Capitalism’s Just-So Stories

During one of the many civil wars between patricians and plebians that racked the early Roman Republic in Livy’s account, Menenius Agrippa — a spokesman for the oligarchy that had enclosed the common lands and reduced the Latin peasantry to tenant status and debt peonage — defended the privileges of the landed aristocracy with a Parable of the Body:

It once happened that all the other members of a man mutinied against the stomach, which they accused as the only idle, uncontributing part the whole body, while the rest were put to hardships and the expense of much labour to supply and minister to its appetites. The stomach, however, merely ridiculed the silliness of the members, who appeared not to be aware that the stomach certainly does receive the general nourishment, but only to return it again, and redistribute it amongst the rest.

Every system of class domination relies on a collection of myths — “just-so stories” — to present itself as natural and inevitable to those living under it, and to defend the wealth and power of the ruling classes as the result of merit. And they usually involve justifying the wealth of the ruling oligarchy as really being good for ordinary laboring folks. This is just as true — if not more so — for capitalism as for any other system.

At Foundation for Economic Education, Doug Thorburn — bless his heart — manages to roll most of capitalism’s just-so stories into a single by-the-numbers apologetic (“Can We Chill on Denouncing the Rich?” Aug. 6) that amounts to little more than a warmed-over version of Menenius Agrippa’s carney pitch 2500 years ago. The ahisorical myths Thorburn recycles are as central to the capitalist legitimizing ideology as the “Social Contract” is to that of the state.

The benefits of capital—owned by both the super-wealthy and more middle-to-upper income folks largely via retirement accounts, investing more modest amounts—are provided to us, from smartphones and laptops to trips to Disneyland and ocean cruises—for our enjoyment for a tiny fraction of the cost of that capital. Billions for the enjoyment and benefit of billions.

See? So vulgar, so unreflective, so utterly devoid of original thought, it might have come from one of those “The Wonders of Our Free Enterprise System” propaganda films the National Association of Manufacturers produced in the late 1940s. But it’s really pure Menenius Agrippa.

Thorburn begins by reminding readers of the indispensability of physical capital — paid for out of the wealth of the rich — to labor (his unfortunate use of a derogatory ethnic term doesn’t help matters).

Consider: what’s a trucker worth without a truck? Let the question (and your intuitive response to self) sink in for a bit, while we ask similar questions of others. What’s a gaffer worth without the lights? What’s a ballplayer worth without TV? What’s a server worth without a restaurant? What’s a store clerk worth without the store and computer chips and scanner? I’ll even ask it of myself: what am I worth without my computer? Let’s go back to the trucker. Without a truck, his value to others diminishes to near-zero. Compared with a Chinese Cooley carrying the trucker’s cargo on his back, the Cooley is worth a lot less, isn’t he? The trucker might not be as smart, as educated or as strong; yet, he’s worth thousands of times more than the Cooley. Why? Because of the truck. Now, ask a simple question: who paid for that truck—a poor guy or a rich guy? You know the answer. Who employed the trucker—and kept him employed—a poor guy or a rich guy? Likely a rich guy. Few remain employed by poor guys, at least for very long.

And the factory that produces the truck is paid for by rich guys, he continues, as are all the other factories that produce all our consumption goods as well as all the tools that make our labor productive.

This is just a variation on the classical wage-fund doctrine, according to which the capitalist advances tools for workers to produce with, and wages to subsist on during the production process, out of pocket — and then pays himself back, along with compensation for his “abstention,” when the finished product is sold.

But the truck itself is produced by workers. And the factory that makes trucks is built by workers. And the food and other necessities of life consumed by workers while the factory and truck are being built are also produced by other workers. The “wage fund doctrine” is a lie. It was effectively demolished by Thomas Hodgskin, a free market advocate who wrote in the time before political economist became hired prize-fighters for capitalism. According to Hodgskin (“Labour Defended Against the Claims of Capital,” 1825), the material subsistence goods advanced to workers aren’t really saved from past production at all, but are produced near-simultaneously with their consumption. All capital goods and all subsistence goods consumed during the production process are created by other workers. Absent the capitalists, workers could carry out this function of continuously advancing their products to each other through some form of mutual credit. All capitalists do is interpose themselves between the workers in various industries, and collect tolls on their advancement of their respective outputs to each other during the production process.

Betwixt him who produces food and him who produces clothing, betwixt him who makes instruments and him who uses them, in steps the capitalist, who neither makes nor uses them, and appropriates to himself the produce of both. With as niggard a hand as possible he transfers to each a part of the produce of the other, keeping to himself the large share. Gradually and successively has he insinuated himself betwixt them, expanding in bulk as he has been nourished by their increasingly productive labours, and separating them so widely from each other that neither can see whence that supply is drawn which each receives through the capitalist. While he despoils both, so completely does he exclude one from the view of the other that both believe they are indebted him for subsistence…. Not only do they appropriate the produce of the labourer; but they have succeeded in persuading him that they are his benefactors and employers.

The capitalists’ money is just a symbolic marker of their accumulated wealth — stolen from the workers in the past — which gives them an artificial claim on workers’ current labor products, and thereby enables them to preempt the avenues by which workers mutually advance their labor products to each other.

Even more fundamental, Thorburn just accepts that the rich investors have all this money to spend on capital goods, and that workers don’t have enough resources of their own to pool and acquire capital goods, without bothering to ask why.

All the traditional capitalist explanations for profit — the wage-fund doctrine, capitalist “abstention,” time-preference — simply ignore the question of what Adam Smith called “original accumulation.” As stated by capitalist apologists right up to Thorburn, the situation is something like this: See, some people just happen to own the means of production, and other people just happen not to have anything to offer but their own labor, and need access to the rich people’s means of production and advanced wages to live on while they work.

To the extent that mainstream classical political economy addressed the question at all, it treated the original accumulation of capital as the result of savings, thrift, abstention and industriousness by the classes that accumulated the capital in their hands.

But “original accumulation” or “primitive accumulation” (a term more current among radical political economists) isn’t something that “just happened,” or came about through a peaceful process of entrepreneurs working hard and saving and reinvesting their savings. No, as Marx put it, it was a process whose history “is written in letters of fire and blood.” The reason workers in the British Industrial Revolution were proletarians with no capital and no land, with nothing to sell but their own labor, is that they were made that way. The great majority of the land, that under the medieval regime was either in communally owned open fields to which the entire peasantry had hereditary rights of possession, or in common pasture, wood and waste. And all this land, to which the peasantry had customary property rights, was stolen — enclosed by the landed aristocracy and gentry — and the peasantry were reduced to tenants at will and agricultural wage labor. What’s more, the propertied classes stole the land precisely because they knew the peasantry wouldn’t work hard enough for long enough hours or low enough wages so long as they had independent rights to the means of production and subsistence.

The reason the propertied classes in the 18th and 19th centuries had all that accumulated wealth to “invest” and “employ people” was that they had stolen virtually the entire land of England out from under the people who worked it. And their state had fought mercantile wars to subdue most of the Global South, enslave millions of its people, and enclose enormous tracts of its land the same way it already had in England. The capitalists’ police state, through the early 19th century, criminalized free association through the Combination Laws. The Law of Settlement acted as an internal passport system that prevented people from travelling in search of work on any but the capitalists’ terms. Then the capitalist state — in the guise of the Poor Laws authorities — auctioned off the destitute population, mostly children, from the poorhouses and shipped them by the carload to the factories of Birmingham and Manchester.

On a global scale, it’s even worse. Everywhere we look, we see concentrated land and natural resources in the hands of small oligarchies of super-rich, as the result of the same kind of robbery that happened in Britain. The hacienda system in Latin America, Hastings’ Permanent Settlement in Bengal, the British seizure of the most fertile land in East Africa and eviction of the peasantry — nothing but plain and simple robbery, by which the land was stolen from its rightful owners, the people who lived and worked on it. The process of land enclosure has continued under the neo-colonial regimes established after formal decolonization, right up to the present day. And whenever the neo-feudal system of land ownership has been threatened by the activism of landless peasants, the United States has been more than willing to intervene to install regimes that would massacre activists by the thousands and tens of thousands, and restore the land to the oligarchs.

Likewise the holdings of western corporations in the oil of Indonesia and mineral wealth of Africa trace directly back to colonial robbery, and continue to be enforced as “property rights” under the neoliberal regime.

Super-rich capitalists have lots of money to invest, and workers don’t, primarily because the billionaires and multi-millionaires are robbers, or the heirs and assigns of robbers.

Thorburn goes on to restate two more legitimizing myths that, despite its continued popularity among professional capitalist apologists, have become even more contrary to truth under the conditions of late capitalism. First is the myth — time-honored in Econ 101 textbooks — that individual savings are transformed into investment; and second is the myth that large-scale capital accumulation is the source of productivity.

Anything that reduces the wealth of the rich, like high taxes — Thorburn says — reduces the total amount of money they have available to hire people and to invest in the capital goods that make labor more productive. “If instead investors were allowed to keep their funds and invest, we would all be wealthier—including those of us who make their living via the use of trucks and computers.”

These dogmas have been obsolete for over a century, since industrial capitalism became subject to a chronic tendency towards overinvestment and excess production capacity.

First, most new capital expenditure doesn’t come from outside “investors” putting their money into corporate securities, or banks lending money to enterprises from depositors’ savings; rather, most corporate investment comes from retained earnings, and the supply of retained earnings is so massive that corporate management tends — if anything — to overinvest in wasteful, irrational capital spending boondoggles exactly the same way the Soviet planned economy did. Like the enterprise managers under Oskar Lange’s “market socialism” that Mises dismissed as “playing at markets,” American corporate management invests money it didn’t save out of its own pocket, that makes more money when the gamble pays off but loses nothing if it doesn’t, and therefore has nothing to lose. Like the Soviet nomenklatura, corporate management is a self-perpetuating oligarchy with de facto control over what amounts to a large mass of capital with no legal owner besides an entirely fictitious person.

And corporations have these enormous retained earnings, under monopoly capitalism, because they extract large super-profits at the expense of the consumer through rents on “intellectual property,” administered pricing in oligopoly markets, and all sorts of other entry barriers. Corporations are literally awash in more money than they know what to do with.

Second, the rich have way more capital than they’re investing, simply because there aren’t enough profitable investment opportunities to put all their money into. I repeat, late capitalism is chronically plagues by excess, idle production capacity and by excess investment funds with no profitable outlet. This — and not liberal do-goodism — is the real (i.e. functional, if not conscious) reason for massive government deficits and debt.

And third, the link between capital-intensiveness or the scale of capital accumulation and productivity has been growing obsolete for a long time, and continues to grow even more obsolete at a rate that increases with every passing year. As Douglas Rushkoff argued (“How the Tech Boom Terminated California’s Economy,” Fast Company, July 10, 2009), new digital information and networked communication technologies drastically reduced the amount of capital required to perform given tasks. In many fields — music, journalism, publishing, software — things that formerly required large office buildings with managerial hierarchies and expensive mainframe computers can instead be done by individuals with desktop computers. And the new open-source, browser-based and desktop productivity software people have at their disposal is many times more efficient and user-friendly than the shoddy, over-designed, proprietary gold-plated turds that corporations require their employees to use in-house. (To be honest, I’ve never in my working life used a corporate intranet or proprietary in-house “productivity software” at any job that didn’t seem like something from the movie Brazil.) At any rate, all this means a drop of one or two orders of magnitude in the need for investment capital in some information industries, and as a result lots of idle capital with nothing to invest it in.

The same tendency — ephemeralization of production technology, both in terms of material mass and money cost — has manifested itself in physical production. In the 1970s the development of relatively cheap, small-scale CNC (computer numeric controlled) machine tools meant that industrial production which formerly required large mass-production factories could be undertaken in garage factories and job shops like those in Italy’s Emilia-Romagna or China’s Shenzhen province. Since then, the scale and cost of CNC machinery has continued to plummet, until today open-source hardware hackers can produce a cutting table, router or 3-D printer for under $1000 — meaning that what was once done by multi-million dollar factories can be done in a garage shop with a collection of machinery amounting in cost to maybe six months good factory wages. That leaves a lot of unnecessary capital sitting around, competing for a diminishing number of profitable investment opportunities.

To get around this problem, capitalism increasingly relies on “intellectual property” to artificially prop up the scale of capital outlays required to produce, or to enclose cheap, small-scale production technologies within a corporate framework so that corporate headquarters can outsource all actual production to the job shops but use patents and trademarks to retain a monopoly on selling the product (and mark up the price 1000% or more). Capitalism also gets around the problem of over-accumulation and excess capacity through a series of one FIRE Economy bubble after another — the dotcom bubble of the ’90s, the housing bubble of the early noughts — and through government deficit spending and debt.

The latter is especially important. Military-industrial production utilizes enough idle capacity to make the difference in whether a company is profitable or not. And financing the U.S. debt with the sale of government bonds soaks up several hundred billion dollars a year in surplus capital that would otherwise simply sit idle — and gives it a modest guaranteed return. The US federal budget deficit and national debt are nothing but a farm price support program — for capitalists.

Menenius Agrippa was nothing but an apologist for the propertied classes of the Roman Republic, who put a veneer of legitimacy on their robbery. The mainstream of political economy served the same function in Britain, after industrial capitalists triumphed politically, and political economy went from being a revolutionary doctrine against the entrenched interests of the landed oligarch and mercantilists to being an apologetic doctrine in defense of the entrenched interests of capital. In this latter phase, Marx referred to them as “vulgar political economists,” “hired prize-fighters” on behalf of their capitalist patrons.

And so today, the mainstream of right-libertarianism — in particular, as exemplified by Thornburn — is nothing but an apologetic, twisting the language of “free markets” and “free trade” to defend the interests of the propertied classes who control the state.

Any true and honest free market doctrine will acknowledge that the great mass of wealth and property is stolen, and support the claims of the robbed rightful owners over those of the robbers. It will acknowledge that the overwhelming bulk of corporate profits come from rents on stolen land, artificial property rights, and artificial scarcities like “intellectual property,” and demand the abolition of monopolies and artificial property rights across the board. Rather than collusive “privatization” of public services, which amounts to a new corporate enclosure of the commons with the aid of the capitalist state, it will demand that properties and services funded by the taxes of working people be treated as the rightful property of those they serve, and restructured as stake-holder cooperatives controlled directly by those who use them. Rather than backing mercantilist agreements like TPP that enforce “intellectual property” monopolies and continue to enforce title to stolen land, it will demand the abolition of “intellectual property,” and the tearing down of all land enclosures and the restoration of the land to the cultivator.

Although the mainstream of right-libertarianism has become an apologetic operation on behalf of the economic ruling class, that is not to say by any means that all of classical liberalism or of free market libertarianism was so co-opted. Throughout the 19th century radical, anti-capitalist strands of classical liberalism survived — for example the above-quoted Thomas Hodgskin, the American individualists from Warren to Tucker, from Tucker to Voltairine De Cleyre and Dyer Lum, and the Georgists (and 20th century Georgists like Bolton Hall, Ralph Borsodi and Franz Oppenheimer). And a good many people from this free market anti-capitalist tradition write even today — among other places at Center for a Stateless Society, for which I write this.

It’s time to expose the “libertarian” apologists for capital for what they are, and to drive the money-changers from the Temple.