again, application of Soviet planning was very
much about growth - addressing the question of how to provide maximum prosperity
for the majority of the population in as short a time as possible. Just because there is
no interest in the problems solved by the Planning mechanism in Europe today does
not mean that this was always the case. Especially in Eastern Europe (even before

Soviet take-over), planning strategies attracted interest. Soviet economists faced

highly unusual conditions, and their ideas were innovative, and evoked some interest.
Even non-socialist historians such as Alec Nove have pointed this out. The current
downturn in interest in socialist perspectives hardly means that such perspectives on
growth are foreclosed for the indefinite future in Europe. In fact, the persistence of
the perspectives outside Europe in the context of a globalized economy merely
means that they will continue to draw attention.

Capitalist Economy
and its Critique

5.5 EXERCISE
1.

What are the essential features of the critique of capitalism as propounded

by Marx and Engels?

2.

Distinguish the pre-1917 critique of capitalism from that of the post 1917
one.

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